Infrastructure levy: make your feelings known

On 17 March, the government announced a technical consultation on the infrastructure levy: a reform to the existing system of developer contributions, currently made up of section 106 planning obligations and the community infrastructure levy.  The Levelling-up and Regeneration Bill does not introduce the levy (only the framework for it) with the detail to be set out in regulations. The latest consultation seeks to inform the design of those regulations, following which there will be a consultation on the drafting itself.  What might the responses to the technical consultation look like?  The new CIL? There is no doubt the current system of developer contributions can be complicated and time-consuming, with multi-party section 106 agreements for strategic sites taking years to be negotiated. As for CIL, legislation.gov.uk shows more than 200 changes to the CIL Regulations since they came into force.  That are a lot of changes to keep up to date with, particularly when the regulations were already widely considered to be complex. Some developers will seek a legal review of CIL forms, which should be a case of developers simply filling in the boxes in response to the question on the form, but given the complexity and the implications of a wrong answer, developers are understandably nervous.  However, question 1 of the consultation asks whether the existing CIL definition of “development” should remain. For the majority of developers, we expect that the starting point of determining whether CIL applies is actually the most straightforward part and that the current definition has not been too problematic.  We expect to see some support in the consultation responses from developers of smaller sites for replacing the current system with a standardised approach of mandatory developer contributions payable by way of the levy (with no scope for negotiation) on the basis that these developers may favour what could and should be a quicker route to a consent.  But by its very nature, planning cannot be completely standardised and there will be exemptions to the levy and, in some cases, development will be liable for the levy on top of being required to enter into a “delivery agreement”. This forms part of the “core levy routeway” in which the levy is payable, with delivery agreements being used to secure “integral” infrastructure. Integral infrastructure One particular focus of the consultation is (1) what is the integral infrastructure needed for a scheme to function and be delivered by developers and therefore sit outside the levy charge; and (2) what is to be “levy-funded” infrastructure, funded by a local authority? We expect to see concerns raised with regard to where local authorities are equipped to deliver levy-funded infrastructure. This was raised during the House of Lords debate on 3 May and an amendment has been put forward which would require an estimate to be published within 50 days of the bill securing royal assent on whether the planning sector has sufficient skills, resources and capabilities to deliver Parts 3, 4 and 5 of the bill (infrastructure levy can be found in Part 4).  In fact, despite the technical consultation referring to levy-funded infrastructure, the examples of such infrastructure include services, such as bus services, social care and subsidised childcare. Question five asks whether local authorities should be expected to prioritise infrastructure and affordable housing over local services. This is a significant departure from the current CIL regime.  The report on the potential effects of the levy which accompanies the consultation calls it a “partially hypothecated sales tax”. We expect that the potential freedom which local authorities will have over expenditure of the levy will make the definition of “integral” a key concern for developers.  While the levy is proposed to bring uniformity to how developer contributions are calculated, the consultation acknowledges that what is integral infrastructure is site specific and the consultation seeks views on the definition of integral.  Delivery agreements In the first instance, planning conditions should be used to secure integral infrastructure but, where this is not possible, it is stated that a “narrowly targeted” use of delivery agreements will be used to plug gaps. The benefit of something being integral is that the developer retains control over its delivery, but it also means it can be delivered over a period of time, whereas timing of payment of the levy is expected to be non-negotiable. In light of this, we expect to see developers put forward suggestions for what they consider to be integral and levy-funded, as per questions two and three of the consultation.  Although the consultation states that the government sees delivery agreements as a new product, they will still be used to secure on-site infrastructure, contributions and off-site mitigation. They will also still need to comply with Regulation 122. The consultation expressly states that delivery agreements will be targeted planning obligations, where it is not possible to secure infrastructure by condition. If a delivery agreement is required because of a need for site-specific infrastructure and is effectively a backstop because payment of the levy alone is not suitable and a condition is not appropriate, that agreement should, by its very nature, be bespoke.  We would expect the bespoke nature of such agreements to be welcomed by developers but with the process of negotiation, drafting, title searches, signing and completing still being required, developers may raise the length of this process as an issue (particularly when there is no foreseeable increase in capacity at local authorities).  Once the regulations are drafted, they too will be consulted on but now is a key time for developers to raise issues in what could be a radical change to the planning system.  Laura-Beth Hutton is a partner and Kate Radford is a senior associate at Eversheds Sutherland Image © Pexels