Introduction of an Infrastructure Charging Mechanism in Scotland: research project

3 Assessment Context

3.1 Introduction

This section introduces Stage 3 of the Research, setting out the outcomes from Stage 1 and Stage 2. The publication of the Stage 1 and Stage 2 report (December 2016) has also informed the development of proposals within the Scottish Government’s proposals for a charge set out in “Places, People, Planning”. As this research has been undertaken concurrently with the Review of the Community Infrastructure Levy in England, lessons from this Review are also considered briefly.

3.2 Priorities

As noted in Section 2, the key outcomes of the Stage 1 and Stage 2 report was to establish:

1. The pros and cons of a charge being applied at different scales; and
2. To set out high level options for a charging mechanism, which capture land value uplift, highlight how they meet the identified key priorities and Scottish Government’s policy objectives.

Stage 1 and Stage 2 addressed these outcomes, which in turn led to the development of key priorities for an infrastructure charging mechanism.

3.3 Outcomes from Stages 1 & 2

Stage 1 and Stage 2 set out the high level options and principles for an infrastructure charge. These emerged from the Stakeholder Workshop, executive focus group and literature review, and were principally differentiated along the lines of geography and in terms of broad mechanisms employed.

The analysis of high level options, aided by the contributions at the Stakeholder Workshop, favoured four principle variables for further consideration and consultation based on geography and mechanism.

In terms of geography, the options should consider:

A. City Region Deals, or other forms of growth areas of combined authorities; or
B. The above combined with a national charge.

Varied in each case by the two charging mechanism options recommended for consideration:

1. A charge based on quantum of development output; or
2. A charge based on the value of development output.

The Stage 1 & Stage 2 report noted that the combination of these elements would require further elucidation and assessment. The Report set out various combinations for high level consideration responding to considerations around whether charges are fixed/graduated, how exemptions are considered, and how it is tied to existing planning processes. Nonetheless, it is clear that the ‘shortlisted options’ set out in this report would need to be applied somewhat flexibly to account for existing structures of governance and other local circumstances. This included the consideration of existing partnership bodies (i.e. City Deals, Strategic Development Planning Authorities) and existing agencies or mechanisms (e.g. Scottish Futures Trust, Land and Building Transaction Tax) as fundamental to the development of a charging system. However, there was also preference by local authorities for close involvement in the development, collection and distribution of the charge.

Overall, the mechanics of the fund (i.e. how a fund is collected, distributed, and how a charge is set) and how the fund may sit within a wider package of infrastructure delivery was not considered in detail in Stage 1 and Stage 2.

3.4 Stage 3 Requirements

Stage 1 and Stage 2 identified the key principles and assessed high level options for an infrastructure charging mechanism. This Stage 3 report sets out the shortlisted options which have emerged and their assessment criteria. More importantly, Stage 3 aims to substantiate the preferred high level options and sets out a clear framework, including details on:

• Calculating and applying the charge;
• Delivery of the preferred mechanisms;
• A timeline for the preparation of the charge; and
• Potentially testing/piloting some of the emerging principles and details of an infrastructure charging mechanism.

3.5 Consultation on the Future of the Planning System

Stage 1 and Stage 2 contributed to the formulation of key principles for the introduction of infrastructure charging mechanism, as set out in Proposals 13 to 15 of the consultation document, “Places, People, Planning” (2017).

14_A more transparent approach to funding infrastructure. We believe that introducing powers for a new local levy to raise additional finance for infrastructure would be fairer and more effective. Improvements can also be made to Section 75 obligations.

Specifically, Proposal 14 sought views on introducing powers to levy a charge on development to help pay for infrastructure, fairly and effectively.

Proposal 14 notes that S75s will not close an infrastructure funding gap, and that a uniform charge could help bridge this gap while building a more confident, ‘infrastructure first approach’ to planning and development. It suggests that the design should be simple and respond to varying market circumstances. Views were sought on whether the Planning Bill should, therefore, include an enabling power to introduce the levy, to be consulted upon at a later stage.

Specific principles of the Proposal that were consulted on included that:

• It should be applied to most development types, with some potential exemptions;
• Permission to adopt and put in place a charging mechanism is granted by Ministers based on the submission of a business case prepared by the planning authority/authorities;
• The income from the charge should be collected locally ^[1] ;
• The fund will not replace national level infrastructure investment, as defined in the Infrastructure Investment Plan and National Planning Framework ( NPF); and
• The fund will not replace site specific contributions which are needed to mitigate the impacts of individual developments not covered by the levy and secured through Section 75 planning obligations or other methods.

It should be noted that the development of the high level options set out in Stage 1 & Stage 2 and assessed in Stage 3 is contingent on the progress against the various positions contained within the consultation document.

These principles, whilst being consulted upon at the time of writing, are iteratively applied to the ‘Key Principles’ emerging from Stage 1 & Stage 2 research, as discussed in Section 4.

3.6 Lessons from the CIL Review and Report of Study

An intermittent stage between Stages 1 & 2 and Stage 3 included an overview of the Community Infrastructure Levy Review Report, “A New Approach to Developer Contributions” (Oct 2016) and the implications for a charging mechanism in Scotland. The findings of the research followed an intensive consultation with stakeholders and represents a potential validation of the findings of Stage 1 and Stage 2, and therefore the starting point for the formulation of a Stage 3 ‘Short-listed Options’.

Whilst the requirements of a charge in Scotland will be different, lessons learnt with respect to the realistic application of a charge, best practice in charge setting, administration and collection provides a useful indication preferred policy changes on a wider geographical scale.

This subsection outlines some of the key recommendations, and the implications for the Scottish Government’s Stage 3 research. This is set out in full in Annex A.

Report Conclusions and Recommendations

The findings of the Report of Study informed the information presented in the CIL Review and, ultimately, the recommendations set out by the group. The conclusions of the report are wide-ranging and offer insight into the operation of a system which has had mixed results across charging authorities. In particular, the review suggests:

• CIL is not delivering as much as anticipated by the Government and Local Authorities;
• Charges are set at low levels in many local authority areas to accommodate development, though this has resulted in lower payments compared to S106 and other negotiated contributions;
• CIL is not raising enough revenue to effectively support the funding of infrastructure needed to support development;
• There is less confusion between S106 and CIL than was previously thought;
• Mixed evidence with respect to the impact of affordable housing;
• Regulations were viewed as too complex;
• Charge setting process is lengthy and expensive, at broadly £15,000 to £50,000 per local authority. Outcomes of charge-setting process also different in places where expected to be similar due to local economic conditions; and
• Exemptions produce a significant amount of bureaucracy for no compensation .

Following on from these conclusions, the Review set a number of conditions for the creation of a new system:

• Consistent and flexible on a nation-wide basis;
• Provide an upfront quantum for developers and accommodate the needs of those promoting larger schemes;
• Streamlined regulations to improve the understanding and speed of implementation;
• Offer a clear route through which necessary developer funded infrastructure can be delivered;
• Reassurance to communities that impacts of development will be mitigated and risks of delivery of that mitigation attached to those able to bear it;
• Accommodate the creation of combined authorities and cross-boundary working across a housing market area;
• Implementation with minimal disruption to developers with existing permissions and for future planning applications during a transitional period and for LPAs having adopted CIL; and
• Quick and simple planning applications for small builders and developers.

In summary, the Review did not propose to remove CIL altogether though suggests a new solution in the form of the Local Infrastructure Tariff/ Strategic Infrastructure Tariff and hybrid LIT/ CIL, S106 system. It recommends a simplification of procedures together with a clearer S123 list and removal of barriers to delivery of localised infrastructure delivery (i.e. through pooling restrictions). This ‘twin track’ delivery aims to optimise contributions from smaller sites which may not otherwise contribute to S106 whilst also ensuring substantial infrastructure needs of larger developments are met timeously.

The recommendations therefore focus on a simplified system which would require relatively straightforward adoption processes. It also recognises the need for local authorities to work together and reflect changing systems of governance (e.g. with the creation of Combined Authorities) in the delivery of large infrastructure projects.

The Review points out that it may be a matter of local authority discretion to determine whether it would be worth collecting a tariff. The Review emphasises the importance of local determination of need, and this may be captured in part through the emphasis of a ‘nationally determined charge’ based on gross floorspace, derived from median sales values.

The CIL review clearly advocates a simplified approach to contributions, and one which takes into account local economic conditions. For example, in simplifying procedures for charges to commercial developments, it advocates centralised frameworks for the ‘number of different commercial developments and the proportional relationship’ to a residential charge to account for local market variations. It can therefore be tied to local planning priorities and included in the Annual Monitoring Report to show how spending of the tariff is meeting local infrastructure needs, and its correspondence to local plan preparation.

In summary, the Review recommendations indicate that the direction of travel for Stage 1 & 2 Research does not show significant departures from the Review. Indicative analyses of the potential for a minor contribution of a levy to infrastructure needs is also reflected in the Review which is clear about the need for front funding and identifying other sources of infrastructure funding. In particular, there is clear resonance in:

• The need to retain other systems of contributions and making their interrelationships clear;
• Developing a simple system for collection that is tied demonstrably to the local planning process;
• Potential for combined authorities or partnership bodies in the identification of strategic infrastructure requirements;
• Capturing ‘more than local’ infrastructure requirements;
• Centrally defined methodology for determining contributions; and
• Limiting exemptions to ensure the widest reach of the charge.

Summary

This section sets out the context for Stage 3 research, in particular identifying the outcomes set out in Stage 1 & 2 of the research. It also sets out principles emerging from the Planning Review Consultation and identifying relevant findings from the CIL Review in England and Wales that may be beneficial in the development of an infrastructure charging mechanism in Scotland.