Infrastructure levy for Scotland: discussion paper - responses overview

Analysis

Viability and impact on development

Almost all responses from the development sector (23/24) expressed strong concerns that the introduction of an Infrastructure Levy would have a negative impact on viability and was likely to discourage development in areas where it was implemented. Most of these (20/24) mentioned the potential impact on housebuilding during a housing emergency. Two thirds of development sector responses (16/24), and a few from other categories, referenced the cumulative impact of current policies which they expect to increase construction costs and charges.

Almost two thirds of local government respondents (14/22), and almost half of other categories (14/33), also raised issues about viability and discouraging development. These were often expressed in terms of the need for local discretion and flexibility in relation to implementation zones and exemptions. The Levy was seen as being in opposition to encouraging investment and regeneration; for example it was suggested that it should not be applied in many rural areas, in town centres and regeneration zones, or to brownfield sites.

Some comments on viability made reference particularly to the potential impact on SMEs and the risk that landowners might not release land if the Levy reduced land prices. Concerns were also raised that if the Levy was charged only in some areas, it could affect investment decisions, and exacerbate economic inequalities. Four responses specifically mentioned the potential impact in rural areas, and in other cases rural local authorities spoke of the need to consider the range of different circumstances – one said “Ultimately, however, there is an inherent tension between what a Levy would require to succeed across Scotland’s various markets and geographies, and the level of simplicity, predictability and ease of administration which is required for the Levy to be workable for local authorities under financial strain and a private sector facing a difficult market.”

The initial impetus for including the Levy in the Planning (Scotland) Act 2019 was based on concerns that potential development sites were being stalled due to a lack of infrastructure on a wider scale, that could not be funded through s.75 planning obligations attributable to individual sites. The Infrastructure Levy was therefore intended as a mechanism to gather contributions from development sites more generally, which could be spent on that regional or sub-regional level infrastructure. However, during the discussion phase and in the written responses hardly any reference was made to such issues or to lack of infrastructure stalling development. Planning authorities appear to have developed approaches to securing contributions on a zoned basis across multiple developments which are largely accepted, and responses to the discussion paper included calls for improvements to guidance on planning obligations in preference to, or alongside, implementing the Levy.

Funding for infrastructure

Research carried out for the Scottish Government in 2017 estimated that an Infrastructure Levy could potentially raise £75m per annum. No new analysis was carried out for the discussion paper, because of the number of different policy options available; this would have been undertaken in connection with producing draft regulations. Even so, it is clear that economic circumstances have changed significantly since that time. Construction costs and borrowing costs have increased, affecting both private sector developers and infrastructure projects, while sale values have dropped.

Over half of local government sector respondents (13/22), two from the development sector and two from other public sector bodies highlighted that the Levy was not expected to raise sufficient amounts to fully fund infrastructure projects, and that this could result in planned infrastructure not being delivered. One council noted that the £75m per annum that was estimated could be collected was equivalent to only three 2-stream primary schools, across Scotland. Some felt that charging the Levy would create increased expectations of infrastructure delivery which the amounts received could not fulfil; and this would be exacerbated if charging the Levy resulted in less development coming forward.

A few respondents were concerned that the Scottish Government might use the Levy as a reason to reduce central funding for infrastructure, while others called for increased central government funding. Concerns were also expressed that charging the Levy could result in a reduction in contributions under s.75, including the delivery of affordable housing.

10 local government and two other public sector responses also highlighted that it would be difficult for local authorities to front-fund infrastructure delivery through borrowing; one local government respondent stated “The level of income from the Levy is unlikely to encourage LA’s to risk what limited borrowing capacity they have against the Levy income.”

Eight local government responses and four others highlighted the need for a clear distinction between the Levy and other mechanisms such as s.75. Most local authorities were concerned that the Levy must provide additional funding rather than being offset by a reduction on s.75 contributions, but one welcomed the idea of having mechanisms to fund different types of projects, without necessarily increasing the total amount collected.

A small number of respondents (6) referred to the ability to use the Levy to support cross-boundary or regional projects. This was generally welcomed, although there were caveats about the challenges of agreeing priorities between different authorities, and agreeing a common approach to charging the Levy. A few respondents in the third sector and public sector welcomed the opportunity for the Levy to contribute to projects in their area of interest, but these respondents often did not engage with the issues around viability and management of the Levy, or local authority priorities for expenditure.

Planning authority resources

Ten local government respondents, five from the development sector and three others highlighted that the potential complexity of the Levy would require additional resources. Fifteen development sector respondents and two from local government felt that planning authorities would not have the necessary skills available to manage the Levy, in particular for undertaking the viability assessments that may be required, and that accessing this capability, for example through the District Valuer, would incur additional cost.

Almost all local government respondents (21/22) commented on the need to ensure that administrative costs were adequately resourced. The most popular options were that the costs should be covered by funding from Scottish Government, or by additional planning fees. Some also suggested that a proportion of the Levy income should be used to cover these costs, despite the discussion paper making clear that the legislation does not allow this. A few respondents in other categories (7) responded to this question; amongst them, fees or a percentage of Levy income were slightly more popular than Scottish Government funding.

Alternative options

Seven development sector responses, four from local government and two others stated a preference to continue using s.75, rather than introducing the Levy. Some noted that this could include collective contributions to infrastructure needed to support more than one development,. These comments included various suggestions for improving, reforming or expanding the operation of s.75. On the other hand, two respondents called for the Levy to replace s.75 entirely.

Homes for Scotland and a few others in the development sector, and two local government sector respondents, suggested that their preferred approach would be to use taxation, such as a supplement to LBTT, to gather additional contributions that would be ringfenced for local infrastructure. It was suggested that this would automatically reflect the sale value of a development and would not require local authority resources to implement.