Levelling Up England: infrastructure levy reforms must ‘work in harmony’ with planning obligations

As previously reported, the government’s Levelling-up and Regeneration Bill (LURB) contains proposals to scale back the community infrastructure levy (CIL) so that it will only apply in London and Wales, and replace it with a new, locally-set IL which will capture a share of each relevant development’s gross development value. Schedule 11 to the LURB proposes the insertion of a new Part 10A - introducing the IL in England - into the 2008 Planning Act.

Thankfully the guidance that accompanies the Bill states that s106 agreements will remain for “infrastructure integral to the operation and physical design of a site” and “to support delivery of the largest sites”. To my mind this means that s106 agreements will be used, by and large, in the same way as they are currently. I say this because those of us who negotiate them on a day-to-day basis know that the vast majority of the obligations that are included are site specific, and committee members required their inclusion because their officers’ advice was that they are integral to the acceptability of the development proposed.

IL reform while at the same time retaining the s106 obligations, which already work well, is to be welcomed. Last year, at the time of the Planning White Paper, I urged against the scrapping of s106 and set out four wishes for planning obligation and levy reform: making a new levy work harmoniously with a new system of planning obligations; reforming s106 so that it can secure anything; allowing applicants to demand that s106 negotiations commence at the time of submission; and setting up a s106 arbitrator.

The LURB gives the prospect of me getting at least one of these four wishes, and the biggest one at that - to make a new levy work harmoniously with the working system of planning obligations that is s106 agreements.

Whilst on this, I reiterate my previous point that the easiest way to deliver “mixed and balanced communities” is for the developer to provide the required amount of affordable housing as part of the scheme. I find it difficult to believe many local planning authorities (LPAs) will actively choose to move away from the s106 agreements that they already know – a system that is proven to work even if it isn’t perfect.

It is worth noting that the planned IL will be able to fund affordable housing, among other things (see clause 204N(3)(g)). This is a key difference from the current CIL system whereby CIL cannot be used to fund provision of affordable housing.

I note that the guidance states that there will be “a new ‘right to require’ to remove the role of negotiation in determining levels of onsite affordable housing. This rebalances the inequality between developers and local authorities by allowing local authorities to determine the portion of the levy they receive in-kind as onsite affordable homes”. Whilst not entirely clear, what I think this is getting at is the well-known problem of CIL being a fixed and non-negotiable charge that can’t be used to deliver affordable housing, which sometimes results in the affordable housing component being ‘squeezed downwards’ in order for the scheme to become viable.

What this doesn’t address, however, is the problem of what happens if the scheme requires a planning obligations package that would cost more than IL receipts and the developer says it can’t viably pay/deliver more than the value of the IL. In that situation either elements of the non-levy funded package would need to be dropped to provide a viable scheme or the LPA would need to refuse permission and fight the point at appeal. For this reason alone, I consider a so-called ‘right to require’ will not magically result in all residential schemes delivering a policy compliant level of affordable housing.

Issues of viability aside, the IL proposals do look like they have the potential to deliver a better and more flexible system than the one we have currently. I use the word “potential” very deliberately because schedule 11 (Infrastructure Levy) is littered with the words “regulations may”. Some of these things that the regulations “may” deliver or include that most appeal to me are:

• permit IL to be used to reimburse expenditure already incurred (clause 204N(8)(a));
• include provision for the giving of loans, guarantees or indemnities (clause 204N(8)(d)); and
• allow IL monies to be passed to a person other than the charging authority (clause 204O(1)).

How would this help? Let’s take the example of a strategic site in a large regeneration area where a lot of the ‘up-front’ infrastructure (e.g. roads, bridges, new stations etc) has yet to be provided. The developer of the site may not have sufficient up-front cash-flow to fund the early delivery of the requisite infrastructure the site needs. Under this IL framework the charging authority could loan the developer the money and be repaid later in the development programme when revenue receipts are sufficient to do so. Conversely, if the developer did have the money to fund the relevant works but was concerned that it would be providing infrastructure that other sites would benefit from and use in future it could be agreed that the LPA would reimburse a share of the costs from IL receipts from those other schemes as and when they come forward. This is just a simple example but seeks to demonstrate how the proposed IL framework could be usefully deployed.

There is of course a flipside and the potential for the IL to be imposed in a restrictive manner and to seek to suppress the use of s106 agreements. For example, regulations may include provision as to the circumstances when IL may or may not be applied to fund items of infrastructure on the list of what is or may be wholly or partly funded by IL – see clause 204N(7)(c)). In addition, under clause 204Z1 regulations may include provision about how certain powers are to be used or not used. The list includes both s106 of the TCPA and s278 of the 1980 Highways Act.

Many will remember the tremendous difficulties faced in the early days of CIL when regulation 123 of the 2010 CIL Regulations sought to suppress the use of these provisions, resulting in stalled schemes and expensive legal work-arounds. In the end the section 106 pooling restriction and regulation 123 list restriction were abolished, and rightly so. The IL framework has the potential for those troubled days to return. It brings to mind an oft used quotation – “he who does not learn from history is doomed to repeat it”.

Thankfully the guidance states that the detail of the IL will be subject to consultation. Pinsent Masons will certainly be responding to the consultation when the time comes to advocate for maximum flexibility and harmony between s106 and the IL, and I urge all who are regularly involved with s106 negotiation to do the same.