Delivering Infrastructure – good-bye to s106 & CIL?

The country has a long history of trying to establish a fair way of capturing a proportion of land value uplift on grant of permission for infrastructure – and attempts look set to continue. Section 106 obligations as we know them are proposed to be abolished and CIL reformed. The Government wants the new system to be responsive to local needs, transparent, consistent, simplified and buoyant - so when prices go up the benefit is shared with the local community and when prices go down there is no need to renegotiate.  It believes a new approach could raise more revenue than the current system and deliver at least as much – if not more – on-site affordable housing.  The evidence is as yet lacking.

A new Infrastructure Levy – the Government proposes that CIL evolves into an Infrastructure Levy, set at a flat-rate, being a fixed proportion of development value above a threshold. The rate would be set nationally and could be a single rate or area specific (the Government questions whether a national rate could capture more of the uplift and be capitalised into land value). It would be collected and spent locally.

The levy would be charged on the final value of a development (or assessment of the sales value for example for rentals schemes) at the point at which permission is granted, but be payable on occupation. The minimum threshold (below which it will not be charged) would reflect average build costs with a small allowance for land costs.

Mayoral CIL and strategic CIL charged by combined authorities could be retained within the new system. The Levy would also apply to a wider scope of development, including under permitted development rights and changes of use.

As an alternative, the Government is considering whether the levy could be optional and set locally, with more incentive for authorities to adopt it if section 106 is no longer an option.

Infrastructure delivery – Infrastructure planning would be considered at the Local Plan stage. There are huge questions as to who will deliver infrastructure and how it will be secured, if section 106 obligations are to be abolished.

The Government proposes that authorities could borrow against levy revenues to forward fund infrastructure. However, few authorities are set up as infrastructure providers and developers are often best placed to deliver on-site infrastructure in a cost effective manner.

At the same time, the Government is considering increasing the flexibility for spending by authorities – allowing them to spend the monies as they see fit once “core infrastructure obligations” are met. This could include improving services or reducing council tax. Could expenditure on infrastructure shrink?

Affordable housing - Indeed, the Government seeks to continue to secure affordable housing on-site through funds raised through the levy - delivery could be mandatory where there is an affordable housing need. Authorities could specify the form and tenure of provision working with a nominated provider, who could purchase the affordable at a discount from market rate as “in-kind delivery” of the levy. The difference between the price at which the unit is sold to the provider and market price would be offset from the levy charge.

In the event of a market fall, the Government considers that the authorities could “flip” units ie allow the developer to sell them, if the levy is insufficient to cover the value secured through in-kind provision. If value through in-kind provision is greater than the levy, the developer could be prevented from claiming overpayment – although how does that help with certainty?  Standardised agreements could be provided to codify risk sharing – a pared back section 106 agreement? Authorities could revert back to contributions if providers will not buy homes due to poor quality.

The Government also suggests that authorities could accept levy payments in the form of land and build the homes themselves or that they could have the first right of refusal to buy a fixed proportion of on-site units at a discounted price equivalent to build costs. The units could be used for affordable housing, sold on or sold back to the developer, to purchase affordable housing elsewhere.

Local control - The current neighbourhood share of CIL would be retained ie up to 25% spent on local priorities and transferred to Parish Councils where present. The Government claims that local communities will have more control over how Levy monies are spent, although how this is to be realised is not clear.

A consultation on this will follow – as yet there are more questions than answers, including on the detailed workings of a potential new levy and its impact on land values. It seems possible at this stage that a form of section 106 agreement will still be required to secure delivery of on-site infrastructure.

This article was written by Claire Fallows, for more information, please contact her at claire.fallows@crsblaw.com.

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