I am announcing today reforms to the community infrastructure levy. The levy came into force in April 2010 and gives local authorities in England and Wales the option to raise funds from developers undertaking new building projects in their area.
The money can be used to fund a wide range of infrastructure that is needed as a result of development. This includes: transport schemes, flood defences, schools, hospitals and other health and social care facilities, parks, green spaces and leisure centres.
The Government have decided that this tariff-based approach provides the best framework to fund new infrastructure to unlock land for growth. The community infrastructure levy is fairer, faster, more certain and more transparent than the use of the existing system of planning obligations to collect standardised contributions. Levy rates will be set in consultation with local communities and developers and will provide developers with much more certainty “up front” about how much money they will be expected to contribute.
Under the system of planning obligations only 6% of all planning permissions brought any contribution to the cost of supporting infrastructure, when even small developments can create a need for new services. The levy creates a fairer system for collecting tariff contributions, with all but the smallest building projects making a contribution towards additional infrastructure that is needed as a result of their development.
However, currently too little of the benefits of development go to those directly affected, and our ambition is to correct that. Therefore, the existing powers to set a community infrastructure levy will be reformed so communities have more control over how it works, and developers benefit from a more flexible system.
New neighbourhood funds
The Government will require charging authorities to allocate a meaningful proportion of levy revenues raised in each neighbourhood back to that neighbourhood. This will ensure that where a neighbourhood bears the brunt of a new development, it receives sufficient money to help it manage those impacts. It complements the introduction of other powerful new incentives for local authorities that will ensure that local areas benefit from development they welcome.
Local authorities will need to work closely with neighbourhoods to decide what infrastructure they require, and balance neighbourhood funding with wider infrastructure funding that supports growth. They will retain the ability to use the levy income to address the cumulative impact on infrastructure that may occur further away from the development.
More flexibility for local authorities over levy rates
The Government will include provisions in the localism Bill to limit the binding nature of the examiners’ reports on levy rates. Currently, an examiner scrutinises a council’s levy rates, and all changes that they request are binding, including the rates set for specific areas or types of development.
Examiners will now only be able to ensure councils do not set unreasonable charges. Councils will be required to correct charges that examiners consider to be unreasonable, but they will have more discretion on how this is done—for example, they could depart from the detail of the examiner’s recommendations on the mix of charges to be applied to different classes of development or the rates to be applied in different parts of their area.
Most affordable housing and charity development will continue to be exempt from the levy.
Additional flexibilities for levy charging authorities
The Government want councils to have more control over the working of the levy. Changes to the existing regulations will therefore include:
Freeing up payment arrangements—local authorities will be able to decide their own levy payment deadlines and whether to offer the option of paying by instalments;
Removing the £50,000 minimum threshold so authorities can accept a payment in kind for any level of contribution;
Minor amendments to secondary legislation to close potential loopholes and improve how the levy system works, for example, reducing burdens by scaling back information requirements on the “notice of chargeable development”.
The Government are confirming that there will be no significant change to the arrangements relating to planning obligations set out in the existing community infrastructure levy regulations. Planning obligations will continue to be used to mitigate the direct impacts of specific developments and to fund affordable housing; however, their use to collect standardised tariff-style contributions will be phased out in favour of the levy by 2014.
Transitional arrangements, timing and next steps
Local authorities that have decided to introduce a community infrastructure levy charge on the basis of the current legislation can now do so.
Local authorities who take steps now to adopt a charging schedule will not need to return to an earlier stage of the process when these changes take effect. And local authorities that have already adopted the levy before the reforms come into effect will be able to take advantage of the new flexibilities without having to review their charging schedules.
The Government aim to publish draft regulations for debate in Parliament in the new year. It would bring the changes into effect on 6 April 2011.