Technical consultation on the Infrastructure Levy - POS response to consultation
09 June 2023
POS does not believe that the proposals set out in this consultation will work in non-greenfield site scenarios, as the Department’s own research demonstrates, and we strongly urge the government to consider very carefully whether the sector has the capacity for such significant change based on very little evidence that it will bring about an improvement in the delivery of infrastructure and affordable housing. The Secretary of State has already acknowledged that there are concerns in relation to capacity and that there is cross-sector support for properly resourcing local planning authorities, (including increasing skills and knowledge in undertaking viability assessments) as evidenced in the sector’s responses to the Planning Fees consultation. POS is equally aware, having engaged with a significant number of other organisations within the sector on the implications of these proposals, that it is not a lone voice in identifying real and valid concerns. We strongly urge the Secretary of State to listen to the collective view of the sector that has been presented to him through the submissions made as part of this consultation.
The main justification we have heard from Government for the shift from upfront CIL payments based on a floorspace levy to an end-of-the-process levy based on sales values is to maximise land value capture based on the generally expected increase in house prices. POS urges Government to consider what is the priority in this area: land value capture or delivering infrastructure. POS firmly believe it must be the latter. We are not taxmen, we are placemakers who are seeking to deliver sustainable development that is fully supported by the infrastructure that is necessary to support it. That must be the focus of designing a workable model.
The problems with the proposed model are:
- The valuation challenges where there are sales to market might be relatively straightforward, but it would involve LPAs to potentially make valuations at 3 different points during development process, an additional burden and complication not currently required. Where the final product is let or otherwise not sold, valuing that at a point in time for tax purposes will be fraught with difficulties and a source of major dispute.
- IL shifts the payment from the beginning of the process, as in CIL, to the end. This divorces further the “planning gains” from a development (unlike S106 where the link is much clearer) but also shifts risk to the Council to forward fund infrastructure that is necessary to enable developments to proceed. If a Council prudentially borrows against future IL receipts to invest in associated infrastructure and then that development does not go ahead, the Council is fully exposed and in debt. Local authorities will be reluctant to take such risks.
- The proposals to reduce S106 type agreements means that IL rates must be the main source of funding. Land and development values vary even within Council areas and to avoid making developments unviable IL rates will need to be set at the lowest common denominator. Therefore to maximise the IL receipt there will need to be a myriad of IL rates within a local authority area. This is far more complicated than the current CIL rate setting process and will inevitably result in a very lengthy examination process. IL will not be simpler.
- It is also important to recognise how CIL and S106 interplay to optimise the infrastructure contribution from individual development sites. CIL will be set to ensure that its contribution is optimised but that it does not render sites unviable. Any ‘slack’ on individual sites is taken up by S106 contributions, including affordable housing (AH), so that a full contribution is made. This works well. Yes, it has complexity but you either have such a system which will maximise contributions or you have a simpler system that doesn’t. You can’t have both: simplicity and maximisation.
- The current arrangements for delivering AH work reasonably well and ensure that mixed and balanced communities are the outcomes. Allowing AH provision to be a payment or an on-site provision in lieu of IL brings unnecessary layers of complexity to the process that adds nothing to the current system. If an LPA wants a payment in lieu now, they can do that through a S106 agreement. On-site provision is a relatively simple process where the developer and the RSL do the negotiations and the Council simply ring-fences a proportion of the on-site provision as AH through S106. In IL, the LPA now must be part of that process of AH valuation to ensure that the right amount of IL is being redirected to subsidise the AH provision. An additional issue is that the Charging Authority will need to fix the proportion of IL to go towards AH in financial terms through the ‘right to require’ rather than implement the LP policy in terms of units mix etc and both the ‘right to require’ and the LP policy will be subject to examination but in different forums. This seems another unnecessary complication and potential source of dispute. It is hard to see where the benefits are for making the chang
POS urges Government to reconsider these proposals and to concentrate instead on making the current system work better. We published a POS Manifesto in 2015 titled, Infrastructure: funding it in a more effective way. The main recommendations are still sound, but we would update them in certain areas given our experiences of the operation of CIL over the past 13 years. The main improvements we would make to CIL are as follows:
- A levy is an efficient way to gather funds for infrastructure that the demand for which is produced by development generally. The problem is that setting CIL is a complicated process and around half of LPAs have not put one in place. We recommend a universal mandatory CIL set in the same way that the GLA set the Crossrail CIL: a proxy approach was used whereby a low percentage of average house prices resulted in the three charging bands. The average charge was the equivalent to 0.87% of the value of a house. The Inspector, Keith Holland, concluded that the approach represented a reasonable balance between complexity and fairness. The same approach could be used by Government to create a universal set of CIL rates based on local house prices that will be responsive to local markets, but simple to put in place as the necessary data is readily available.
- Setting a CIL rate over and above the universal CIL rate should be available to LPAs where local values support that approach, and they would follow the current CIL setting process.
- As part of the aim to ensure necessary infrastructure is delivered, Government should review the CIL exceptions, exemptions and offsets to ensure that all developments pay for the infrastructure that they need.
Planning obligations should remain in the current S106 format controlled by the same rules, but the system would be improved significantly if the following changes were made:
- Separate the granting of planning permission from the completion of the agreement. Whilst both matters would be considered together when the LPA is determining the planning application, the permission can be issued but it would be clear in law that where a S106 agreement is needed the development cannot commence. Effectively an Arsenal type clause approach becomes normal practice and embedded in law. This would require the LPA setting out the necessary planning obligations reasonably clearly at the decision-making stage, which is best practice anyway
- The main body of the S106 agreement could be ported into legislation so that there is no need for this to be drafted and negotiated each time. The Law Society has produced a standard agreement, and this could be the model that is used.
- The schedules in an agreement contain the obligations and best practice is for LPAs to publish proformas of these on their website so that the need for negotiation is reduced. POS suggests that Government could go further and facilitate a process whereby LPAs consult on these and then ‘adopt’ them. In such a scenario an LPA could unilaterally produce the associated obligation with little or no negotiation. The developer would have a right of appeal to PINS to protect their interests, but this would remove a lot of very minor and often inconsequential negotiations and delays.
These reforms will address many of the concerns that have been cited in the justification for IL but would be capable of implementation with very little disruption to the current system. Importantly they are designed to optimise the delivery of supporting infrastructure, continue the delivery of Affordable Housing on an on-site-first basis and to ensure local authorities are not exposed to unnecessary risks. As mentioned above, CIL income has been ‘watered down’, though amendments allowing exemptions, exceptions and offsets and now there are suggestions that spending IL could be extended to non-infrastructure services. CIL was only intended to contribute towards infrastructure costs and reducing this contribution at the expense of other services would be undermining its basic purpose and principles.