New housing often creates a need for more infrastructure – schools, GP surgeries and so on. While there are ways in which developers can contribute towards such costs, these are not always seen as effective. This Insight examines the sources of funding and the calls for change.

The routes through which local planning authorities (LPAs) can seek contributions from developers are known as Section 106 agreements (also known as planning obligations) and the Community Infrastructure Levy (CIL).

Section 106 agreements and CIL: What’s the difference?

Section 106 agreements are negotiated, legally enforceable obligations between LPAs and developers. They can be changed or renegotiated at any point. LPAs often ‘pool’ Section 106 money to fund a joint infrastructure project – such as a new park. There are restrictions on such pooling; LPAs cannot use Section 106 contributions from more than five developments to fund one piece of infrastructure.

The CIL is designed to provide certainty for developers about what they would have to pay for infrastructure with a development. It is up to each LPA to decide whether to adopt the CIL – many have not – and, if so, at what level to set the charges. 

LPAs may operate both Section 106 agreements and CIL in tandem and, indeed, may use both for the same development, but there should be no actual or perceived “double-dipping” with developers paying twice for the same piece of infrastructure.

In March 2018, the Government put the combined worth of Section 106 planning obligations and CIL in 2016/17 at an estimated £6.0bn, with about £5.1bn of that coming from Section 106 agreements. The amount ultimately collected would likely be lower than the amount committed, as not all developments granted planning permission would be built and developer contributions could be renegotiated.

In March 2018, the Government put the combined worth of Section 106 planning obligations and CIL in 2016/17 at an estimated £6.0bn, with about £5.1bn of that coming from Section 106 agreements. The amount ultimately collected would likely be lower than the amount committed, as not all developments granted planning permission would be built and developer contributions could be renegotiated.

How can contributions be spent?

LPAs will normally set out their Section 106 and CIL spending in their annual Monitoring Reports.

Each Section 106 agreement sets out the purpose that the contribution will be used for. The funding must be distributed in line with that.

CIL can be used to fund a very broad range of facilities, which may cover, “play areas, parks and green spaces, cultural and sports facilities, academies and free schools, district heating schemes and police stations and other community safety facilities.” The published guidance does not, though, cover all these areas equally. There is (for example) fairly detailed guidance covering how to calculate the demand for new school places but nothing similar for healthcare facilities.

There’s been no shortage of consultation and discussion about changes to developer contributions:

  • The Government proposed in September 2017 that Local Plans should state (amongst other things) the infrastructure needed to deliver the plan, expectations for how it would be funded, and the contributions developers would be expected to make. The NPPF 2018 now states that Local Plans should set out the expected contributions, which shouldn’t undermine the plan’s deliverability.
  • In another consultation in March 2018, the Government proposed to lift (in certain circumstances) the restriction on pooling Section 106 planning obligations. It also proposed that CIL rates should be based on existing land use value and raised the longer term possibility of determining developer contributions nationally and making them non-negotiable – the latter idea has not been taken forward.

An article in the specialist publication Planning (subscription) outlined planning professionals’ diverse views on the proposals, particularly on pooling and setting the CIL rate. The Home Builder Federation argued the proposed changes amounted to a land tax in disguise.

What do critics say?

Critics of the system tend to argue that:

  • It is not working effectively and lacks transparency. 
  • LPAs could make better use of their powers, and so raise more funds, and service providers could be more active in securing some of those funds. The NHS Improvement website (for example), remarks that “many trusts have not been active in engaging with their local council to secure [these] funds.”
  • CIL is too complicated and has failed to raise as much money as expected. 
  • The pooling restrictions are unhelpful. 

More controversy surrounds the question of whether developers use arguments about viability to backtrack from commitments to build affordable housing.

When seeking planning permission for developments including homes, developers will routinely submit viability assessments – commercial data which ultimately goes towards the deliverability of the scheme.  Some commentators argue – although developers dispute this – that viability assessments are susceptible to gaming. In recent years, it’s been widely argued that these assessments are prepared in such a way as to reduce or eliminate the affordable housing obligation (and that the introduction in 2013 of regulations allowing for the modification and discharge of planning obligations has encouraged developers and landowners to seek renegotiation).

Thus, it’s been argued the balance of power has shifted towards developers – LPAs argue that they are under-resourced and ill-equipped to challenge developers’ claims about scheme viability. 

The Commons Library briefing on the National Planning Policy Framework 2018 looks at this controversy in more depth. 

What’s likely to change?

More recently, the Government has set out what it intends to do next, saying (amongst other things) that it will:

  • Go further in addressing the issues with the current system by making (for example) the reporting of developer contributions through the Infrastructure Funding Statement a legal obligation.
  • Encourage LPAs to make use of existing flexibilities to set differential CIL rates.
  • Streamline the consultation process to enable authorities to implement the CIL more quickly.
  • Change the pooling restriction to give LPAs more flexibility.

Further reading

About the author: Gabrielle Garton Grimwood is a Senior Library Clerk at the House of Commons Library, specialising in planning.