As news emerged last week that the government will be consulting on a new Infrastructure Levy, we're looking at how the new proposal, put forward by the Levelling Up and Regeneration Bill, aims to replace the system of developer contributions with a more efficient and locally determined levy.

The new charge seeks to reform the existing system of Section 106 planning obligations and Community Infrastructure Levy (CIL) payments in England, and to ensure that local authorities achieve their fair share of contributions linked to gross development value (GDV).

The intention is for the Infrastructure Levy to be charged on the value of the property at completion per square metre and applied above a minimum threshold. It is thought that it should remove the need for planning obligations to be renegotiated if GDV is lower than expected, while allowing local authorities to share in the uplift if GDV's are higher than anticipated.

The Levy aims to capture more revenue for local authorities. For example, where a local authority sets a minimum value of £1,500 per square metre and the GDV calculated on completion was £2,500 per square metre, then the Levy will be charged at a on the £1,000 per square metre above the threshold. Local authorities will be able to set the rates and thresholds for different types of development and land use in the local area.

The Infrastructure Levy will be a mandatory charge with rates set by charging authorities. There will be a process of examination in public for Infrastructure Levy charging schedules and local authorities must publish an Infrastructure Delivery Strategy. It is not thought to remove the requirement for Section 106 Agreements on development sites and it is understood that sites will come forward in three different routes depending on their character:

1. The core route

The majority of schemes will be subject to this route and the Infrastructure Levy will function as a cash based system where rates and thresholds apply. Section 106 Agreements will retain a restricted function limited to securing matters that cannot be conditioned for.

2. The infrastructure in kind route

On the largest and most complex sites often with unique infrastructure requirements, Section 106 Agreements can be used to deliver infrastructure as an 'in kind' payment of the levy. The value of this agreement must be equal to or exceed what would have been secured through cash calculation on the levy liabilities.

3. The Section 106 only route

Sites where GDV per square metre cannot be calculated or where buildings are not the main focus of development, such as minerals or waste sites, will not be subject to the levy. Planning obligations will allow this to continue through Section 106 Agreements. In respect of affordable housing, the government is consulting on "the right to require" which will secure affordable housing at a proportion of the infrastructure levy liabilities.

The intention is for financial contributions made by developers and affordable housing to become more transparent, as the consultation expresses a view that the current system can be uncertain and opaque. Developer contributions estimated to be worth £7 billion were secured in 2018 to 2019, with £4.7 billion was in the form of affordable housing contributions.

The Infrastructure Levy is intended to be introduced on a test and learn process which is expected to last several years. The consultation will run for 12 weeks and it is thought that the government will engage in further consultations once the responses have been fully considered.

If you would like to speak to us about how the new Levy could affect your business, or to understand how we can support in navigating the planning system, please contact Ben Sasson or visit our Planning page to see the services we can offer.