My Lords, we remain with the question of the infrastructure levy in this part of the Bill. The purpose of debating the question of whether Clause 124 should stand part is to allow for a debate on the principles of the infrastructure levy. Curiously, it seems we will have a debate on the principles after we have discussed some of the detail—but let us not worry too much about that; we will no doubt return to all these subjects on Report anyway.
Although this is the levelling-up Bill, this clause is the not-levelling-up provision in it, since the Government’s technical consultation said that the infrastructure levy could lead to a possible increase in
“geographic inequalities already evident in the current system”.
We therefore cannot treat the infrastructure levy as tackling one of the central issues we face: that, while there is a large amount of development value being created in some parts of the country that can fund infrastructure and affordable housing, whether it does or does not, in other parts of the country it is not available at all.
That is exacerbated by the gross development value as well as the simple fact that, in some parts of the country, there is a relative dearth of brownfield sites—for example, in the east of England, my own area. That means that when development takes place on greenfield sites, the gross development value—netting off the build cost and existing use value—can be large. In many other parts of the country, there are more brownfield sites and, by the time you have calculated a lower gross development value and taken off the build cost and existing use value—both often higher for a brownfield site—you are left with very little of the gross development value available for the infrastructure levy.
There will, I am afraid, be a serious potential conflict between the purposes of the infrastructure levy. The community will look at it and say, “This will provide our schools, healthcare infrastructure, flood defences, open spaces and sport and recreation facilities” and all sorts of other potential benefits, looking at the amendments, as opposed to affordable housing. Under the existing system, two-thirds of developer contributions go to affordable housing. We do not know, but the pressures will, if anything, be higher rather than lower. That may lead to a very serious constraint on the amount of infrastructure levy available for the purposes that the infrastructure delivery strategy sets out.
I do not pretend that there is a completely different and better answer than what the Government are proposing. However, I am a bear of very simple brain; at Second Reading, I referred to the simple proposition that, on one hand, you have Section 106, by means of which developers are required to provide the infrastructure—in my view, they should also provide the affordable housing that is to be integral to the site they are developing or that is consequent directly upon that site—and, separately, there should be an infrastructure levy or community infrastructure levy.
I find it slightly surprising that the Government, having addressed the problems associated with the community infrastructure levy—it is not country-wide and it is based on pounds per metre squared, or a floor-space calculation, rather than on gross development value—did not do what struck me as the sensible thing: to rewrite aspects of the community infrastructure levy while retaining its basic structure, and make it mandatory for local authorities to introduce one. Instead, they are sweeping it all away—but not entirely. All sorts of definitions of the community infrastructure levy will be retained. The CIL will go on for years in relation to all the developments that receive planning permission before the infrastructure levy comes into place, as we just heard.
The infrastructure levy also does not sweep away Section 106 at all. This is supposed to be transparent and streamlined; I am sorry, but I do not find it to be that. There are three routes. There is the core levy routeway but, when you delve into that, there is a delivery agreement within it that is, to all intents and purposes, Section 106 retained. The infrastructure levy is not sweeping away Section 106 or the negotiable aspects. If the Government really want to set—I understand why they would—what is effectively a minimum level of contribution from developers in relation to a development that goes towards integral infrastructure as well as wider infrastructure requirements, why not just do that and directly relate the Section 106 contributions to the total of the infrastructure levy—or the community infrastructure levy under the current system?
We have a series of difficulties. The current system, with gross development value, will have serious potential issues. For example, how will these viability assessments be done, by whom and how many times? The Government themselves are contemplating a viability assessment at the application stage—the indicative one—then another provisional one post commencement but prior to the completion stage, and then a final adjustment. Reading the documentation, the implication is that each of the viability assessments is an incremental change on the previous ones. What we know, and the noble Baroness, Lady Taylor of Stevenage, kindly agreed with me on this, is that the viability assessments can change dramatically. There is nothing in the structure of this that looks yet at what those implications might look like.
2.15 pm
For example, I did a simple calculation. I will not bore noble Lords by showing my workings, but it seemed to me that if you get a 10% reduction in the gross development value of the project, given that the build cost may be the same or even higher, the existing use value will not have changed for the project and the percentage—I used 40% for these purposes—for the infrastructure levy is applied, a 10% reduction in the gross development value could lead to a 40% reduction in the developer’s profitability.
We may shrug our shoulders and say, “Developers make too much profit”, but I am not sure that all of them do. I am not sure that we should be sanguine about the risk associated with developers measuring the downside possibilities and deciding not to undertake developments in anticipation of some of those downside risks eventuating. We need the development. We need the homes. We have too many provisions, certainly in the National Planning Policy Framework consultation and in the Bill, that may not lead to building more homes. We run the risk of building fewer homes, and we have to avoid that risk.
I am sorry to be unhelpful to my noble friend on the Front Bench; I just think it would have been much simpler for the Government to say that the CIL should be mandatory and that local authorities can structure their charging schedule by reference to pounds per metre squared or to gross development value. They could even have given developers the option to choose one or the other, one of which is committed to and
paid up front and the other of which is dependent on the final development value. Why not go down these simpler routes, rather than constructing this complicated set of different routeways? We even have an infrastructure in-kind routeway which is, to all intents and purposes, for very large sites, the biggest sites, such as in my area. I remind the Committee of my interest as chair of the Cambridgeshire Development Forum. We are building settlements of 10,000 homes or more and the Government are suggesting that those will exceed the threshold, which will mean that they will be on the infrastructure in-kind routeway and that it will effectively be a negotiated Section 106 agreement in total anyway.
I just feel that we could have done this in a much simpler way. This stand-part debate may serve no purpose at all other than to ask whether it is too late to think about doing things in a simpler way, rather than trying to sweep the CIL and Section 106 away, then reintroducing much of it but putting it into a more complicated and riskier scenario, as the infrastructure levy appears to me to do.