‘IL’ at Ease – Addressing concerns on the newly proposed Infrastructure Levy (IL)

 

Rob Quaile, Director of Regeneration and Development at Ardent, comments on the newly proposed Infrastructure Levy (IL) and shares some concerns about the potential impacts on development and regeneration.

Proposals

The Levelling Up and Regeneration Bill (“LURB”) proposes to do away with the current Community Infrastructure Levy (“CIL”) regime in England and replace it with a new Infrastructure Levy (“IL”). So, the key questions are: what are these new proposals? how do they compare to the current CIL regime? And will the impact be positive or negative in terms of bringing forward developments, much-needed housing, and community infrastructure?

First things first – Mayoral CIL will continue in effect and CIL will remain in place in Wales. S106 will still exist as a mechanism to negotiate and document planning obligations – however, it will be utilised in a much narrower capacity or in-lieu of IL on larger sites. On the surface IL does not look too different to CIL – but some important differences are:

• Local planning authorities must charge IL in respect of development in its area, whereas they can choose whether or not to adopt CIL.
• IL will be set as percentage of gross development value (“GDV”), rather than based on floorspace.
• IL will be charged where any development takes place – which will include: (i) the creation of new buildings; (ii) work to existing buildings; and/or (iii) changes of use.
• IL can be applied to a wider raft of community infrastructure than CIL (including affordable housing) and regulations will clarify circumstances where IL can be offset against previous works, ringfenced for future works or when the charging authority can provide the funds to other bodies undertaking the works in line with the Infrastructure Delivery Strategy.
• The set IL rate should take into account (and seek to maintain) the:
  • level of affordable housing which is funded by developers provided in the charging authority’s area;
  • level of the funding provided by developers;
  • economic viability of development;
  • increases in the value of land;
  • IL receipts; and
  • The charging authority’s Infrastructure Delivery Strategy.

Comment

In what is a bit of a running theme through the LURB, there is lack of important detail surrounding these proposals. I have searched for further information coming out of the Government on what we might expect to see coming forward through regulations, but I (C)IL haven’t found what I’m looking for (to only slightly misquote U2’s 1987 hit, for which I apologise).

There are a number of key changes in the IL and the clear aim is for a one-size-fits-all rate per charging authority to pay for all community infrastructure and affordable housing. However, as noted by Kate Henderson, Chief Executive of the National Housing Federation, when giving evidence to the House of Commons Levelling Up, Housing and Communities Committee LURB inquiry, this move away from the current system for securing planning obligations is “very high stakes”. For instance, IL will replace s106 in the majority of development cases but s106 obligations currently deliver 50% of the affordable homes in England. Almost full reliance on IL means that the correct rate setting within charging schedules will be absolutely vital to retaining and improving affordable housing provision. If charging authorities get the rates wrong, there could be a wholesale stifling of all types development as the levy rate would make development undeliverable until a charging schedule is revised or the market moves – this could cause a damaging freeze on sites coming forward (including the resultant funds for community infrastructure, affordable housing and jobs created by commercial development). This will make the IL rate setting exercise and examination both complex and time consuming – needing consideration of many more factors than CIL and having wide-ranging consequences.

Considerable thought and detail also needs to be provided in respect of the proposal that IL will be charged as a percentage of GDV, as opposed to floorspace. This proposal is certain to lead to lengthy negotiations and cases where dispute resolution will be required in respect to agreeing the GDV, which is not necessarily a simple assessment. It is also questionable whether it will lead to increased (or even matched to present day) affordable housing and community infrastructure due to low sales values/rents in deprived areas (and consequently low GDVs). The industry urgently needs further details on:

• Who will undertake the assessment and agree the GDV, what documents will be required and who will pay for it to take place? The sale of land for development and the planning process could be delayed enormously by negotiations and disputes regarding the GDV -particularly if consultants are asked to separately value and agree an exact figure. This will lead to delays and uncertainty over the level that will be set.
• When is the valuation date of the GDV? Will this valuation be locked-in or will there be a review mechanism? If review mechanisms are not considered, what happens where sales values increase or decrease? Or development costs (finance, build costs etc.) flex making the proposed scheme either unviable or more lucrative then predicted – will these costs of development be taken into account on an individual site basis or just in rate setting?
• Will there be an appeal process or other dispute resolution / ADR procedures? Without an appeal process, if a charging schedule was set inappropriately or a GDV valuation not agreed, development sites could sit vacant and become effectively sterilised.
• Will IL be payable as a lump sum or can it be paid in tranches for a multi-phase scheme, for example? The GDV of specific phases of a multi-phase scheme can increase or decrease through a project timeline. Will this be reviewed and the IL adjusted accordingly? If IL is payable as a lump sum on a multi-phase project this might mean an under or over-payment (if it can be afforded at all). In addition, if the revenues and costs of a scheme change through the phased build and sale programme, it might lead to undeliverable future phases and scheme abandonment.

Rather than providing early clarity to developers and local authorities on planning contributions, in their current form the IL proposals may simply result in a new form of viability and valuation negotiation – risking increased uncertainty, delay, disputes and potential development stagnation. They, therefore, leave me somewhat IL at ease. I welcome the “test and learn” approach in rolling out IL on a piecemeal basis to assess the impact of the proposals. However, in my view it would be better to learn first, test later. In order to do so much more engagement is required experts, professionals and stakeholders within the industry for any hope of making the proposals effective, workable and to ensure they meet the stated aim of stimulating the levelling-up of the country and enabling transformational regeneration.

Many of these queries will be answered through future regulations and these will give a better idea of the workability and potential success of the proposals. What is looking increasingly certain though is the importance of early development advice, land valuation and viability advice for both the public and private sector.

To discuss these issues and how we can support you with development or valuation advice in respect of a scheme you are promoting (or are impacted by), please contact Rob Quaile on 07760 330298 or robquaile@ardent-management.com or John Sayer on 07500 866113 or johnsayer@ardent-management.com