Mayor of London's concerns about new infrastructure levy

The Mayor of London, Sadiq Khan is joining organisations from across the planning and housing sectors - including the Royal Town Planning Institute, London Councils, the Local Government Association, the British Property Federation and Shelter - to call on the Government to scrap their proposals for a new Infrastructure Levy in the Levelling Up and Regeneration Bill.

Under the proposals, the amount developers will have to pay to support vital improvements to transport facilities, schools, health centres, open space and play space, as well as affordable housing, will be calculated once a project is complete, instead of at the stage the site is given planning permission as it is currently. This would at best delay and at worst lose such improvements, reducing affordable homes. Councils will also be expected to set their own rates for different types of development such as residential and commercial and for different areas, requiring a highly complex and labour-intensive assessment and charging system, something that local councils can ill-afford.

The new Levy would replace the current Community Infrastructure Levy (CIL) which is used by local planning authorities in London and Section 106 agreements which obligate developers to deliver a range of facilities and services including affordable housing. By the end of 2021/22 the CIL had generated approximately £1.43bn for councils to deliver vital infrastructure and support sustainable growth across the capital.

The Mayor’s planning policies have significantly increased the percentage of affordable homes in new developments over the last five years. The average percentage of affordable housing in schemes assessed by the Mayor has increased from 22 per cent in 2016 to 41 per cent in 2022, and 45 per cent when measured by habitable room.

Sadiq has overseen a renaissance in council house building, with more council homes started in London last year (2022/23) than any year since the 1970s and more homes of all types completed than at any time since the 1930s.

However, City Hall research published today shows that the new Levy would threaten this progress and, had it been in place, could have resulted in between 4,500 and 10,000 fewer affordable homes in applications referred to the Mayor over the last three to five years. It could also have made between 10,000 and 30,000 homes of all tenures unviable. (1)

Last minute amendments have been tabled by Government prior to the House of Lords voting on the proposals. These include a requirement that local authorities ‘seek to’ ensure the level of affordable housing which is funded and provided by developers is maintained or exceeded when setting Levy rates. However, an additional amendment removes this duty if it would result in development becoming unviable. While welcome in principle, these changes fail to address the fundamental issue that requiring affordable housing through a fixed levy system is likely to result in low rates being set and fewer homes being delivered than at present. Government has also confirmed that this relates to rate setting only and would not require authorities to actually spend funding from the Levy in a way that would deliver the same or more affordable housing as at present.

Another government amendment would enable the Secretary of State to remove the Levy in an authority area if this was not working as intended. This is however intended to be retrospective and would not enable authorities to opt out and retain the current system, even if there was evidence that adopting the Levy would be result in a lower level of affordable housing and infrastructure funding.

Further proposed amendments fail to address a range of other concerns with the Levy including that it would:

• Put billions of pounds of investment in community infrastructure at risk. Rather than being delivered alongside new development, these facilities would be delayed or may not come forward at all because payments would be made at the end rather than the beginning of the construction process.

• Be based on the value generated by the development which would require a highly complex valuation process, creating greater uncertainty and risk for councils, developers and communities. Councils also believe it would be difficult to enforce the payment of contributions after a development has been completed. If, however, payments were made at an earlier stage this would require additional valuations for each development phase which would make the process even more complex and resource intensive.

• Allow developer contributions to be spent on general council services or other items that are entirely unconnected to development. This would exacerbate significant existing funding shortfalls for affordable housing and infrastructure, place additional pressure on local communities and increase opposition to development.

• Restrict the use of Section 106 (planning obligations) agreements which may prevent off-site mitigation works from being undertaken, or other important obligations such as employment and training measures, affordable workspace, construction monitoring or carbon offsetting from being secured. 

• Cause a complex and costly transitional period as authorities would need to operate, monitor and enforce several different contributions systems at the same time.

The Mayor of London, Sadiq Khan said: “I welcome the Government’s ambition of securing more funding for affordable homes and infrastructure and creating a developer contributions system that is quicker, clearer and more consistent. Unfortunately, the proposed Infrastructure Levy fails to achieve any of this.

“Ministers should work with councils and the housing sector to improve the current developer contributions system, building on the trailblazing progress we have made in London in recent years as we seek to create a better, fairer and more prosperous city for all.

“Unworkable proposals like the Infrastructure Levy cause uncertainty and eat up resources from a planning system that is already struggling. This proposal needs to be dropped from the Levelling Up Bill so that the development sector can focus on delivering the affordable homes and community infrastructure that Londoners desperately need.”