Consultation on the Infrastructure Levy

Blog by Rob Loughenbury, Director of Strategy Onward Homes


Consultation is underway on the details of an Infrastructure Levy that will replace Section 106. How should housing associations respond?

Social housing has greeted plans to introduce a new Infrastructure Levy with a slightly weary ‘if you must’. It will replace Section 106, the imperfect, but workable, way contributions are secured from housebuilders to pay for affordable housing and other infrastructure needs arising from development.

The big idea behind the Levy is to give local planning authorities more freedom around raising and spending money from development. Councils will be able to set different Levy rates for different kinds of development and collect it in a big pot available for infrastructure, as well as potentially for services or even to subsidise tax cuts. Revolutionary stuff.

The Levy will be a new sales tax, applied after a development is delivered, rather than negotiated at the outset. This will remove (some kinds of) negotiation from the planning process, as fixed rates mean the contribution is clear at the beginning and can be factored into land deals and viability planning. Of course, expect levy rates to be a new excuse for blood letting during local plan making.

What’s the catch?

There is real danger here for our sector. Around 78% of S106 is currently spent on new affordable homes. Despite some soggy promises to the contrary from Government, few people expect that a similar proportion of Levy proceeds will be spent in the same way, up against hot competition for funding from new roads, surgeries and schools.

But realistically a number of horses have bolted. Government is committed to introducing the Levy  and is prioritising giving councils freedom on how money is raised and spent. A consultation is underway on the nuts and bolts but will not revisit or unpick the principles. Another consultation will follow but this is the one that matters.

Responding to the consultation

So what is the best thing for housing associations to say in response to the consultation?

If contributions from development are heading into a big pot, it is in our interest first to make that pot as big as possible, and second to get as much from it for affordable housing as we can.

Maximising developer contributions can be done by including as many different kinds of development in the Levy system as possible; small developments, warehouses, commercial, permitted developments. Lots of these don’t contribute, or don’t contribute much, to S106 currently. Money is leaking from the system and this is a good chance to hoover up more. This is precisely what Government is hoping will happen. We should heartily agree.

But maximising the proportion of Levy receipts that councils spend on affordable housing will be tougher. Councils will get more freedom to spend as they wish, come what may. In response, we should argue that Levy proceeds must be used to support capital investment, not to subsidise revenue based decisions (services, tax cuts). Council finance officers will murmur consent.

Chunks of income are earmarked for elsewhere, including a rather nebulous ‘administration fee’ and a ‘neighbourhood share’ for parish councils, or similar. These should be as small as possible. Only parish councils with a Neighbourhood Plan addressing affordable housing need should get anything.

A ‘right to require’ is proposed, where councils will get the freedom to require an in kind provision of affordable homes instead of cash. This should become a ‘requirement to require’ so that a percentage of Levy income is automatically converted into affordable homes where there is evidence of unmet local need, tied into the numbers in the local plan.

The clock is ticking

The punchline is that a series of pilots and a staged implementation stretching over several years is foreseen. We should argue that a full roll out must not happen until the pilots are complete and assessed – even for Councils who just want to get on with it –  so we can see how this all works in practice. Meanwhile, a new government may or may not be elected with ambitions for planning reform. The whole process could be junked and off we go again.