Paying your way – CIL and planning obligations 

In the third of our series on the detail in the Planning White Paper, we consider the government’s proposals for securing the delivery of infrastructure.

One of the most headline-grabbing proposals in the White Paper is the abolition of Community Infrastructure Levy ("CIL") and Section 106 agreements, paving the way for significant changes to how the development industry funds infrastructure. But how will it work, and will it really deliver the much needed infrastructure necessary to unlock development?

Hitting pockets

Before diving into the mechanics of the proposed changes, it is worth noting the comments that accompany them. The government clearly states that it wants to raise more by way of contributions than are paid under the existing systems and it wants to deliver at least as much affordable housing. This means that, however the revisions to the contributions system pan out, developers should expect to pay more than they do at present.

Pure and simple?

There is no denying that the current CIL system is complex, or that Section 106 negotiations are unpredictable, and can cause significant delays in securing consents. To address both of these problems head on, the White Paper states that the two existing regimes for securing contributions – Section 106 obligations and CIL – will be replaced with a new "Infrastructure Levy". So how will this work?

  • The Infrastructure Levy will be a flat rate, set nationally (although different rates can be set for different areas), and will be based upon the final value of the development.
  • There will be a minimum threshold below which no Infrastructure Levy will be payable. The White Paper acknowledges that in high value areas, contributions will be significantly higher, and in certain low value areas there may be development for which no Infrastructure Levy is payable. This immediately raises questions around the ability of local authorities to deliver much needed infrastructure. Housing in less valuable areas still generates the same need for education and health facilities as those in pricier areas, and there is a real risk that this approach could undermine the regeneration of the areas in greatest need.
  • Although set nationally, the Levy will still be spent by local planning authorities (“LPAs”), with a portion continuing to be passed to local communities.
  • The Levy will be paid on occupation – although it isn’t clear what that means for multi-let buildings, or multi-phase developments.

​However, whilst the structure feels simpler, and more predictable, it is unlikely to be without its challenges, particularly around the valuation of the final development, which will be needed to calculate the Levy. So, the grant of consents may not be delayed by valuation arguments, but these types of discussion between developers and LPAs still need to happen.

And to date, there is no indication of how s73 variation consents will be dealt with. Experience from the introduction of CIL tells us that, without proper consideration of s73 consents, much needed flexibility in the delivery of development is lost.

The rights homes in the right places?

Many hours are currently spent agreeing provisions to secure the provision of affordable housing - something which cannot be delivered using CIL. The proposals change this, instead bringing affordable housing within the list of things which can be funded by the new Levy.

However, in order to ensure continued delivery of “mixed and balanced communities”, developers won’t simply be able to pay their way out of affordable housing provision. Instead LPAs can require on-site provision, up to the necessary value of contributions. There will be standardised drafting with the hope that the mechanics of providing affordable housing don’t detract from the overall drive for simplicity and predictability. However, there have been templates in use for some time, especially in London, and in complex cases there are often good reasons why these need to be revisited to fit the specific facts.

There are also pretty complicated proposals aimed at ensuring affordable housing is delivered to an appropriate standard, and to reflect the greater role of, and therefore risk to, LPAs in securing the affordable housing. These enable an LPA to reduce the quantum of affordable housing it wants following completion of the units. Whilst most developers recognise the need to deliver affordable units to a good standard, in the same way as market units, there are often good reasons for design differences which will cause practical difficulties for developers suddenly finding that those units will not be accepted as affordable housing.

By bringing delivery of affordable housing within the Infrastructure Levy regimes, has the government risked fewer affordable units being delivered in lower value developments? Although affordable housing is currently subject to viability considerations, there has been a recent shift, such that it is generally accepted that developments of a certain size will continue towards affordable housing provision. However, by setting a value threshold below which no Levy is payable, the government is also excluding those developments from affordable housing obligations.

The million-dollar question…

So, does all of this mean the end for Section 106 agreements?

In short, it isn’t clear, but hopefully not.

The Paper emphatically states in a number of places that Section 106 obligations will be abolished, but then only seems to address payment of contributions and provision of affordable housing. Planning obligations in Section 106 agreements are currently used to deliver a vast array of other public benefits, in particular those which cannot be secured via planning conditions. Commitments to employment initiatives and carbon offset requirements are examples of conditions which are significantly important to LPAs and local communities, but which haven’t been addressed at all in the proposals.

There are some comments in the footnotes to suggest that Section 106 agreements as a concept might survive the planning cull – but for now we need to wait and see.

And the critical issue – delivery?

Despite all the proposals to secure more certainty around contributions, as well as a greater quantum, there is scant detail on the delivery of the necessary infrastructure. True, developers will be expected to deliver some of the affordable housing, but what about everything else – the schools, the roads, and other infrastructure needed (at the right time) to make a development really work?

Whilst there are measures to make it easier for LPAs to spend the money, and borrow against future Infrastructure Levy receipts, there is no way for developers to compel delivery by LPAs. This in turn runs the real risk of further undermining public faith in the planning system, should development come forward, but without the necessary mitigation. From a place making point of view, developers may find themselves with: homes, but no schools; offices but no transport improvements.

And so, it may be that, despite all these revisions, developers still find themselves needing to deliver infrastructure – at additional cost – to ensure good development, supported by the right infrastructure. Not only is this unjust, it runs the risk of seriously undermining the viability of many developments.

Instead, given that the government seems to have embraced the idea of “in-kind” provision to offset affordable housing against Infrastructure Levy payments, the same approach could be taken to other infrastructure, enabling developments to deliver their own schools and highway improvements, for example, and making up any shortfall by way of cash contributions. This has the advantage of all parties knowing the value of benefits to be delivered by the development (noting the scope for debates on the value of in-kind provision), whilst ensuring that the right infrastructure comes forward when needed.

The devil is in the lack of detail

Almost anyone who has either had to grapple with CIL or negotiate complex Section 106 agreements will welcome efforts to simplify those systems. However, it seems that there is a real risk that, whilst solving some of the existing issues, the proposals will create a multitude of problems of their own. Until we see a lot more detail, the changes suggested definitely raise more questions than they answer.

And there’s more…

Whilst this brings us to the end of the main changes in the Three Pillars of the Planning White Paper, there are still many other proposals to consider. We’ll summarise the best of the rest, as well as some other things to look forward to, in our fourth instalment on planning reform.