On 17 March, the government issued its much-awaited technical consultation on the proposed infrastructure levy, and it heralds a revolution in the planning system.
The consultation seeks views on technical aspects of the design of the IL. The IL will be a locally set mandatory charge levied on the final value of completed development. It will replace the existing system of developer contributions (community infrastructure levy and section 106).
We are not yet presented with a draft set of regulations. Quite sensibly, the government has only defined broadly what it wants to achieve and is consulting on the detail of how the IL system will work.
You will remember that the framework for the IL is set out in Schedule 11 of what will become the Levelling Up and Regeneration Act 2023. The details of the IL will need to be designed and then magicked into law in a set of regulations, just like CIL in its time was.
The consultation seeks input from stakeholders from across the development and affordable housing sectors, representative organisations and local government. The consultation lasts 12 weeks, closing on 9 June.
The consultation is divided into seven topics, each of which has its own chapter in the consultation document:
- Fundamental design choice;
- Levy rates and maximum thresholds;
- Charging and paying the levy;
- nDelivering infrastructure;
- Delivering affordable housing;
- Other areas; and
- Introducing the levy.
Here is a summary of what the government is proposing.
Fundamental design choice
The IL is revolutionary in several ways, and these are all set out in this first section of the consultation.
It will be mandatory (unlike CIL). It will apply to all types of development (including changes of use under permitted rights). All developments will, in theory, thus be liable to contribute to the delivery of affordable housing, not just residential development.
It will primarily be used to fund infrastructure (like CIL), but there is a proposal to enable local authorities to use it for general funding too. Revolutionary.
On-site infrastructure will be delivered by developers and secured by planning conditions where possible and by “delivery agreements” where it is not possible to use planning conditions. I guess these delivery agreements are akin to infrastructure agreements under the CIL regime.
Section 106 agreements will largely be done away with. There will be three “routeways”:
- The core routeway – financial contributions will be exacted through the IL and section 106 used for things that can’t be conditioned (I wonder if they meant to say delivery agreements?)
- The infrastructure in kind routeway – on the largest and most complex sites, section 106 will be used to deliver infrastructure as an in-kind levy payment
- The section 106 cash-only routeway – sites where gross development value can’t be calculated or where buildings are not the main thing being provided will be outside the levy regime and section 106 will be used to exact financial contributions.
IL rates
IL rates and the thresholds below which the IL will not be chargeable will be set by local authorities. They can slice and dice rates by area and by type of development. Rates will need to be subject to public examination.
Charging and paying the IL
Here is the most revolutionary move of them all – IL liability will not be based on chargeable area like CIL, but on GDV at the point of completion or site sale. How will developers and authorities know in advance how much they will have to pay? Well, they won’t, exactly. But there will be a process for calculating indicative liabilities using assumed site values. A provisional payment of levy would be paid before completion, with a reconciliation at the point of completion or sale.
Delivering infrastructure: infrastructure delivery strategies
Local authorities will be able to borrow against expected future IL receipts to enable forward funding of infrastructure delivery. Local authorities will have an infrastructure delivery strategy to enable infrastructure planning and delivery. IDSs will also be subject to public examination.
Affordable housing
The government says that it is committed to delivering at least as much affordable housing as the current system, “if not more”. Affordable housing will be delivered either as an in-kind payment on-site (local authorities will have a “right to require” that) or cash can be levied and spent on affordable housing off-site.
Other areas
The consultation seeks views on how IL would be shared with neighbourhoods and on exemptions and reduced rates, as well as on enforcement (which in a world of the tax point occurring at the end of a project rather than the start should be expected to look quite different from CIL enforcement).
Introducing IL
The government trails its “test and learn” process in which it will introduce IL gradually on a trial-run basis over several years. Presumably the government wants to avoid the mess that was CIL. If so, that is very understandable. It is also consulting on the measures for transition to the new system.
You can look at this sort of thing through different lenses. The economist’s lens: will it deliver more affordable housing? Will it kill viability on marginal sites? Will it distort the property market by creating a patchwork of different charging regimes? And my lens – the lawyer’s lens: how on earth is this actually going to work in practice?
Click here to view the technical consultation >>
Clare Fielding is managing partner at Town Legal LLP. She will also cover the IL in her Levy Headed blog on LinkedIn and the Town Legal website
