Will The (Consolidated) Infrastructure Levy Worsen Regional Disparities?

In this latest article on the Planning White Paper, Nicola Gooch, Planning Partner at Irwin Mitchell considers whether the (consolidated) Infrastructure Levy will worsen rather improve regional disparities.

Despite government stated policy to reduce regional disparities and the 'levelling-up’ agenda, there are a number of policies in the white paper that appear to undercut this agenda. The issues with the standard methodology have already been well documented - not least by Christopher Young QC and Lichfields. However, there is another potentially problematic policy - The (consolidated) Infrastructure Levy. 

To summarise the new proposals: 

The (consolidated) Infrastructure Levy is intended to replace both CIL and the use of s.106 agreements to secure infrastructure payments.  It is described in the White Paper as being set at:

• a fixed proportion of the development value
• above a threshold,
• with a mandatory nationally-set rate or rates

It is intended to apply to all types of development (included permitted development schemes), with far fewer exemptions or reliefs than are currently allowed. The White Paper only refers to exemptions for self-build schemes and residential extensions/ annexes. 

To get around the need for viability assessments, the new (consolidated) Infrastructure Levy, will have its own equivalent of a nil rate band - or a threshold of development value beneath which the levy will not be charged.

The White Paper describes this 'nil-rate band' as follows:

a "value-based minimum threshold below which the levy is not charged, to prevent low viability development becoming unviable, reflecting average build costs per square metre, with a small, fixed allowance for land costs. Where the value of development is below the threshold, no Levy would be charged. Where the value of development is above the threshold, the Levy would only be charged on the proportion of the value that exceeded the threshold"

Unlike CIL, however, which is a) not mandatory; and b) is set locally at rates that a Council is happy will not jeopardise the delivery of their local plan, the new (c)IL will be set nationally. 

In the words of the White Paper itself:

"The single rate, or area-specific rates, would be set nationally. It would aim to increase revenue levels nationally when compared to the current system. Revenues would continue to be collected and spent locally"

Given the huge differences in development values across England, this proposal immediately raises questions. Not least, as the new (c)IL is intended not only to fund the types of infrastructure already covered by CIL but also affordable housing and other 'policy priorities' for the local authorities that have adopted it. 

Regardless of where the (c)IL rates are set, it is inevitable that some parts of England will have far more local development that falls into the nil-rate band than others. Indeed, it is possible that some local authorities will find all development in their area falls below the threshold.

In the absence of any national redistribution of (c)IL funding, these authorities will find themselves with much lower levels of funding for infrastructure than they are currently able to negotiate through locally set CIL contributions and s.106 Agreements. 

This is a problem that the Government appears to have anticipated, at least within local authority boundaries, as the White Paper states:

"In areas where land value uplift is insufficient to support significant levels of land value capture, some or all of the value generated by the development would be below the threshold, and so not subject to the levy. In higher value areas, a much greater proportion of the development value would be above the exempt amount, and subject to the levy."

Within a local authority boundary these discrepancies can be dealt with through cross-subsidisation. This will not, however, be an option where entire regions have lower land values, as is currently the case.  (c)IL, after all, is intended to be set nationally, but collected and delivered locally.

This is likely to result in the higher value parts of the Country (such as the South East) having far more money to spend on local infrastructure and policy priorities than regions with lower land values (which are often in the North). This disparity in funding could well have a huge knock-on effect for the areas affected - given that (c)IL is intended to provide funding for everything from road improvements, schools, and public parks to affordable housing and sports facilities. 

The White Paper's comments on this are relegated to a single sentence:

"We will also consider the impact of this change on areas with lower land values."

Given the vast disparities in land values across England, these are definitely impacts worth considering!

This article first appeared in CoStar om 17th September.