Community infrastructure levy retained but councils forced to share funds

The Community Infrastructure Levy will be retained but reformed to hand neighbourhoods a share of the funds that councils raise from developers, the government has announced.

Decentralisation Minister Greg Clark, who acknowledged that the levy – brought in by the previous government – provided a fairer system, also said that councils would have more control over how new infrastructure in towns and cities is funded.

Key elements of the proposals include:

• Requiring “all but the very smallest building projects” to contribute. However, the levy will not apply to the vast majority of household extensions as they will be less than the threshold of 100 sq m
• Handing more control to councils over the levy. “Independent examiners will ensure councils do not set unreasonably high levies, but councils will control the detail of what type of levy rate is charged, including what rates are set for specific areas and types of development”
• Ensuring councils allocate a “meaningful proportion” of their levy revenues raised in each neighbourhood back to that neighbourhood to spend on the infrastructure that local people consider is most needed. However, councils will still retain the ability to use the levy where it is needed in their area to address the cumulative impact on infrastructure that occurs further away from the development. “They will need to balance neighbourhood funding with wider infrastructure funding needed to support growth”
• Allowing councils to set their own flexible payment deadlines and offering developers the option to pay by instalments. The £50,000 minimum threshold for payments in kind will also be scrapped “so councils can accept a payment in kind for any level of contribution”
• Ensuring greater transparency with levy rates set in consultation with local communities and developers, “unlike planning obligations that are negotiated behind closed doors”. Developers will therefore know upfront exactly how much they will be expected to pay towards infrastructure
• Requiring councils to monitor the use of the levy and provide regular reports “to ensure that local people understand how new development brings benefits to their area”
• Exempting affordable and social housing projects as well as charity developments.

The system will be more certain and flexible for housebuilders, the government said, and would in particular cut “the costs of lengthy legal negotiations”.

Clark also announced that there would be “no significant changes” to the current rules about Section 106 agreements – “they will continue to fund affordable housing, and will remain scaled back so they directly relate to the proposed development”.

The minister said: "Communities should reap the benefits of new development in their area and these reforms will put in place a fairer system for funding new infrastructure while also providing certainty for industry.

"Too little of the benefits of development go to local communities, and our ambition is to correct that with a reformed levy under genuine local control. Neighbourhoods will now get a direct cut of the cash paid by developers to councils – to spend how they wish to benefit the community, from parks and schools to roads, playgrounds and cycle paths.”

Clark insisted that the changes would also benefit developers “through a system that is flexible, predictable and transparent while also cutting the red tape and bureaucracy faced by councils”.

He added that the reforms would complement the government’s New Homes Bonus, which is intended to incentivise local communities to allow new homes to be built in their area.

Provisions in the Localism Bill will limit the binding nature of examiners' reports, and the Community Infrastructure Levy Regulations 2010 will be amended.