The High Court has ruled¹ that the planning policy to exempt small developments from affordable housing contributions and the vacant building credit are unlawful and the Government's national planning practice guidance has been immediately updated following the High Court ruling on Friday 31 July 2015. 

The issue

Neighbouring councils, Reading Borough Council and West Berkshire District Council (the Claimant Councils) brought a challenge to quash the planning practice guidance (PPG) which exempts small development sites from the need to have affordable housing included on them.  

The relevant paragraphs of the policy (PPG para 012 to 020) have the effect of preventing authorities from seeking affordable housing requirements for development of 10 dwellings or fewer (five dwellings in designated rural areas), or a maximum gross floor space of 1,000sqm. They also provided for a vacant building credit to be applied equivalent to the gross floorspace of vacant buildings renewed or demolished as part of the development and deducted from the overall affordable housing contribution (PPG para 021 to 023).

There were a number of grounds of challenge (further considered below), but key issues in the case were whether the policy was unlawful on grounds of inconsistency with the statutory scheme for local plans.  Much of the argument therefore related to the interaction between the Secretary of States (SoS's) policy for exempting small sites from affordable housing contributions and the statutory code for the adoption of local planning policies and the determination of planning applications.

The grounds of challenge

For the past nine months local planning authorities have been required to follow the relevant PPG guidance resulting in far fewer affordable housing requirements on developments of 10 or fewer dwellings.  It has been reported for instance that Westminster Council has agreed to reduce the developer's contribution for affordable housing from £17.9m to £8.9m for the redevelopment of 20 Grosvenor Place London and has also agreed to a reduction of £3.6m for the conversion of the YMCA building at 2 Fann Street into 74 flats.    

The Claimant Councils argued that the policy had profound consequences for local planning authorities (LPAs) up and down the country in discharging their responsibilities under the planning system for the provision of affordable housing and listed a substantial number of concerns.  Without referring to all of these they included that the new policy, introduced in a written ministerial statement on 28 November 2014 (and subsequently revised on 27 February and 26 March 2015) (the WMS), would have the general effect of significantly reducing the amount of affordable housing across the country by more than 20 per cent (estimated) (equating to an annual value of £693m based on 2011/12 figures).  The Claimant Councils also claimed the policy would have a particular impact in their areas (Reading 15% of expected annual affordable housing completions; West Berkshire a loss of 23.5% of affordable housing units) and the Claimant Councils noted that in some areas the figure could be much higher. The Claimant Councils also contended that in some instances the policy would result in providing a windfall to landowners and/ or developers.

The Claimant Councils grounds of challenge were that the SoS had failed to take into account material considerations, that the policy was inconsistent with the statutory scheme, that the consultation process was unfair, failure to comply with the public sector equality duty (PSED), and that the decision to introduce the exemptions from affordable housing requirements was irrational.

The reasoning

Whilst the claimant succeeded on just about every ground, the clear position taken by the court was that the guidance was inconsistent with statutory framework for the delivery of housing through the local plan system.

Was the effect of the new policy incompatible with the statutory framework? (Ground 2)

In the case, Justice Holgate meticulously analysed the planning system for the delivery of housing and particularly the provision of affordable housing. He went back to 1992 when PPG3 and Circular 06/98 both imposed a threshold of 25 dwellings or 1ha before affordable housing obligations could be sought. Then in PPS 3 (2006) a 15 dwelling indicative minimum size was imposed followed by its complete removal in the NPPF in 2012 until the most recent guidance in November 2014.

The earlier national policies simply gave “criteria” or “indicative thresholds” which LPAs were to take into account when formulating local plan policies and were consistent with the statutory framework and sought to give guidance to and “influence” individual LPAs when drawing up policies in their local plans for affordable housing requirements appropriate to their respective areas (paragraph 125 of the judgment).

Justice Holgate noted that the substance of the new policy being challenged was "materially different" from the previous national policies. Previous policies had provided a framework within which LPAs had some discretion in that they could adopt the same thresholds or justify alternative approaches based on local circumstances. He stated: "The new national policy does not purport to give guidance to LPAs which should be considered alongside local plan policies. Rather it gives thresholds below which affordable housing (and tariff style contributions) should not be sought when any planning application for housing development in England is determined. Those thresholds are to be applied directly, and with immediate effect, in the determination of planning applications, notwithstanding any local plan policy inconsistent therewith. To that extent the policy has been drawn up so as to displace adopted local plan policies on affordable housing requirements." (paragraph 126 of the judgment).

He went on to state that the WMS was not devised so as to be taken into account alongside local plan policies in development control decisions or as guidance when new local plan policies come to be formulated: "The Written Ministerial Statement does not envisage that LPAs may prepare, justify and adopt local policies departing therefrom. Furthermore, the policy did not allow any transitional period within which adopted local plan policies would continue to be given full weight or primacy, or for LPAs to consider whether their local plan policies should be revised in the light of new national guidance." (paragraph 129 of the judgment).

In conclusion the new national policy was inconsistent with the statutory scheme because its aim, and the language chosen, purported to confer exemptions in each and every case where affordable housing requirements in an adopted local plan policy are inconsistent with the national thresholds.  The judge held hat that a policy formulated in that way is improper because, in effect, it purports to override relevant policies in the statutory development plan in so far as they are inconsistent with the national policy (paragraph 134 of the judgment).

The purported effect of the policy on exemptions from affordable housing contributions, "is incompatible with the statutory framework of the TCPA 1990 and PCPA 2004 and therefore unlawful" (paragraph 136 of the judgment, also referring to Laker Airways and Cala Homes cases).

Was the consultation process unfair? (Ground 3)

The Claimant Councils argued that the Government had failed to give sufficient reasons for the proposal so as to allow intelligent consideration and responses to be given.  The court gave weight to the fact that the new policy was justified by the "disproportionate burden" on small-scale developers and sites. Justice Holgate was clear that this rationale for the new policy was not properly defined; in particular that insufficient evidence and explanation was provided by DCLG on what the "disproportionate burden" was that it was thought the proposed policy would address (paragraph 155 of the judgment). In this way it had not been possible for the consultees to properly respond to the consultation.

Did the SoS fail to take into account "obviously material" considerations? (Ground 1)

Justice Holgate noted that there was no dispute in these proceedings that one effect of the policy would be to reduce the amount of land available to meet affordable housing needs, with the consequence that LPAs affected would face arguments that their local plans are out of date, the presumption in favour of sustainable development in paragraph 14 of the NPPF could then apply and more land would need to be released in their areas, including greenfield sites (paragraph 167 of the judgment). Justice Holgate found that the main benefits and disbenefits of the proposed policy were "obviously material" to the SoS's decision whether or not to adopt the new policy (he noted, had they not been then the policy would have been adopted on a whim and that would have been arbitrary). He found that there was no evidence to suggest that an exercise to consider the adverse effects on land supply were carried out before the adoption of the policy and therefore the Claimant Councils also succeeded on this ground.

The Claimant Councils also succeeded in relation to Ground 4. The material before the court indicated that the assessment to comply with the Public Sector Equality Duty (PSED), was carried out in order to support the policy stance already taken in November 2014 and was not undertaken with a sufficiently open mind. In relation to irrationality he held that the arguments under this Ground 5 did not add anything of substance to the grounds he had already accepted.

Vacant Building Credit

This measure was suggested by Minsters, in about December 2013.  The Claimant Councils submitted that there was no evidence that Ministers or the Department had any information to justify either the need for the vacant building credit (VBC) or its impact. They also argued that the credit will reduce the amount of affordable housing which Reading will be able to secure from sites not excluded under the smaller sites exemption. .The Department however argued that the policy was intended to incentivise brownfield development and was properly consulted on. Further that the new affordable housing policies, including the vacant building credit, “may result in some local reductions in affordable housing” but the Department’s assessment “shows that this is a minor element”. Moreover, over the next Parliament more affordable housing will be built than during any equivalent period in the last 20 years. Justice Holgate held that the challenge against the VBC policy must succeed noting that before the decision to adopt the vacant building measure was made, no consideration was given to the lack of information on the impact of this policy change. The challenge against this policy therefore also succeeded for the reasons given under Grounds 1, 2 and 3.

The judgment

Based on the findings, ordinarily, the judge would have quashed the WMS. However, Justice Holgate found by application of article 9 of the Bill of Rights 1689 a decision to quash the WMS could potentially involve the judiciary questioning "proceedings in Parliament".

To avoid such a finding he therefore delivered a declaration (see paragraph 211 of the judgment), that the policies in the WMS "must not be treated as a material consideration in development management and development plan procedures and decisions or in the exercise of powers and duties under the Planning Acts more generally".

National Planning Practice Guidance (PGG) updated

Following the judgment, the Department for Communities and Local Government issued an update to the national PPG on section 106 planning obligations.

On Saturday 1 August 2015, a new paragraph (030) was added to the PPG which states:

"Please note that paragraphs 012-023 of the guidance on planning obligations will be removed following the judgment in R (on the application of West Berkshire District Council and Reading Borough Council) v Secretary of State for Communities and Local Government [2015] EWHC 2222 (Admin)."

The paragraphs 012 to 020 relate to the policy challenged in this case; paragraphs 021 to 023 relate to the VBC.

Our thoughts

In the current absence of replacement or revised national guidance there will now be some uncertainty pending clarification from the Government of its full response to the decision. It has however stated publically that it is disappointed with the judgment and intends to appeal the decision.

We now have a position where applicants at different stages of seeking planning permission for residential development have either benefited financially from the guidance pre 1 August 2015 if planning permission has been granted, or will be denied the benefit of the guidance from now until the Government clarifies how it will respond to this important ruling.  

It is very rare indeed for the judiciary to interfere with Government powers to institute policy. However, the manner in which this particularly policy was formulated and instituted has been roundly condemned. In order to provide coherence and consistency in the planning process the Government will need to act quickly to publicise how it will respond to the judgment. The Government's stated aim in introducing this policy was to tackle problems and costs associated with brownfield development and improve the viability of smaller scale development so as to encourage smaller builders to participate in the market, something that had been declining over a number of years. If the Government now wish to continue with this policy and introduce it in a different form it will need to recognise that current applicants or those with developing strategies based on the guidance will require particular attention.