How to make an infrastructure levy and planning obligations work in harmony

Out-Law Analysis | 13 May 2021 | 1:20 pm | 4 min. read

The UK government should rethink its plans to scrap the system of ‘section 106’ agreements in England and instead look to reform the way the system operates so that it complements the new infrastructure levy it plans to introduce.

It is possible for the government to deliver a planning system that reduces barriers to development and streamlines the system for funding affordable housing and infrastructure, which the new levy is central to, without losing the flexibilities the section 106 framework delivers for developers.

The opportunity to make these reforms will arise when it comes to drafting the new Planning Bill which was trailed in the recent Queen’s speech.

Making a new levy work harmoniously with a new system of planning obligations

There is no reason in principle why a new levy and a system of planning obligations cannot be made to work together. Indeed, albeit after some teething problems, the section 106 (s.106) system and Community Infrastructure Levy (CIL) have operated together for a number of years. However, one of the constant criticisms of s.106 and CIL is that by overlapping they can allow for local planning authority (LPA) to impose two sets of charges on developers. I believe it is possible to avoid such ‘double dipping’ by reforming the s.106 system so that it co-exists in harmony with the new levy, which the government has said will replace CIL.

In my view, sensible reform would allow the LPA to require on-site delivery of necessary mitigation and planning benefits, but the value of such provision would be deducted from the levy due – essentially a tax deduction. This would mean that the small schemes which aren’t subject to s.106 obligations still pay, but larger schemes have the flexibility to deliver on-site mitigation and policy requirements and if they do so ‘double dipping’ is avoided by the deduction from the levy. The value of the deduction from the levy could be recorded in the s.106 agreement and if there were to be a dispute over the valuation this could be settled by an independent expert.

If the government’s intention truly is for a levy to “sweep away” the existing scheme of planning obligations, my fear is that LPAs will end up with extensive cash deposits but will not have the human resources in-house to ensure all of that cash can be deployed adequately and on time to ensure the necessary mitigation is delivered. If on-site delivery is not possible due to s.106 having been removed then developers could end up in the ‘catch 22’ situation that existed in the early days of CIL where delivery of mitigation was necessary to make the development acceptable in planning terms, but such mitigation could not be delivered by the developer themselves owing to the relevant item being on the LPA’s ‘regulation 122 list’.

Moreover, if on-site delivery of affordable housing cannot be secured because s.106 has gone and a levy is paid instead, then it seems difficult to envisage how ‘mixed and balanced communities’ can be delivered. If the LPA has levy monies to spend on delivery of affordable housing then presumably that could only be deployed either as grant to subsidise provision on what would otherwise be a 100% market housing scheme or the council builds the affordable housing itself – which would effect mark return of the council estate, albeit in a 21st century guise.

Reform s.106 so that it can secure anything

The current system of s.106 planning obligations is now over 30 years old and well overdue some reform. A sensible starting point would be to abolish the four limbs that a s.106 agreement can secure, as currently set out in section 106(1) of the Town and Country Planning Act 1990, and in its place allow s.106 or its successor to secure anything provided that the obligations comply with the overarching tests set out in regulation 122(2) of the Community Infrastructure Regulations 2010.

Allow applicants to demand that s.106 negotiations commence at the time of submission

A regular criticism levelled at planning lawyers is that the negotiation of the s.106 agreement takes too long and delays the back-end of the process following the resolution to grant. To address this, new legislation could require s.106 heads of terms to be a mandatory requirement for planning applications to be validated. The applicant could then, at its discretion, request that the LPA enters into negotiations as soon as possible following validation. This would be at the applicant’s risk because there would be no certainty permission will be granted. It should also be at the applicant’s cost, and if the LPA’s in-house legal team does not have the resources to take on that work then the LPA should be required to send the work externally, again at the applicant’s cost.

The government could also publish standard s.106 wording which could act as a sensible starting point for the parties. This has been suggested by many planning lawyers over many years.

Section 106 arbitrator

Another frequent criticism of the s.106 agreement process is that disagreements between the applicant and the LPA can slow progress in the s.106 negotiation and add to planning delay. Currently, if either party is taking an unreasonable and intractable position, nothing can be done until either someone concedes or, more extremely, the LPA takes the application back to committee and recommends the resolution is changed to one of refusal on the basis a s.106 agreement cannot be agreed. All of this is sub-optimal.

A possible solution could be for the government to set up a ‘section 106 arbitrator’, possibly as a division of the Planning Inspectorate. If the parties are at loggerheads in s.106 negotiations either party could refer the dispute to the arbitrator for resolution. The arbitrator would give a ruling and suggest drafting that would be required to be included in the agreement. They could also award costs for unreasonable behaviour. This would provide a route to unblock s. 106 negotiations – the threat of referral to the arbitrator could be enough in some cases to resolve the impasse.

The opportunity the Planning Bill offers for reform

The introduction of the new Planning Bill that the government has promised presents a golden opportunity to reform s.106 and make it fit for purpose for 2021 and beyond. In my view, a levy and planning obligations can work together, and there is no need to scrap a system that provides immense flexibility to secure site-specific mitigation and planning benefits.

Although moving to a solely levy-based system has obvious appeal on the surface, the reality is that it would do far more harm than good. I urge the government to refine the existing tools to make a fit for purpose system rather than pursuing change for change’s sake.