Planning - the value, incidence and impact of developer contributions: research

9. Annex 2: Literature Review

9.1 Introduction: developer contributions review and aims of the literature review

The outputs of this research project are to be part of the evidence which informs the Scottish Government's planning reform programme. As part of this, the Government committed to carry out a review of the effectiveness of existing developer contribution mechanisms, in view of the paucity of information about this in Scotland, compared to that available for England (Crook et al, 2016; 2018; Lord et al, 2020; Crook & Whitehead, 2019). This was also one of the recommendations of the Scottish Land Commission in their advice to Scottish Ministers on land value capture (see below).

This literature review sets out in some detail what can be learned from publicly available material about the rationale of the contributions approach; the policy and practice on which the system is based; the evidence on how a similar approach operates in England; and what might be learned from other countries' experience (the detailed evidence from England and the material related to overseas experience are in two appendices).

The review starts by discussing the objectives of the developer contributions policy and the relationship of this planning-based approach to more general issues of land value capture. It then brings together detailed information about the attributes and importance of developer contributions and how the policy is implemented in Scotland; followed by evidence on the contributions obtained, particularly with respect to affordable housing and infrastructure. The paper then discusses the comparable system that operates in England and the findings about both its operation and delivery based on the regular assessments undertaken there. The penultimate section looks at relevant international experience using somewhat different approaches. The final section summarises the evidence submitted to Ministers by the Scottish Land Commission together with their recommendations on how to approach land value capture effectively.

9.2 The rationale of developer contributions and relevance to land value capture

Policy relating to developer contributions has evolved in Scotland, as it has done in England. It was originally a mechanism to be used specifically to mitigate the immediate impacts of new developments. Over time it has evolved as a more broadly based approach to securing funding for local and now more sub-regional infrastructure although recent court and planning appeal decisions discussed below now throw some doubt on whether they can be used for more than local infrastructure. In addition, obligations evolved to secure contributions towards wider community needs, especially for new affordable homes by making land available for them in areas where market activity was making this difficult. In England these approaches were rationalised as a means of making planning decisions more acceptable. As such, it was conceived as both a planning oriented and a cost-based policy.

The rationale of land value – or more accurately in this case incremental land value –capture lies on in seeing the increase in value as properly subject to taxation - in that the granting of planning permission is the point at which it is possible to measure and realise the benefits of the permitted change of use (Crook, Henneberry and Whitehead 2016, chapter 2). It is thus both value-based and not inherently related to planning outcomes.

While developer contribution policies were not initiated as a means of land value capture, in so far as the costs developers incur in meeting obligations are passed back to landowners in the form of lower land prices, they become a de facto means of capturing the increased land value arising from new development following planning consent. This however has been an outcome of seeking contributions, not an explicitly intended objective.

Many countries throughout the world have adopted systems of incremental land value capture. Land values increase for many reasons: increased prosperity, the impact of new infrastructure (creating new opportunities for existing and new development) and the granting of planning permissions enabling new development to take place. These increases are subject to tax in a variety of ways. Seeking developer contributions has become one means of achieving this.

Developer contributions can also support the following objectives (Crook & Whitehead, 2019): (i) they can improve economic efficiency by getting developers to pay for (some) of the infrastructure required to support new developments; (ii) they can improve equity and fairness by capturing some of the 'unearned increment' arising from planning consent and using this to fund community needs including affordable homes; and (iii) they can raise income for public spending in ways consistent with taxation principles.

There have been three main policy mechanisms to achieve this since the post war planning system was established in England and in Scotland (Crook, et al, 2016): (i) un-hypothecated national taxation of development value; (ii) public acquisition of land at value in its existing use, e.g., early New Towns; and (iii) planning obligations and community infrastructure levy (but not the latter in Scotland). Planning obligations seeking developer contributions are now the main way whereby development value is captured in both Scotland and England by obliging developers to fund some of the infrastructure required to support their new developments, mitigating impacts and contributing to community needs.

9.3 The national policy framework and infrastructure planning

There was much debate during the passage of the Planning (Scotland) Act 2019 about capturing more development value to fund infrastructure and affordable homes through planning obligations and infrastructure levies (Brett Associates, 2016; Scottish Futures Trust, 2019), the latter now provided for in legislation including via Master Plan Consent Areas, the latter also now provided for in the new Act.

There were also debates about enabling local authorities to acquire land at its value in its existing use but current arrangements requiring acquisition at market value were not changed (Crook, 2018; Scottish Land Commission, 2019). In its recent advice to Scottish Ministers the Scottish Land Commission noted that whilst there was public interest in enabling more of the uplift in land values created by the planning system to be used to support better place-making there also needed to be an adequate supply of development and that any new mechanism or approach is regarded as fair by all parties and has wide-spread political support. To be regarded as fair any new mechanism will need to ensure that landowners whose land is acquired through compulsory purchase receive equivalent compensation to landowners who sell their land on the open market. Simply introducing new rules to exclude hope value from compensation arrangements without addressing this issue is likely to be regarded as very unfair and could breach the protections provided by the European Convention of Human Rights (ECHR) and, the Commission noted would require far reaching changes to statute.

In the shorter term, an important mechanism for achieving financial equivalence between landowners would be to use planning policies and obligations to reduce market value (by ensuring that the costs of providing enabling infrastructure are reflected in the prices paid by developers). Existing Section 75 agreements and the new Infrastructure Levy and Masterplan Consent Areas proposed in the (then) Planning Bill could all be used to help achieve this.

To this end it recommended, amongst other matters, that Ministers:

1. Commission a national review of policy and practice in relation to developer contributions and seek recommendations that would help improve clarity and consistency of application across the country;

2. Implement proposals to introduce a new infrastructure levy as set out in the in Planning (Scotland) Bill; and

3. Use regulations required by the new provisions for Masterplan Consent Areas (MCAs) to require that MCA masterplans provide detailed information about the cost of infrastructure required to deliver the plan and prohibit piecemeal development. This approach is likely to be most effective in areas where there is significant value to capture but in many parts of Scotland this is not the case. This suggests a need for a more ambitious approach, in which the public sector shares the risks and rewards of development more equitably with landowners and the development industry.

The review of developer contributions will inform future policy development on infrastructure funding and delivery in Scotland. This includes the National Planning Framework (NPF4) due to be published 2021^[8] and potential updates to Circular 3/2012. Over the longer term it will also inform implementation of the infrastructure levy – powers for which are contained in the Planning (Scotland) Act 2019.

The review is timely because the funding of infrastructure is critical to the delivery of inclusive economic growth and recovery. Furthermore, Scottish Government has signalled its intention to embed an 'infrastructure first' approach to development planning through the implementation of reforms in the Planning (Scotland) Act 2019. Development plans provide an opportunity to strengthen the link between the infrastructure needs of places and the funding and delivery mechanisms of infrastructure providers. It is also critical because recent legal and planning appeal decisions (e.g., the Elsick and AWP cases, respectively, see below) have questioned the extent to which developer contributions can contribute to sub regional infrastructure in circumstances where individual development have limited impact on what is required.

Development planning is the most significant area of change within the Planning (Scotland) Act 2019. The Act changed the form, content and process for preparing and adopting plans, aligning better with wider policy making at a national, regional and local scale including improving housing delivery and an infrastructure first approach to development, albeit with the removal of regional Strategic Development Plans and its replacement with Regional Spatial Strategies (now not part of the development plan). In future the National Planning Framework (to include SPP) will have full status as part of the statutory development plan system, a status the NPF does not currently have. NPF4 will look ahead to Scotland in 2050 and be reviewed every ten years Following its approval by the Scottish Parliament and adoption by Scottish Ministers, subsequent local development plans will be required to take account of NPF4. And as the new development planning system evolves so too it is likely that planning for infrastructure will also evolve, including how policy related to developer contributions will contribute to infrastructure planning, with one consequence being a growing reliance on formal plan policy about contributions and less reliance on supplementary guidance.

The significance of developer contributions for the funding and delivery of infrastructure was emphasised in a recent report by the Scottish Futures Trust (2019). Whilst the public sector takes a major role in provision of infrastructure, the constraints of public funding require a contribution from planning led land value capture, including S75 contributions and the proposed Infrastructure Levy and also consideration of whether development land should be acquired at existing use value (EUV). Furthermore, the Scottish Infrastructure Commission (2020) stressed that infrastructure suppliers need to interact with the place-based emphasis of the new Scottish planning system, including how place-based housing need assessments are linked effectively with plans and obligations policies to secure long term supply.

The 2019 Act removed strategic development plans, replacing them with Regional Spatial Strategies (RSS). These strategies will not be a formal part of the development plan but will inform future versions of the National Planning Framework and local development plans. RSS will strengthen the horizontal alignment of regional working, bringing spatial planning together with economic planning, city and growth deals and transport planning.

New regulations and guidance on local development plans will be consulted on and developed in due course. Given the extent of the changes, these will take around two years to finalise. The intention is that stronger local development plans will provide greater certainty for developers and communities, whilst also being flexible and responsive to wider priorities. Supplementary guidance and Ministerial powers to intervene at the adoption stage will be removed. Local development plans will move to a 10-year review cycle to provide greater focus on implementation and delivery.

Alongside introducing the new development plan system, the Scottish Government is reviewing housing land policies to inform NPF4 and the statutory requirements for the NPF to contain targets for housing land in different areas of Scotland. Local Development Plans (LDPs) will need targets for their district, and consider the housing the needs of students, older people and disabled people. Because the allocation of housing land has long been contentious, the aim is to establish targets for housing land that are clear enough to reduce conflict but also flexible enough to work within the longer-term timeframe of the NPF and local development plans. The opportunities for improved practice, including a greater focus on the deliverability of housing land, links with infrastructure and a more consistent approach to housing land audits, will also be explored in the review.

The current National Planning Framework 3 (NPF3) (Scottish Government, 2014a) provides the spatial expression to the Scottish Infrastructure Investment Plan and the Scottish Government's Economic Strategy. NPF3 highlights 14 National Developments and other strategically important development opportunities. Many of these are infrastructure related and are to happen over the next 20- 30 years. This is a high-level policy document which statutory development plans must have regard to but it is not an infrastructure investment plan. Scottish Planning Policy (Scottish Government, 2014b) sets out the Scottish Government's national planning policies for the operation of the planning system and the development and use of land. Emphasising planners' role as enablers of development, SPP directs the planning system to create opportunities by allocating sites and enabling the delivery of necessary infrastructure, attracting investment and employment. Development is to be more closely aligned with transport and digital infrastructure to improve sustainability and connectivity. Circular 6/2013 on Development Planning (Scottish Government, 2013) emphasises the need for consultation with key agencies when drafting development plans. Key agencies are bodies under a specific duty to cooperate with planning authorities at defined stages within the development plan process. This includes the preparation of Action Programmes so plan-making authorities have the information they need to produce effective plans and to ensure that the plans themselves are aligned with the strategic objectives of the other agencies, who align their own policies and delivery programmes to the strategy and proposals of development plans.

9.4 The legal framework for developer contributions in Scotland

The current system of developer contributions in Scotland has evolved piecemeal. Planning authorities secure infrastructure investment from developers through a 'planning obligation', which is sometimes referred to as a 'section 75 agreement' (after the relevant clause in statute). These obligations help overcome obstacles to granting planning permission with the developer contributing to the necessary infrastructure. In the 1990s it also became common for developers to be asked to contribute to off-site infrastructure, principally upgrading road junctions. It is also possible to use S69 and S48 agreements (see below), although neither can 'run with the land' in the same way that S75 agreements can, i.e., cannot be binding on successors in title to land.

Planning obligations are commitments undertaken by a person with an interest in land to overcome obstacles to the granting of planning permission, potentially providing a means to, for example, compensate or reduce negative impacts on land use, the environment or infrastructure by making contributions in kind or in cash. They can help fund strategic infrastructure i.e., that needed to enable major new development to proceed as well as allowing smaller scale developments which have cumulative impacts to proceed. Their use is considered by each planning authority on a case-by-case basis but has to accord with government advice and local plan policy. The overall amount and scope of developer contributions has increased in recent years, with most planning authorities (PAs) now seeking contributions from a wide range of developments, and the range of infrastructure expanding to include schools and more recently for the provision of affordable housing.

Planning obligations are legal agreements secured through Section 75 of the Town and Country Planning (Scotland) Act 1997. This confers a power "for the purpose of restricting or regulating the development or use of the land, either permanently or during such period as may be specified". There is a power to "require the payment (i) of a specified amount or an amount determined in accordance with the relevant instrument, or (ii) of periodic sums either indefinitely or for such period as may be specified in that instrument". Section 75 obligations tend to be used for financial payments, because the obligation runs with the land – i.e., once the obligation is registered in the Land Register or recorded in the Register of Sasines it binds not just the signatories but also the successors in title of the site. That is important because the applicant for planning permission often does not own the development site. Indeed, the purchase of the site is often conditional on the grant of planning permission. Also, the applicant often sells the site to a developer or developers once permission has been granted. Where the obligation imposes restrictions on the site itself, the planning authority needs to be able to enforce those restrictions on the parties with an interest in the site at the relevant time.

This provision thus permits a person to enter into an obligation, normally by agreement with the planning authority, which restricts or regulates the development or use of the land. Planning obligations may require payment of specified sums of money. The current framework is therefore, broadly speaking, a consensual one. In essence, a planning obligation is a contract between the planning authority and the landowner (and possibly future landowners, depending on the terms of the agreement) which restricts or regulates the use of land, for example through requiring developers to mitigate against any potential negative impact of development through means set out in the agreement. This can include making a payment to the planning authority towards the development of associated infrastructure, for example, expanding a school or improving a road. The issues covered by a planning obligation are such that they could not normally be enforced through a condition attached to planning permission.

Developer contributions can also be secured through Section 69 of the Local Government (Scotland) Act 1973, which gives local authorities the power to enter into agreements for a purpose related to the discharge of any of its functions and these can be used to secure affordable housing contributions (as well as S75). They can also use the Roads (Scotland) Act 1984. This allows roads authorities to enter into an agreement with any person willing to contribute to the construction or improvement of a road. This is often used where payment is required shortly after permission is granted, and the agreement does not need to run with the land, or where an element of infrastructure is desirable but is not directly required as a result of the impact of development. Less commonly local authorities use the Countryside (Scotland) Act 1967 and the Sewerage (Scotland) Act 1968. Table 11 below summarises the provisions of the three principal statutes related to developer contributions.

Table 11: Developer contributions, legal framework in Scotland

Statute

S75 of Town and Country Planning (Scotland) Act 1997 (as amended by the 2006 Act)

What it covers

It provides that a person may either by agreement with the Planning Authority or unilaterally enter into a planning obligation restricting or regulating the use of land in the district of the Planning Authority, either permanently or during such a period as may be prescribed by the agreement or obligation.

Section 75 Agreements may include financial provisions. Any agreement or obligation to which the owner of the land is a party may be recorded in the Register of Sasines or registered in the Land Register of Scotland and become binding on all future owners of the land affected by the agreement or obligation. Any breach of the agreement or obligation is enforceable by the Planning Authority. Obligations run with the land

Statute

Section 69 of the Local Government (Scotland) Act 1973

What it covers

Gives local authorities the power to do anything which is calculated to facilitate, or is conducive or incidental to, the discharge of their functions. This provision enables agreements to be made with developers which can include financial payments or the transfer of assets to a local authority where this would discharge their functions. Agreements do not run with the land.

Statute

Section 48 of the Roads (Scotland) Act

What it covers

Allows roads authorities to enter into an agreement with any person willing to contribute to the construction or improvement of a road. It is an alternative to the use of s69 of the 1973 Act where single up-front payments are made specifically to roads related investment which falls under the powers and duties of the local authority as roads authority. The powers are not available to National Park Authorities. Agreements do not run with the land.

9.5 The policy framework for developer contributions in Scotland

This section covers central government policy and guidance and recent court and appeal decisions

The current Scottish Government advice (Circular 3/2012 on Planning Obligations and Good Neighbour Agreements: Scottish Government, 2012) stipulates that planning obligations should not be used to require payments to resolve issues that could be resolved in another way (for example, through alternative legal agreements and planning conditions, including suspensive ['Grampian'] planning permission conditions). Such legal agreements and conditions have become more sophisticated. Current policy updated previous 1996 advice given at a time when it was thought that agreements had a limited application (Scottish Government, 2012). Although the current circular still refers to a 'limited role' for obligations, practice had by then changed so that agreements were being used not only to regulate development but also to seek financial contributions towards infrastructure and contribute to policy objectives such as securing more affordable homes.

The 3/2012 circular states that, where the need for obligations is known in advance, requirements for planning obligations should be set out in the development plan. There are five tests for when using an obligation is appropriate (note that unlike in England these tests do not have statutory force). They are:

• The obligation is necessary to make the proposed development acceptable in planning terms;
• The obligation serves a planning purpose and, where it is possible to identify infrastructure provision requirements in advance, should relate to development plans;
• The obligation should relate to the proposed development either as a direct consequence of the development or arising from the cumulative impact of development in the area;
• The obligation should fairly and reasonably relate in scale and kind to the proposed development;
• The obligation should be reasonable in all other respects.

Local authorities should thus set out their policies in their development plans and, if need be, also (currently) in supplementary guidance (Circular 1/2009, Scottish Government, 2009). Development plan polices should be supported with action programmes and action plans to ensure the policies connect with the funding and delivery of infrastructure. Whilst local residents and community organisations are consulted on policies in development plans, they are not normally involved in discussions about specific planning obligations, which generally only involve the developer and the planning authority and their advisers.

Whilst Section 75 provides the mechanism for planning obligations, it, does not impose tight restrictions on the use or scope of these obligations subject of course to the five tests (Ryden, 2015). The need for linkage between the development and infrastructure provision arises from court decisions on "material considerations". This means that for the terms of a Section 75 obligation to be taken into account when deciding a planning application, these terms have to be a material consideration. The courts have indicated that a benefit which has nothing to do with the development will not be a material consideration; if the benefit has some connection, then regard must be had to it although the extent to which it should affect the decision is a matter entirely within the discretion of the decision-maker. Hence, in the absence of any specific provisions in statute, the law about obligations evolves through precedent in key court decisions. Policy is also upheld in planning appeal decisions.

Recent decisions have reinforced this need for a clear link between the development and the infrastructure for which contributions are sought. Two recent court and planning appeal decisions are relevant to the current debates. In the Elsick judgement by the Supreme Court in 2017 (UK Supreme Court, 2017: 66 On appeal from: [2016] CSIH 28; Cornerstone Barristers, 2017) it was held that asking for pooled contributions because of the cumulative impact of several developments was inconsistent with the statute because the specific development made only a trivial impact on the need for infrastructure. Hence without a statutory basis pooled contribution of the type sought were unlawful and could not be sought via developer contributions. In a recent (2020) planning appeal decision by EWP developments against a S75 agreement on Armadale, the reporter allowed the appeal and removed the obligation because it did not conform to the tests set out in Circular 3/2012 related to the improvement of the A801 road. This was because circumstances had changed and the evidence about the development's impact on traffic flow did not adequately demonstrate there was a connection between the proposed development and the needed to upgrade the road (Scottish Government, Planning and Environmental Appeals Division, 2020: POA-400-2004). Greig (2020) provides a useful commentary on recent court and appeal decisions related to S75.

Court and appeal decisions such as these have helped to demonstrate the challenge of using planning obligations for the purposes of funding regional or sub-regional infrastructure under the current policy and legal framework. It is also important to note that courts have supported the use of suspensive planning conditions, to prevent developments from proceeding until the necessary infrastructure is provided (Grampian Regional Council v Aberdeen District Council 1984 SLT 197 – hence these conditions are often described as "Grampian conditions"). The condition is a valid planning condition because it does not require payment. However, because these generate uncertainty about when/if the infrastructure will be delivered, especially if the infrastructure has to be provided by a third party such as Transport Scotland or Scottish Water, planning obligations have evolved to address infrastructure deficiencies (Ryden, 2015).

The Law Society of Scotland has recently undertaken a review of planning obligations with the aim of suggesting improvements to increase efficiency and transparency although it has not commented on recent court cases. Amongst many detailed suggestions it advocates greater use of model agreements (but retaining scope for flexibility, for example with respect to affordable housing obligations), addressing the liabilities of former owners, the enforceability of obligations and the recording and registration of agreements (Law Society of Scotland, 2020).

9.6 Developer contributions and affordable housing in Scotland

In addition to securing contributions towards infrastructure, obligations are also used to secure new affordable homes from developers. Policy is set out in Planning Advice Note PAN2/2010 (Scottish Government, 2010: PAN 2/2010), which revoked its predecessor (PAN74). Affordable housing is defined as reasonable quality housing, affordable to those on modest incomes; covering the full range of affordable housing including social rent, subsidised owner occupation (including shared ownership and shared equity), and intermediate homes. Local authorities need to base what they require on their housing need and demand assessments (HNDA) and local housing strategies (i.e., as required by Housing [Scotland] 2001 Act. The PAN emphasises the need to be flexible in what is required in relation to market conditions and to secure the variety of affordable homes needed as well as the obligations on developers to provide the necessary infrastructure. Hence, the advice stresses the need for clarity in PA policy as this will influence land values – and help secure the contributions required. The advice also covers design issues including quality and location suggesting that neither 'pepper potting' nor blocks are appropriate means of locating new affordable homes within market developments and that it is important to ensure affordable housing is not visibly different from the market homes

Current Scottish Planning Policy indicates that planning authorities should generally seek contributions as new affordable homes of no more that 25 percent of all new homes with no policy restriction placed on authorities with respect to the size of sites where contributions can be sought. The principal contributions to be secured are in the form of serviced land sold at discounted prices to affordable housing providers (and agreed by District Valuers), although direct provision of new homes is also possible. Greater proportions than 25 percent can be justified by reference to HNDAs as can a contribution from smaller sites, especially in rural areas, including sites with a few as four homes, although commuted payments or off-site contributions may be a better way of securing the homes needed.

9.7 Evidence on local planning authority policy and practice on infrastructure and developer contributions

Ryden (2015) found that nearly all (89 percent) of Scottish PAs use S75 contributions but that they vary widely in how they use them. The same scale of policy adoption was noted in an earlier study (Colin Buchanan & Partners et al, 2001) which also showed that few planning applications had agreements attached to them (for example only 0.8 percent of all planning applications in 1998-1999). It also showed that was a very wide variation in use between PAs with 30 percent of all agreements being in Aberdeen and Aberdeenshire and that their use was largely restricted to residential and not commercial development. Ryden (2015) showed how some PAs had sophisticated developer contribution policies, covering contribution zones; strategic infrastructure payments; and requiring small developments (e.g., single houses) to pay a share, while others had policies that were undifferentiated and covered a whole PA area, regardless of type and size of development. It also noted evidence, from an earlier Scottish Government report (GVA Grimley, 2009), that development viability was being negatively affected by the late requests made by PAs for developers to contribute to infrastructure, a feature also noted in earlier studies of planning agreements (Colin Buchanan & Partners et al, 2001). Despite setting out contributions in plans and in supplementary guidance, obligations were frequently negotiated on a case-by-case basis, with a process that was often protracted by challenges to the robustness of the evidence base supporting the policy approach (e.g., allegations that evidence did not sufficiently demonstrate need, that there were inconsistencies in evidence or that circumstances have changed). In such cases the lack of consistency creates uncertainty about the scale and costs of contributions required and this makes it difficult for developers and land promoters to decide on the price to pay for land. As a result, development is placed at risk because the estimated residual value of land after contributions have been finally agreed may not secure a price of land at which owners are willing to sell. Previous research had highlighted instances of developers pointing to the burden of land price as a means of negotiating down S75 obligations and this suggested that, in such cases, the current system is not effectively working in the way it should (cited in Ryden, 2015; see also the experience in England reviewed below in relation to the Parkhurst court case).

In the context of the financial climate after 2008, funding sources for infrastructure were drying up and more attempts were being made to use S75 to secure the funding required, despite the fact that such agreements did not work well for large and complex major development sites which can take several years to work through. As front-funding and side-by-side funding using debt would be constrained into the medium term, the infrastructure needed for large scale developments had to be provided 'up front' by the public sector and the expenditure subsequently recovered from developers and investors. The alternative was that the initial investors or developers of the first phase of a large and complex site bore a large proportion of the entire costs of the infrastructure that was funded through developer contributions so that subsequent developers gained a 'free ride' at the expense of the first investor or developer.

Scottish Futures Trust (2019) was also critical of how S75 worked. Partly this was because, despite Scottish Government policy on the matter (Scottish Government, 2009), development plans were not well aligned to the infrastructure needs of new development and although progress was being made, there was still a gap. As a result, planning policy is inconsistent in securing contributions through S75 and there was a key need to move away from the protracted negotiations by building in more intelligence on costs and timing as well as having more skilled and regularly updated staff in PAs. Ryden (2015) had noted that because most PAs had little experience of planning obligations, their staff capacity and expertise was limited, whereas the developers they negotiated with had much more expertise to call upon.

Scottish Government policy on development plans set out in Circular 6/2013 (Scottish Government, 2013) requires that they be fully co-ordinated with other key strategies at the earliest stage, with 'buy-in' from key infrastructure providers to assist in the delivery of the emerging proposals (paragraphs 66 and 155). Plans should include "Items for which financial or other contributions, including affordable housing, will be sought, and the circumstances (locations, types of development) where they will be sought". Ryden (2015) found that 33 of the 37 Local Plans/Local Development Plans addressed the delivery of infrastructure within their policies as required by the Circular. Only four contained no relevant policies.

These policies varied widely in depth and comprehensiveness. The most common means of addressing the need for infrastructure is to include a general policy that states there will be a requirement for developer contributions in order to mitigate the impact of the development on a range of infrastructure types. Most plans provide a list of likely impacts on infrastructure types that are at capacity and will require investment. Other plans address infrastructure thematically, i.e., through dedicated policies on, for example, delivery of transport to facilitate development, provision of open space or education requirements. These policies can sit alongside the general policies as above or are instead of a catch-all policy. In some plans, there are thematic or proposal-specific policies that relate to developer contributions. While less focused on policies on developer contributions, these plans do contain a commentary on infrastructure issues within their site allocations.

The impact of developer contributions on site viability is consistently recognised in statutory PAs' supplementary guidance and less systematically in non-statutory guidance. The approach they take highlights the need for individual applications to provide information to demonstrate that the required contributions would make a site unviable so this can then be tested by a planning authority. It is, however, a matter for individual negotiation.

According to Ryden's study, the most common types of infrastructure to be funded by developer contributions were roads (local and strategic) and green infrastructure (the study did not examine affordable housing, which other work has shown to be significant – see below). In addition, contributions were sought for public transport, education (the latter increasingly so), formal recreation areas and community facilities including libraries. The use of contributions to fund sports facilities, public art, water and waste water treatment, healthcare facilities and travel plans is more sporadic. There did not appear to be a strong correlation between when a plan was prepared and the number of developer contributions sought.

Ryden (2015) also found that the existence of action plans and action programmes related to delivering infrastructure via developer contributions was very variable. A key problem was getting the funding needed in place at the right time (although it was easier to identify the costs that needed funding). PAs were often very reliant on other infrastructure providers to deliver what PAs had secured from developers via S75. It was also difficult to handle contributions to cumulative impacts by retaining S75 funding until there was enough to finance what is needed (and also difficult to justify what each development should contribute to pooled funding). All told, two thirds of PAs thought S75 was difficult to operate, even in tight markets. Large sites posed difficulties because they often had to co-ordinate provision by other PA departments. Some had started to front fund infrastructure on large sites through prudential borrowing with repayments via staged S75s as development proceeded. Transport and education were the critical infrastructures, but funding and timing was problematic especially for education and this was even more difficult with developments that have a small scale but cumulative impact. Timing was also a problem for developers as front funding is more difficult, especially for SME builders, as side-by-side funding by banks had become harder to get. Finally, complexity of agreements was also problematic especially as PA legal resources had declined.

Ryden & Brodie (2020) showed that PAs focus more on identifying physical constraints when considering development proposals than on assessing the need for infrastructure and how this can be funded via developer contributions. In addition, Ryden's earlier research (2015) showed there are only weak links with action plans. It noted that on housing sites where viability was an issue this often-needed non-disclosure agreements between the promoter and the PA as part of the assessment process.

Noteworthy is that an earlier study of the use of agreements over the years 1996 to 1999 had noted broadly similar problems such as the time taken to enter into agreements, their lack of detail and transparency, the often lateness of the terms proposed, and the need for better links between policy and the delivery of infrastructure. There was particular concern that planning applicants often had no control over the funding and implementation of infrastructure despite entering into contributions agreements with respect to these requirements (Colin Buchanan & Partners et al, 2001).

9.8 Estimates of the incidence, value and delivery of developer contributions in Scotland

Evidence on value is limited but it shows that, even although policy and especially practice in the mid-2000s was not as well developed as that in England, the lack of contributions was also due to very different market circumstances in the two countries, with far fewer parts of Scotland having high land value contexts than in England so there were fewer opportunities to secure developer contributions when planning consent was granted (Brett Associates, 2016; Crook et al, 2016; Crook, 2018).

Land and development values are generally much lower in Scotland than in England with the exception of the Edinburgh region. Estimates extracted from Valuation Office Agency data for the period 1995 to 2001 showed that the price of 'bulk' housing land (defined as 2ha plus) with planning consent in Scotland was generally similar to that for Northern England, with the exception of the area around Edinburgh where values were high even relative to South East England plus parts of Glasgow and Aberdeen City/Aberdeenshire (DTZ Pieda, 2002). With that exception, market values of land for new (for example housing) development were not greatly above the value of the land in its existing use, such as farmland.

More up to date evidence of what development value might be available to 'capture' across the whole of Scotland in the future comes from a recent study for the Scottish Government of its proposed infrastructure levy (Brett Associates, 2016). This suggested that, by calculating residual land values on an annualised basis, only £230m was annually available for affordable housing and infrastructure, of which it estimated that £130m was then being collected via S75 (with the amount on the increase), of which £45m was for affordable housing. The study confirmed the earlier DTZ findings, i.e., that the value to be captured was insufficient in many parts of Scotland to produce much funding for affordable homes and for infrastructure. The Brett study proposed the introduction of a charge to fund non-local infrastructure with S75 retained for local impacts and affordable housing. Such a charge would be set and collected locally and the recommended non-linear charge as a percentage of the market value of complete development with planning consent could secure £75m per year towards non-local infrastructure (and Brett proposed no exemptions to the charge). Together with S75, this would fund about 3.5 percent of the national infrastructure requirement.

These studies suggested that there may be limited value to be "captured" to fund infrastructure and affordable housing in many parts of Scotland, something that the few studies of what has been raised by contributions have confirmed. A study of S75, S69 (1973 Local Government Act) and S48 (1984 Roads Act) agreements over the three years, 2004-05 to 2006-07 (McMaster et al., 2008) showed that less than 1 percent of all planning permissions had agreements on developer contributions, It also showed that the cash and in-kind value of these contributions secured over the study period was only £159m, significantly less than in England (see below), even allowing for Scotland's much lower development activity and population size. Only a fifth was for affordable homes (mostly in kind) with contributions (mainly in cash not in kind) also being made towards roads, recreation and education and mainly related to housing developments. Although there were significant variations in policy as well as practice, 84 percent of local planning authorities had adopted policy and the use of contributions was on a rising curve, particularly for major housing developments. By 2006-07, 16 percent of all planning applications for housing had agreements on contributions (rising from 9 percent in 2003-04) and the values secured were also rising as local planning authorities adopted formal policies on contributions and developed good practice. The research team estimated that contributions secured would rise over the subsequent three years to 2010. The team also made the point that not all planning agreements resulted in financial contributions as many were solely intended to regulate development in ways not possible under planning conditions.

An estimate made a decade later (for the year 2014-15), based on extrapolating data from ten of Scotland's major house builders suggested the rising curve had been achieved and that £83.7m was raised in S75 contributions for that year alone (Nathaniel Lichfield and Partners, 2016). Of this total, 60 percent (£46.8m) was towards affordable homes, 16 percent for school provision and 27 percent for a range of community facilities, the balance being for sport and open space provision. The affordable homes contribution enabled 4,323 new homes to be built, of which a fifth were built directly by the house builders and the rest by local authorities using the home builders' financial contributions.

Land values are of course captured by other mechanisms, including transactions taxes on the transfer of land. An estimate (Rettie, 2019) showed that Land and Buildings Transactions Tax (LBTT) for residential transactions raised £258m in 2017-18 with Additional Dwellings Supplement (ADS) another £126m of which 10 percent came from transactions on new homes. This would not cover land transactions for new development as this would be covered by commercial LBTT.

9.9 Delivery of affordable housing by developer contributions

The use of developer contributions to secure new affordable homes before the current millennium was very limited and thought to be restrictive by limiting the circumstances where it could be applied (i.e., to explicit evidence of need at the local level) (Bramley, 2001). Other evidence suggested that using obligations to deliver affordable housing was challenging as development values were not always sufficient to support contributions despite developers becoming more willing to accept that they should make provision (Newhaven Research, 2008).

Shiel & Battye (2014), in a project for Shelter Scotland, showed that many PAs had policies on securing affordable housing via developer contributions and that where there were exceptions this was mostly because there was no need for additional affordable homes. A third of all new affordable homes with permission (there is no information on completions) between 2007-08 and 2011-12 were the product of developer contributions, greater than had been previously thought, and where policies were in place contributions could be significant (for example 57 percent of all new consents in Edinburgh were via S75)^[9]. Types of contribution included discounted land (22 percent), discounted completed units (57 percent) and commuted payments (16 percent), with discounted units via design and build agreements increasing in proportion. The researchers also noted that the data on which they based their estimate was no longer available and were concerned that the benchmark of 25 percent of all units being affordable risked becoming the maximum in places where more could be secured without impacting on negatively on viability. They also noted that some case study research had suggested that, where grant was mixed with developer contributions, this resulted in higher land value. They argued that grant should be limited when developer contributions were secured, that more intermediate as well as social rented housing should be targeted, and that commuted payments targets should be set high enough to enable land to be bought at prices on which genuinely affordable new homes could be built. They wanted sites to be selected in places with decent infrastructure already provided so that affordable homes did not compete with other S75 contributions.

They also found that rural exceptions policies (as they are known in England) had not been developed and that planning policy in rural areas had focused more on addressing economic development and retaining existing populations than in explicitly addressing housing needs. This finding reflected an earlier study by Satsangi and Dunmore (2003) which had shown that using developer contributions in rural areas to fund affordable homes ranked lower than using them to address environmental objectives.

Two more recent reports (Powell et al, 2015; Dunning et al, 2020) have estimated Scotland's overall affordable housing requirements and showed that between 2016 and 2021. 60,000 new affordable homes were required and, that looking ahead, 53,000 would be needed between 2021 and 2026. Both reports examined the need for grant payments to support provision (a contrast to the position in England where there is a zero-grant default for provision on sites with planning obligations), noting that Scottish planning policy now requires development plans to take more account of housing needs and that local planning authorities were making extensive use of HNDA studies in coming to decisions on housing requirements. Most recently, the Scottish Government has published a long-term housing strategy setting out requirements for the construction of 100,000 new affordable homes (with 70 percent of these being for social rent) by 2032, following the completion of its current five-year 50,000 target by the end of 2021/22 (Scottish Government, 2021).

Ryden & Brodie (2020) noted that, in respect of affordable housing, developers are thought likely to promote only sites where the market is vibrant enough to allow them to deliver new affordable homes. In weaker market areas, they noted a structural change from private sector delivery of housing via S75 after 2008, to a greater dependency upon the affordable housing providers and the Scottish Government's current active grant programme. Local builders were acting as contractors for the delivery of that affordable housing in some areas, rather than taking private development market risk.

9.10 Advantages and disadvantages of planning obligations in Scotland

Many of the research publications already mentioned (e.g. Brett Associates, 2016; Buchanan, 2001; McMaster et al, 2008; Ryden, 2015) discuss the advantages and disadvantages of the system of planning obligations in Scotland.

Increasingly, planning stakeholders have raised concerns about the growing scope and complexity of planning obligations, including the time and costs involved in negotiation, the uncertainties they generate, the fairness of only covering a few large applications, and the openness to public scrutiny. Notwithstanding the criticisms, the current system has two main advantages: (i) fairness because a developer can only be asked to contribute towards infrastructure required for the particular development (although this creates problems for large and complex schemes where each individual project contributes cumulatively to what is needed); and (ii) flexibility because there are no rigid rules, particularly important where the viability of the development, and therefore the likelihood of it proceeding, might require the amount of developer contribution to be reduced.

But there are also disadvantages, including: (i) a lack of public transparency; (ii) Inconsistent approaches by PAs; (iii) lack of certainty because of reliance on negotiations in relation to individual projects; (iv) delays due to these negotiations about the amount of developer contributions and to the drafting legal agreements; (v) the link between development and infrastructure results in infrastructure delivery in strong market areas, not necessarily where it is most needed, including in areas where infrastructure is needed to stimulate new development.

9.11 The experience of developer contributions in England

There are many similarities in policy, practice and the delivery of developer contributions between Scotland and England. In both countries, contributions have been used to fund the infrastructure required to support new developments and the needs of local communities, especially for new affordable homes. One important difference is that there is already an infrastructure levy (the Community Infrastructure Levy or CIL) in place (since 2008) in England. This enables PAs to secure contributions towards infrastructure, including sub regional and regional infrastructure, that is not directly connected to the specific development for which planning permission is given. Another important difference is that new affordable homes in Scotland are provided through a grant regime so that developer contributions have the main function of securing the land for this grant-aided housing, providing more mixed communities (an equally important objective in England) and different opportunities for tenants by changing the location of new affordable homes.

In most other respects the legal framework and policy requirements set by government are very similar, although the legal tests that planning obligation contributions (i.e., not CIL) must meet are enshrined in statute in England (and developer contributions are known as 'S106' agreements/contributions/obligations, 'named' after the relevant clause in the principal legislation). These tests require that contributions have to be justified on a 'rational nexus basis', i.e., the new development must 'cause' the need for specific infrastructure and the obligations must be related in scale and type to the proposed development. As in Scotland, PAs in England are encouraged to set out their contributions policies in their adopted local plans (and any SPG), including those related to affordable housing targets. Unlike the position in Scotland, Homes England (which funds housing associations) limits payment of grants to housing associations when they secure new homes through developer contributions, effectively to ensure that grants do not 'leak' into higher land prices on the market sites when the contributions are negotiated. In the future, PAs will be required to relate their policies to their Infrastructure Planning Statements and to be more transparent about what has been agreed and what is delivered by developers (in kind) and spent by PAs from the cash contributions.

One other difference is the regular monitoring of the incidence, value and delivery of developer contributions (and more latterly, also CIL) in England. There have now been six such studies commissioned by MHCLG (and its forerunners) covering the period between 2003-04 and 2018-19 and the results of these studies can be found in Crook et al, 2016, 2018a; Crook & Whitehead, 2019; and Lord et al, 2018, 2020). The following paragraphs summarise the key findings.

The research shows that S106 (alongside CIL in more recent years) has been far more successful in capturing development value than the previous attempts to capture it via un-hypothecated national taxation measures. Table 12 illustrates that the value of planning obligations (and latterly CIL) increased from £1.9bn in 2003-04 to £7bn in 2018/19 in nominal terms and from £2.6bn in 2003-04 to £7bn in real terms (at 2018-19 prices, using the GDP deflator), the latter being a nearly threefold increase. London and the South East receive the majority of contributions agreed. Across England the majority are for affordable homes (see below) but there have been more increases than average since 2003-04 for education, transport and for infrastructure related to health provision.

Table 12. Value of developer contributions agreed in England.

Planning Obligations	Year	Value nominal	Value @ 2018-19 prices	New homes completed p.a. by private developers	Value per house completed @ 2018-19 prices
Planning Obligations – cash and in kind	2003-04	£1,900m	£2,565m	130,100 (England)	£19,715
Planning Obligations – cash and in kind	2005-06	£3,927m	£5,066m	144,940 (England)	£34,952
Planning Obligations – cash and in kind	2007-08	£4,874m	£5,913m	147,170 (England)	£40,178
Planning Obligations – cash and in kind	2011-12	£3,700m	£4,181m	89,120 (England)	£46,914
Planning Obligations and CIL – cash and in kind	2016-17	£5,969m	£6,196m	120,450 (England)	£51,440
Planning Obligations and CIL – cash and in kind	2018-19	£6,979m	£6,979m	138,550 (England)	£50,371

Sources: Data derived from Crook et al (2016), Lord et al (2018, 2020).

The table also shows the average value of obligations agreed for each private house completed in the year of the agreement with the average value being £50k in 2018-19, again a value which almost trebled between 2003-04 and 2018-19. The revenues from previous attempts at national taxation of development value were much lower (Crook, et al, 2016), with Development Land Tax raising only £68m in 1983-84 (£185m at 2018-19 prices) in the UK as a whole and worth £1,209 per private house completed in the UK in that year.

Evidence shows that the costs of contributions fall largely on landowners in the form of lower land prices. This is especially the case where there is clear PA policy and where national volume developers are negotiating through option agreements with landowners and land promoters are experienced in pre planning application discussions with PAs. It is less the case where PA policy is unclear (or inconsistently implemented) and SME developers are seeking planning consent and negotiating S106 agreements. In such cases land prices may not be negotiated downwards and/or the developers' margins may decrease, or the planned scheme may not proceed.

Recent estimates (Crook et al 2018b) suggest that developer contributions capture about 30 percent of open market development value of greenfield sites with planning consent (but unfettered by obligations) with about another 20 percent captured by capital gains and transactions taxes. Evidence also suggests that most agreed contributions are finally delivered (probably three quarters or more, depending on the year of agreement) subject to subsequent variations in timing of payments when market conditions change. Recently some developers have attempted to negotiate reductions in contributions, given changes in market conditions. The most recent UK Government study (Lord et al, 2020) suggests a decline in cash contributions being received and in other contributions being delivered compared with what had been agreed (see below).

Further evidence from England is provided in sub-annex 2A.

9.12 Sub-annex 2: Additional evidence from England

9.12.1 Affordable homes and S106 in England

Through developer contributions significant numbers of new affordable homes have been secured (principally by in kind contributions of dwellings and land at discounted market prices, although with more commuted payments in Greater London). An increasing proportion of these are accounted for by shared ownership dwellings. New affordable homes secured via S106 also account for significant proportions of all new affordable homes completed including those secured by means other than developer contributions.

In fact, a growing proportion of the increase in planning obligations has come as contributions to affordable housing (Crook et al, 2916; Lord et al, 2018, 2020). In 2005-06, this accounted for 51 percent of all contributions. By 2016-17, it was 68 percent and in 2018-19 it was two thirds again, worth £4.7bn. The increase reflects the greater number of all new homes secured (hence more contributions on relevant sites with consent) but also the real increase in land values and house prices, the two key factors that 'drive' the value of contributions. It is also because some elements previously funded through obligations are now coming through CIL. Most of the affordable housing was 'in kind' provision on market sites with only a moderate amount of 'commuted payments' paid to PAs to help fund provision elsewhere (mainly in Greater London). There has also been a growth in the proportion secured in London and the South East, not surprisingly, as this is where affordable housing need is greatest and land values large enough to support provision.

The system secured between 10k and 20k new affordable homes each year in the 1990s but the number increased significantly after then partly because housing associations were less able to develop independently, as they were running out of traditional sources of land and also finding it difficult to acquire land in high value areas. Thereafter associations became increasingly dependent on S106 for land and new homes either in the form of free or discounted land or discounted prices for new homes. At the same time, PAs became more proactive in requiring affordable housing in S106 agreements, with 89 percent having relevant policies in place by 2001. In addition, practice became more 'bedded down' as PAs became more familiar with using obligations to secure affordable homes. Typically, PAs set overall requirements in their plans and seek to negotiate between 10 (typical of low demand areas) and 40 percent (typical of high demand areas in southern England) of affordable homes on all large residential sites, albeit not always achieving these.

The number of new affordable homes secured in agreed obligations rose from 15k in 1998-99 to 50k in 2007-08 but then fell, a reflection of the more challenging climate after the global financial crisis. The numbers then recovered between 2011-12 and 2016-17 from 32k in the former year to 50k in the latter (starter homes were included in the latter but not former year) as markets regained ground and as the government stimulated the building of more affordable homes by housing associations with some pump priming 'kick start' grant aid, before falling slightly to 44k in 2018-19. Evidence suggests that, up to 2007-08, most (around 80 percent) of the agreed new homes were delivered. It also shows that failures to deliver were the result of developments as a whole not being built, due to changing circumstances affecting the development itself and were not due to the costs of complying with the affordable housing element. In many cases developers sought to renegotiate the whole planning consent, such that eventually the site might proceed, including the affordable element. Since 2007-08 there has been more evidence of non-delivery of affordable homes along with other contributions (see below). Moreover, affordable provision via S106 became an increasing percentage of all new affordable homes provided, however funded, rising from one fifth in 1998-99 to nearly two thirds in 2008-09. Thereafter the proportion fell reflecting the extent of government grant support in the immediate period after the Global Financial Crisis but then the proportion funded via S106 without public subsidy via grants has since risen considerably in recent years reaching 45 percent in 2017-18. Over the same period the proportion of new affordable homes that were shared ownership rose as were those built as one- or two-bedroom flats, both trends reflecting the way this mix made schemes more viable for developers than if all the new affordable homes had been rented ones. Also, throughout the period under study, an increasing proportion of these new homes on S106 sites were in areas of low deprivation and promoted the government's mixed communities agenda by giving lower socio-economic group households opportunities to move to suburban and greenfield areas which unfortunately tended to be at some distance from employment opportunities and lacked good public transport (Bibby et al 2016).

9.12.2 Advantages and disadvantages of S106 in England

Developer contribution mechanisms have raised so much more than previous un-hypothecated national taxation because (apart from the tariff based CIL) they are largely negotiated, meaning the specifics of site conditions, costs and prices are effectively taken into account. In order to be effective, they depend on having clear and simple policy in adopted local plans, which are consistently implemented: providing clarity to developers about what they will have to contribute when they are negotiating with landowners or with land promoters to buy land including on option agreements. This matter has been recently reinforced by the Parkhurst judgement in the English courts, which found that the contributions due by the appellant were to be as required by the PA plan and not determined by the price the developer had paid for the land. Another key factor in the success of contributions is that that they are contractual agreements that can be enforced by either party. Furthermore, the benefits flow to local communities mitigating the impact of new developments on them.

In addition, the English courts have permitted a wide scope to obligations, provided they make proposed developments acceptable in planning terms. Obligations also avoid the issue of assessing development value directly (as was the case with national taxation) although they do need to be negotiated - or fixed - to maintain development viability.

But, despite this success, developer contributions and CIL are not without challenges. First, they work well in tight and buoyant markets, which generate the development values that can be captured for contributions. Not surprisingly, the majority of agreed and delivered contributions are in the southern regions of England, areas where there is pressure for development and the need for more affordable homes. In 'less pressured markets' and when the market is less buoyant even in 'pressured areas, contributions are more difficult to secure and in recent years, following the Global Financial Crisis, developers have attempted to renegotiate agreed contributions downwards (and in 2013 were given the right to do so earlier than previous legislation had provided). In some cases, they succeeded but evidence shows that the reasons for the renegotiation were as much due to other factors (finance, land ownership, market opportunities changing) as to the cost of the previously agreed contributions.

Second, although negotiations (and their associated flexibility) are one of the factors for the success of S106 agreements, these can be complex and time consuming, especially where PA policy is unclear or inconsistent and where organisations external to the PA seek contributions not previously included in policy. These include cases where county councils acting as education authorities in two-tier authorities seek funding for schools or NHS commissioning bodies seek funding for new GP surgeries. Negotiations between PAs and developers are often asymmetric in terms of power and capacity, with developers hiring expert consultants to help argue cases on viability grounds and confronting PAs with fewer experts - and in small authorities few staff have the necessary expertise. To the extent that PAs have moved some of the requirements on contributions to a tariff base (which has increasingly been the case) this helps speed up the process and avoid the need to negotiate – at least on the items subject to tariff. Nonetheless, the system itself creates inevitable delays because of its complexity and in recent years these delays have been exacerbated by the loss of skilled PA staff including legal teams following cuts to local authority funding.

Third, there are big variations in what is agreed and delivered between PAs including those operating in similar market circumstances. This shows that such variations are not solely due to variations in the scope for extracting development value to pay for contributions but to the varying policies and practices of PAs operating in the same market contexts. This is perhaps inevitable given that policies are a matter for discretionary adoption by each PA but it does suggest that in many PAs there is scope for securing more and greater contributions if all authorities adopted best practice.

Fourth, partly because of government advice and partly because of local policy, many developments make no contribution. This is especially the case for small sites and for commercial developments. CIL was partly intended to overcome this problem by ensuring that all development contributed to sub regional infrastructure, but it has also become subject to substantial exceptions and exemptions. In addition, permitted development (PD) is exempt from S106 since planning consent is not required, although CIL can be charged. The recent increase in permitted development, following its application to office to residential conversions has meant no contributions are made to necessary site mitigations needed to make these developments acceptable in planning terms.

9.12.3 Community Infrastructure Levy in England

The introduction of CIL has added new complexities (Community Infrastructure Levy Review Group, 2016; Lord et al, 2018, 2020). It has mainly been adopted by planning authorities in high demand areas. In many lower demand areas, CIL has not been adopted because of viability concerns and because fixed CIL charges may reduce the development value 'left over' for affordable housing. Because of this, many small-scale developments in lower demand areas are not contributing to infrastructure even though they could afford to do so.

As a flat rate charge not subject to site negotiation, CIL was originally conceived to be faster, fairer, more certain and transparent and to cover all development, but its introduction and implementation have proved complex and time consuming. The regulations have been changed nine times and several exemptions have been introduced (including developments of affordable homes; self-build), reducing the proportion of development potentially contributing to CIL. Some local authorities estimate they have lost up to half their potential CIL income to exemptions (Lord et al, 2018, 2020). Up to a quarter of funds raised now have to be devoted to very local needs by using CIL income to fund local groups, including parish councils, in the vicinity of new developments. CIL has also been increasingly perceived to be as uncertain as planning obligations, because of rate changes and because the timing of identified infrastructure provision is unclear.

Overall, considerably less has been collected than initially anticipated when CIL was introduced, although the amount agreed in 2016-17 was £771m, plus £174m by the London Mayoral CIL for Crossrail 1. By 2018-19 these had increased to £830m and £200m respectively (Lord et al, 2018, 2020). Most recently the pooling restrictions for S106 brought in at the time of CIL (to prevent 'double dipping') have been removed, enabling PAs to once again pool many S106 contributions towards local infrastructure. These latter changes have been widely welcomed and the most recent study (Lord et al, 2020) shows CIL is beginning to 'bed down' as PAs gain more experience of operating it with evidence that it is helping to speed up processes as CIL removes the time to negotiate sub regional infrastructure through S106. However, developers generally find CIL inappropriate for dealing with large sites given the complexities of such developments and the uncertainty of the timing of investment in infrastructure compared with the contractual certainty that S106 provides them.

9.13 Sub-appendix 2B: Overseas lessons for Scotland

Are there any lessons from abroad for Scotland? There are of course risks as well as advantages in looking for lessons on land value capture from abroad (see Crook & Monk, in Crook et al 2016). It is critical to understand the different contexts of overseas policy and practice, not the least the different constitutional, legal and administrative systems of other countries, their planning cultures and the different structures of their development industry and banking sectors. Without taking these into account there is a real risk that 'policy tourism', when trying to instigate 'back home' the successful plans, ideas and projects examined abroad, fails to produce desired outcomes (Crook, 2018). It is especially important to examine the legal frameworks underpinning policy in other countries. Critical to this is the manner in which the rules-based approaches based on complete systems of codes derived from abstract principles (characteristic of planning systems within Napoleonic legal systems) differ from the common law approaches in other countries where discretionary planning systems are more prevalent. Of course, that is not to say that these differences are 'watertight'. There is a degree of discretion in rules-based systems (e.g., allowing sensible and formally agreed modifications when circumstances change) and discretionary systems do have rules (e.g., the importance of adopted plans being followed and of the role of precedent in common law in Britain). The latter is important when planning decisions are challenged on legal grounds in the courts (Booth, 2003, 2017).

Having made those warnings, are there lessons from abroad relevant to capturing development value in Scotland? One of the principal approaches to consider, especially from Germany and the Netherlands, is the way public ownership of land, albeit temporary, has been used to capture development value and fund infrastructure and affordable housing (Crook & Monk in Crook et al, 2016; Crook, 2018).

German municipalities capture development values when they zone land for new development. They do this by temporarily pooling sites in mixed ownership, servicing them and returning them back to their original owners, net of the land needed for public uses, at prices that cover municipalities' infrastructure costs and the impact of the readjustment on land values, retaining the right to share in any subsequent value uplift when development takes place. In designated regeneration areas, municipalities can freeze existing land values allowing them to acquire land at these frozen prices, install infrastructure and sell it on to developers with conditions (often set out in a master plan) related to what can be built. Where developers undertake new development themselves, they pay a share of municipalities' infrastructure costs in a manner not unlike the system of planning obligations in Scotland.

In the Netherlands, when municipalities were very active in acquiring development land in the post war years, especially for large-scale development of affordable social housing, they captured some of the development value by buying land at prices that reflected planned new uses, but without taking into account the impact on value of the planned infrastructure. They then serviced it and sold it on to developers (many of which were 'not for profit' housing associations) with clear planning briefs and at prices covering their infrastructure costs and with requirements as to what was built in terms of tenure and price. Municipalities are now less active in the land market because of the financial risks of land holding and because of the greater emphasis now on private sector development of smaller sites than the large-scale development of social housing. Infrastructure is now partly funded, in a manner similar to the planning obligations in Scotland, by developer contributions. Municipalities can now also use planning powers to require developers to build new affordable housing. In addition, new forms of public-private partnerships have emerged with developers pooling their land into a joint vehicle where risks (and rewards) are shared between themselves and municipalities.

These examples of practice from abroad suggest that temporary forms of land banking may be a useful way of proceeding. This will need rules about prices paid for land and the financing of the necessary infrastructure to enable the capturing of some development value through selling off serviced land at prices that recoup the costs of the un-serviced land and the infrastructure subsequently provided. But it is also notable that there are many similarities between both the Germany and Dutch systems and those in both England and Scotland when predominantly private development occurs because infrastructure is funded by developers making contributions to local governments' costs, implicitly capturing some of the development value.

9.14 Literature Review References

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