Infrastructure levy for Scotland: discussion paper

5 Infrastructure Levy for Scotland – research and reviews

A number of research projects or reviews have suggested that Scotland should introduce some form of infrastructure levy or development charge, in the context of improving the delivery of infrastructure to support or encourage development.

Note that these reports have been produced in parallel with the progress of planning reform leading up to and following from the 2019 Act, and therefore in some cases refer to mechanisms and structures that are no longer in use.

The “Planning for Infrastructure Research Project: Final Report” (archived link) , carried out for the Scottish Government by Ryden LLP in 2015 recommended that:

“23. A standard development charge is not appropriate across Scotland’s diverse economy. However, development charges may be justified where a basket of infrastructure is to be funded by multiple parties.

The Scottish Government should enact policy / legislation (whichever is most appropriate) that allows an area-wide standard development charge. Authorities would apply for the ability to levy this charge via a business case demonstrating development, infrastructure and associated funding streams.

Previous Scottish Government research identified the preferred model as front funding of infrastructure to be repaid through a development tariff. Development charges might sit at LDP level (for example to fund schools) or at SDP level (for example to fund regional transport), or potentially at both levels.”

Interestingly this report found:

“The research shows that the cumulative impact problem is at its most focused in areas of economic growth and development expansion where developers are expected to contribute to sub-national / regional transport projects or the provision or expansion of new schools.”

This suggests that a funding mechanism for infrastructure separate from s.75 planning obligations may be most needed in areas of stronger growth, where there is therefore likely to be a greater uplift in land values to support the payment of an additional charge.

The Independent Review of the Scottish Planning System - Empowering planning to deliver great places published in May 2016 recommended:

“18. Options for a national or regional infrastructure levy should be defined and consulted upon.

This should draw on the lessons learned from the Community Infrastructure Levy in England and Wales and capture land value uplift. We recognise that there are both strengths and weaknesses in this model, but given the limitations of Section 75 agreements, there is much that could be gained from a well-designed mechanism which properly reflects market circumstances and takes into account development viability. Given variations in market confidence and its influence on the ability to charge for necessary infrastructure, scope to build a fund that has a redistributive role should be investigated further.”

Following consultation, the Scottish Government published its conclusions in the Places, People & Planning consultation and Position Statement – June 2017

“14. Creating a fairer and more transparent approach to funding infrastructure.

We suggested that a new means of capturing land value uplift, in the form of an infrastructure levy, could be used to strengthen the scope for planning to support the delivery of development. We commissioned research and published a report of Stage 1 and 2 of this work^[4] alongside the consultation paper in January 2017. […]

• There appears to be general support for the principle of introducing a levy, but views vary on the form it should take.
• Many consultees are seeking further information before reaching a view on whether or not it would be a positive change.
• The development industry are questioning what a levy would fund, with concerns that it would be used to replace central funding for infrastructure.
• Businesses are seeking more information on the impacts on project viability and are concerned that it could apply to development which has no impact on infrastructure.
• Public sector respondents consider that the amount of money a levy might raise may be limited, and that it may not help if it does not make funds available to support upfront costs.
• There is support for a mechanism which could supplement the contributions gathered through Section 75 planning obligations and a recognition of a need for different solutions.”

As a result of this general support, provision for an Infrastructure Levy was included in the Planning (Scotland) Bill introduced to the Scottish Parliament in December 2017. Some changes were made to the provisions during the Bill’s passage through Parliament, most notably the removal of proposals that the Scottish Government should be able to aggregate infrastructure levy income from local authorities and redistribute it to be spent in different areas. The power for Scottish Ministers to establish an Infrastructure Levy through regulations was also made subject to a “sunset clause”, so that the power will lapse if the first regulations are not made within 7 years of the Act receiving Royal Assent, that is by 24 July 2026.

The final report of the research mentioned in Places, People and Planning was published in November 2017: “Introduction of an Infrastructure Charging Mechanism in Scotland”. This work was led by Peter Brett Associates (PBA), with a remit to identify and assess the options for the introduction of an infrastructure charging mechanism across Scotland. This research ultimately proposed two options for an “Infrastructure Growth Contribution”, one collected and distributed centrally and the other managed locally. While the central co-ordinated option is not now supported by the legislation, we have taken account of points raised within the research and they have informed the discussion in section 8 of this paper.

The PBA research proposed a levy based on Gross Development Value (GDV) per square metre of the floor area of the development, with a buffer to avoid impacting viability. The charge would be calculated by a non-linear, logarithmic formula. This was found to be the most progressive option, ensuring that higher-value developments pay the highest amount of levy. It was estimated that the non-linear formula could secure £75m per annum (at 2017 prices), compared with £39m per annum for a flat rate levy. A linear percentage rate was found to secure even less than the flat rate option.

Work carried out by the Scottish Land Commission and Scottish Futures Trust in 2018, the “Enabling Infrastructure Interim Report” considered a range of issues relating to infrastructure provision, including mechanisms for land value capture. This reviewed the PBA research and agreed that the proposed “Infrastructure Growth Contribution” approach could be effective and would raise more than the CIL approach.

The Scottish Government commissioned research on “The value, incidence and impact of developer contributions in Scotland”. This research, carried out by the London School of Economics, University of Sheffield, Stefano Smith Planning and Rettie & Co, was published on 9 July 2021. It estimated that almost £0.5bn was agreed through planning obligations in Scotland in 2019/20 – of which approximately £300m was for affordable housing and £200m for infrastructure. This had increased by more than a third over the preceding three years, which is helpful to keep in mind when considering earlier reports. However, the value of such contributions is highly concentrated in a few locations – mainly in the central belt – where land values are comparatively high. In many areas of Scotland, development values are insufficient to support substantial contributions, either through planning obligations or a new mechanism such as an infrastructure levy.

The research also identified that the developer contribution system is generally accepted and is working well in operational terms (although improvements could be made). Affordable housing contributions in particular are well understood and accepted. There was general agreement that planning obligations should focus on site-specific mitigation, and are not generally an effective means of addressing the cumulative impacts of development, or securing funding for wider infrastructure requirements.