Proposed new infrastructure levy on development

9th October 2020

As part of its reform of the planning system, the Government is proposing a new levy for infrastructure which businesses carrying out development will have to pay. What could this mean for you? In our final article of our week long series with the Business Desk, we look at the current system, what’s proposed and how this could affect your business.

The current system
Legislation currently provides that when a local planning authority grants planning permission it can obtain legally binding commitments for specified matters, usually to mitigate some of the effects of the development, such as a financial payment to cover the cost of offsite highway works, the provision of affordable housing or to implement a travel plan. In addition, where a local planning authority has adopted a community infrastructure levy (CIL) schedule, there may be a CIL sum to pay. The CIL schedule will set out the types of development which result in a CIL payment and the amount of such payment. If the development is covered by the schedule, the local planning authority must collect a CIL payment in accordance with the schedule.

Criticisms of the current system include that the section 106 obligations take too long to negotiate, the CIL regime is too complex and cumbersome (the relevant legislation has been changed numerous times to try and rectify this) and the system often fails to ensure the delivery of the mitigation it is intended to cover.

The proposed system

The proposal is to abolish section 106 obligations and CIL and replace them with a new levy called the infrastructure levy (IL).
Unlike CIL, which a Local Planning Authority can choose to have or not and which is set locally by local planning authorities, IL will be set nationally by Government and could be a single or area specific rate. IL will be set at a flat rate, being a fixed proportion of development value above a threshold. Like CIL, IL will be collected and spent locally. It will be levied at the point of occupation, with an offset for any affordable housing provided on-site. A significant difference is that IL, unlike CIL, will be levied on changes of use and not just on increased floorspace. The system is proposed to operate on a ‘roof tax’ basis – paid locally to the local authority (‘LA’) as developments are occupied.

The ability to negotiate S106 obligations based on viability will be lost.

It is proposed that local planning authorities will be able to borrow against expected IL receipts to pay for the infrastructure works up front.

Will it be an improvement?

The proposed reform lacks detail, so there is further work to do before it can be properly understood.

The payment of the levy on occupation rather than on commencement, should help developers with cashflow if the provision of the required infrastructure does not lag too far behind and is in fact delivered. Levy rates are proposed to be fixed at the grant of planning permission, which should give developers a level of certainty of the costs they are facing.

The ability of local planning authorities to borrow against IL receipts is helpful but it could give rise to financial risk and forecasting considerations and would not guarantee delivery of infrastructure any more than the current system.

The fact that IL will be set nationally may make it difficult to reflect local conditions and care will need to be taken to ensure the level is not set too high in some areas so that developments become unviable. The Government has indicated that this issue will be addressed and that the IL will be market sensitive. If this is achieved this will be welcomed.

Perhaps the biggest challenge will be ensuring that the new regime is not more complicated than the last!

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