New ideas on infrastructure funding to support development are sorely needed, argues WYG director Stefano Smith but the introduction of a local infrastructure levy could allow planning departments to regain confidence in delivery and make it easier to secure funding for vital projects.
By and large there exists a general consensus regarding the disjoint between planning development and infrastructure delivery in Scotland, and the difficulty this causes the Scottish planning system. Despite its importance, it is becoming increasingly challenging to secure investment in essential strategic infrastructure. With the Planning (Scotland) Bill expected to introduce secondary legislation for a local infrastructure levy, this may soon change.
Local authorities are currently relying on the private sector to fund infrastructure improvements that are fairly and reasonably related to developments using the mechanism of Section 75 contributions. As a result, legitimate concerns exist about how planning obligations can support strategic infrastructure development where necessary.
In areas with relatively low market demand, planning authorities cannot regain infrastructure costs via Section 75 agreements, further dividing the market. Innovative attempts by planning authorities to make fair and effective use of planning obligations should be shared and encouraged. But even in more resilient areas of the housing market, Section 75 agreements have limitations, and strong evidence implies they contribute to delays in the development process.
The levy would address some of these shortcomings and provide a means to capture land value uplift in a transparent, fair, and commensurable way. It applies to strategic infrastructure, between large national investment and local infrastructure.
The enabling power proposed to allow for this levy would not replace, but complement, current planning obligations. The building of Scottish homes contributes over £80 million of planning obligations annually including schools, among other infrastructure – not to mention the fact that these already come off the value of land.
The Scottish Infrastructure Levy could annually raise up to £75 million, in addition to planning obligations, without double-dipping. This represents about 2 percent of development activity in Scotland, around 10% of the market for land development, or less than 0.05% of Scottish GDP. It’s not a massive contribution, but potentially significant within the context of a ‘mixture of funding’ including planning obligations.
As the Planning (Scotland) Bill is expected to introduce secondary legislation for a local infrastructure levy, a number of important questions need answering: which organisations will be liable for paying the levy, and how can policymakers ensure it doesn’t deter infrastructure delivery, particularly regarding the specific levy rate? Currently, the Bill provides an ‘enabling power’ for Ministers to implement such a levy (Bill Part 5 s.27). A potential conflict however, is that much of the detail remains undetermined as part of the secondary legislation (Regulations).
Nevertheless, a supplementary infrastructure charging mechanism could provide a valuable extra tool in the infrastructure funding ‘toolbox’ helping support Scottish development.
New ideas on infrastructure funding to support development are sorely needed. Planning must regain confidence in delivery, and recognise its current potential to identify, co-ordinate, and deliver the infrastructure necessary to enable development. Infrastructure investment should be directed towards areas of growth through proactive management, thereby significantly increasing housing delivery.
Stefano Smith is a planning director at WYG.