Timing of the provision of infrastructure and forward funding

51. Existing Section 106 arrangements can stipulate when critical infrastructure will be delivered, either physically or through the provision of funding. Some witnesses identified this as one of the strengths of the existing regime: it can provide a degree of certainty to both developers and the local community over the timing of provision which in turn can reduce community concerns regarding the over-burdening of existing provision and ease tensions between local communities and developers.[93] Not all witnesses agreed. SEERA, which identified the provision of infrastructure as one of the key constraints on the provision of housing in its area, has given a cautious welcome to PGS on the grounds that existing Section 106 arrangements are not delivering the infrastructure required when it is needed.[94] It is unclear how the Government envisage such certainty over timing of delivery being replicated within the PGS regime. While it is intended that PGS liability will be assessed at the point at which full planning permission is granted, it will not be collected until development begins. This means PGS monies will not be available for investment in infrastructure until after development has started yet in many instances infrastructure needs to be provided prior to start on site (or at least prior to occupancy of the development). In other instances, funding may need to be secured for key infrastructure before full planning permission can be granted, yet PGS funds will not be available until after development work has started, which cannot take place until planning permission has been granted.[95] Indeed the Government acknowledges in its consultation document that "a challenge remains in ensuring that necessary infrastructure […] that may no longer be provided directly through planning obligations, is delivered by alternative means in a timely manner to service new development".[96] It also states that "the Government commits to the following key principles for allocating revenues if PGS is implemented: […] PGS revenues will ensure growth is supported by infrastructure in a timely and predictable way".[97] However, the Government is silent on how it will ensure that PGS supports infrastructure in a timely and predictable way. We would welcome clarification from the Government on this specific point.

52. Our witnesses were keen to ensure that the significance of this issue was not underestimated. The TCPA, for instance, argued that forward funding was a key requirement of the PGS proposals, stating "the Government would have to make provision for forward funding infrastructure schemes […] otherwise the risk is that the impact on the development industry will be to slow it down and slow down the supply of housing".[98] The British Property Federation told us that the absence of forward funding "could have a very serious slowing down effect on the development process" and that pump-priming "undoubtedly would be of assistance and would overcome a degree of the timing issues, the commercial issues".[99] English Partnerships illustrated the problem by reference to a particular development near Bedford where the inability to secure advance funding for a by-pass had delayed a project to build 2,250 homes for 10 years (see para 55, below).[100]

53. We asked both John Healey MP, Financial Secretary to the Treasury, and Yvette Cooper MP, Minister for Housing, how the Government intended to ensure that an inability to provide infrastructure in a timely manner would not undermine development and growth in the housing supply should PGS be implemented. Both assured us that the Government was aware of the problem.[101] Mr Healey told us that "the solution is not necessarily strongly to be found within the potential for a planning gain supplement system" although he noted that there was flexibility with PGS for local authorities to pool resources to provide forward funding.[102] Both Ministers suggested that local authorities could secure funds to provide timely infrastructure through a "prudential borrowing regime" in which they could take out loans against expected PGS receipts.[103] If the Government is to proceed with this suggestion, we will require regular updates on progress and further clarification on the details of the operation of the scheme.

54. We accept that PGS is not intended to be the sole vehicle for providing infrastructure investment. Even so, neither of the proposals put forward by Ministers—pooling or borrowing—seems satisfactory. Local authorities may well choose to pool PGS resources—and we welcome the flexibility within the system which allows this—but that does not change the fact that those resources will not be available at the point at which much investment in infrastructure is required to stimulate and support development until PGS begins to generate revenue. The proposal that local authorities should borrow against expected PGS receipts is entirely unattractive. It would be an unnecessarily expensive option for local authorities. Moreover, the primary purpose of PGS is to provide the resources for infrastructure to free up land for development and support housing growth, not to enable local authorities to acquire debt. That would be a retrograde step from the existing arrangements. Servicing debt is not an appropriate use for PGS revenue.

55. Even under the current Section 106 arrangements, a degree of additional forward funding has proved essential and a number of locally tailored solutions have been developed in recent years. In Milton Keynes, where a tariff-based approach to planning obligations has been adopted, English Partnerships, through the Milton Keynes Partnership Committee and with approval from DCLG and the Treasury, have provided forward-funding to "support infrastructure provision for wider community benefits".[104] Jane Hamilton of the Milton Keynes Partnership told us that it is "critical that English Partnerships […] is able to forward fund because there is simply not the mechanism to get any sort of rolling fund up and running in advance of development […] even this year, before there is any development on the ground in Milton Keynes, English Partnerships is funding in the order of £8 million worth of infrastructure".[105] Similarly, in West Bedford, English Partnerships has provided forward funding to build the required by-pass in return for a share of the land value uplift created by the development.[106] The South East England Regional Assembly has proposed a Regional Infrastructure Fund—a revolving loan fund— to advance fund the delivery of infrastructure".[107]

56. Part of the strength of these innovative solutions to timely infrastructure provision is that they have been specifically tailored to local needs and local circumstances. In Milton Keynes, for instance, an unusual set of circumstances prevail: there is a single consortium of landowners, a single body capable of providing forward funding and the sites designated for development are primarily greenfield, where issues of discounting against the costs associated with regeneration and land remediation rarely arise.[108] Ms Dear of Nottingham County Council told us that tariff-based models, such as those developed in Milton Keynes and Ashford and under development in Reigate & Banstead, would not work in her area because "there are too many factors to take into account".[109] Indeed English Partnerships told us that it was not convinced that any one single solution could work nationwide.[110] The Audit Commission did not wish to lose the benefits to local communities of Section 106 agreements and proposed that the current system should be retained in parallel at least for a transitional period.[111] Local solutions to forward funding could be permitted to persist alongside the national PGS regime. This may be a particularly appropriate solution for growth areas and areas where there is a single body able to provide forward funding, as there is in Milton Keynes.

57. A substantial element of Government forward funding to enable infrastructure to be provided in a timely manner is essential to the successful operation of PGS. Without substantial forward funding there is no way that PGS can deliver the certainty for local authorities and developers which is essential if the tax is to be effective and to carry the confidence of stakeholders. We are adamant that the Government should not proceed with PGS unless and until it has made provision to bridge the time difference between the need for expenditure and the receipt of PGS funding.

Funding strategic infrastructure

58. In its consultation document the Government states that "while the majority of PGS revenues would be recycled directly to the local level, a significant proportion would be used to deliver strategic regional, as well as local, infrastructure. The Government proposes that this be done through an expanded and revised Community Infrastructure Fund".[112] Established under the 2004 Spending Review and endowed with £200 million over two years, the Community Infrastructure Fund (CIF) supports housing growth in the four Growth Areas by investing in transport infrastructure.[113] The consultation document seeks views on revising the geographic coverage and eligibility criteria of the CIF to make it an appropriate vehicle to support strategic infrastructure more broadly.[114] At the same time, the Government announced a cross-cutting review, to be undertaken as part of the 2007 Comprehensive Spending Review, to "determine the social, transport and environmental infrastructure implications of housing growth" and to ensure that Government resources were effectively targeted to support housing and population growth.[115]

59. Funding strategic infrastructure, whether or not the chosen vehicle is a revised form of the CIF, is an essential aspect of the Government's PGS proposals. As English Partnerships said, "PGS pivots on the distinction between site-specific infrastructure and the broader specific infrastructure which the Community Infrastructure Fund will make available".[116] We welcome the Ministers' commitment that the PGS revenues allocated to strategic infrastructure will be additional to rather than instead of funds already provided through other means.[117]

60. To date, CIF resources have been allocated by the DCLG and the Treasury. Several of our witnesses argued that, if the CIF were to be broadened beyond its current scope of funding transport infrastructure in the Growth Areas, a wider range of organisations would need to be involved in determining funding criteria and local and regional planning requirements would need to be reflected in funding decisions.[118] The Minister for Housing agreed that it would be appropriate to involve regional and sub-regional bodies in the funding process, stating that "the more you can get that kind of local centred prioritisation, either a sub-regional or regional sense of prioritisation; you will be far more effective in terms of allocating funding".[119] Involving other statutory consultees as well as regional interests in defining the processes and funding criteria and in determining allocations of strategic infrastructure funds, would provide greater assurance that all interests are considered and ensure that funding decisions will more closely reflect Local Development Plans and Regional Spatial Strategies. This would be consistent with the model for regional input into funding decisions on major transport projects. It may also go some way to alleviate the concerns of those who argue that the proposed mechanisms, "although offering the local area the opportunity to express their priorities" would result in decisions being made "at a level too remote from the community's needs".[120] We recommend that the criteria and priorities for strategic infrastructure funding are determined through a broad and inclusive process, incorporating the views of not only regional and sub-regional bodies but all statutory planning consultees.

61. We note that strategic infrastructure funding supported by PGS revenue will be subject to the same time delay between the need for investment and the availability of resources as we identified for those PGS receipts recycled to local areas. The Government will need to provide a significant element of pump-priming in respect of strategic infrastructure as well as forward funding local infrastructure requirements.

Impact on the supply of affordable housing

62. The Government's proposals for PGS and scaled-back Section 106 arrangements include retaining the provision of affordable housing within the scope of planning obligations. In its consultation document, it said that "Affordable housing delivery is a Government priority and changing the means by which it is delivered could make it more difficult to meet demand and create mixed communities".[121]

63. Ministers told us that there were two reasons why it was considered appropriate to retain affordable housing within the scope of planning obligations when all other matters not directly related to the immediate site environment are to be excluded. First, if affordable housing was removed, it would prove very difficult to create the sort of communities which the Government seeks. The Minister for Housing said that the Government "made the decision to keep affordable housing within the section 106 approach because in practice you really want it to be considered as an on site delivery. If you are going to deliver mixed communities, you want affordable housing to be built into the developer's attitude and conception of the site from the beginning".[122] In general our witnesses agreed. SEERA, for instance, argued that "severing the link between the planning application and the provision of affordable housing would limit the ability of a local authority to secure on-site provision of affordable housing, essential for the creation of sustainable mixed communities".[123] Secondly, Government did not want to take any action that might jeopardise current performance, especially over any transitional period.[124] The Audit Commission agreed, telling us that it supported the retention of affordable housing within the scope of planning obligations "because affordable housing, as an exception to the normal 'mitigation' rule of section 106, is working reasonably well".[125] The National Housing Federation agreed.[126]

64. Certainly planning obligations currently make a considerable contribution to the supply of affordable housing. In 2003-04 around half of the 26,541 affordable houses provided were the result of Section 106 agreements.[127] Data from the Housing Investment programme indicates that 16,380 affordable homes were delivered in 2003-04 through planning obligations and that in addition developers, in lieu of physical provision, contributed land to the value of approximately £37 million and made direct payments to local authorities amounting to £32 million.[128] Sheffield University and the Halcrow Group estimate that this equates to a total value of affordable housing obligations delivered in 2003-04 of some £600 million.[129] In the absence of planning obligations this investment would have to be funded by the Government from general taxation.

65. There is, however, a significant difference between the value of affordable housing delivered and the value of obligations agreed. While developers contributed some £600 million to affordable housing through Section 106 agreements in 2003-04, the value of obligations entered into in the same year is estimated to be twice that, some £1.2 billion.[130] The Minister told us that there was "no certainty" within Government on why such a gap existed although, as several witnesses pointed out, it may in part be accounted for by an increasing rate of development as agreements are entered into some years before delivery. A shortfall on such a scale however suggests that planning obligations may not be realising their full potential in terms of affordable housing. We welcome the Minister's assurance that the Department of Communities and Local Government was working to establish the reasons behind the shortfall between Section 106 affordable housing commitments and delivery.[131] We look forward to seeing the outcomes of this research.

66. There are also wide variations in the contributions secured by local authorities through planning obligations to affordable housing.

Table 3: The number of and variations in planning agreements

		Dwellings	Offices and light industrial	General industry and warehousing	Retail distribution and servicing	All other major developments
ALL	No. of agreements Average per Local Authority	883 8.1	89 0.8	41 0.4	73 0.7	111 1
Urban England	No. of agreements Average per Local Authority	151 9.4	28 1.8	3 0.2	19 1.2	25 1.6
London	No. of agreements Average per Local Authority	75 9.4	18 2.3	1 0.1	4 0.5	12 1.5
Rural England	No. of agreements Average per Local Authority	206 6.2	7 0.2	18 05	9 0.3	24 0.7
Rural towns	No. of agreements Average per Local Authority	136 9.1	3 0.2	6 0.4	14 0.9	13 0.9
Established urban centres	No. of agreements Average per Local Authority	59 7.4	1 0.1	5 0.6	4 0.5	5 0.6
Prosperous Britain	No. of agreements Average per Local Authority	256 8.8	32 1.1	8 0.3	23 0.8	32 1.1

Source: Department of Communities and Local Government, Valuing Planning Obligations: Final Report, May 2006, table 2.5

Such variations confirm the impression that in many instances planning obligations at present are not delivering their full potential for affordable housing.

67. As planning obligations are to be taken into account in the calculation of planning value (PV), the higher the value of affordable housing secured, the lower the land value uplift upon which PGS liability will be assessed. The better a local authority does in securing affordable housing, the lower the PGS receipts will be, thus creating a perverse incentive for local authorities to minimise rather than maximise affordable housing provision through planning obligations.[132] To mitigate this risk, SEERA proposed that an upper limit be set on the value of affordable housing which could be offset against calculations of PV.[133] We do not favour this approach as it would infringe upon local authorities' ability to reach arrangements with developers which best meet the needs of their local area. We recommend strongly that the Government, through planning guidance and target setting, ensure that meeting affordable housing targets is not jeopardised in favour of revenue raising.

68. At present Section 106 agreements relating to affordable housing are typically only reached in respect of residential developments over a certain, often locally set, size threshold. PGS will extend the scope of land value capture to a much broader range of developments (see para 22). In some instances, such as certain industrial developments, it may not be appropriate or desirable for affordable housing to be delivered on site. It is nevertheless appropriate that these developments should also make a contribution to the supply of affordable housing. As the RTPI argued, "there is a strong case for requiring commercial development to contribute to development of the types of housing that many workers will need in order to staff that particular development".[134] We recommend that the local authorities remain free to require developers' contributions to affordable housing even where such provision is not co-located with the related development. Local authorities should also be able to use PGS revenue to support affordable housing where appropriate.

69. Overall, the provision of affordable housing under the proposed mix of scaled-back Section 106 arrangements and PGS depends not so much on the detail of how affordable housing is delivered as on the success of the overall package itself. If the additional cost which PGS will impose on developers outweighs the benefits it offers to them in terms of certainty, transparency and infrastructure provision to the extent that land is not brought forward for development, there will be a detrimental effect on affordable housing as well as on all other forms of development. Retaining affordable housing within the scope of planning obligations is wholly appropriate: it will serve to ensure that affordable housing has the first call on any land value uplift and it will provide a means to deliver sustainable mixed communities. Even so, if the potential for PGS to increase the supply of affordable housing is to be fully realised, the Government needs to increase the scope of developments subject to Section 106 agreements beyond the current limits, to ensure affordable housing is eligible to benefit from PGS receipts and to facilitate more local authorities making fully effective use of planning obligations.

94   Ev 50. See also Hewdon Consulting, The Administration of Planning Gain Supplement: Final Report, June 2006, para 1.5 Back

95   Ev 56, 63 Back

96   Planning-gain supplement, para 5.18 Back

97   Planning-gain supplement, para 6.4 Back

98   Q 23 Back

99   Q 65 Back

100   Q 122 Back

101   QQ 229, 325 Back

102   Q 229 Back

103   QQ 229, 325 Back

104   Ev 28. The Milton Keynes Partnership is a sub-committee of English Partnerships and the local planning authority for the Milton Keynes expansion areas. Back

105   Q 120 Back

106   Q 122 Back

107   Ev 50. See also QQ 115-20 Back

108   QQ 104, 107 Back

109   Q 107 Back

110   Q 124 Back

111   Ev 53 Back

112   Planning-gain consultation, para 6.8 Back

113   The four growth areas are Thames Gateway, Milton Keynes/South Midlands, London-Stansted-Cambridge-Peterborough and Ashford. Back

114   Planning-gain consultation, para 6.10 Back

115   Planning-gain consultation, para 6.10 Back

116   Q 169 Back

117   QQ 315, 324. See also Q 171 Back

118   See, for example, Ev 20, 59, 109 Back

119   Q 314 Back

120   Ev 72 Back

121   Planning-gain consultation, para 5.20 Back

122   Q 289 Back

123   Ev 50. See also, for example, Ev 97; Q 18 Back

124   Q 305 Back

125   Ev 53 Back

126   Ev 17 Back

127   Ev 64 Back

128   Department for Communities and Local Government, Valuing Planning Obligations in England: Final Report, May 2006, para 3.4 (hereafter Valuing Planning Obligations) Back

129   Valuing Planning Obligations, para 3.13 Back

130   Valuing Planning Obligations, para 3.21 Back

131   Q 289  Back

132   Ev 50. See also, for example, Ev 74; Q 111 Back

133   Q 111 Back

134   Ev 97 Back