It's designed to stop developers attempting to reduce their share of costs for local infrastructure, and affordable housing, when they start new projects. This includes costs across roads, GP surgeries and schools, shared with councils.
The levy was announced by the Department for Levelling Up, Housing and Communities on March 17, 2023. In theory, it aims to create more transparency around the value of a project, enabling councils to have a greater share in that value. The primary goal is to facilitate councils in limiting the negotiation power of developers, so they aren't able to reduce the (increased) costs set by councils.
For most types of development, the new infrastructure levy will replace Section 106 contributions, as part of the Levelling Up and Regeneration Bill. It will come with more stringent controls on the share of community costs developers contribute.
To estimate the type of costs you're likely to face, you need clarity on the GDV of sites at completion. Accurate, precise sales data, and reliable information on existing planning schemes guide this process.
The new levy suggests a framework for calculating these costs, whereby the amount due will be finalised once a development project is finished. Currently, the share of these costs for developers is calculated upon gaining planning permission.
The Department for Levelling Up, Housing and Communities state the new calculation framework ensures councils share the benefit of increased land value, which is often “significant” for large projects with long timescales.
The new levy places the responsibility of setting rates in the hands of local councillors, who are expected to be better placed to “deliver what their communities need”.
Part of the amount paid by developers will be directly handed to communities, allowing them to influence how it’s spent on local infrastructure. Under the new proposals, it will be known as a ‘neighbourhood share”, and councils will engage with communities on delivery strategies.
Under the new plans, the Department for Levelling Up, Housing and Communities says: “The levy is designed to deliver at least as much affordable housing as the current system.”
Local councils will have the ‘right to require’, which gives them control over cost ratio. They will make decisions on what portion of levy costs go towards affordable housing delivered on a new development site, and what portion goes towards other infrastructure, such as transport links.
The government has said they expect the ‘right to require’ to “speed up the process”. Primarily, the ‘right to require’ is also designed to stop developer’s from attempting to negotiate for reductions in affordable housing contributions.
Under the new levy, developers will be legally obligated to meet the costs set by councils.
The consultation period for the proposed changes started on March 17, 2023. It will run for 12 weeks, ending on June 9, 2023. From this point, responses to the infrastructure levy outline will be considered by the government, and it will assess the plans again in light of these.
As it’s a huge change, after the consultation period, the new infrastructure levy is scheduled to be put in place by a small number of councils first, expanding to more councils over 10 years. This will be a ‘test and learn’ period, so councils can assess how the levy plays out in practice, before rolling it out nationwide. This staggered approach has been chosen to monitor how well the levy delivers its initial aims.
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