Last month, the Government published the Levelling Up and Regeneration Bill (the Bill). Although the Bill has not passed through Parliament, a key element of the Bill is the introduction of an infrastructure levy (IL) intended to replace s106 agreements except for the very largest redevelopments.

How will the new infrastructure levy be charged?

The levy will be charged as a percentage of the gross development value of a scheme, above a minimum threshold and charged when it is sold, in the case of new buildings. It will be set locally by each Local Planning Authority (LPA) in a charging schedule following an examination process similar to CIL.

LPAs will be able to borrow against future IL receipts so infrastructure can still be delivered up front but it eases the cashflow for developers.

As it will be a percentage of the GDV, the idea is that it will prevent the situation of unviable developments caused by s106 obligations negotiated in different economic conditions, and equally where the market goes up, a slice of the increased value of the development will be reflected by the IL payable. How responsive the charging schedules will be to changing market conditions though will be key.

The examiner will be tasked with ensuring that IL will be set at a level that does not make development of the area economically unviable and yet maintains affordable housing levels at, or exceeding, previous levels. LPAs will be able to set different percentages based on a wide range of metrics including proposed use, amount of floorspace, numbers of units or buildings.

It will be charged on new buildings, works to existing buildings and changes of use. However, exemptions (as yet unspecified) will be made.

There will be the usual enforcement provisions for non-payment but also new ones including withdrawal of planning permission.

Will anyone be exempt from paying?

Charities who use the building mainly for a charitable purpose will be exempt. Also provision can be made for registered providers of affordable housing to pay reduced amounts.

Will there be any flexibility to allow payments in kind?

For affordable housing, LPAs will be able to determine the portion of the IL they receive in-kind, as on site affordable homes. To ensure mixed and balanced communities, presumably most LPAs will require a minimum amount of on site affordable housing provision for schemes over a certain number of units, similar to current policy requirements.

Importantly however, there will cease to be any flexibility on the total quantum of IL (whether by contribution or on site payment in-kind) so no longer will there be any viability negotiations relating to reducing affordable housing provision. Presumably viability arguments though will just then shift for sites where up front costs are more, to try to reduce other onsite infrastructure and to reduce design requirements.

There is also provision for payment in other forms than money, such as making land available, carrying out works and improving infrastructure. No doubt there will be debate around what can and can’t be considered to be payments in kind for on-site infrastructure that can be offset from the total IL. How much flexibility and discretion the regulations will give to LPAs on this issue remains to be seen.

How will the new infrastructure levy work alongside CIL and s106 agreements?

In London, Mayoral CIL will remain in place, to be applied alongside the new levy.

S106 agreements will still be used where there is a requirement for delivering on-site infrastructure, such an onsite play areas and flood mitigation, even on small/medium sized schemes which will still be required in addition to the IL payment. So for many schemes this situation will not change as the obligations are already site specific and required by officers to make the development acceptable.

Also for the largest sites, s106 agreements will still be used to secure infrastructure onsite but with the requirement that the value of what is agreed will be no less than will be paid through the IL.

How will LPAs spend the infrastructure levy collected?

LPAs will be required to have Infrastructure Delivery Strategies (IDS) to plan for spending the IL and delivering infrastructure. Again these will need examining. IL can be spent on a slightly wider list than CIL, to include flood defences, roads, schools, medical facilities, open spaces, affordable housing, facilities for adaption to climate change (or maintaining or operating any of these).

When will the new infrastructure levy be in place?

IL will be rolled out over a number of years, with groups of LPAs implementing it in waves so regulations can be updated to reflect issues encountered. LPAs will be required to charge IL unlike CIL which has been discretionary for them to adopt.