149.There have been three attempts in the post-war era to capture the increases in land value that result from planning permission and housing development. Subsequently, a Mandatory Tariff was proposed but not implemented in 2001, and an optional planning charge was only partially implemented as an alternative to Section 106 agreements. The Barker Review of 2004 recommended a planning-gain supplement when planning permission was granted. Criticism of it, including from one of our predecessor committees, meant it was abandoned in 2006. Instead, in 2010, the Community Infrastructure Levy (CIL) was introduced.
150.The CIL is a locally determined, fixed-rate development charge, and is optional. The CIL charge is levied in terms of £ per square metre, and subject to two rounds of statutory public consultation and review by an Independent Examiner. Different areas of a planning authority and types of development can have different charging rates. Local authorities must publish a charging schedule and a list of priorities for expenditure. The CIL operates alongside Section 106 agreements. These agreements are legally enforceable contracts between the developer and the LPA to ensure the delivery of new infrastructure, including highways, public transport, education, community and cultural facilities, environmental mitigation and affordable housing. The main difference between the two is that the Section 106 agreements raises revenue for infrastructure mainly associated with a particular planning decision and its acceptability, whereas the CIL is intended to fund development across a wider area.
151.In 2017 a Government-commissioned review into the CIL was published. It found that the CIL was not raising as much money as central government and local authorities had expected, that developers preferred Section 106 over the CIL for large mixed-used sites, and the CIL receipts did not enable all necessary infrastructure to be delivered. They recommended introducing “a broad and low-level Local Infrastructure Tariff (LIT) and Section 106 for larger developments.” The LIT would be based on a national formula, based on local market value set at a rate of £ per square metre, with few or no exemptions. Where the cost of collection would be too high for local authorities, the levy would be charged on gross development. Small developments of 10 units or less should only pay LIT. However, in 2018, when the Government held a consultation on reforms to the CIL they did not recommend introducing a LIT. The Government did express support for the Mayoral Community Infrastructure Levies that apply in London and other mayoral Combined Authorities. Nevertheless, several submissions to our inquiry showed continuing support for the 2017 recommendations.
152.In 2018 our predecessor committee published a report on land value capture. Among its main recommendations were urging further consideration of the 2017 review’s Local Infrastructure Tariff, and that in the meantime the Government should reform the CIL to reduce exemptions and its complexity. It also argued that more uplift in land value could be captured. For instance, it urged reform of the Land Compensation Act 1961, moving away from the ‘hope value’ currently received by landowners from local authorities when land is compulsorily purchased. This value includes that which would result from speculative future planning permission. Instead the valuation should reflect the costs of providing affordable housing, infrastructure, services, and the profit the landowner would have made. Such changes could make a new generation of New Towns feasible. The Compulsory Purchase Order regime should be simplified, and decisions made locally. The report supported retaining Section 106 and improving the resources for local authorities to negotiate with developers. Section 106 should also not be undermined by the otherwise commendable idea of a Strategic Infrastructure Tariff, which could be extended across the country and fund major infrastructure projects. In 2019 a House of Lords Committee also recommended the Government establish a six-month inquiry into land value capture.
153.We reiterated our commitment to reform of the Land Compensation Act 1961 in our recent report on social housing. Our terms of reference for this inquiry asked what progress had been made following the 2018 report. The main change noted in evidence was the increased transparency of viability assessments. Furthermore, the basis for judging the viability of schemes has shifted to ‘existing use value’ with a premium that considers Section 106 and CIL contributions. Otherwise progress had been limited. Reforms are still needed to the Land Compensation Act 1961. The National Housing Federation argued the White Paper had gone much further, through proposing the abolition rather than reform of Section 106 and the CIL.
154.We were disappointed that very little progress has been made in implementing the recommendations of our predecessor committee’s report into land value capture. The Government’s response to our social housing report did not engage with our renewed recommendations about reforming the Land Compensation Act 1961, and the promised consultation in the response for autumn 2020 has not appeared. We call upon the Government to act upon the whole range of recommendations in our predecessor committee’s Land Value Capture report.
155.MHCLG sponsored research that was published in August 2020 showed that developers contributions in England in the financial year of 2018–19 paid through CILs and Section 106 agreements were valued at £7 billion (a real terms increase of 9% from 2016–17). The contributions were made up of 67% going into affordable housing, 18% from other parts of Section 106 contributions, 12% from the CIL and 3% from the Mayoral CIL. 90% of local authorities attached planning conditions using Section 106. The majority of developer contributions agreed were in London and the South East, although London’s share of the overall total had fallen from 38% in 2016–17 to 28% in 2018–19. By the end of 2019 48% of LPAs had adopted CILs compared to 39% in 2016–17.
156.The Government White Paper proposed to replace Section 106 and the CIL with a new National Infrastructure Levy. This would be “a nationally-set value based flat rate charge.” Either a single or varied rate could be set by central government. It would be charged on the final value of a development and at the point of occupation. There would be a minimum threshold below which it would not be charged. Councils would be able to borrow against Infrastructure Levy revenues to fund infrastructure. Residences created through permitted development rights would be subject to the levy. The Infrastructure Levy could cover the provision of affordable housing, with in-kind delivery built on-site being discounted from the Levy charge. Local authorities would have greater flexibility over using levy funds and could demand cash contributions if no affordable housing provider was prepared to purchase the homes because they were poor quality. The Government argued that this approach would raise more revenue than under the current system, deliver as much or more affordable housing and remove the need for months of negotiations of Section 106 agreements. They also proposed retaining the Mayoral Community Infrastructure Levies, which apply in London and the mayoral combined authorities, “as part of the Infrastructure Levy to support the funding of strategic infrastructure”.
157.The CIL came in for rigorous criticism, being described as “both complicating and challenging”. The CIL “does not work in low growth areas”, and “[t]he levy has been subject to many changes, has not always been spent on infrastructure critical to development and does not work well for large and complex sites.” The Federation of Master Builders’ survey in 2020 found 55% of their respondents thought the CIL and Section 106 rendered sites unviable, and thought “that CIL is arbitrary and unpredictable between different authorities”, resulting from “viability concerns” and “exemptions”. However the City of London Corporation stated that the CIL and Section 106 were working well, providing valuable contributions, both financial and in training and skills, and thus “Wholesale replacement with a new system would be a retrograde step.” There was support for the mayoral CIL. The GLA told us that over £743 million had been collected in 2019–20, to help towards delivering Crossrail.
158.Opinions about Section 106 were more positive than those of the CIL. The National Housing Federation drew this distinction, arguing that “In contrast to CIL and previous levies—and as the committee has recognised—Section 106 has been relatively successful and has scope to be improved.” Their representative expressed a wish to preserve Section 106. Section 106 was also praised for helping deliver affordable housing. Particular stress was placed on how Section 106 imposes legally enforceable obligations on developers, facilitating affordable housing and sustainable transport. It was noted that the contracts existing under Section 106 agreements were not envisaged under the new levy. Different infrastructure related organisations highlighted the importance of Section 106 agreements. This fed into worries about the ambiguity of how the new Levy would operate in relation to nuclear legacy sites or decommissioning.
159.This was not a view shared by all. The Centre for Cities termed Section 106 “a deeply inefficient form of taxation, which delays development by inducing trench-warfare negotiations between developers and local authorities over planning obligations.” The suspicion of secretive negotiations persisted despite the reforms to viability arrangements, alongside unhappiness at having to renegotiate them when developers offered a new viability case. The LGA acknowledged councils “often do not have sufficient skills and capacity to evaluate viability appraisals and so outsource them to independent consultants for advice. In contrast developers are well resourced.” Local authorities were in turn criticised for providing a “shopping list of aspirations” to developers to meet through Section 106. It was argued that both the CIL and Section 106 were also too narrowly focused, for instance with limited ability to fund different modes of transport.
160.The Minister defended reforming Section 106—he stated approximately 80% of councils had told him that Section 106 agreements do not work effectively, and were seen as opaque, slow, and subject to renegotiations that alter the end outcomes. Simon Gallagher did acknowledge that the non-financial functions of Section 106 agreements would need to be retained in a new system.
161.The Government must clarify how it will replicate the binding nature of Section 106 agreements and which parts of the approach will be retained. If they cannot be easily replicated, especially without creating additional complexity, then we recommend retaining Section 106 agreements.
162.As with other aspects of the Government’s reforms, significant parts of our evidence were devoted to lamenting the lack of details about aspects of the proposed infrastructure levy. Homes for the South West stated:
The current proposals for an Infrastructure Levy (IL) to replace the Community Infrastructure Levy (CIL) and Section 106 planning obligations provide very little detail regarding how delivery will take place; how levels will be set, what the makeup will be, or indeed how it will be secured, delivered, if needed, varied and monitored on a site by site basis.
This was echoed by the Home Builders Federation, and the British Property Federation who were concerned about whether the levy would apply to office developments and if viability assessments would persist. The LGA stated “It is unclear in the White Paper, however, how any new Infrastructure Levy will work with Neighbourhood Plans.”
163.Daventry District Council provided a mixed view. They noted that the levy would “remove ‘cliff edge’ situations” where “a slight difference in [the] scale of development results in markedly different levels of contribution.” However, they noted site boundaries could be used to game the system by excluding adjoining land. They worried about the loss of the non-financial aspects of Section 106 agreements (e.g. restrictions on land use), and the delivery of affordable housing.
164.It was suggested that the white paper should have gone further—for example taxing increases in land value, partially removing capital gains tax relief from principle private residences, and restricting the ability of developers to “claim later that the site is no longer financial viable”. Local authority organisations also urged the strengthening of compulsory purchase orders (CPOs) to enable them to “bring forwards stalled sites.” The CPRE urged that “Local councils should have first refusal on buying development land”, alongside confiscating planning permissions where build-out was too slow.
165.In considering the Government’s reforms, we examined how much money the shift to the Infrastructure Levy was likely to raise. We were given figures ranging from 25–30% of developmental value to 50–60% of land value for how much land value capture already takes place. The District Council Network argued that “Currently CIL and S106 are fairly limited in their effectiveness of capturing land value uplift.” Shelter cited the Centre for Progressive Policy’s estimate that reforming the Land Compensation Act 1961 could raise £214 billion over 20 years.
166.We were told by the RTPI that because of the challenges of setting a single levy for the whole country it was difficult to judge how much revenue would be raised. Hackney Council expressed a hope that there would be an increase in the amount captured, arguing for “a genuinely meaningful contribution to the costs incurred.” This echoed other calls for additional revenues to be raised through the reforms. The Association of Directors of Environment, Economy, Planning and Transport (ADEPT) thought that CIL rates were often too low and brought in less than Section 106 contributions—and feared the same would happen with the national infrastructure levy. Detailed assessment by academics submitted to us suggested the Infrastructure Levy would not raise much more than the current Section 106 and CIL contributions. The amount of revenue raised would depend on the rate of the levy, the threshold above which it is charged, and how much prioritisation is given to affordable housing compared to other infrastructure. There would be some additional funding resulting from the levy being applied more widely to non-residential developments.
167.The Minister argued there would be more revenue due to the assessment of “land value on its final developable value” rather than assessing the value prior to construction.
168.There was opposition to the idea of a single national rate for the new levy. This was mainly due to the differences in land values across the country. Furthermore, we were warned that charging a single rate would risk disproportionately impacting areas with lower land values but higher infrastructure costs - notably in northern towns and cities. A 20% national levy rate would be both too high for low land value areas whilst not capturing much from higher value areas. The British Property Federation argued “[t]he more any levy can be tailored to individual circumstances the more it is likely to raise.” In contrast, the Federation of Master Builders applauded a single rate calculated “in a clear and transparent way” and “in a consistent way across the country”. The Minister stated that there had been no final decision over whether to have a national rate, or several localised ones.
169.The White Paper stated that “Revenues would continue to be collected and spent locally.” This approach was supported by St Albans Civic Society who saw local spending as necessary to ensure public trust. Local authority representatives and the RTPI also wanted funds raised locally to be spent locally, although it was acknowledged it would be insufficient to cover “strategic infrastructure”. There was also a call for a stronger role for neighbourhood forums in deciding on local priorities for spending the levy revenue.
170.In contrast the TCPA told us:
There is recognition but no discussion in the White Paper of the single biggest flaw of the current approach relating to capturing development values, which is its tendency to yield more for high demand communities providing no mechanism for redistribution for those places requiring regeneration.
The Canal and River Trust also supported the need for redistribution. We were also told that the lack of redistribution would worsen existing regional inequalities. The RICS noted that the lack of land value capture “does not mean the funding is not needed for the infrastructure”. We were also told that the debate over land value capture reflected “London-centric assumptions on land economies” and that many parts of the country, including in south-east England, had “viability challenges.”
171.The Minister explained a decision needed to be made about a national or a localised levy (with different rates in various parts of the country) before considering the questions around redistribution: “We will have to see where it lands and then what we need to do to make sure that we do not see areas disadvantaged.”
172.The Government has proposed charging the levy at the point of the occupation of a property, and letting local authorities borrow against the expected levy revenue to finance infrastructure in advance. It was noted that this put the risk onto local authorities, who might have to borrow at relatively high rates “because of uncertainties about value and timing of such income.” There were also complaints there would be gaming of the system. There were calls for clarity on whether residual land value or gross development value would be used. We were warned it could discourage brownfield sites being brought forward. The change would also increase the uncertainty surrounding the delivery of infrastructure linked to developments, which in turn would reduce the amount of infrastructure available. The British Property Federation also told us that while paying at the end “has cashflow attractions but would raise considerable challenges around trigger points and valuations” and their members had fears over the delivery of infrastructure on time.
173.Developers did express support for the change. We were told that moving to the occupation point would help small developers, “obviate some of the issues around viability”, and would be more efficient through being applied to every development. When asked about the possible burden on councils, the Minister said:
We want to design a system that protected local authorities but does not discourage developers, particularly smaller developers, from developing because the levy cost might be a barrier for entry to them.
174.There was some scepticism about funding affordable housing through the levy, either through payments or through in-kind delivery. It was noted that the levy would be less prescriptive than Section 106 in its requirements for affordable housing. These concerns fed into fears the new levy could result in less affordable housing. The GLA also singled out the infeasibility of handing affordable housing back to developers “if the subsidy from the affordable housing is greater than the amount of Levy to be paid.” The National Housing Federation, the main trade body for housing associations, stated:
We are also unclear on what the promised “as much, or more” affordable housing under the new system refers to. Is it the equivalent to the current system, which delivered 28,000 affordable homes through Section 106 in 2018/19–or the number in existing affordable tenures anticipated after proposed changes to introduce First Homes and raising the Section 106 threshold? The latter would mean a major reduction in the supply of current affordable tenures.
It was also argued that including affordable housing in the levy would require proper appreciation of the costs of different types of affordable housing, whose values often fluctuates over time, resulting in greater complexity and risk for developers. The District Councils Network argued the risks of payment in kind for affordable housing was twofold. It could either leave insufficient revenue for other infrastructure, or spending on infrastructure would mean less affordable housing is delivered. They preferred on site delivery as being more cost effective.” Conversely, the City of London Corporation welcomed the ability of affordable housing to be delivered off-site. One way of breaking the potential conflict came from the RTPI, who suggested that the Government increase grant funding. This could build 145,000 social homes a year (90,000 at social rent), with reduced reliance on developer contributions.
175.At present, affordable housing contributions should not be sought for developments of fewer than 10 housing units, except in designated rural areas where the threshold is five units or fewer. The Government consultation proposed temporarily raising the threshold for sites exempt from providing affordable housing to 40 or 50 dwellings. Supporters of this move emphasised it was necessary to “increase capacity in the housing market”, through promoting “micro-housebuilders”. However there were also concerns. We were told that the rural exemption from the higher threshold would only apply to 30% of parishes with populations of 3,000 or fewer. There were also fears there would be a loss of affordable housing generally, and particularly in rural areas. This lack of affordable housing would also leave smaller builders more vulnerable to a market downturn.
176.There is a case for reforming the Community Infrastructure Levy, but it is less clear that Section 106 agreements needed replacing. The Government should be mindful of the cumulative effect of the challenges posed to affordable housing provision by the proposed abolition of Section 106, the raising of the threshold for small sites exempt from affordable housing, and the expansion of permitted development rights. We also welcome the Government’s decision in April 2021 not to proceed with a higher threshold for exemption from having to provide affordable housing to sites of forty or fifty dwellings. The Government should reconsider the proposals of the 2017 review of the Community Infrastructure Levy as an alternative to their national Infrastructure Levy. If the Government does proceed with its Infrastructure Levy proposal, a localised rate should be set reflecting local land values. The Government needs to clarify who will set these localised rates, and whether these will differ by local authority or some other sub-national area. The Government must guarantee there will be no reduction in the amount of affordable housing, including social housing, being delivered as a result of their proposed changes. The Government must recognise that the Levy will not raise enough money to pay for all infrastructure, especially large scale sub-regional and regional investments across much of the country. Further inequalities will need to be addressed through redistribution of Levy funds and through increases in infrastructure spending from central Government. We also recommend leaving the Mayoral Infrastructure Levies in place.
491 In 1947 a 100% development charge was set on value accruing because of the granting of planning permission. It was repealed in 1954. In 1967 a ‘betterment levy’ of 40% was introduced. That levy was repealed in 1970. A third effort took place in the 1970s. A Development Gains Tax was introduced in 1973, followed by a Development Land Tax introduced in 1976 and levied at 66.6% to 80% of development value. This tax was abolished in 1985.
492 Kate Barker, , (2004), p 87, recommendation 26
494 MCHLG, , November 2020
495 MHCLG, , February 2017
496 MHCLG, , March 2018; MHCLG, , October 2018
497 (Philip Barnes), Home Builders Federation (), Peel L&P ()
499 House of Lords, Time for a strategy for the rural economy, Select Committee on the Rural Economy, Report of Session 2017–19, , , para 361
501 TCPA (), Richard Harwood OBE QC (Joint Head of Chambers at 39 Essex Chambers) (), Peel L&P ()
502 TCPA (), Rutland County Council (), CPRE the countryside charity (), District Councils’ Network (), Bartlett School of Planning, University College London (), Royal Town Planning Institute (), Land Promoters and Developers Federation (), Shelter (), Newcastle City Council ()
503 NALC (), Greater London Authority (), Homes for the South West (), CPRE the countryside charity (), The Chartered Institute of Building (), PricedOut (), Shelter (), Action with Communities in Rural England (ACRE) ()
504 National Housing Federation ()
505 MHCLG, , August 2020, pp 8–10
506 MHCLG, , pp 47–53; (The Minister)
507 Pocket Living ()
508 Urban Vision Enterprise CIC, D2H Land Planning Development ()
509 Emeritus Professor Tony Crook; Hon Professor Vincent Goodstadt; Emeritus Professor Christine Whitehead; Emeritus Professor John Henneberry; Hon Professor Janice Morphet; Professor Cecilia Wong; Professor Malcolm Tait; Hon Professor Kevin Murray; Professor Gavin Parker; Professor Nick Gallent ()
510 The Federation of Master Builders (FMB) ()
511 City of London Corporation ()
512 Greater London Authority ()
513 National Housing Federation ()
514 (Kate Henderson)
515 Shelter (), National Housing Federation ()
516 Daventry District Council (), Savills (), Stonewater (), Association of Directors of Environment, Economy, Planning & Transport (), Emeritus Professor Tony Crook; Hon Professor Vincent Goodstadt; Emeritus Professor Christine Whitehead; Emeritus Professor John Henneberry; Hon Professor Janice Morphet; Professor Cecilia Wong; Professor Malcolm Tait; Hon Professor Kevin Murray; Professor Gavin Parker; Professor Nick Gallent ()
517 National Grid ()
518 Nuclear Legacy Advisory Forum (Nuleaf) ()
519 Centre for Cities ()
520 Just Space ()
521 (Andrew Longley)
522 Local Government Association ()
523 Paul G. Tucker QC ()
524 Urban Mobility Partnership ()
525 (The Minister)
526 (Simon Gallagher)
527 Homes for the South West ()
528 Home Builders Federation ()
529 British Property Federation ()
530 Local Government Association ()
531 Daventry District Council ()
532 Rother Association of Local Councils (RALC) (), North Southampton Community Forum ()
533 YIMBY Alliance, London YIMBY, Oxford YIMBY, Brighton YIMBY, PricedOut, Cambridge YIMBY ()
534 Rother Association of Local Councils (RALC) ()
535 District Councils’ Network (). See also Local Government Association ()
536 CPRE - The Countryside Charity ()
537 CLA (), LSE London (), GL Hearn ()
538 District Councils’ Network ()
539 Shelter ()
540 (Richard Blyth)
541 London Borough of Hackney ()
542 Local Government Association (), Anchor Hanover ()
543 Association of Directors of Environment, Economy, Planning & Transport ()
544 Emeritus Professor Tony Crook; Emeritus Professor John Henneberry; Emeritus Professor Christine Whitehead ()
545 , (The Minister)
546 Pocket Living (), North Northamptonshire Joint Planning and Delivery Unit (), (Lisa Fairmaner), (Richard Blyth), (Paula Hewitt)
547 Homes for the South West ()
548 Emeritus Professor Tony Crook; Emeritus Professor John Henneberry; Emeritus Professor Christine Whitehead ()
549 British Property Federation ()
550 The Federation of Master Builders (FMB) (), (Brian Berry)
551 , (The Minister)
552 MHCLG, , p 49
553 St Albans Civic Society ()
554 (Lisa Fairmaner) (Andrew Longley), (Richard Blyth)
555 Neighbourhood Planners London ()
556 TCPA ()
557 Canal & River Trust ()
558 Professor Malcolm Tait (Professor of Planning at University of Sheffield); Dr Andy Inch (Senior Lecturer in Urban Studies and Planning at University of Sheffield); Dr Aidan While (Senior Lecturer in Urban Studies and Planning at University of Sheffield); Dr Madeleine Pill (Senior Lecturer in Urban Studies and Planning at University of Sheffield) (), Shelter (), Newcastle City Council (), (Kate Henderson), (Paula Hewitt), (Philip Waddy)
559 (Tony Mulhall)
560 Urban Vision Enterprise CIC, D2H Land Planning Development ()
561 (The Minister)
562 Emeritus Professor Tony Crook; Hon Professor Vincent Goodstadt; Emeritus Professor Christine Whitehead; Emeritus Professor John Henneberry; Hon Professor Janice Morphet; Professor Cecilia Wong; Professor Malcolm Tait; Hon Professor Kevin Murray; Professor Gavin Parker; Professor Nick Gallent (). See also England’s Economic Heartland (Sub-national Transport Body) (), District Councils’ Network (), Professor Malcolm Tait (Professor of Planning at University of Sheffield); Dr Andy Inch (Senior Lecturer in Urban Studies and Planning at University of Sheffield); Dr Aidan While (Senior Lecturer in Urban Studies and Planning at University of Sheffield); Dr Madeleine Pill (Senior Lecturer in Urban Studies and Planning at University of Sheffield) ()
563 Daventry District Council (), Mr Richard Gilyead (), London Borough of Hackney ()
564 Ark Data Centres ()
565 Homes for the South West ()
566 UK Women’s Budget Group (), Kent Association of Local Councils (), TCPA (), Institution of Civil Engineers (), Professor Malcolm Tait (Professor of Planning at University of Sheffield); Dr Andy Inch (Senior Lecturer in Urban Studies and Planning at University of Sheffield); Dr Aidan While (Senior Lecturer in Urban Studies and Planning at University of Sheffield); Dr Madeleine Pill (Senior Lecturer in Urban Studies and Planning at University of Sheffield) (), Association of Directors of Environment, Economy, Planning & Transport (), North Northamptonshire Joint Planning and Delivery Unit (), Greater London Authority (), Shelter (), (Lisa Fairmaner)
567 British Property Federation ()
568 The Federation of Master Builders (FMB) (), (Philip Barnes and Brian Berry)
569 Pocket Living ()
570 District Councils’ Network ()
571 Centre for Cities ()
572 (The Minister)
573 Rother Association of Local Councils (RALC) ()
574 Midland Heart ()
575 Homes for the South West (), Anchor Hanover (), Just Space (), Action with Communities in Rural England (ACRE) ()
576 Greater London Authority ()
577 National Housing Federation ()
578 Pocket Living ()
579 District Councils Network. See also Locality ()
580 District Councils Network ()
581 City of London Corporation ()
582 Royal Town Planning Institute ()
583 MHCLG, , p 26
584 MHCLG, , pp 26–7
585 (Brian Berry)
586 Action with Communities in Rural England (ACRE) ()
587 (Kate Henderson)
588 National Housing Federation ()
589 MHCLG, , April 2021