In this, the second instalment of our series on the Levelling-Up and Regeneration Bill (the "Bill"), we take a look at the government's proposed reforms to the funding and delivery of infrastructure.

Infrastructure provision – back to the future?

The policy paper accompanying the Bill explains that the government wants to ensure that "more of the money accrued by landowners and developers" goes towards the local infrastructure to which new development gives rise.

The means to this end is the introduction in England of a "simple, non-negotiable, locally set" new Infrastructure Levy ("IL") to ensure that developers "pay their fair share" toward the delivery of infrastructure. The IL is designed to give certainty as to what developers will be expected to contribute and remove the need for time-consuming and costly negotiations.

Experiencing a strange sense of déjà vu? You're probably not alone – a similar sales pitch preceded the introduction of the Community Infrastructure Levy ("CIL") just over a decade ago. The government – like much of the development industry – thinks that CIL has failed to meet its brief, and intends to have another try. So here we go again…

The Bill sets out a framework for IL which builds on the CIL regime, giving the Secretary of State the power to make regulations which will contain the detailed mechanics of IL. While much of the IL framework contains great similarities with the CIL regime, there are some significant differences in approach.

It's worth noting that CIL itself hasn't been completely dispensed with and, yet again, the reports of the death of Section 106 obligations have been greatly exaggerated.

Let's take a look at some of the key developments.

Rate setting

IL will be a mandatory charge so, unlike CIL, IL charging authorities (generally local planning authorities) will be required to charge IL on development in their area. This will help avoid the patchy coverage that CIL currently suffers from. IL charging authorities must issue a charging schedule and, when setting rates, must have regard to various factors, including:

- the desirability of ensuring that the level of affordable housing delivery and funding provided in its area is maintained at a level that is equal to or exceeds previous delivery over a specified period (with the expectation being that this will increase over time);

- the economic effects on land value of the planning and development process;

- levels of IL revenues in the authority's area; and

- the authority's infrastructure delivery strategy (a new, mandatory strategy for the delivery of local infrastructure and spending IL proceeds).

The scope of "infrastructure" which may be funded by IL has been expanded and, significantly, includes affordable housing (laying the groundwork for some of the other initiatives discussed below). Appropriately, given the scale of the challenge faced, "infrastructure" also includes facilities and spaces for the mitigation of, and adaption to, climate change. The Bill contains provision for regulations to make changes to the meaning of "infrastructure" over time.

As with CIL, IL rates are likely to look very different from charging authority to charging authority, although the overarching principle remains that the levy mustn't impair the viability of development. What this means will vary substantially from area to area – as at present – but the variations are likely to be amplified because the Bill opens the door for regulations to allow a wide variety of approaches to rate setting.

Charging authorities could be empowered to set differential rates for different types of development and different areas (potentially contributing to a more "zonal" approach to development planning influenced by charging schedules), impose stepped rates which increase over time, or by calculating liability based on numbers of units rather than by reference to floorspace. This could provide charging authorities with much more flexibility than they currently have under the CIL regime.

The IL will be introduced through a "test and learn" approach, meaning that it will be rolled out across England over a period of years to allow for continuous monitoring, evaluation and, presumably improvement. Lessons have been learned from the introduction of CIL and the government appears keen to avoid the need for a slew of amending regulations once IL is put into practice.

The introduction of IL will result in the abolition of CIL in England, other than Mayoral CIL, which will continue to apply to development in Greater London. As charging authorities adopt IL, their CIL charging schedules will fall away and will cease to have effect.

Shift to land value uplift

One of the most significant differences between CIL and the proposals for the new IL relates to the basis for charging, with the IL proposals signalling the latest in a series of attempts to capture land value uplift effectively and apply it to the cost of infrastructure provision. The Bill sets out a framework to enable this shift in approach, but leaves the detail to regulations. This means that, although the government has hailed the introduction of a land value uplift approach, it is conceivable that this may not make the cut once the regulations are laid before parliament. The basis for charging could still share the DNA of the current CIL regime once the detail becomes clear.

The IL will be charged on the value of property when it is sold, with rates set as a percentage of gross development value ("GDV") (rather than based on floorspace as with CIL). The rationale for this is to shift the focus of rate setting towards the capture of land value uplift. This means that developers can price in the value of contributions into the value of the land, removing the need to renegotiate them if GDVs are lower than anticipated, whilst allowing the public sector to share in the uplift if GDVs are higher than expected. Rates will be set when planning permission is granted, which does at least give developers certainty.

It remains to be seen how this "back-loaded" approach will work in practice – the Bill leaves the detail to future regulations. It does, however, acknowledge that the final IL liability will not, in most cases, be known until completion or sale of a development – and provides for charging authorities to provide to developers an estimate of the IL chargeable in respect of a development.

Allied to this, the Bill also anticipates that regulations may make provision for the imposition of restrictions on the occupation or use of all or part of a development pending payment of IL in respect of that development. The government envisages the introduction of an approach to revenue protection which borrows from Section 106 and which is more stick than carrot.

The right to require 

The government proposes to introduce a new "right to require" which will remove the need for negotiation in determining levels of on-site affordable housing and redress a perceived imbalance between developers and planning authorities. This potentially transformative initiative isn't dealt with in the Bill itself and the detail is, again, left to regulations. It is, however, a real statement of intent, with local authorities being empowered to determine the portion of the IL that they receive in-kind as on-site affordable homes. While the development industry will be pleased that convoluted negotiations on quantum, tenure and mix should (at least in theory) be consigned to history, there will no doubt be some trepidation about the robustness of the right to require and whether a unilateral approach really is the right course to take.

Notwithstanding the government's aspirations to reduce the scale of planning obligations, our old friend Section 106 will continue to have a role in supporting the delivery of the largest sites, and those where infrastructure that is integral to the operation of a development (such as play areas and flood risk mitigation) needs to be provided.

On the largest sites, planning obligations will be used instead of the IL to secure the provision of negotiated, in-kind infrastructure, subject to the proviso that the value of the infrastructure secured will be no less than that which would be secured under the IL. A combination of Section 106 obligations and planning conditions will be used to secure embedded infrastructure which is integral to the operation of the development.

For all the talk of the demise of the Section 106 agreement in the context of the levy-based approach, it performs a role which CIL and the new IL simply cannot, and remains a robust and flexible part of the development control tool-kit.

Coming soon

Our next instalment looks at new commencement and completion notices under the Bill, changes made to varying a planning permission and the new time limits for enforcement. All vital to get to grips with if things don’t quite go to plan.