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Infrastructure Levy Consultation Q&A: The proposed changes explained

On 17 March 2023 DLHUC launched its consultation on the introduction of the ‘Infrastructure Levy’ in England. The Department’s proposed changes are technically complex, while also addressing some far-reaching questions about the nature of planning gain, what infrastructure should be seen as ‘integral’ to new developments, and how the nation can pay for the affordable housing, infrastructure and place making it needs.

Professor Tony Crook FRTPI, Emeritus Professor of Town and Regional Planning at the University of Sheffield, was part of a team, led by the University of Liverpool’s planning school, that was asked by the Department to research the potential effects of the proposed Infrastructure Levy. This publication is available online.

We asked Ben Vickers MRTPI, Chair of the RTPI’s England Policy Committee and independent consultant based in Cheshire, to have a conversation with Tony about what the reforms are trying to do and what they might mean for practitioners.

Ben: What problems are the government trying to solve by introducing the Infrastructure Levy?

Tony: The government are trying to reduce the complexity and inherent uncertainty of current arrangements, and reduce the risk for developers. But in a change from the 2020 White Paper proposals, Section 106 is being retained to run alongside the new Levy.

At the local level, it will be mandatory to introduce the Levy, and there will be limited exemptions so that permitted development, for example, will be covered.

Ben: What are the key features of the Infrastructure Levy?

Tony: It is a sales tax, levied on the gross development value (GDV) of completed development above a threshold comprising construction costs and an allowance for the cost of land.

Planning authorities will set the levies and thresholds and these can vary by types of sites and across a local authority. The levy will be paid upon completion and based on GDV at that time. Local authorities will be able to borrow to fund infrastructure before developments have been completed with borrowing secured against projected future Levy income.

Ben: What are the main changes that planners would see ‘on the ground’ and in their day-to-day practice, if these changes were implemented as proposed?

Tony: Amongst many other things, work will need to be done on considering Levy rates and thresholds, taking proposed schedules through public inquiry, drawing up infrastructure delivery plans, borrowing against project Levy income to fund the infrastructure needed to get development underway, and deciding what to require by way of on-site affordable housing from developers.

Work to negotiate S106 agreements on large and complex sites and dealing with the integral infrastructure needed on all other sites will continue. As is currently the practice in Scotland, conditions will also be used for ‘integral’ infrastructure.

Ben: Following on from that, how would the Levy sit alongside S106 agreements? I’ve heard that there’s an important difference between ‘integral’ and ‘Levy’ infrastructure…

Tony: ‘Integral infrastructure’ refers to matters that need to be provided within a development (for example open space or play spaces) and these will be handled by conditions or planning obligations.

The Levy will help fund other infrastructure, for example, new school provision. Local authorities will be able to require developers to provide on-site affordable housing and developers’ costs in providing this will be netted off from their Levy payments.

Ben: What did your research focus on in all of this?

Tony: Our research was commissioned by DLUHC and we modelled potential Levy income on a sample of sites in six case study local authorities. These were illustrative sites - not a representative sample - and we used standard cash flow modelling of all income and all costs of developing these sites for a range of uses to project Levy income based on illustrative rates and thresholds and assumptions about developer behaviour and requirements. We compared this with what S106 could raise on these sites, assuming policy compliant obligations being met.

We also talked to local authorities about the challenges of introducing the levy and did a policy analysis comparing the proposed system with the current one.

Our report has been published alongside DLUHC’s technical consultation on the levy.

Ben: And what did you find?

Tony: A key (but not surprising) finding is that the Levy would seem to work best on greenfield sites in high house prices areas but has potential to raise funds on developments not currently within the frame of S106 and/or CIL, including purpose built student housing and warehousing.

In general, there is less capacity to raise additional funds than currently being raised on most brownfield developments.

Importantly of course what could be raised in practice will depend critically on the behaviour of specific developers, including their returns required, and of specific landowners/land promoters including the price at which they will sell under the new arrangements.

Ben: When can we expect these changes to come about?

Tony: The Levelling up and Regeneration Bill provides the legislative framework for the Levy. It is currently in the Lords, but once

it is enacted DLUHC have proposed a ‘test and learn’ approach with local authorities progressively implementing it over a number of years. There is much detail to come, with Ministers having powers to decide on details of the levy through regulations.

Have your say

The RTPI is currently developing its response to DLUHC’s consultation on the Infrastructure Levy, which closes on 9 June 2023.

RTPI members in England have two means of feeding into the Institute’s response:

If you would like to send written representations as an individual or on behalf your organisation, please send them to [email protected].

If you would like to contribute via your region, please contact your regional policy link, who will organise input for members in your area.

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