The new Infrastructure Levy: more streamlined or more of the same?
31st March, 2023
As many of you will be aware, the Government has now published its technical consultation on the proposed Infrastructure Levy (IL), set to replace the current system of developer contributions through CIL and s106 agreements.
The consultation document is lengthy and covers a lot of material, which has already been well trailed. The executive summary states that the new levy will be a “more streamlined” process but it would appear to be anything but that.
- Before anything else can occur, decisions need to be made as to what comprises “Levy Infrastructure” (such as off-site highway improvements, strategic green infrastructure, bus services) to be secured through the Levy, and what comprises “Integral Infrastructure”, namely infrastructure specific to a development site and typically provided on-site. While some infrastructure will obviously fall into one of these two categories the consultation recognises that there will be grey areas such as on-site school provision which could fall into both. It is not yet clear if it is intended that these grey areas will be prescribed in due course through “regulations, policy and guidance and following further consultation and engagement” or, in acknowledging that LPAs will have local circumstances to consider, if there will be scope for engagement on a site by site or authority by authority basis.
- The proposals are that development will fall under one of three possible “routeways”:
- The “Core Levy” route such that all “Levy Infrastructure” will be secured through the IL , but the “Integral Infrastructure” will continue to be secured through s106, now dressed up as a “Delivery Agreement”. Given that BNG (to be mandatory on all sites from later this year) is listed as a likely contender for Integral Infrastructure we can clearly conclude that most sites will continue to need a s106 or Delivery Agreement. Delivery agreements are also envisaged to be used to secure off-site mitigation that cannot be secured through IL, such as off-site ecological mitigation.
- The “Infrastructure in-kind” route such that all infrastructure is secured by way of a s106, subject to a collar that the value of the infrastructure to be delivered in kind on the site will be no less than the value of what would otherwise be payable in IL with any difference made up with a cash payment . It is intended that this route is retained only for the largest of sites, with the consultation seeking views on the size of such sites, the Government’s preference being for sites of 10,000 plus dwellings.
- A “s106 only” route for those sites such as mineral applications that will not be subject to the Levy.
- However, at the same time as setting out the above three routeways, the Government has also acknowledged that LPAs may want “additional certainty that a contribution (..) will be provided” and suggested that one means of achieving this would be to allow for a financial contribution to be secured through a Delivery Agreement and deducted from the final IL liability. If this proposal does see its way into the final regulations it becomes harder to distinguish Delivery Agreements and the Core Levy route from the current system.
- The setting of the Levy at local level also looks to be highly complex and is far removed from the White Paper proposals of a nationally set single rate. Different rates and minimum thresholds can be set by local authorities for different development uses and land typologies, with the ability to set “stepped rates” such that they increase over time. To add to the complexities, it is envisaged that there will be further differing rates applied to existing floorspace that will be subject to a change of use or that is to be demolished and replaced.
- There is a lot of references to basing the new IL on parts of the CIL system which would seem to fly in the face of trying to achieve a “more streamlined” approach. Anyone who has worked with the CIL regulations over the last 13 years will know that they have not created a streamlined system.
- The section on affordable housing appears to leave a number of questions unanswered:
- The consultation refers only to Social Rent, Affordable Rent, Shared Ownership and First Homes with no reference to other tenures such as Right to Buy or discounted market sales. This may just be an oversight for the purposes of simplicity but it could also be an indication that the Government is looking to streamline the range of tenures available.
- The “Right to Require” will set out the proportion and tenure mix of on-site delivery but the consultation is silent as to how it is intended that the affordable housing is in fact secured in perpetuity. It is likely that there will continue to be a need to secure such provision through Delivery Agreements/s106 in order to ensure suitable securitisation provisions. Much of the current negotiation of affordable housing provisions in s106 agreements is not in fact around the quantum or tenure mix but around these broader provisions for example in respect of allocation and mortgagee exemptions and there is nothing in the consultation document that indicates that this will not continue.
- It is encouraging however to see that the Government are proposing that 100% affordable housing schemes may be exempt from the Levy, but such schemes will continue to need to deliver Integral Infrastructure and therefore they will still be subject to negotiations in respect of a Delivery Agreement (not least in respect of the affordable housing).
- Of further concern is the proposals for payment of the Levy. This was initially promoted as being paid at the point of sale of the development in order to more accurately capture the land value. However, what is now proposed is an interim or provisional payment prior to occupation of the scheme with a balancing payment once the development has been sold. This will inevitably lead to cash-flow issues for developers compared with the current system where s106 payments are often staggered through instalments linked to occupations throughout the build programme and CIL payments that will usually be paid in accordance with the Charging Authority’s instalment schedule, again enabling payment to be made after receipts from some sales have been received. Furthermore, an occupation restriction until the levy has been paid is also now proposed although other than the IL liability being registered as a local land charge it is not clear how such a restriction is to be secured or if potential occupiers will be able to waive this at their election (presumably at risk of liability for the levy). While the provisional payment can be related to a phase of the development, many medium sized sites are not currently phased, and even where they are, payment up front of the IL in respect of a phase could create viability issues for SME developers.
There is much of the detail still to be worked out, but it is difficult to see how the process will be streamlined in any significant way and, with an ongoing role for s106 / Delivery Agreements for almost all sites, negotiations of developer contributions will, to a degree, continue. Once you factor in the proposed timescales for implementation (up to 10 years through a “test and learn” process) it is difficult to see that any of this truly comprises radical change.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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