Planning for the future – Infrastructure levy

The government’s White Paper, Planning for the Future - in the words of the Prime Minister – proposes “radical reform unlike anything we have seen since the Second World War”.

Not unsurprisingly then, Planning for the Future includes proposals to reform planning obligations and the Community Infrastructure Levy (CIL).

What Is proposed?

Instead of negotiated Section 106 Agreements and the separate, locally set CIL, the government is proposing to introduce a single, nationally set “Infrastructure Levy”.

The aim, as ever, is to raise more money for infrastructure and deliver more affordable housing whilst removing the delay and uncertainty that is considered inherent in negotiated agreements. The proposals also aim to address the fact that CIL is “inflexible in the face of changing market conditions” and creates significant upfront costs and “cashflow challenges which are more acute for smaller developers”.

How Will The New Levy be Set?

The new Infrastructure Levy would be a nationally set tax on the land value uplift that occurs through the grant of planning permission. In the government’s view, this would offer a system that would be more responsive to local needs, transparent, consistent and simplified. This new flexibility of approach would remove the need for agreements to be renegotiated when market conditions change.

But is this radically different from what has come before?

In 2006 the House of Commons Communities and Local Government Committee produced a report on proposals for the Planning Gain Supplement. This recorded that 
“There have been four attempts by previous governments to secure for the public benefit a portion of the land value uplift resulting from planning permission: the 1947 Development Charge, the 1967 Betterment Levy, the Development Gains Tax introduced in 1973 and the Development Land Tax in 1976. None of these have been sufficiently effective or successful...”

Recurring issues and reasons for the failure of previous systems include the difficulty of setting a one-size fits all rate of tax that balances the need to deliver infrastructure with the desire to encourage and not prevent development. Any system based on land value uplift must also cater for and acknowledge the need for developers to provide infrastructure themselves both on-site and off-site as part of the overall scheme of development.

Critically, landowners are inherently nervous of any system which seeks to reduce land values. Previous experience suggests that they will simply choose not to sell land for development, which will have knock-on impacts in terms of available supply.

It was for these reasons, amongst others, that the Planning Gain Supplement was never introduced and why the Community Infrastructure Levy was not made mandatory and was introduced to complement rather than replace Section 106 Agreements.

Despite its faults, the Section 106 Agreement has proven to be quite resilient. The 2006 House of Commons Communities and Local Government Committee Report recognised that “one of the most prominent benefits of the Section 106 System is its inherent flexibility and its ability to be adapted to local circumstances and needs.”

In many cases, agreements also deliver physical infrastructure such as affordable housing dwellings on the site within defined timescales. Off-site financial contributions towards affordable housing rarely delivers those units as quickly.

It remains to be seen whether the proposed Infrastructure Levy can overcome the challenges of the past and deliver the radical reform that the Government considers necessary for sustainable development and planning for the future.