As part of the changes coming in under the Building Safety Act, the Government is proposing to introduce a new Building Safety Levy ("Levy"), which will be charged as part of the building control regime in England.

In preparation for this new charge, on 22 November 2022 the Government launched a second consultation ("the Consultation"), looking at how this new Levy will work in practise.

The Consultation confirms the Government's intention to use the Levy to pay for remediation of cladding in buildings over 11m in height, with the Consultation suggesting the Government are aiming to raise over £3billion through the Levy.

The Consultation comes after the Government's announcement earlier this year that the scope of the Levy has expanded to cover all new residential developments, not just "higher-risk buildings". This wide scope is echoed in the Consultation with the Government stating:

"This means the levy can be applied on any new development considered as “residential”, that is any development with a room purpose built for a person to sleep in".

The Consultation does not ask for input on this wider scope, but it does seek input on other aspects of the Levy and the impact it will have, including:

  • The basis of calculation and whether the levy rate should be applied on a ‘per unit’ basis (i.e., per dwelling in a development), or a ‘per square metre’ basis, i.e., the levy rate would be applied to the square metre of any development regardless of the number of homes being built.
  • Exemptions: The Government are proposing that certain buildings be exempt from the Levy, including Affordable Homes, NHS Hospitals, NHS Medical Centres, and NHS GP Centres, Residential Care Homes and Children’s Homes, Refuges and Residential Domestic Abuse Facilities, Criminal Justice Accommodation, Military Barracks and other Military Establishments. They are also proposing to exclude Small Developments (under 10 units) to protect small businesses.
  • Delivery and collection: The Government are proposing that local authorities be asked to act as the collection agency for the Levy, with a 2-step process for the collection. The Consultation proposes that 60% of the Levy would be payable at the notice to commit stage and 40% at the final certificate stage.

The Consultation also makes clear that payment of the levy will be a "hard stop" – that is to say unless the Levy is paid, it won’t be possible to move to the next stage of the building process. The Consultation also suggests the Government are considering whether there should be further financial penalties for non-payment of the Levy.

In terms of who pays the Levy, the Government's view is that it will be the "Client". They say by ‘Client’ they mean any named person or organisation for whom a construction project is carried out. Payment and ultimate liability for these costs is, of course, a different thing and parties to a development agreement will need to consider how this new charge sits with standard form clauses making the Contractor liable to pay all fees, charges, rates and taxes.

It is also not clear from the Consultation how the Levy sits with the Pledge, that is to say will developers who have already signed up to the pledge also be required to pay the Levy? The Consultation stating the Government are: "grateful to those developers who have signed up to remediate cladding in buildings they have been involved with over the past thirty years"but that there remains a £3billion shortfall.

What is clear is that the intention is that the Levy be addition to the other charges already in place, including the Residential Development Property Tax and the Community Infrastructure Levy, with the Government seeking input on how the Levy may impact the charges already in place.

The Levy represents just one of the wide powers given to the Government under the Building Safety Act to try and raise sums from the Construction Industry to remediate historic defects and sits alongside the Building Industry Schemes and powers to block access to market which came into force in September this year.

Whilst it is not clear from the Consultation what the actual Levy rate will be, making it difficult to forecast the impact on the costing of individual projects and the wider cost of building residential buildings in England, the Consultation is at least an opportunity for the industry to try and input on how this further charge will be applied. With the Government saying they want to "engage with interested parties, especially developers of all sizes" during Consultation Process.

The Consultation is open for 10 weeks from 22 November 2022 to 7 February 2023 and can be responded to using an online form.

Once the Consultation has closed the Government will then need to put in place secondary legislation bringing the Levy into law.

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Amy Pairman

Senior Associate

Eric Johnstone

Legal Director

Louise Shiels

Head of Dispute Resolution and Risk & Partner