Infrastructure levy for Scotland: discussion paper

This paper is to support discussion on options for an Infrastructure Levy for Scotland, to help fund infrastructure that supports wider growth.

4 Existing mechanisms

4.1 Planning obligations

Planning obligations are legal agreements entered into under section 75 of the 1997 Act. Although they can be entered into unilaterally by the landowner / developer, they are typically negotiated between them and the local authority. Their role is to secure mitigation required to overcome obstacles to the grant of planning permission – in order to make a proposed development “acceptable in planning terms”.

Their use is subject to five tests set out in Scottish Government Planning Circular 3/2012. In summary, these provide that planning obligations should be relevant to planning and proportionate to the scale and specific impacts of the particular development in question. There should be a direct connection between the proposed development and the matters secured or provided for in an obligation. These safeguards are intended to ensure that planning permission cannot be bought and sold, helping to uphold confidence in the system.

Subject to these tests, planning obligations can be used to seek financial contributions to (or in-kind provision of) infrastructure and affordable housing. As set out in section 5, research completed in 2021 estimated that in 2019/20 alone, £0.5bn was agreed through planning obligations in Scotland, of which £300m was for affordable housing and £200m for infrastructure. In many cases it is more straightforward for the developer to provide necessary infrastructure on site themselves, scheduled in as part of the development, rather than making a financial payment to the local authority which then has to undertake and co-ordinate the work. This flexibility, and responsiveness to site-specific circumstances, is one of the key strengths of planning obligations.

Where a planning obligation is recorded or registered with the Registers of Scotland (RoS), it becomes binding on successors in title (runs with the land). Former landowners can remain liable for obligations unless the obligation specifically says otherwise.

The circular recognises that planning obligations can have financial consequences for developers and may make proposals uneconomic. It therefore makes clear that in developing planning obligations, consideration should be given to the economic viability of proposals and alternative solutions should be considered alongside options of phasing or staging payments. The importance of viability to the design of the ILS is explored further in section 3.

4.1.1 Cumulative impacts of development and the limits of planning obligations

Some infrastructure needs can be directly related to the impact of an individual development, such as a new junction onto the adjoining road, open space within the development, active travel links or primary school expansion. However, others are prompted by the cumulative impacts of growth in an area, such as a new rail line / station, a secondary school, medical centre or larger scale open space or wildlife corridors. The need for such facilities is likely to be created by (and benefit) developments across a wide area, which come forward across an extended period of time. It is therefore difficult to attribute the need for, and cost of, such infrastructure solely to the impacts of individual developments.

As noted above, the tests in Circular 3/2012 make clear that the role of planning obligations is to mitigate the direct impacts of a development, with any mitigation secured being proportionate to those impacts. This position was re-emphasised in 2017 by the Elsick Supreme Court case[2], which held that Aberdeen City and Shire’s policy of requiring developers to make financial contributions (using section 75 planning obligations) to strategic transport infrastructure that had no more than a de minimis connection to the particular development in question was unlawful.

This added to the arguments for developing a form of contribution which can fund infrastructure which is not directly related to an individual development. The powers for an infrastructure levy in the 2019 Act are a recognition of the limitations of planning obligations, as outlined in the Elsick judgement, which concluded by noting that "(i)f planning authorities in Scotland wish to establish a local development land levy in order to facilitate development, legislation is needed to empower them to do so".

Other mechanisms used to secure developer contributions include planning conditions and s.69 of the Local Government (Scotland) Act 1973 (a very broad power for local authorities “to do anything … which is calculated to facilitate, or is conducive or incidental to, the discharge of any of their functions”). Each of these has its own limitations, and are unlikely to fill the gap relating to cumulative impacts.

4.2 Community Infrastructure Levy (England and Wales)

In England and Wales, the Community Infrastructure Levy (CIL) was introduced in 2010, under the Planning Act 2008, with the intention of supplementing planning obligations (under section 106 of the Town and Country Planning Act 1990[3]) and replacing their use for funding cumulative infrastructure needs. Guidance on what the CIL is and how it operates is available on the UK Government’s website. The CIL Regulations have been amended frequently.

Scotland’s planning system is similar to those of England and Wales. Moreover, the introduction of CIL was prompted by some of the same issues and considerations that led to infrastructure levy powers being included in the 2019 Act in Scotland. As such, it will be important to draw upon – and learn from – the lessons that are provided by CIL as we design and develop the ILS.

A review of CIL was commissioned by the UK Government in 2015 to “Assess the extent to which CIL does or can provide an effective mechanism for funding infrastructure, and to recommend changes that would improve its operation in support of the Government’s wider housing and growth objectives.” Its final report was published in 2016 and its key observations included that:

  • CIL has proved highly complex – leading to a system that is difficult to understand, expensive to operate and uncertain in its implementation. The regulations had, in 2016, been amended every year since introduction to deal with policy changes and technical issues linked to the myriad circumstances faced by developers and authorities (and have now been amended 6 times since 2016).
  • Exemptions and reliefs from CIL, and their administration, had caused particular issues, adding significant bureaucracy and further complexity.
  • The relationship between CIL and s106 planning obligations can be problematic, with the distinction between what infrastructure projects are to be funded by which mechanism not always clear – exacerbating overall complexity.
  • CIL did not provide the universal approach to developer contributions that was originally envisaged. Not all authorities had introduced CIL, and a combination of low rates and increasing scope of exemptions meant it had not raised as much as anticipated.
  • The overall role of CIL in meeting infrastructure costs was often overstated, with it yielding between 5% and 20% of the funding required for new infrastructure.
  • CIL did not work well where the burden of providing site specific infrastructure was transferred to the local authority.
  • The cumulative nature of collection, and inability of local authorities to borrow against CIL, can lead to a “Catch 22” situation where local authorities have not accumulated sufficient CIL revenues to fund key elements of enabling infrastructure that will unlock house building, so the house building does not take place and the related CIL payments needed to deliver infrastructure are not made.
  • “The examination process is largely a viability exercise which takes much time and occupies too much resource for little purpose.” The burden of managing the system aggravated existing capacity issues both in the private sector and local authorities.

The review recommended “a streamlined low-level tariff”, named Local Infrastructure Tariff (LIT), charged to all developments in addition to s.106 contributions for larger developments, and supplemented where appropriate by a “Strategic Infrastructure Tariff” for major strategic infrastructure. These recommendations have not been taken forward by the UK Government.

In addition to considering the concerns that have been raised in relation to CIL, in developing our proposals we have also taken note of the Mayoral CIL, levied by the London Mayor’s Office with the objective of contributing to the funding of Crossrail (now the Elizabeth Line). Mayoral CIL is charged in addition to Borough CIL levied by individual London Boroughs. It is charged at a very low level compared to other CIL rates, at a fee per square metre of new development set at three levels depending on the borough in which the development takes place, and appears to be generally well accepted.

Provision for a replacement for CIL in England, to be called an Infrastructure Levy, is made in the Levelling-Up and Regeneration Act 2023. We will refer to this as ILE, to distinguish from the proposed levy for Scotland (ILS). A Technical consultation on the Infrastructure Levy on options for the ILE ran from March to June 2023.

One of the concerns initially raised about the introduction of CIL was that it could lead to “double-dipping”, where developers might be charged under both s.106 and CIL to contribute to the same infrastructure. This was partly because some local authorities in England and Wales at the time were using s.106 to collect “tariff-style” contributions to wider infrastructure needs. The original CIL Regulations sought to prevent “double-dipping” by limiting planning obligations in a similar way to the five tests set out in the Scottish Government Circular 3/2012 (regulation 122) and requiring local authorities to publish a list of infrastructure to be funded by CIL, which could not then be funded by planning obligations (regulation 123). However, regulation 123 was removed by an amendment in 2019 and replaced by a less restrictive Infrastructure Funding Statement. The technical consultation on ILE envisages “integral” site-specific infrastructure being funded and delivered by the developer under planning conditions and s.106 obligations, while levy funding contributes to infrastructure required as a result of cumulative impacts, provided by the local authority or third party infrastructure providers.



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