Housing associations join dozens of organisations in urging the government to drop Infrastructure Levy

The government hopes that amalgamating the system to finance both housing and infrastructure will simplify the process and deliver more affordable housing, but the letter warns there may be less of a legal obligation for developers to include affordable housing.

Signatories explained that, as the government’s own supporting evidence suggests, the levy rates and thresholds would only be practicable on certain sites and would pose a “serious threat” to housing development in many areas.

While the model may work on greenfield sites, they said, it would make many brownfield sites unviable and perpetuate regional inequalities. Councils are also concerned that the levy could squeeze the amount of money made available for infrastructure to go alongside development to ease pressure on existing services and communities.

The letter warned that the time it would take to roll out and the complexity of the new system would create prolonged uncertainty in planning.

The letter read: “Regretfully, many of the difficulties that we’ve experienced using existing Section 106 (S106) and Community Infrastructure Levy (CIL) mechanisms look likely to continue after the new system has been adopted.

“It remains unclear how infrastructure levy rates and thresholds will sufficiently uphold the economic viability of projects, protect the delivery of affordable homes and homes for social rent and return enough money to fund the infrastructure growing communities need.

“This radical overhaul of the developer contribution system therefore presents significant operational and economic challenges that will make it difficult for existing communities to realise the benefits of new development in their area.”

The Department for Levelling Up, Housing and Communities (DLUHC) has said it would introduce the levy via a “test and learn” process over a decade. Initially, a small number of councils would introduce the levy to see how it works.

In a consultation on the new levy launched in March, the government argued that the current system was “uncertain and opaque”. It said the new levy, which is included in the levelling-up bill making its way through parliament, would be “simpler, non-negotiable and streamlined”. 

Under the new levy, councils would set rates, and the amount developers have to pay would be calculated once a scheme is complete, instead of when the site is granted planning permission. 

Local authorities would also be given a new “right to require”, which the DLUHC said would stop developers from negotiating their affordable housing contributions down, as they would have a legal obligation to meet the amount set by the council.

Roger Gough, housing and planning spokesperson for the County Councils Network, said “attempts to reform the present system are laudable”, but the proposed levy “could end up being the worst of both worlds: resulting in less funding being made available for vital infrastructure, less affordable homes being delivered than before and impacting on the viability of development”.

“The upheaval of introducing a new system will create even more uncertainty in a system which is already not firing on all cylinders,” he added.

The Infrastructure Levy was a key topic of discussion as MPs launched an inquiry into social housing finance in parliament on Monday. Tony Crook, professor emeritus of town and regional planning at the University of Sheffield, said the complexities of the new levy were “really rather horrendous”, adding that “it might be much better to retain and reform Section 106”.

James Prestwich, director of policy at the Chartered Institute of Housing, called the new levy a “disruptive change” that would affect local authority capacity, adding “it’s not too late for reform of Section 106”.

Responding to the letter, a DLUHC spokesperson said: “We know communities want housing developments to include key infrastructure such as GP surgeries, schools and transport links.

“That is why we have consulted on the new infrastructure levy which will ensure we are delivering affordable housing alongside vital infrastructure. We are carefully considering the responses to this consultation and will respond in due course. Any changes will be gradually rolled out to make sure we get it right.”