Government unveils plans to reform developer payments to councils

The government has unveiled plans to overhaul Section 106 contributions – and introduce a new model for deciding how much money developers pay councils.

Currently, developers negotiate with local authorities to agree a sum to pay regarding a development. The sum is a contribution towards infrastructure costs borne by the council, as well as to local affordable housing.

The sum is attached to a planning consent via a planning obligation, commonly known as a Section 106 agreement. Developers are sometimes also subject to a community infrastructure levy, which is a separate charge that councils can place on new developments.

However, under a new system proposed by the government – which has been unveiled for consultation – developer contributions will be based on a formula that focuses on developer sales.

The new infrastructure levy would adopt a “sales value” tax, with a proportion of the developer’s sales revenue being given to councils. The tax would be paid by the developer once a project is completed – and local authorities would be free to spend the money as they wish.

The government said the new system “will make sure that councils benefit from increases in land value, which can be significant for large developments that take years to complete”, adding that it had been designed to “deliver at least as much affordable housing as the current system”.

The rules would also include a new “right to acquire”, which means councils will have a right to take a certain proportion of new homes from a development for affordable housing. The government says this will “stop developers negotiating down contributions”.

The plans, which would only apply to developers and local authorities in England, are set to form part of the Levelling Up and Regeneration Bill. The bill has made it through committee stage in the House of Commons and is now being discussed in the House of Lords committee session.

Under the proposals, a local planning authority will also be able to refuse planning permission where the impact of development on the local area “cannot be appropriately mitigated” through the new tax system.

The government said the new proposals would be “much simpler” as, unlike the current system, they would not need any negotiations and the cash generated would be more predictable as they are based on annual revenues themselves.

But the government does accept that local authorities could face “more uncertain[ty]” under the new scheme, as the value of the levy from proposed projects could differ between when planning consent is reached for projects, and when projects are completed.

The consultation adds that uncertainties would be reduced for developers as Section 106 negotiations would be cut out. Also, developers would only need to pay the levy once infrastructure has been completed, meaning that it would only be paid once they have been paid the full cost.

The consultation will last for 12 weeks until 9 June 2023 – and can be responded to here.