Government delays introduction of Infrastructure Levy by a decade

The government has decided to delay the full introduction of its proposed new Infrastructure Levy by up to 10 years, causing some to question whether the policy will ever see the light of day.

The Department for Levelling Up, Housing and Communities (DLUHC) late Friday issued a consultation on the Levy, which is designed to largely replace the use of section 106 agreements to secure planning contributions, in which it said it wanted to introduce it via a 10-year “test and learn” period.

The consultation also made clear the government intends the mandatory Infrastructure Levy will be charged at the point a scheme is completed, to maximise returns, and said councils would be able to require a proportion of the levy be delivered “in kind” via on-site affordable housing.

The government said it recognised that moving from the current system, whereby councils secure payments for local infrastructure and affordable housing from developers via a combination of Section 106 agreements and the Community Infrastructure Levy, to the new Levy “represents a significant change”, and said previous attempts to change systems of developer contributions had been stymied by too rapid implementation periods.

“Given this combination of factors, the government will introduce the Levy over an extended period through a ‘test and learn’ approach”, the consultation said, with the levy piloted first in a “representative minority of planning authorities before nationwide rollout.”

A press release accompanying the consultation specified the “test and learn” period will last for 10 years. The extended implementation timeframe follows extensive concern from the industry over the impact of the policy on the housing sector, particularly in terms of the delivery of affordable housing. In the last three years, an average of 48% of the new affordable homes built in the UK have been provided by section 106 contributions, according to government data.

Housing secretary Michael Gove said the infrastructure levy would give local leaders “the tools to bring forward more affordable housing and the transport links, schools and GP surgeries” while “putting an end to lengthy negotiations with developers [that are] seeking to shirk their responsibility to provide for local people.”

However, the extended implementation period, combined with the complexity of the policy, the political situation of the current government, and the Labour Party’s opposition to it, has caused some to question whether it will ever see the light of day. Planning consultant Catriona Riddell, also subject specialist for the Planning Officers Society on strategic planning, said: “There are questions about whether it’s going to be able to deliver what it’s supposed to deliver. It’s so complicated, particularly when you think about how this work in two-tier authorities and Combined Authority areas.

“Even assuming the Conservatives get back in, on the timescale they’ve set out, it’ll be years before they get it operating efficiently, if they ever do. People are asking is it going to happen.”

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Riddell’s comments come after Labour’s shadow housing minister Matthew Pennycook last month confirmed that any future Labour government would not take the policy forward, due to fears over the impact on affordable housing supply. He tweeted: “An extremely wide range of organisations have concerns about the government’s new infrastructure levy and rightly so because it will secure less affordable housing and infrastructure than the current system. A Labour government would not take it forward.”

An extremely wide range of organisations have concerns about the government’s new infrastructure levy and rightly so because it will secure less affordable housing and infrastructure than the current system.

A Labour government would not take it forward.https://t.co/yzZ6UeNNDe

— Matthew Pennycook MP (@mtpennycook) February 22, 2023

Friday’s consultation proposed that the system will work, if introduced, by allowing councils to locally set levy rates and minimum thresholds, below which the levy would not be charged. Councils would then have to draw up Infrastructure Delivery Strategies – plans setting out what they will spend the levy cash on – and be permitted to borrow from the public works loan board to fund spending in advance of receiving levy receipts.

The government has long promised that the levy will not result in a reduction in the delivery of affordable housing via the planning system, but the affordable housing sector and homeless charities have expressed significant concerns that it will cut the current funding route for around half of England’s new affordable homes.

The consultation proposes that councils will have a “right to require” that a proportion of the cash contribution of a scheme is given “in kind” as effective subsidy for on-site affordable housing.

It is not exactly clear from the consultation how the level of this contribution can be determined prior to the completion of a scheme, which is the point when the final valuation of a scheme is calculated. However, the consultation points out that the value of any necessary subsidy should rise and fall with the value of the scheme.

Anna Clarke, director of policy and public affairs at the Housing Forum said there were “real concerns about affordable housing” with the policy, but there could also be “big gains” from the idea of collecting the levy at the point of scheme completion, when values are often higher. She said on Twitter: “The infrastructure levy does give the potential for local authorities to share in the profits when housing sells for more than might have been expected. Could be big gains from it.”

However, Lewis Herbert, future homes manager at charity Allia, said on Twitter it would “savage” delivery of affordable housing.

Rico Wojtulewicz, senior policy adviser at the House Builders Association, said on Twitter the policy was “revenue generation nonsense […] I am absolutely astounded that this policy is proposed by a @Conservatives government”.

The consultation came as the government also issued a separate consultation on a new system to replace Environmental Impact Assessments and Strategic Environmental Assessments, known as Environmental Outcomes Reports.

The government said the new system will be a “streamlined system that places greater focus on delivering our environmental ambitions”.