Almost two years after the Government announced its intention to reform the system of developer contributions, currently secured through a mixture of Community Infrastructure Levy (“CIL“) and section 106 obligations, we now see the first real signs of the intended reforms coming to fruition as part of the Levelling-up and Regeneration Bill (“the Bill“). The Bill received its first reading in the House of Commons on 11 May and proposes a number of changes to local government, planning and compulsory purchase legislation. Part 4 of the Bill introduces a new charge to be called the “Infrastructure Levy” (“Levy“).
The new Levy is intended to overhaul CIL and section 106 agreements, but it will replace neither entirely. Wales will retain the existing CIL regime and Mayoral CIL will continue to apply in London. Additionally, over the transitionary period while the new Levy is rolled out, development that is granted planning permission in an area not yet subject to the new Levy will continue to be liable for CIL under any existing charging schedules. Section 106 agreements will also remain necessary, but with a much-reduced scope.
The Bill is at an early stage and is likely to take until early 2023 before the Parliamentary process is complete and it becomes law. Changes will inevitably be made along the way and Regulations setting out the detail of the operation of the Levy will first need to be made before it is imposed.
Some key elements of the new regime as currently proposed include:
- A staggered roll out of the Levy across England to allow a “test and learn” approach, which will be informed by how the new system is working in practice in the areas where it is first adopted. The Bill includes a power to set a deadline for the introduction of the Levy in a particular charging authority’s area, although there is no clear indication where in England the first implementation of the Levy will be. It seems unlikely that any charging schedule will be in place before 2024.
- The Levy will be a mandatory charge on applicable new development, whereas it is at a local authority’s discretion whether to charge CIL. The new Levy will fund a wider range of infrastructure than CIL, including affordable housing for the first time.
- In setting rates in their charging schedules, authorities will need to consider the viability of development, the economic effects of imposing the Levy and land value increases.
- The Levy will be charged by reference to a percentage of the Gross Development Value (“GDV“) of development, rather than additional floorspace by which CIL is calculated.
- Charging authorities will be required to prepare and publish an “infrastructure delivery strategy” for their area to make their priorities for expenditure clear and transparent.
- As with CIL, liability for the new Levy will be triggered when development commences and will include a process for assuming liability for the Levy, provisions for default liability in the absence of an assumption of liability, and provisions for apportioning or transferring liability for the Levy.
- The scale of section 106 agreements will be reduced but not dispensed with entirely. There is allowance for “narrowly targeted” section 106 agreements to secure delivery of infrastructure that is “integral to the operation and physical design of a site” and it is expected that the “largest sites” will still require section 106 agreements. While seeking to limit the use of section 106 agreements in the future, the Bill contemplates that where infrastructure is to be provided through section 106 planning obligations, this may operate as an ‘in-kind’ payment of the Levy – this would include on-site affordable housing.
As with CIL, it unlikely that the new Levy will be without its difficulties and unintended consequences. It is unclear exactly how GDV will be determined and ‘in kind’ payments taken into account – the field of valuation will be fertile ground for disputes! Draft charging schedules will remain subject to examination in public, so landowners and developers would be advised to remain involved in that process and delve into the detail of uplifts in land value, viability of development and economic effects of the Levy that will be integral to the setting of rates.