Amendment 68

Levelling-up and Regeneration Bill - Report (3rd Day) – in the House of Lords at 4:17 pm on 18 July 2023.

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Baroness Pinnock:

Moved by Baroness Pinnock

68: Leave out Clause 129

Photo of Baroness Pinnock Baroness Pinnock Liberal Democrat Lords Spokesperson (Levelling Up, Communities and Local Government)

My Lords, before I start, I repeat my relevant interests as a councillor and as a vice-president of the Local Government Association.

This group of amendments concerns the Government’s proposal to introduce the infrastructure levy as a replacement for the existing community infrastructure levy—CIL—and Section 106. My Amendment 68 seeks to leave out Clause 129, which establishes the infrastructure levy, and Amendment 90 would delete the relevant Schedule 12.

My reasons for this dramatic action are these. The infrastructure levy as currently proposed is contrary to the purpose of the Bill, which is to enable the levelling up of areas that are defined in the White Paper. The IL fails to contribute to that levelling-up mission because the amount that it will be possible to set as an infrastructure levy rate will be dependent on land values. Land values are much lower in the very areas that are the focus in the White Paper of levelling up. Using the existing community infrastructure levy as an example, land is zoned according to land values. At the independent examination of CIL in Kirklees, where I am a councillor, the planning inspector reduced the CIL charge to nil pounds—nothing—per square metre for a zone which includes the allocated site for 2,000 houses. This is not levelling up.

One of the criticisms of the infrastructure levy is that it will not be site specific. That means that communities that have large housing developments will not necessarily benefit from improved facilities, such as open green space, play areas, and funding to support school places as well as affordable housing on site. Any infrastructure levy can be spent anywhere in the council district.

Another of the major criticisms is that the charge will be paid by the developer only towards the end of the construction period, which may be a number of years. Meanwhile, it is expected that local authorities will have to borrow to build the new facilities needed in the expectation of funding at a sometimes much later stage.

It has also been argued that developers avoid funding infrastructure because of claims about the financial viability of a development. My noble friend Lord Stunell’s Amendment 94 aims to shine a strong light of transparency on viability. I agree with him.

The main contention during the debate on the infrastructure levy was on the provision of so-called affordable housing. There are amendments in the name of the noble Lord, Lord Best, and of the noble Baroness, Lady Taylor of Stevenage, that have the worthy aim of linking the income from the infrastructure levy to the building of houses for affordable sale or rent. We support those aims, but one of the downsides of this approach is that the infrastructure levy is designed to fund affordable housing and local facilities. There is a risk that, in some areas, it would all be spent on housing, which is positive but to the detriment of important local facilities.

Such is the level of concern about the infrastructure levy proposals that representations have been made by more than 30 organisations, including the County Councils Network, the Royal Town Planning Institute, Shelter, the Local Government Association and the National Housing Federation. The concerns expressed are about complexity, upheaval and uncertainty.

Finally, the Government have stated that the infra- structure levy will be in a test and learn state. This creates further uncertainty. Further, because the infrastructure levy is to be phased in, developers will be dealing with different charging regimes in different parts of the country for many years to come. That clearly adds to uncertainty and complexity for developers. Perhaps the Government have lost confidence in the scheme as proposed.

The difficulty with the infrastructure levy is that this is not the right time to change developer charging systems, nor will it provide sufficient funding at the appropriate time to fund affordable housing and local facilities for developments. It is time for a total rethink. I will listen very carefully and closely to the Minister’s response. If I am not entirely satisfied with the response she provides, I will be minded to test the opinion of the House. I beg to move.

Photo of Lord Stunell Lord Stunell Liberal Democrat

My Lords, I rise to speak to Amendments 70 and 94 in my name in this group. I want to add my strong support to Amendment 68, moved by my noble friend Lady Pinnock, which aims to get rid of the IL altogether. She has spoken very powerfully to that point, saying not least that it is contrary to the central purpose of the levelling up White Paper and to the whole substance of the mission statements, which are set out—or rather, the skeletons of which have been laid—at the front end of the Bill.

The complexities and the unintended consequences of the infrastructure levy were explored in depth in Committee. The Government are now reduced to saying that it will be piloted first on a “test and learn” basis, and that it may be introduced piecemeal over the next decade rather than as a big bang, which I suppose is the beginning of some sort of reality check. The Government’s own amendments, which are in this group and which we shall hear about shortly, are an attempt to water it down a bit further. As my noble friend said, the Government seem to have rather lost confidence in the infrastructure levy providing the solutions that they originally imagined.

Well, we are a little bit ahead of the Government. We have completely lost confidence in the infrastructure levy as a vehicle for positive change on the delivery of affordable homes or indeed decent infrastructure associated with new development. The infrastructure levy is beyond repair. This duck is dead. I certainly hope that, if my noble friend Lady Pinnock does not get the assurances that she is looking for and a vote is called, noble Lords will go into the Content Lobby with her.

I wait to hear what the noble Baroness, Lady Taylor of Stevenage, has to say about Amendment 69 and what the noble Lord, Lord Best, has to say about Amendment 71. I would say that what they are offering is palliative care rather than resuscitation of the levy. Either or both of those amendments would be definite improvements on anything the Government have tabled, so I will wait to see what is said about that.

The noble Lord, Lord Lansley, has tabled Amendment 311, which is an admirable setting out of preconditions—preconditions which are so obvious and sensible that I fear the Government will reject them out of hand. Instead of seeing this for what it is—an attempt to introduce sound legislative principles into the Government’s Bill management, which I would have thought they would welcome—I suspect they will just see it as some kind of amendment to kick the whole project into the long grass. But in default of anything else, will the Minister please give the noble Lord, Lord Lansley, some help with getting those preconditions written into this model?

I turn to my Amendment 70. This returns to the vexed issue of what is affordable when we talk about affordable homes. Affordability is used in legislation at present based on the idea that, provided that there is a discount on the going market rate, a home in the private sector is thereby affordable. It is currently a standard discount, which takes no account at all of incomes in the locality, nor does it pay any attention to price differentials between similar homes. For instance, similar homes in an outer London borough such as Sutton, where I was born, are a factor of two more expensive than those in the metropolitan borough of Stockport, where I live. So for “affordability” to mean the same in the two boroughs, incomes in Sutton would need to be double those in Stockport to match the ratio of incomes to the discounted sale prices in the two boroughs.

In fact, average incomes are indeed higher in Sutton than in Stockport—around 33% or a third higher—but average house prices are over 100% higher. For a family in Stockport, discounted home buying is a real stretch. There are plenty of people in my locality who would say that even affordability in Stockport is not real for them. If that is true then in Sutton it is simply impossible. For government planning policies to be based on a claim that current affordability rules give equal accessibility to families in the two boroughs is verging on the fraudulent.

I have not chosen the worst mismatches that there are between one place and another. I could have chosen inner-London boroughs, which compared to almost anywhere else would be worse than my examples. Of course, the contrast between property prices in popular second-home tourist areas and local average incomes in those areas is stark as well. The Lake District and the south-west peninsula, especially Cornwall, are often quoted.

I understand that my Amendment 70 could be open to criticism. For instance, as drafted, it is limited to the calculation of affordability in relation to the IL. It does not cover homes delivered by the existing Section 106 mechanism. I would be very happy to withdraw Amendment 70 in favour of a government amendment at Third Reading which included Section 106 as well, because clearly the affordability question is one that is relevant in both funding streams.

It could be said that I have failed to specify exactly what the relationship should be between median household pay and the sale price on offer in that district. Just for once, I think that is a matter for secondary regulation rather than being in the Bill.

More serious criticism might be that such a constraint would mean that the supply of affordable homes would dry up. The supply of affordable homes has dried up. In Sutton, to buy a so-called affordable home you need a household income well above the local average. The homes may be being sold at a discount, but they are not meeting the acute housing needs of that borough. It is time to recognise the reality that, in many parts of England, the technical planning policy definition of affordable is a sad illusion. In fact, it just feeds the general perception that we in this Parliament and this Government have no idea what is happening out there to real people, desperately seeking a home.

To boast about the numbers of affordable homes built, as I am sure the Minister will be inclined to do, is to taunt those without a home. Shortage of bread led Marie Antoinette to recommend eating cake, and it did not end well. Deeming a home to be affordable does not make it affordable. Now is the time—and the levelling-up Bill is the right place to do it—to put that right, by accepting the principle set out in my amendment. I commend it to the House.

The second amendment I have in the group is a simple one, aimed at tearing away the veil of secrecy that surrounds the calculation of viability in the negotiations between developers and local planning authorities. Thousands more homes could have been built with a discount if developers had been required to tell the truth when seeking approval to recalculate the proportion of homes they pledged to build when they first sought planning approval. Of course, it would be an act of fraud to knowingly tell lies to gain commercial advantage. My amendment does not suggest for a moment that this has ever happened in any case—well, not very often anyway. If it never happens, there can be no detriment to an honest developer in having his submission and his supporting case being in the public domain. If there is, very occasionally, a temptation to exaggerate, then transparency is the best deterrent.

My amendment simply seeks to remove the veil of commercial confidentiality which is drawn, without exception, over the negotiations taking place between developers and planners, and which result in a reduction in the number of affordable homes to which they are committed. My amendment would disapply Section 43 of the Freedom of Information Act, so that commercial confidentiality cannot be used as a cloak of concealment. I very much hope that the Minister can see that this too is in exact alignment with the Government’s own objectives of securing more affordable homes, and that he will therefore willingly accept my Amendment 94, which I also commend to the House.

Photo of Lord Best Lord Best Crossbench 4:30, 18 July 2023

My Lords, I will speak to Amendment 71 in my name and those of the noble Lord, Lord Young of Cookham, and the noble Baronesses, Lady Thornhill and Lady Warwick of Undercliffe. I declare my interests as a vice-president of the Local Government Association and chair of the Devon Housing Commission, as well as my various housing interests as set out in the register.

Following the speeches of the noble Baroness, Lady Pinnock, and the noble Lord, Lord Stunell, your Lordships will note that some doubt hangs over the future of the infrastructure levy. We have heard that representations have been made to the Secretary of State from some 30 significant organisations, which all feel that it would be better to stay with the current Section 106 regime. Those bodies argue that it would be better to stay with the devil we know, even though the system is not perfect—after all, the current system has been achieving half the affordable housing built each year, and no one wants to reduce the numbers. However, our Amendment 71 supposes that the infrastructure levy persists, and it seeks to ensure that the new arrangements do not lead to fewer genuinely affordable homes. Before saying more about Amendment 71, I offer support to Amendment 77 in the name of the noble Lord, Lord Lansley, and Amendments 70 and 94 in the name of the noble Lord, Lord Stunell.

I am grateful to the coalition of housing bodies that constitutes Homes for the North for their expert help in drafting Amendment 71. In Committee, we considered a range of amendments which all had the objective, in effect, of holding the Government to account for their own promise that the new infrastructure levy arrangements will lead to

“as much—if not more” affordable social housing.

In Committee, the Government responded to our proposed amendments with various counter-arguments, the first of which was that this issue would be better dealt with in the regulations that will follow enactment and appear in the revised version of the National Planning Policy Framework. However, the affordable housing element is a fundamental part of the planning system. Currently, 78.5% of the funding via Section 106 obligations on housebuilders goes to affordable housing. This current priority needs legislative protection in the face of endless competing claims for the new levy proceeds.

Secondly, it can be argued that local authorities should be entirely free to decide for themselves how to spend infrastructure levy proceeds, with no obligation to give priority to affordable housing. However, the infrastructure levy represents a significant new tax-raising power for local authorities, and it would surely be expected that the Government would impose some limitations on its use.

Thirdly, the Minister told us that the relevant clause in the Bill already protects affordable housing provision. We responded that the relevant clause simply required local authorities to

“have regard … to the desirability of ensuring that” the provision of affordable housing

“is equal to or exceeds” the output achieved under the Section 106 system. This is a very weak provision, enabling funding for affordable housing to be used instead for any number of other spending opportunities.

Amendment 71 addresses these points and substantially strengthens the wording of the Bill, covering both the way the levy is set and how the money is subsequently spent. It removes the lightweight

“have regard to the desirability of”,

leaving “must ensure”, thereby prioritising affordable housing as identified in the local development plan and the infrastructure delivery strategy.

The Minister has followed through from Committee stage in an exemplary manner. She has reconsidered the position, held meetings with interested Peers and brought forward amendments that address the same issue as our Amendment 71. Her Amendments 72, 73, 74 and 75 alter the offending words in the original version, leaving out

“to the desirability of ensuring” and inserting the much more direct “seek to ensure”. I am grateful indeed to the Minister for bringing forward these changes in wording, which tighten up the requirements on local authorities to do the right thing in respect of social housing provision.

However—is there not always a “however”?—the new Amendment 76 provides the local authority charging the infrastructure levy with a “get out of jail free” card. It allows the charging authority to drop the obligations on developers where compliance with its requirements for affordable housing would make the development in this area “economically unviable”. It lets developers off the hook where, not for the first time, they plead the case that they cannot achieve the affordable housing identified in the local plan. It is these arguments about viability that have made Section 106 so fraught, usually with local planning authorities losing the argument against the developers and their consultants and solicitors.

This extra clause, which promotes viability on the face of the Bill, undermines the good work being done by the four preceding amendments from the Minister. I may be interpreting this unkindly, but the amendment seems to provide the opportunity for the powerful volume housebuilders to claim—probably because they have paid too much for the land—that providing affordable housing will reduce their profits excessively.

We now have the report of the Levelling Up, Housing and Communities Select Committee of the House of Commons, which looks at planning policy and comments on the Levelling-up and Regeneration Bill. The Select Committee welcomes these government amendments, which would strengthen the duty on local authorities to deliver at least as many affordable homes; but the committee warns that the additional proviso that this duty would be redundant if it could make the development “unviable” puts fulfilment of the Government’s ambition at risk.

The Commons committee concludes that the new infrastructure levy

“may not deliver as many affordable homes as the current regime”.

That outcome would be a disaster. We desperately need more, not fewer, affordable homes. This leaves me welcoming the government amendments, which attempt to do the same job as our Amendment 71, which need not now be pressed. But I will oppose the new government Amendment 76 unless it can be justified by the Minister when she responds.

This country desperately needs more housing for those on lower incomes. We must do everything we can to ensure that the new infrastructure levy regime does not diminish supply from the all-important obligations on housebuilders. There is a clear and present danger here, and I look forward to the Minister’s comments.

Photo of Lord Lansley Lord Lansley Conservative

My Lords, I am glad to follow the noble Lord, Lord Best, who has rightly commended my noble friend the Minister for the careful way she has responded to some of the points made in Committee on the infrastructure levy, and indeed on some of the further discussions we have had and the responses to the technical consultation on the infrastructure levy. That is rather important to take into account.

I confess that, listening to the noble Baroness, Lady Pinnock, I felt that she was making a speech that would have been relevant at the time the technical consultation was published but not at the point at which the Government had clearly responded to that consultation, brought forward amendments and written to us, as the Minister did on 4 July, about those amendments and other factors.

I will speak to Amendments 77, 311 and 312, which are in my name. As I go through them, I will explain where they come from. I remind noble Lords of my interest as chair of the Cambridgeshire Development Forum.

In Committee, I shared with many noble Lords considerable reservations about the infrastructure levy in principle, but we should recall that at that point we had recently seen the technical consultation the Government had published. For our purposes, we were effectively assessing that levy as if the technical consultation proposals were being implemented. We have moved on from that and I want to explain, from my point of view, how I made a number of points in response to the technical consultation.

It is very important to the development community, and probably from the public’s point of view, that they are able separately to identify the contributions made by developers related to a site, with integral infrastructure and on-site affordable housing, and how those relate directly to the development itself. Separately, I understand and accept—indeed, I support this—that the Government intend that the community infrastructure levy, which has been discretionary for local authorities, should effectively become mandatory, unless Ministers choose to disapply it, and that this will give additional resources from developer contributions to fund an infrastructure delivery strategy. I have always said that the infrastructure delivery strategy is in itself a significant advantage of the Bill. We do not presently have it and if Schedule 12 were to be done away with, we would lose the infra- structure delivery strategy as well.

Developer contributions should be in two parts: first, like a Section 106 provision, but called in future the delivery agreement; and secondly, through the infrastructure levy, which is like the community infrastructure levy but, unlike the CIL, will include affordable housing. Affordable housing is, in a sense, at the heart of this debate and there is a serious risk that by shifting it into the infrastructure levy, we may lose the scale of affordable housing provided through Section 106 contributions and on-site delivery. That is the bulk of affordable housing presently provided. We will not necessarily get the infrastructure levy funding the volume of affordable housebuilding we are looking for because, as the noble Baroness, Lady Pinnock, rightly said, there are many other calls on that levy. Some of those may be really quite attractive to councillors when they consider how to use those receipts.

We therefore have to be clear on this, and that is where Amendment 77 comes in. From what I could see in the amendments the Government have tabled, I think the Government intend that the delivery agreement and on-site affordable housing delivery should continue, be substantial and be taken fully into account in meeting the right to require for affordable housing. We need both, not one or the other; that route might achieve the increase in affordable housing we are looking for.

That, essentially, is the bulk of my comments. However, the charging schedule should not only be mandatory; as the noble Baroness, Lady Pinnock, said, there is a problem in that gross development value may not exist in some places. Of course, we cannot magic up land value where it does not exist. We can, however, give local authorities the flexibility to choose whether to have the bird in the hand, as it were, with a sometimes modest charging schedule based on floor space, varied according to the nature of the development—and to have that money upfront—or to have a share of gross development value to fund infrastructure, while recognising that that is less certain and may come after a period of time, and that they may have to fund it. They absolutely have to have that choice.

The noble Baroness, Lady Pinnock, appeared to suggest that they would not have that choice and the technical consultation implied they would not, but the Bill as we have it gives that choice. It includes charging by reference to both floorspace and gross development value. I ask for an assurance from my noble friend that this is deliberate, so that if Ministers choose to make those choices, they can give local authorities the option to go for the bird in the hand or the two in the bush. That would answer one of the central objections that the noble Baroness made to the present Bill.

My final point touches on my Amendments 311 and 312, which I tabled before we had the letter from my noble friend on 4 July. I wanted to see what the Government’s proposals looked like before we brought the Bill into force—but now I think that we are in a position where we know that Ministers are going to make further fundamental design choices about the structure of the infrastructure levy, so change is coming. At this stage, the point is whether the provisions of the Bill allow Ministers to make the kinds of design choices about the infrastructure levy and the delivery agreements in future that make sense to us. Actually, the Bill does allow that—and what my noble friend said in her letter on 4 July was not just about the helpful amendments. It said that she commits

“to consult further on fundamental design choices before publishing draft infrastructure levy regulations”.

So many of the things that I am looking for can be done by the Bill as it is now, and my noble friend is, in effect, committing to further consultation—with us, too—and in due course to laying the regulations before us before the infrastructure levy comes along.

Even in Committee, I do not think we looked at this issue properly. On page 431, in Schedule 12, under general regulations, the Government included a new provision that says that they may make provision treating the community infrastructure levy as if it were the infrastructure levy. All the flexibilities that are required are available in this Bill. We do not know yet what the infrastructure levy and new delivery agreements will look like, but they could incorporate many of the best features of the community infrastructure levy and the best features of Section 106—but they absolutely will require local authorities to have a charging schedule and require those additional developer contributions substantially to increase the availability of affordable housing. On that basis, it would be very remiss on our part at this stage to remove Clause 129 or Schedule 12 rather than giving us the opportunity to have those improvements in the structure of developer contributions. So I am afraid that I shall not support Amendment 68.

Photo of Lord Young of Cookham Lord Young of Cookham Deputy Chairman of Committees 4:45, 18 July 2023

My Lords, I add a brief footnote to what the noble Lord, Lord Best, said in speaking to Amendment 71, to which I have added my name, and to what my noble friend Lord Lansley has said about Amendment 311. I endorse what the noble Lord, Lord Best, and my noble friend said about the willingness of Ministers to listen to us throughout the process. The government amendments respond to the concern that we all expressed in Committee about the potential loss of affordable homes.

I shall pick up the point made by the noble Lord, Lord Best, about the so-called viability loophole. What has been happening is that well-resourced developers, half way through a scheme, have turned to the local authority and said, “It’s no longer viable—and, by the way, we cannot build the affordable homes which were due to be built right towards the end of the scheme”. That left the local planning authority with the nuclear option of pulling the plug on the whole scheme or allowing it to go ahead and at least getting the open market houses. At the time, Shelter did some research, which showed that the use of viability assessments in 11 local authorities across England contributed to 79% fewer affordable houses being built in urban areas than would have built if the original agreement had been adhered to. Following that controversy, the Government introduced guidance and tightened up the rules in 2018; the new rules limited the use of viability assessments to reduce affordable housing to exceptional circumstances, such as a recession or similar economic changes. That was a step in the right direction.

My concern, which was echoed by the noble Lord, Lord Best, is that government Amendment 76 seems to go back on the 2018 changes and revert to the position that generated all the criticism about viability. I note in passing that the technical consultation criticised the current Section 106 agreements by saying that the

“planning obligations are uncertain and opaque … they are subject to negotiation (and can be subject to subsequent renegotiation), can create uncertainty for communities over the level of infrastructure and affordable housing that will be delivered”.

Is that not exactly what Amendment 76 does in referring to a development being economically unviable? It seems that what the Government are doing is virtually guaranteeing that no development will ever lose money, while the developer benefits from any gains above expectation. The levelling up Select Committee’s report expressed the same doubts last week.

I want to say a final word on Amendment 311, to which my noble friend Lord Lansley spoke. On 17 March, the Government published their technical consultation. It ran to 91 pages and asked 45 questions; it is not an easy read. The consultation ended on 9 June and the document said:

“Following the closure of this consultation, the government will assess responses. In doing so, a response will be issued that summarises the themes that emerged, before issuing a final consultation on the draft regulations after the Levelling Up and Regeneration Bill achieves Royal Assent”.

This means that we are debating Schedule 12 in a vacuum because we do not know what its structure will be. I am afraid that this is a feature of too much in this Bill.

When it published its report, Reforms to National Planning Policy, the Select Committee in another place picked up the same point. It also said that we are going to have real issues if we run the infrastructure levy and Section 106 in tandem, leading to arguments and complications. I was not wholly reassured by what the Minister in the other place said in response to the Select Committee’s query:

“If they say that it is too complicated and ask to change things, we will consider that”.

I am not sure that that is a great step forward.

So, on both issues—viability and the absence of the structure of Section 12—I hope that my noble friend the Minister will be able to provide the House with some reassurances.

Photo of The Earl of Lytton The Earl of Lytton Crossbench

My Lords, I will intervene briefly. I declare an interest as a chartered surveyor with some involvement in the development process.

I want to speak to the factor that links Amendments 71 and 94 and follows on from what the noble Lord, Lord Young of Cookham, has just said. I have been in the past a technical operator of the dark arts of development appraisal. I would be much less charitable than the noble Lord, Lord Stunell, in my comments about exactly what goes on here; for instance, how land values under option agreements are arrived at and how, with a click of a mouse on a proprietary development appraisal computer package, the matter can then adapt to a viability test for the local authority’s community infrastructure levy or Section 106 contribution purposes. Noble Lords would be astounded at the way in which a yield change here and a cost base there, as well as the adaption of a timeframe or the alteration of a contingency allowance—I mention just a few means—can be used to alter significantly the entire outcome and colouration of what is claimed on the back of it. Further, all this is done by using the same primary data inputs and, unsurprisingly, there are two factors that developers will never reveal to you if they can get away with it. One is the land value that they paid, coloured as it is by all sorts of associated costs before it gets as far as a planning consent; the second is their construction costs, which are entirely opaque.

Alongside all this and of much longer standing is what I describe as the commoditisation of residential property, which started in the 1990s. It has since financed ever more of the items society wishes to have, in terms of affordable housing, infrastructure, schools et cetera. But that policy has created a consistent and ever more bankable asset within an enhanced lending sector. This results in the very unfortunate situation of driving up house prices and creating a model that is less than satisfactory. Core to this is the issue raised by the noble Lord, Lord Stunell—transparency. Without it, none of this will be demonstrable to anybody, at any time.

Photo of Baroness Taylor of Stevenage Baroness Taylor of Stevenage Opposition Whip (Lords), Shadow Spokesperson (Levelling Up, Housing, Communities and Local Government), Shadow Spokesperson (Transport) 5:00, 18 July 2023

My Lords, I hoped we were hearing the voice of future generations up in the Gallery when the noble Baroness, Lady Pinnock, was speaking. Perhaps they were reminding us to think about affordable housing. The noble Lord, Lord Lansley, said that affordable housing was at the heart of some of this debate, and that is certainly the view of our Benches.

The noble Baroness, Lady Pinnock, set out the issues relating to the infrastructure levy that are causing such great concern across the sector. As she mentioned, this has resulted in an unprecedented step in my time in local government, with over 30 key organisations writing jointly to the Secretary of State to set out their concerns. They are united in saying that the introduction of the infrastructure levy could

“make it harder, not easier, for local leaders and communities to secure the benefits of new development”.

They point to the developer contributions that are being generated by the community infrastructure levy and Section 106 systems, which generated £7 billion in 2018-19 to support housing, infrastructure and services. I share their concerns that this new levy has the potential to reduce this amount.

I take the point made by the noble Lord, Lord Lansley, about the discussions that we have already had in Committee, but these views have been expressed by powerful bodies in our sector. His points about the design of the system are well made, but that should have been considered before the Bill came to the House. Points from the noble Lord, Lord Young, about trying to operate this discussion on a key part of the Bill in a vacuum are also well made.

The main concern of the organisations that wrote to the Secretary of State is the potential for this reform to

“leave communities with fewer new social and affordable homes, mixed and balanced developments and less of the infrastructure they need”.

They fear that the “upheaval” of introducing a new system would build delays and uncertainty into the planning system at a time when there is an urgent need to deliver affordable housing quickly, and that CIL and Section 106 would

“not be improved by these reforms” and would need to be managed alongside the new levy. They welcome the principle of allowing authorities to borrow against developer contributions, but point out that the financial risk of doing so, when the final assessed amounts are “uncertain”, would probably be too great for local government finance officers.

In addition to the risks flagged by these key representatives of the sector, it is not yet clear what impact the infrastructure levy will have on permitted development. At present, developers engaging in permitted development make little, if any, contribution to infra- structure, in particular to affordable housing. This anomaly also needs to be resolved in any new infrastructure levy system.

I am grateful to many of the organisations that signed that letter which have also been kind enough to send us briefing material, and to the office of the Mayor of London, which has provided us with very strong evidence about the potential detrimental impact this would have on building more affordable housing in London. Its figures suggest that, had the levy been in place over the last five years, it would have resulted in between 4,500 and 10,000 fewer affordable homes, and could have made up to 30,000 homes of all tenures unviable.

We completely understand the need to ensure that developments provide the infrastructure to support them, but this proposed new levy adds layers of complexity, because it is being grafted on to an already complex system. The money that developers will have to pay to support transport, schools, health centres, open and play space, and, critically, affordable housing will be calculated once a project is complete instead of at the planning stage, as it is currently. This has resulted in concerns that the funding will be delayed or, potentially, lost altogether. The charging system will be complex and labour-intensive, putting further pressures on the local authority planning departments that we know are already at breaking point.

The reply to the organisations that wrote to the Secretary of State from the Minister responsible, Rachel Maclean, said that she would be looking at the issues they raised in detail and would be organising a round table very shortly. I believe that round table may have taken place in very recent days. However, as the sector has been raising these concerns since the infrastructure levy was first mooted, it is a shame the round table did not take place many months ago.

We accept that the Government have made some concessions on the infrastructure levy clauses, but they do not meet the basic challenge of explaining to the sector just how this new proposal will deliver more resources more effectively than the current system. For that reason, if the noble Baroness, Lady Pinnock, wishes to test the opinion of the House on her amendment, she will have our support. We understand that Amendment 90 is consequential to Amendment 68.

Turning to other amendments in this group, we hope the Government recognise the importance of the infrastructure levy supporting the delivery of the levelling- up missions. Our concern all through the passage of the Bill has been what mechanisms there are to link the missions to planning, funding and the infrastructure levy. My Amendment 69 to Schedule 12 is intended to address this, as well as ensuring that there is a commitment to the infrastructure levy being shared between tiers of local government in non-unitary areas.

My Amendment 70A wound enshrine in the Bill that the application of the infrastructure levy is optional. I am very grateful, as others have said, to the Minister for the many discussions we have had in relation to the Bill, in particular this part of it. I believe, and hope she will confirm, that it is the Government’s intention that infrastructure levies should be optional, and that government Amendment 82 enshrines this in the Bill.

Amendment 71, in the name of the noble Lords, Lord Best and Lord Young, and my Amendment 71A have similar intentions of ensuring that the level of affordable housing funded by developers in the local authority area will meet the needs of that area as set out in the local development plan. I referred to the critical links that need to be built between planning and the infrastructure levy earlier on. When it comes to affordable housing, this is absolutely essential. We recognise the very significant concessions the Government have made on affordable housing, so, rather than pushing Amendment 71A to a vote, perhaps we can have further discussions before the planning and housing sections of the Bill to build that link between the provision of affordable housing through the infrastructure levy and the local plan.

The noble Lord, Lord Stunell, gave clear evidence of the principle behind the current definition of affordable housing. We agree that the current definition is wholly deficient, as much of the housing included in it is absolutely not affordable to many of those in desperate need of housing. We feel that the Government should take an inclusive approach to developing a new definition by working with the sector and housing charities to reach an agreed, appropriate definition of affordable housing. We would support the proposal in the amendment from the noble Lord, Lord Stunell, that a link with the median income in the relevant local planning area would be a good starting point for this definition.

As mentioned by the noble Lord, Lord Best, we are very grateful to the Minister for tightening up the wording she introduces in Amendments 72, 73 and 75 to ensure that developers must now “seek to ensure” the affordable housing funding level is maintained. We are also grateful for her clarification in Amendment 74 that funding of affordable housing is to be provided in the charging authority’s area and, in Amendment 79, that charging authorities can require on-site provision of affordable housing through the infrastructure levy. We believe this change will encourage the development of mixed housing and hopefully mixed tenure communities, which have proved over time to be far more sustainable and successful.

We are also pleased to see government Amendment 80, which requires a report to be laid before Parliament on the impact that the infrastructure levy is having on the provision of affordable housing. It perhaps does not go as far as our Amendment 81, which would have made provision for a new levy to be introduced where IL was shown not to be successful, but we recognise that the Minister has listened to our concerns and we hope that placing a report before Parliament on the success, or otherwise, of IL will encourage further thinking if it is shown not to be delivering.

We have some concerns, which we have shared with the Minister, in relation to Amendment 76 on the thorny issue of viability. Our concern is that this clause, which allows the infrastructure levy to be disapplied where the charging authority considers the application of the levy, including its provision for affordable housing, would make the development unviable. The process of negotiation on infrastructure contributions between local planning authorities and developers can be very long and complex, especially when major developments are involved. We would not want to see any further pressure being put on local authorities in that negotiation process by having this clause dangled in front of them as an incentive for developers to proceed. It has been hard enough in the existing system to resist the weight of financial and legal expertise that the developers have put into these discussions, as mentioned by the noble Lords, Lord Best and Lord Young. We do not want to give them another weapon in their armoury—we do not think that is necessary.

I am grateful to the noble Lord, Lord Young, for setting out the potentially devastating impact the viability get-out clause can have on affordable housing. The noble Earl, Lord Lytton, referred to the inclusion of contingencies in that viability calculation. When you start to pick apart that contingency—I have done it—it is very interesting to see what sits underneath it, which is often some very wild assumptions in my experience. I am sure that that is not always the case, but it can be.

The noble Lord, Lord Lansley, is right to flag up in his Amendment 77 the question of the relationship between Section 106 contributions, which have been most effective in securing affordable housing through planning contributions, and the infrastructure levy. Lastly, we welcome the amendments in the name of the noble Lord, Lord Lansley, which would require a response to the technical consultation on the infrastructure levy before it comes into force.

In summary, we feel that an opportunity has been missed by introducing IL to be grafted on to an already complex system instead of using this Bill for a new, simplified and comprehensive approach to the provision of infrastructure developed with and for the sector, and with an implementation plan to smooth the transition so that it would not disrupt local authorities from the urgent work of solving the housing crisis. However, I once again thank the Minister for the amount of her time she has given to meet noble Lords on this subject and for the amendments that have subsequently come forward. It is the best of this House that the expertise we have here is used to improve legislation, and I am sure today’s debates are a good example of that.

Photo of Baroness Scott of Bybrook Baroness Scott of Bybrook Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

My Lords, Amendments 68 and 90, tabled by the noble Baroness, Lady Pinnock, seek to remove the provisions in the Bill which provide the imposition of the new infrastructure levy in England. I regret that these amendments have been proposed, but I recognise the need for serious and open debate on this subject.

We covered the shortcomings of the existing system of developer contributions at length in Committee. There is a clear case for reform. Since 2010, average new-build house prices have risen by more than £250,000, and land prices have also risen substantially. This increase in value must be captured within the levy system, allowing for more local benefit, but we recognise the need to get these significant reforms right. That is why I can commit to the House today that the Government will undertake a further consultation on fundamental design choices before developing infrastructure levy regulations. Through further consultation and engagement, and the test-and-learn approach, which we discussed in detail in Committee, we will seek to ensure that the levy achieves its aims and that it is implemented carefully. I hope the noble Baroness, Lady Pinnock, will feel able to withdraw Amendment 68 and will not press Amendment 90.

My noble friend Lord Lansley has tabled Amendments 311 and 312, which seek to prevent the introduction of the infrastructure levy until the Government have published proposals for its implementation. I know that my noble friend has formally responded to the recently concluded technical consultation, which we are carefully reviewing. I can confirm that we will not commence the levy provisions in Part 4 until we have responded to that further round of consultation. The regulations themselves will be consulted on in future as well. I hope my noble friend Lord Lansley is therefore content not to press his Amendments 311 and 312. I assure him that he is correct: there is scope in the Bill for us to vary the approach set out in the technical consultation, and I reiterate that, if we do that, we will be consulting further.

The Government have tabled several amendments to the Bill that seek to address concerns raised in relation to the new infrastructure levy during Committee. A priority for the new levy is that it delivers at least as much onsite affordable housing as the existing system of developer contributions, if not more. For the purposes of the new levy, within the context of this part of the Bill, “affordable housing” is defined as social housing in the Housing and Regeneration Act 2008, but there is flexibility to add other definitions through regulations. This ensures that low-cost rental and low-cost home ownership products are covered by the definition, but also provides flexibility and allows definitions to be updated over time.

As part of our recent consultation on our draft National Planning Policy Framework prospectus, we consulted on changes that would make clear that local planning authorities should give greater weight to planning for social rented homes when addressing their overall housing requirements in their development plans and when making planning decisions. The government response to that consultation will be published in the autumn.

Amendment 70, tabled by the noble Lord, Lord Stunell, would restrict the flexibility to be able to adapt the delivery of affordable housing for rent to match different local circumstances. We therefore consider that the amendment proposed by the noble Lord is not needed.

Government Amendment 79 makes an express commitment in the Bill to introduce a new right to require, whereby local authorities will be able to require developers to pay a portion of their levy liability in kind in the form of onsite affordable housing. It will require provision to be made in infrastructure levy regulations to that effect. I reassure noble Lords that we are retaining a restricted form of Section 106 agreements under the levy that can be used to secure matters such as affordable housing in perpetuity.

Amendment 94, from the noble Lord, Lord Stunell, is concerned with the disclosure of information relating to developer contributions. The right to require is designed to replace site-specific negotiations of affordable housing contributions. While viability assessments may be used in rate setting, any developer that wishes for information to be taken into account must submit it to be examined in public. Levy rates and charging schedules will be matters of public record. I hope noble Lords agree that this removes the need for the amendment.

Government Amendments 72, 73, 74, 75 and 76 strengthen the requirement set out in new Section 204G(2) inserted by the Bill so that, when setting their levy rates, local authorities must seek to ensure that the level of affordable housing that is funded—and the level of such funding provided by developers—can be maintained or exceeded as compared with existing levels. The only exception to that requirement is when the local authority concludes that setting its rates to achieve that end would make the development of its area economically unviable. I stress that it is the local authority that is the decision-maker here: it is its responsibility to consider all relevant evidence and material matters when setting its rates, which will be examined in public. Under the proposals that we have consulted on, once rates are set, developers will not be able to negotiate their contributions downwards.

I want to repeat this, because I know this issue is very much in the minds of the noble Baroness, Lady Hayman of Ullock, and the noble Lord, Lord Best. To reiterate, once the charging schedule has been approved, developers will be required to pay the levy. This means that they will not be able to submit viability assessments further down the line to renegotiate their levy payments downward.

We believe that these amendments avoid potentially adverse consequences; namely, that charging authorities may need to set their rates at such a level that the development becomes unviable. That would be the consequence if we accepted Amendment 71, proposed by the noble Lord, Lord Best. I was pleased to see that the National Housing Federation described our amendments as “hugely welcome”.

I turn to Amendment 71A, tabled by the noble Baroness, Lady Taylor of Stevenage. I want to say at this stage that I am more than happy to meet any noble Lords, but particularly the noble Baroness, to discuss affordable housing delivery before we get to two further groups that will probably come up in September. The amendment would require infrastructure levy rates to be set at such a level as to meet the level of affordable housing need specified in a local development plan. However, there are places in England where the need for affordable housing is very high and land values are relatively low. In these places, a requirement to set levy rates at a level which would meet the level of affordable housing need would make development unviable.

I give the example of Pendle Borough Council, where the 2013 strategic housing market assessment identified that Pendle would need between 74% and 84% of its total annual housing requirement to comprise affordable housing if it was to meet all of its affordable housing need. The local plan, adopted in 2015, recognised that this would not be viable. The plan aims instead for 40% affordable housing as a long-term aspiration, accepting that it will secure less in the near term.

If we were to require charging authorities to set rates in order to meet need, a borough such as Pendle would have to set incredibly high rates. These rates would not be viable, and the result would be that no housing at all would be built. While I completely understand the intention behind the amendment, if we aim too high we will get no market housing and therefore no affordable housing alongside it. That is why the government amendments ensure that charging authorities must also consider viability when setting rates.

Government Amendment 74 also makes it clear that the references to the funding of affordable housing in that duty include funding by means other than the infrastructure levy. We feel that this means that Amendment 77, proposed by my noble friend Lord Lansley, is not needed.

Government Amendments 78 and 80 place a duty on the Secretary of State to lay a report before each House of Parliament setting out the effect of the infrastructure levy on the provision of infrastructure and affordable housing. This includes whether charging the infrastructure levy has resulted in more or less affordable housing being available than would otherwise have been the case. This will allow for the scrutiny of the levy as part of our test and learn approach.

The noble Baroness, Lady Taylor of Stevenage, is rightly concerned about the relationship between the levy and our commitment to levelling up, as well as how the levy will benefit different tiers of local government. The Bill introduces a legal duty for the Government to publish an annual report on progress towards delivering the levelling-up missions. This will give Parliament and the public an important opportunity to debate and scrutinise progress.

Provision will also be made in the infrastructure levy regulations for consultation in connection with new infrastructure delivery strategies. This will empower local leaders across the country, ensuring that all tiers of local government can engage with and benefit from the new levy when allocating proceeds and determining local priorities. I hope that this reassures the noble Baroness, Lady Taylor of Stevenage, and that she will not move Amendment 69.

Some local authorities that we have spoken to have recognised the potential of a levy based on gross development value but expressed concerns about the risk; for example, around the challenges of setting appropriate rates. Therefore, government Amendments 82 to 89 provide the ability for the Secretary of State to disapply the levy. This will help give such local authorities confidence that unforeseen risks can be managed, after they first implement the new levy.

Amendment 70A, proposed by the noble Baroness, Lady Taylor of Stevenage, seeks to make application of the levy optional. However, this would further fragment the system of developer contributions in England rather than help to streamline it. I should also add that the Government will have the ability to disapply the levy for a particular area or charging authority, as already stated. Moreover, the aim of a test and learn approach is that the system can be adapted to reflect early learning. It would not be appropriate to commit to a course of action, as the noble Baroness proposes in Amendment 81, without first assessing the evidence. Therefore, I hope that she will not move these amendments.

Photo of Lord Lansley Lord Lansley Conservative 5:15, 18 July 2023

I apologise for interrupting my noble friend but, among the powers that have been taken, is she anticipating that the design choices yet to be made will include whether local authorities may set their charging schedule by reference to gross development value or, in certain circumstances, may choose to use floorspace charging, as they do under CIL at present?

Photo of Baroness Scott of Bybrook Baroness Scott of Bybrook Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

My noble friend is absolutely right: these will come out as we go through the consultation and further design stages.

Government Amendment 93 is consequential on legislation which is already on the statute book; namely, the Judicial Review and Courts Act 2022. It brings the enforcement provisions relating to the community infrastructure levy in line with the enforcement provisions relating to the new levy, which in turn reflect the provisions in the 2022 Act, creating a consistent, coherent cross-government policy on sentencing law.

We believe that we have a strong case for proceeding with the new infrastructure levy and have built in safeguards to ensure that development can progress with vital mitigations in place. We recognise that introducing the infrastructure levy is a significant change to the existing system. That is why we propose to introduce the levy via a test and learn approach. If the levy is found to have negative impacts in the context of one particular local authority, the Secretary of State will have the flexibility to disapply the levy in that authority for a specified time period.

In any system of developer contributions there are trade-offs between seeking simplicity and at the same time enabling individual site circumstances to be catered for. These are tricky balances to strike, and if our initial policy design leans too far in one direction or another, it may impact on the pace at which development can come forward. It is likely that revisions will be required of the initial levy regulations, as occurred with the community infrastructure levy, as the system beds in. While we do not expect these to be substantial, it will give local authorities confidence that the system will be flexible and able to be adjusted to experience on the ground. We do not expect the power to disapply the levy to be used often—if at all. However, it is a sensible, inbuilt precautionary power to cater for all circumstances.

Photo of Baroness Pinnock Baroness Pinnock Liberal Democrat Lords Spokesperson (Levelling Up, Communities and Local Government) 5:30, 18 July 2023

My Lords, I thank all noble Lords for their contributions and challenges to what I have said during this important debate. I particularly thank the Minister for being so generous with her time prior to Report in order to discuss these issues and to respond so constructively to the elements raised in Committee about affordable housing concerns, as well as for having spoken so persuasively—although maybe not quite persuasively enough—in response to this debate, giving as always a full reply to all the issues that were raised.

I come back to the fact that this is not about reforming a planning system; it is a levelling-up Bill, part of which will have to look at how we build more social and affordable housing, and communities that are healthy, safe and ready for the future. However, I come back to the fact that was raised by the Minister: these regulations could be disapplied by some local authorities if the development was deemed economically unviable to raise the funding. Those are the very same places which this Bill and the Government’s own White Paper wanted us to focus on, to raise up those communities so they can enjoy the same level of prosperity as other parts of the country. I repeat that the CIL level in a large part of the authority which I represent was set by the planning inspector at zero. That is the problem with the infrastructure levy. The example that the Minister gave of Pendle demonstrates that some authorities will not be able to build enough affordable housing under this system.

The organisations that wrote to the Secretary of State retain many of the concerns about the infrastructure levy. The system remains complex and very uncertain, for developers and for local authorities. It will be expensive to operate, and difficult to set the levy at the right level. I accept there is a need for reform of the existing CIL and Section 106, but this is not it. This is adding on something, as we have heard, so that we will have three different systems running side by side. People and developers will be confused, and local authorities will not be sure how much money they will be able to raise.

I hear the strength of feeling the Minister expressed in her response to the debate. Nevertheless, given all those worries that I have—fundamental concerns— I beg leave to test the opinion of the House.

Ayes 185, Noes 221.

Division number 2 Levelling-up and Regeneration Bill - Report (3rd Day) — Amendment 68

Aye: 183 Members of the House of Lords

No: 219 Members of the House of Lords

Aye: A-Z by last name

Tellers

No: A-Z by last name

Tellers

Amendment 68 disagreed.

Schedule 12: Infrastructure Levy

Amendments 69 to 71A not moved.