21 December 2018

Increases in land value set to be shared with local communities

In the October Budget and in a report from the Commons Housing, Communities and Government select committee, the government made a series announcements aimed at capturing some of the value resulting from the development of land to the benefit of the wider community.

On 29 November 2018 the government verified its position on land value capture in its response to the select committee’s report. Below, planning solicitor Stuart Lumb, outlines the changes announced and considers the impact the changes will make on the sector. 

Pooling Restrictions on Section 106 Planning Obligations

The government has proposed the introduction of a more simplified system of developer contributions with the intention to provide greater flexibility and certainty for developers and local authorities. This will be achieved by removing the restrictions on pooling section 106 contributions and the restriction preventing section 106 obligation contributions from being used on infrastructure included on the Council’s regulation 123 list (list of those projects or types of
infrastructure  that  it  intends  will  be,  or  may  be,  wholly  or  partly  funded through  the  Community   Infrastructure   Levy). The present pooling restrictions under the Community Infrastructure Levy Regulations 2010 (“CIL”) state that no more than five developer contributions secured under planning obligations can be applied for a single infrastructure project. The original aim was to encourage councils to adopt CIL charging schedules and secure funds for infrastructure projects via this mechanism rather than by planning obligations. However, this has hindered the ability of local planning authorities to secure funding for vital infrastructure necessary to support development. The withdrawal of the pooling restrictions would provide local planning authorities with greater flexibility to collect more funds to support infrastructure. 

Further, the government proposes removing restrictions which prevent section 106 planning obligations being used to collect contributions towards infrastructure included on an authority’s 123 list.  Despite the proposed removal of pooling restrictions, the government advises that it is still keen to ensure that the measures are put in place to incentivise uptake and continued use of CIL.

The increased flexibility allowing local planning authorities to utilise funds from both planning obligations and CIL will enable planning authorities to better fund major infrastructure which will in turn unlock some development sites. Removing the restrictions may assist local authorities in the delivery of large regeneration projects, while also allowing them to pool contributions from numerous small and unconnected sites. Those smaller sites could benefit from a single piece of infrastructure that is better suited to serve them all. Nevertheless, the government recognises that it has to be careful about the relationship between CIL and planning obligations.

Yesterday the draft regulations amending the Community Infrastructure Levy Regulations 2010 were published for consultation. The document says that its purpose “is to ensure that the draft regulations deliver the intended policy changes and do not give rise to unforeseen consequences.”

Proposed Strategic Infrastructure Tariff

The government has decided to enable combined authorities with strategic planning powers to take forward a Strategic Infrastructure Tariff (“Tariff”), and to encourage groups of charging authorities to use existing powers to support the delivery of strategic infrastructure through the pooling of their CIL receipts.

The proposals put forward by the government would allow for combined authorities and joint planning committees to introduce a Tariff, but responses to the March 2018 consultation suggested that this should be broadened to include other local planning authorities. The government will amend planning guidance to encourage other groups of charging authorities to use this levy more effectively to support the delivery of cross boundary strategic infrastructure that benefits multiple authorities through pooling of their local CIL receipts.

With regard to the operation of the Tariff and what the definition of strategic infrastructure should be, the government will work with combined authorities to determine the best approach for their areas. The guidance states that to be defined as strategic, infrastructure must benefit multiple authorities.

Land Value Capture

In its March 2018 consultation the government advised that in the future it could consider setting developer contributions nationally and also make them non-negotiable. It also proposed to allow authorities to “set rates which better reflect the uplift in land values between proposed and existing use”, thus enabling authorities to secure contributions from increase in land value to support infrastructure.

However, the government has recently affirmed that it will resist calls for uplifts in land value to be captured, and stated on 29 November 2018 that introducing new methods of capturing land value could disrupt its aim to increase the pace of delivery of new homes. The government assert that changes to the land value system can have profound impacts on the land market in the short term, even where they are sensible for the longer term. As a consequence, the government’s priority is to evolve the existing system of developer contributions with a view to making them more transparent, efficient and accountable.

The government’s view is that there is scope for central and local government to claim a greater proportion of land value increases through existing taxes and charges, improvements to compulsory purchase powers or through new mechanisms of land value.

The select committee’s response in September 2018 also suggested that the Land Compensation Act 1961 would require reform so that local authorities would have the power to compulsorily purchase land at a fairer price. The report included that the present right of landowners to receive ‘hope value’ – a value reflective of speculative future planning permissions – serves to distort land prices, encourage land speculation and reduce revenues for affordable housing, infrastructure and local services. Whilst the government recognise this concern, they have since advised that they do not propose further changes to the Land Compensation Act 1961 to make it easier for local authorities to compulsorily purchase land for development. Indeed Conservative MP Kit Malthouse acknowledged in his oral evidence on Land Value Capture on 5 September 2018 that, he was very nervous about on the spot nationalisation of land. He highlighted that the government wish to make sure that, even in a CPO situation, a landowner was paid the same money as if they had sold the land voluntarily because the ability of governments to confiscate assets is a problem in a capitalist society. 

Conclusion

The overall impact of the proposals indicates an evolution rather than wholesale changes to the system of developer contributions. The consultation to put the revised arrangements in place runs until 31 January 2019.

For more information, please contact Stuart Lumb.