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A new non-negotiable locally determined Infrastructure Levy (IL) system is to be rolled out gradually across England. And gradually means gradually; the Government anticipates it would take several years until IL is required across England. So, while IL would be emerging in some areas, the community infrastructure levy (CIL) would continue to apply in others and CIL would not disappear at all at strategic level (specifically the Mayoral CIL in London, at present) or in Wales. The intentions are that IL rates would be a percentage of the final ‘gross development value’ (GDV) of a scheme or phase of a scheme, above a minimum levy threshold. Often, this would be the scheme’s GDV when sold, but in many instances a valuation will be required. Therefore, when a scheme is commenced, the final amount payable would not be known. Unlike CIL, IL financial or in-kind contributions would include affordable housing. How IL is to be spent would be set out in an ‘infrastructure delivery strategy’, which would be examined. The proposals should be viewed as changes to the developer contributions system, rather than simply the introduction of a new levy that would replace all other types of contribution. This blog provides an overview of the Levelling Up and Regeneration Bill’s Infrastructure Levy provisions and focuses on those aspects of IL more closely linked to development management. It also references the intended contents of the IL Regulations and associated policy and guidance, as announced by the Government alongside the Bill.   How will the IL relate to other developer contributions? Land value capture plus: s106 agreements retained IL would (largely but not wholly) replace CIL and the financial contributions secured via s106, including all types of affordable housing contributions. Notwithstanding the introduction of a levy designed to encapsulate key contributions, there would be “a process to “require” developers to deliver some forms of infrastructure that are integral to the design and delivery of a site”. The examples of integral infrastructure given are flood risk mitigation and a play area; so, the inference is that this would not be occasional use of s106, but rather that on-site scheme specific mitigation might be sought by local planning authorities (LPAs) via s106 or condition with some regularity. Essentially, the Government would like contributions to make development acceptable that would otherwise be unacceptable and capture some of the consequential uplift in land value. Furthermore, a notable contribution will be ‘biodiversity net gain’ (BNG), most likely from the end of 2023, where not already secured by a planning condition. Therefore, in London, for most major projects, there would be planning contributions via s106 agreement, as well as Mayoral CIL and London Borough IL or Development Corporation IL, in addition to the planning condition requirements – some of which could be non-financial contributions. Elsewhere in England there would continue to be two types of contributions, until such time as other areas are permitted to charge strategic CIL.   Controlling whether mitigation by condition or legal agreement is a reason for approval The Explanatory notes to the Bill say that the legislation: “[…] will also allow the Secretary of State to regulate on how IL will relate to planning obligations, to secure funding from developers to deliver mitigations to the impact of development in the area where such development occurs. The Bill seeks to control the use of conditions, section 106 agreements and section 278 agreements to provide infrastructure directly and to control whether that provision could be considered a reason for granting planning permission. This is presumably to allow local planning authorities to push mitigation measures towards IL – albeit that funding secured by IL would not necessarily be ringfenced. Clause 204ZI’s wording is broad and how it translates into the IL Regulations will be interesting: (2) IL regulations may include provision about the exercise of any other power relating to planning or development [in addition to the CIL Regulations, and sections 70, 106 and 278 of the Town and Country Planning Act 1990] A balance would need to be found between these proposed provisions to control the scope of IL mitigation and the Government’s (stated yet unclear) desire to use s106 agreements less, while requiring s106 agreements and condition in certain circumstances. In addition to or alongside the new infrastructure delivery strategies, the IL Regulations could require authorities to write a list of infrastructure to be funded by IL. According to the Bill’s explanatory notes, items not included on that list would be: “infrastructure that developers should expect to fund and provide outside of IL”. This sounds like a return to the CIL Regulations 123 lists as the Bill also provides “for setting out the circumstances in which IL can be spent on projects which are not listed”. This would probably lead to further items being secured by s106 agreement or condition.   The charging schedule and calculation of the chargeable amount  Setting the rates and thresholds The Bill provides the Framework for the new Levy; Regulations are to determine how, when and on what basis it would be charged. The viability of schemes would be at the heart of rate setting. Clause 204A (2) of the Planning Act 2008 says: “In making the regulations, the Secretary of State must aim to ensure that the overall purpose of IL is to ensure that costs incurred in supporting the development of an area and in achieving any purpose specified under section 204N(5) (non-infrastructure items) can be funded (wholly or partly) by owners or developers of land in a way that does not make development of the area economically unviable”. As now, the charging authority would be able to set the levy rate and there could be more than one rate across an area. The rate would be a percentage of a site’s GDV, rather than on floorspace as with the current CIL. The authority must take into account certain factors when setting IL rates. These include viability changes caused by the introduction of IL, IL revenues that would be generated, any infrastructure delivery strategy and other matters that affect land value, including planning permissions and policies. They would not need to consider the actual and expected costs of delivering infrastructure, as they would with CIL. Factors that could be taken into account when setting the rates and thresholds include consideration of administrative costs, actual and expected costs of non-infrastructure items that would mitigate development, and potential sources of funding for those items and evidence in statutory documents. According to the Government: “The effect of this, compared to CIL, is to shift the focus of rate setting towards the capture of land value uplift, with the two chief constraints being the extent to which land value has increased and the viability of development in the area”. The IL Regulations would provide that a charging schedule could also set out rate changes that would occur over time, following specified events taking place. In addition, IL Regulations would either permit or require the charging authority to set a threshold below which IL would not be charged - or it would be charged at a reduced rate. The threshold would probably be set in value per square metre and the Bill’s explanatory notes indicate that there may be different thresholds in one charging schedule. The Government suggests that, when setting a threshold, the charging authority takes into account items like build costs, other costs and the existing use value of the land. Thresholds might perhaps be able to factor in contaminated land, by raising thresholds where there is a given level of site contamination?    Examination of Charging schedules The processes for drafting, examining and bringing an IL charging schedule into effect are to be broadly similar to that of a CIL schedule. The Secretary of State can direct a review of the charging schedule and appoint someone to do it if the authority does not. The legislation would also allow the Secretary of State to require rates or thresholds to be changed with immediate effect (e.g. to respond to a dramatic change in the economy).   Factoring in affordable housing There is intended to be a mechanism for ensuring that affordable housing is not squeezed out by other forms of infrastructure. When setting rates and thresholds, the authority must consider the “desirability of ensuring” that developer funded affordable housing and affordable housing contributions are maintained at a level that is equal to or exceeds the level of such housing and funding that had been provided over an earlier period of the same length. This will be measured in accordance with the IL Regulations. The ‘Further information’ policy paper produced by the Government says: “It is intended that a substantial portion of the value captured through IL will be delivered via on site affordable housing”. Furthermore, the Government says that it will: “Introduce 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”. Hopefully this process will benefit from review and appeal procedures.   Calculation and exemptions IL is expected to be based on final GDV, although the percentage rate of IL would be fixed on the day planning permission is first permitted – which, as with CIL, is not necessarily the date the development is granted. Given that IL applies to final development value, any amount payable on completion of the development or phase is deliberately a variable too; the Government intends charging authorities to benefit from an uplift in the market during construction. Equally, the variable nature of the charge means that the IL liability would drop if the value of the scheme dropped, without a need to renegotiate contributions. This ought to be a big shift from CIL. However, as many LPAs reissue CIL liability notices as commencement notices are submitted, leading to a stressful eleventh-hour debate on the CIL liability, and therefore scheme viability, this might not be such a huge leap. Given the uncertainty surrounding final liability, the IL Regulations will require a charging authority to provide formal IL estimates. It would be very helpful if these estimates could be subject of review and appeal, because a developer might not commence a development if there was a significant difference of opinion on agreed inputs.   IL liability where developments do not create floorspace The intention that IL will be charged based on the final gross development value of development, rather than the floorspace of development when planning permission is granted, could mean developments not currently CIL liable would be IL liable. The Government has confirmed that changes of use would be subject to IL. Deductions arisings from the thresholds At present, CIL exemptions mean that certain developments do not pay CIL at all, but if a development does have to pay, it pays the full amount. But when calculating the chargeable amount of IL, the scheme’s GDV that is below the stipulated minimum threshold would be deducted, no matter how big the scheme or what is proposed. The Government anticipates that the threshold would be set out on a value per square metre basis. Right to require and the in-kind routeway As noted above, the collecting authority would have a ‘right to require’ on site affordable housing and there would be an ‘in-kind routeway’ that certain development (presumably of a given scale) would be able to use to provide infrastructure in-kind. This is to be set up via the broad powers in clause 204Z. Exemptions and relief Clause 204Z also allows the IL Regulations to include exemptions and relief. The Government has referred to exemptions for residential extensions and annexes. Charitable relief would continue to be available. Given the promotion of self-build schemes elsewhere in the Bill, it seems likely self-builders will continue to benefit from relief.   Payment The arrangements Provisions relating to payment are planned to be very similar to those in the CIL Regulations, allowing for instalments and various types of payment in-kind. Payment on account would be permissible too – and it is critical that the IL Regulations get the extent to which this can be used, correct: “Payment by instalment or on account would allow for earlier payments. This would be used to allow the charging authority to require payments prior to the completion/occupation of the phase/development. This would mean that payment could be enforced […] at a point when the developer was in control of the site, rather than at a point when it has been sold on, for instance to a homeowner. Early payment may also be used to support the early delivery of infrastructure. However, as this would also increase costs for developers, and may risk overpayments, restrictions may be placed on the use of such an approach.” This means it won’t be as simple as a final sales value to a homeowner or other purchaser being submitted; there might be a need for a valuation on almost all schemes. Penalties The maximum penalties for all types of breach could be increased significantly, apparently to compensate for the ‘amalgamating’ of s106 and CIL. The maximum surcharge or penalty would not be permitted to exceed the higher of 40% of the IL amount and £50,000. There is surely an argument for not applying penalties or reducing them during pilot phases or even for the first year that IL is charged. Who would the charging authorities be? Charging authorities for IL would be the LPA, Homes England (where it is the LPA) or Mayoral Development Corporations, as now. The proposed New Town Development Corporations are to be given Mayoral Development Corporation powers, so they would be able to charge IL too. (See Ed Clarke's blog on the regeneration elements of the Bill, including the proposed Urban Development Corporations.) Charging authorities for CIL would be the Mayor of London and Welsh LPAs. The Bill allows for the IL Regulations to change the charging authority to a county council, a district or a metropolitan district council, or a London borough council; the explanatory notes to the Bill suggest that this for reasons of scale and efficiency in certain circumstances.   Infrastructure delivery strategies Local authorities would be required to publish infrastructure delivery strategies for the high-level priorities for spending of the levy. The strategy would be subject to independent examination alongside a charging schedule or local plan, and should be kept up-to-date. Therefore, it could not be produced and published as quickly as the current Infrastructure Funding Statements, which serve a different function. The Government says: “IL must be spent to support the development of an area by funding the provision, improvement, replacement, operation or maintenance of infrastructure, or for any other purpose specified in regulations”. The Bill includes a non-exhaustive list of infrastructure types and, if enacted, would permit the IL Regulations to change the items on that list and to stipulate the minimum spend on certain types of infrastructure and when funds can be spent on non-infrastructure items. Neighbourhood plans would be able to set out any infrastructure and affordable housing requirements, in addition to those in local plans (see Tom Davies' blog on the plan-making elements of the Bill). Given that IL would seek to encompass most types of infrastructure (except expressly that which is integral to the design of the development – e.g. play areas), it is not surprising that consultation with infrastructure providers when preparing development plans and when setting the levy is encouraged. If providers were consulted, there would be a statutory requirement to reply. At present, long IL shopping lists can be presented to LPAs by infrastructure providers and others who consider certain facilities or contributions should be secured via s106 agreement in order for a development to be acceptable. In future, balancing such requests against ensuring that the rate is set at a level at which developments would be viable would be a challenge. There is a strong risk that anything that might be considered potentially integral to scheme design would be removed from the potential list of infrastructure items to receive funding and requested via s106 in due course, which would still be in accordance with the IL Regulations. A payment towards one playspace across several chargeable developments but one planning permission might still be considered “integral”. Some of the projects looking for funding ought to seek/be provided with funding from elsewhere. There is a recent history of NHS trusts seeking payments that had not been anticipated by the LPA. Several late requests for healthcare payments were the subject of an unsuccessful challenge to the grant of planning permission recently. Addressing the rationale or otherwise for such funding upfront is to be welcomed. Borrowing against IL As expected, there are also powers to permit IL to be used to repay borrowing against future IL receipts.   A learning curve based on experience? The intention of the gradual roll out of IL, according to the Bill’s explanatory notes, is “so that IL regulations can be informed by how IL works in practice”. It would appear to be a pilot rather than a gradual roll out, but the pilot would need to be based on regulations; it suggests that DLUHC is anticipating several amendments to the Regulations based on user experience. This could be viewed as concerning, particularly for developers operating in a pilot area. Furthermore, given that IL is based on development value, it would be once payments are due that the problems arise. If a planning permission lasts for at least three years and can be completed on an indefinite timescale once implemented (for the moment), it may take some time for perverse outcomes that require correction to come to light. Even on a swift build out on a smaller site, experiences would probably take at least a year to start to emerge, which explains the long lead in time anticipated for IL by the Government. More positively, a gradual roll out is, of course, indication that the Government wants IL to succeed, acknowledges the teething (and adolescent) problems of CIL, and will be ready to respond as issues arise. With this in mind, and in the knowledge that IL would take some time to come forward, here are our initial thoughts on some key CIL-related asks/questions of the IL Regulations:   There needs to be a clear understanding of when the calculation should be made and what constitutes a completed development – the interface with the developer completion notices also proposed in the Bill must be clear. The LPA might not want to say a scheme is complete because certain conditions have not been complied with – would that also be an easy way of arguing that IL is not yet due? IL should permit the introduction of sub-phases post commencement, to reflect changes to how a site is coming forward and to avoid confusion arising where a chargeable development is partially built, and its value not certain, but also partially occupied. Sites granted planning permission before IL is introduced, which are then subject to a fresh planning permission for a broadly similar development, should remain in-CIL (or out of CIL) while the first permission is still extant. The intention being to avoid complicated comparisons of viability between the pre-IL vs IL scheme when the focus should be on the differences between the two schemes. Other amendment provisions should be taken into account when designing IL; section 73, section 73B and section 96A (not currently dealt with by CIL so some LPAs unreasonably refuse to entertain a section 96A application that would alter floorspace). IL Regulations must explain clearly who notices must be served on and all parties receiving notices must have formally agreed to receive such notices; e.g. they should not be sent to the agent without first confirming this is correct. Key inputs to Gross Development Value should be formally agreed prior to development commencing. This is so that the inputs change only to reflect changes to the market post-commencement and not due to differences in opinion between the collecting authority and the developer, for example on precise floorspace figures. This is particularly important in respect of the right to require affordable housing on site. However, where the site is sold post permission, there must be scope to revisit right to require and associated assumptions, particularly where the purchaser is a registered provider or built to rent provider.   Next Steps In an open briefing to the planning and development sector, on 12 May, the Chief Planner said that it is expected that the Bill will be enacted at the end of 2022 or the start of 2023. One would expect the IL Regulations and associated guidance to be drafted and consulted upon alongside that process and adapted as the Bill is amended. Perhaps pilot authorities could therefore be charging IL this time next year? DLUHC’s open approach to engagement and consultation is to be welcomed and it is essential that the sector responds proactively so that shared insight produces a workable Infrastructure Levy system.  

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Today’s Queen Speech saw the Government set out its legislative agenda for the upcoming parliamentary year – the Levelling Up and Regeneration Bill took centre stage. The purpose of the proposed Bill is to “drive local growth, empowering local leaders to regenerate their areas, and ensuring everyone can share in the United Kingdom’s success”. In this ‘on the day’ analysis we briefly consider how it might meet its aims in two policy areas: (i) levelling up and (ii) planning reform. Levelling Up The Government have made levelling up a central platform of this parliament, while some observers have been quick to write off the agenda, the Prime Minister and Secretary of State have set themselves the ambitious timeline of 2030 to see results. Our analysis showed the geography of both the socio economic challenges that need to be addressed and the opportunities for investments to make a difference. Today’s announcement legislated for more of these areas to benefit from devolution and establish the institutions to make better decisions in two ways: Firstly, ‘empowering local leaders to regenerate their areas’, adding the legislative backing to the funding and policy proposals previously announced. The next steps for many local areas will be to get their ‘devolution deals’ (either county or combined authorities) over the line and established so they can deliver on the desired outcomes. Secondly, placing a duty on the Government to set Levelling Up missions and produce an annual report updating the country on delivery of these missions. The next steps here will be to set and monitor targets that ensure that ‘levelling up’ is rooted in the priorities of all Whitehall departments. In truth, the funding for ‘levelling up’ has been known for some time now, with bids for the second round of funding being prepared now. The aims and policy detail (including 12 national missions) has also been set out in the Levelling Up White Paper . Today’s Queen’s Speech legislated for the government to take the Bill through the house, and allowed for further devolution through the already trailed “county deals”. Planning reform The second part of this bill addresses the aim to “improve the planning system”. The Bill appears to support planning reform in a much changed form to that suggested in either the 2017 or 2020 Housing and Planning White Papers. Notably, one element that does survive these previous iterations appears to be the change to the infrastructure levy. Lichfields will comment more on this when further detail is available - however realising betterment values and land value capture has been an aim for Governments across most of the 60 years Lichfields has operated; therefore the challenge is getting the details right. The Secretary of State’s comments in the lead up to the Queen’s Speech, that “abstract housing targets should not be the sole measure of success[1]”  could be seen as a change in emphasis away from the long-standing aim of delivering “300,000 homes a year by the mid 2020’s” towards “making sure developments are beautiful, green and accompanied by new infrastructure and affordable housing.” However, there is an acknowledgement that “the current system cannot meet the national demand for housing”. The Bill at this stage does not go into detail, however, there is a stated aim for “Simplifying and standardising the process for local plans”. The focus here must be on improving both the quality and the coverage of development plans. Recent Lichfields research found that only 42% of LPAs had a fully up-to-date local plan[2] with 11 authorities stalling, delaying or withdrawing local plans in recent months. Our previous analysis of the reasons for this point mainly to uncertainty over housing need requirements, political challenges of meeting targets in constrained areas and the apparent change in ‘mood music’ from central Government away from a pressure to deliver housing numbers[3] and towards developments with local support. To meet its aims to improve plan making, and to deliver homes and infrastructure within the remaining parliamentary period, the Levelling Up and Regeneration Bill will need to be supported by non-legislative measures that address three issues that loom over plan making as it stands: Uncertainty. Proposed tweaks to the NPPF and a possible lower housing need target (in the South of England) that appear to be trailed need to be clarified to provide local authorities with the certainty of what their local plans will be assessed against. As it stands, the Government’s December 2023 deadline appears to be the lesser risk facing many local authorities compared with the political benefits of delivering a potentially lower number of homes under a mooted new standard method. Nitrate Neutrality. Additionally, 74 local planning authorities are affected by the so called “nitrate neutrality” effects, requiring authorities to stall housing development until they can guarantee schemes are ‘nutrient neutral’. These areas are in need of a comprehensive package of solutions to the nitrate neutrality problem in each catchment area – an estimated 100,000 homes are estimated to currently be held up in these areas[4]. Resourcing. Public sector planning is understaffed and under resourced, tasked with dealing with an increasingly wide range complex specialities, and balancing priorities from achieving ‘carbon net zero’ to health and active travel priorities, as well as viability and affordable housing contributions - the total expenditure on planning policy has fallen by 22% in England between 2010 and 2020[5]. This under resourcing delays decisions, leads to poorer plan making and poorer outcomes for communities. In conclusion, for the Government to succeed in its aims of delivering the aims of the levelling up and planning reform bill, many of the most important actions do not require legislative changes. Potentially the ‘biggest wins’ against these aims are in unlocking developments that are held back by uncertainty, by nitrate neutrality issues or by under resourced local authorities. However, the Bill will be successful if it can deliver on its aims to enable local areas to plan more effectively together and not add to complexity or uncertainty unnecessarily. In this sense, supporting combined authorities and county deals to address strategic plan making effectively, including making the joined-up decisions that the bill sets out could lead to improved outcomes both to levelling up and planning reform.    [1] Levelling up bill will include 'street votes' on local design codes, says Gove [2] Ten years of the NPPF: What do we have to show for a decade of plan making?As of the 27th March 2022. We interpret ‘up-to-date’ in this context as Local Plans that were adopted or reviewed within the past five years in the context that local plans have to be reviewed, and if necessary, updated every five years to remain up to date. This includes Castle Point and Eastleigh who although they did not have an adopted local plan at this date, did have a local plan which had been found sound. This also includes authorities who undertook a Local Plan Review and found the plan did not require updating including Reigate and Banstead and Woking. [3] Counting the cost of delay: The economic impact of Local Plan delay to housing delivery [4] 100,000 homes on hold due to 'nitrate neutrality' advice, housebuilders claim [5] Provide funding certainty for planning departments, RTPI tells government    

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