The Scottish Government recently published a discussion paper on its proposals for an infrastructure levy for Scotland. This paper is a precursor to a formal consultation on draft regulations and seeks comments and views on how a levy could operate in Scotland as an additional source of funding to support growth and infrastructure delivery on a wider scale.
Background
The Planning (Scotland) Act 2019 introduced powers for Scottish Ministers to regulate for an infrastructure levy, however these powers are subject to a sunset clause which means that the powers will lapse if regulations are not brought in to force by 24 July 2026. In this paper, the Scottish Government commits to implementing infrastructure levy regulations in advance of the next Scottish Parliament election in May 2026.
National Planning Framework 4 advocates for an infrastructure first approach to land use planning and placemaking and requires infrastructure needs to be identified and understood early in the planning process. This includes transport infrastructure, education and healthcare facilities, and open space. This approach also supports the establishment of 20-minute neighbourhoods, where high quality, accessible infrastructure is central to local living.
Whilst most new development is financed and carried out by the private sector, it also creates a need for new or upgraded public facilities, which must ultimately be facilitated and maintained by the public sector. The introduction of an infrastructure levy is designed to support the interaction between the private and public sectors in growing and creating communities together by answering the age old questions of: how, what, when, and who is paying for this necessary infrastructure?
Currently, the impacts of development are commonly mitigated and secured through a planning obligation (or Section 75 Agreement) agreed between the landowner, developer, and planning authority. This could require the payment of a financial contribution, delivery of affordable housing, or the provision of on-site infrastructure. This system is a well-established feature of planning system and is supported by the guidance in Circular 3/2012. The use of planning obligations to mitigate against cumulative impacts was re-emphasised in the Elsick case, whereby the Court found that it was unlawful for a planning authority to secure financial contributions for strategic infrastructure from a development to which it only had a de minimus connection. The infrastructure levy is intended to complement the existing developer contributions system and create "an additional, fair and effective" system for securing contributions for infrastructure requirements on a wider scale.
The Scottish Government wants to ensure that the infrastructure levy is:
- Simple for planning authorities to implement;
- Predictable and straightforward for developers to calculate;
- Set in a way which takes account of development viability and other demands and costs of development;
- Fair and proportionate; and
- Complementary and distinct from Section 75 planning obligations, avoiding 'double dipping.'
The discussion paper sets out a number of topics which are designed to inform the preparation of the draft infrastructure levy regulations. It is based on the premise that an element of land value uplift should be used to contribute to the costs of providing the infrastructure required to support the development.
How?
In setting a 'payable amount', the Scottish Government has considered a number of different approaches and possible options as to how an infrastructure levy could be calculated. It follows on from research published in 2017 that concluded a simple flat rate would unlikely produce a reasonable result across Scotland, whereby some lower value developments would be overcharged, thus impacting on viability; and higher value developments could be significantly undercharged. It is expected, therefore, that the draft regulations will set out how the levy is to be calculated and will build in flexibility for planning authorities to determine some elements of the charge which will account for local variances. However, it is recognised that the need for flexibility must be balanced with the need for consistency for developers who operate across Scotland.
There are two main options for calculating a 'unit of charge', whether that is based on a charge according to the size of the development (i.e. the number or size of units); or its value. There are difficulties with both of these approaches because charging on the number of units does not take account of the development's value, whereas a charging methodology based on the gross development value (GDV) is complicated. The latter would not be known until the development was complete, and there is greater scope for disputes and appeals in the valuation process.
The Scottish Government's preferred approach is aligned to the Community Infrastructure Levy in England & Wales, whereby a charge is levied per square metre of development. The charge would be set by each local authority for different types of development and would be based on viability calculations and development value. The additional burden this will place on local authorities is recognised and the paper suggests that it may be possible to use localised average values in order to determine a charge for different development types or that the Scottish Government could, alternatively, set a formula for the levy which could then be applied by local authorities (taking account of any zero rating or exemptions it wished to apply).
What?
The intention of the infrastructure levy is to help fund infrastructure projects which are needed as a result of cumulative impacts of development or regional projects which are less clearly linked to a particular development. These projects are expected to be identified in the local development plan and the infrastructure requirements informed by evidence and prioritised by the planning authority as part of its delivery programme.
It is recognised in the discussion paper that the infrastructure levy should not be a charge on developments which do not increase the demands on infrastructure. It should not be charged on developments which are infrastructure themselves or on structures which are not buildings. The paper describes the levy as being chargeable on 'buildings used by people' and recognises that residential development largely drives the need for new and improved infrastructure. This includes affordable housing.
The paper seeks views on the types of development which should be excluded from payment of the levy. This could potentially include residential institutions, criminal justice accommodation, commercial development, purpose-built student accommodation and other rental development, and new energy developments, despite these developments also being used by people and requiring infrastructure.
It is suggested that local authorities could have the option to exempt householder developments, very small-scale housing developments (for example 10 dwellings or less), and/or self-build projects according to local circumstances. Similarly, development by charities could also be exempted. On granting exemptions, local authorities will however require to consider its compliance with subsidy control rules.
The discussion paper recognises the interaction between the infrastructure levy and wider Scottish Government policies and targets, such as the delivery of 110,000 affordable homes by 2030, the transition to net zero, and how the levy could impact on delivery of those national ambitions.
When?
The discussion paper recognises that the timing of the payable amount must be convenient to both the developer and the local authority, taking into account potential changes which may occur to the size or value of the development. Two main options have been considered by the Scottish Government, based on the premise that the payment should become due at an 'identifiable point' in the development management process, either:
- At the point when planning permission is granted; or
- On completion of the development (or phase of development).
Both options have the potential to impact on the developer and local authority's cash flow, and an earlier payment will not account for any changes to the development as it progresses.
Who?
Identifying who is responsible for paying the charge is an important part of implementing an infrastructure levy, and it is closely linked to when it is to be paid. The intention behind the levy is that it will fall to the developer and it will be taken into account when calculating the value of the land they are acquiring. However, this becomes complicated in very large developments where there are a number of parties involved. The owner of the land is more easily identified and will be known at the point the development is commenced, even if the levy is not payable at that point in time. It is not likely that the cost of the levy will be passed to individual homeowners.
Other considerations
In addition to seeking views on the 'what, who, how and when' of introducing an infrastructure levy, the paper suggests that there should be provision for an appeals process; the need for penalties and enforcement powers for local authorities in situations where the levy is not paid; and the requirement for local authorities to account for and report on the income it collects through the infrastructure levy and what it has been spent on.
Comments
The concept of, and the options for, a locally managed infrastructure levy for Scotland has been widely researched and commented on during the preparation of the Planning (Scotland) Act 2019. The Elsick judgement brought into sharp focus the limitations of the prevailing legislative framework and the need for a system which lawfully allowed for cumulative infrastructure impacts to be addressed and wider, regional infrastructure requirements to be appropriately funded. Whilst outlining the Scottish Government's preferred options for a levy, the discussion paper recognises there is a need to strike a balance between proportionality, simplicity, and predictability – highlighting the impact that an additional charge may have on development viability and ensuring that planning authorities are not overburdened in calculating, collecting, and administrating the levy payments.
The Scottish Government is seeking views on the discussion paper by 30 September 2024.
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