In 1947, the government nationalised development rights for all land in England – ie any change of use became subject to individual planning permission. At the same time a national tax system was introduced to capture any increase in value arising from that permission. Since then a range of mechanisms for land value capture have been employed with varying success. The government’s recent Planning for the future consultation document proposes shifting back from a S106 and CIL system to a nationally determined tax collected and spent locally, which can include within it strategic/Mayoral CIL.
On 12 October LSE London hosted a workshop focusing on one part of that consultation: Pillar 3 – Planning for infrastructure and connected places. This workshop followed our successful discussion on 5th October, which covered the remaining proposals. This report is keyed to specific proposals in the consultation document.
Abolish S106 and charge CIL as a fixed proportion of development value above a threshold, with a mandatory nationally-set rate or rates (Proposal 19)
This proposal would replace the current system of negotiated contributions with a fixed tariff. Local authorities mainly rely on S106 to provide major infrastructure and affordable housing, especially for larger developments. CIL is used for broader-based infrastructure requirements although it appears to be difficult to spend in a timely manner. The consultation suggests a national tariff based on gross development value (GDV) and one of the participants gave 20% as an example. But it was noted that negotiated contributions for many developments in London are above that–indeed one participant knew of several residential developments that had delivered 35% and in some cases more. A national rate would thus ‘leave money on the table’ and lead to a substantial reduction in contributions from residential sites in the regions with the highest demand. (Although in total, the revenue could still be much greater as there would be few exceptions and the tax covers all types of development).
Overall participants had varying views on the principles of a tariff, with some also concerned about actual outcomes. An alternative approach in the White Paper with each local authority able to set its own fixed rate through the local plan, as with CIL, was favoured by some.
Extend the levy to permitted development rights (Proposal 20)
Many participants opposed PDR because it has led to poor-quality homes and developers escaping S106 obligations including affordable housing. The new use class E also conflates a wide array of uses (commercial, business, and services) within one catchall category that allows changes to be made with no oversight or consideration of local community interests. Extending the levy would address the second point (although it would not have to be spent on affordable housing) but not the first.
Deliver affordable housing through the Infrastructure Levy (Proposal 21)
London boroughs fear that a levy would produce less affordable housing than the current system. The government’s new owner-occupation product First Homes would be the first charge on the new infrastructure levy; secondly the option for local authorities to provide affordable housing or increase services or reduce council tax. This introduces uncertainty about the extent to which the revenues will be used for affordable homes. This second scenario would also undermine First Homes programmes.
It was stressed that First Homes would not really be ‘affordable’ in London. The proposed 30% discount would leave them out of reach of lower-income groups in the capital, meaning local authorities would have to provide other, genuinely affordable, housing, or alternatively use their own resources to provide higher discounts of 40-50%.
Participants generally supported the goal of simplification, saying that the complexities of S106 and CIL pose barriers to entry especially for smaller developers. The Government wants to encourage SME developers and incentivise landowners to become developers, widening the potential to deliver a range of building types that will attract infrastructure levies and contribute to the national housing target of 300,000 net additions per year. Smaller developers currently struggle in part because of delays in negotiation, a lack of internal capital and capacity, and restricted financing options. Larger companies can employ planning consultants to navigate complex planning systems, can accept delays and put in place elaborate financial packages to meet S106 requirements.
More local authority freedom over how the levy is spent (Proposal 22)
Regional inequality is clearly a challenge, as a national levy would raise huge amounts in some areas and little in others. The proposal to increase local control over spending levy funds will favour richer areas, unless a form of equalisation is introduced through a leveling-up fund to redistribute a proportion of this revenue, as suggested by one participant. But this would go against the White Papers statement that funds would be locally raised and locally spent. Some participants also argued that Treasury would not be able to keep its hands off the levy revenue; others said that in terms of equality that was probably a good thing.
The national government will set core infrastructure obligations that have to be met before receipts can be spent on local infrastructure. These obligations (e.g. electric car docking stations in line with European Union 2021 goals) may require substantial local investments.
A comprehensive resources and skills strategy to support the reforms (Proposal 23)
Some participants were concerned that some of the proposals, especially the idea of borrowing against the predicted GDV of a development, would shift risk on to local authorities. Developers’ business models factor in this risk, but most local governments have only recently returned to partnerships with private developers and are less equipped to handle development risk. Few planners have the skills required.
Other participants said the proposals would reduce the risk for local authorities by establishing an agreed value at the beginning of the process and generating a guaranteed flow of funds – although not the actual amount or its timing. In any case, a new system would undoubtedly result in public accounting issues in the early years.
Strengthen enforcement powers and sanctions (Proposal 24)
The proposed new system could lead developers to under-predict GDV so as to reduce the levy paid. A possible solution was proposed by one of the participants where the local authority would be allowed to buy as many units as they liked at the agreed rate. Alternatively, an ex-post approach was suggested, where an initial settlement is agreed (against which the authority can borrow) which could then be adjusted on completion of the scheme. Many commentators think this is what is actually being suggested in the White Paper.
Another enforcement concern with the current system was that there are inadequate data on the actual delivery of housing promised under S106 agreements. Participants cited the case of one London local authority that was unable to determine how much affordable housing had actually been delivered through developer obligations. The nature of S106 and CIL was seen to make it difficult to estimate impact as well as develop a system of nationally consistent data. This issue is addressed in the White Paper by putting all the necessary information on a web-based platform. But the data still have to be generated.