Levelling-up and Regeneration Bill (Twentieth sitting)

Paul Scully Excerpts

Committee stage
Thursday 8th September 2022 Public Bill Committees

[Matthew Pennycook]

I thank my hon. Friend for that well-made point. We had, as she will know, an extensive discussion on viability in the last sitting. The system is flawed in many respects, but there are ways in which it has been improved in recent years, and it could be improved further. The Mayor’s threshold approach in London is a good example of how that can be done; it draws in relevant expertise to ensure that contentious sites undergo a full viability assessment.

Our issue with the proposed system is that it is premised on removing the viability issue from the process entirely, but the point here is that the system certainly does not do that; at the rate-setting stage, viability is very much an issue. That needs to be addressed through the amendments. Amendment 162 would ensure that IL rate-setting testing and examination cannot be unfairly manipulated by developers seeking to drive down levy rates, because the amendment would clarify that charging authorities will not be expected to test every development site in their area. It would mitigate the risk that the infrastructure necessary to support development will not come forward, and that amounts of affordable housing will be reduced.

Amendments 163 and 164 are necessary to give full effect to the Government’s commitment that the new system will be, to quote the policy paper, a “locally determined Infrastructure Levy”, with Il rates set locally by charging authorities. The amendments do that by altering the provisions that give the Secretary of State the power to impose specific IL rates, nil rates or minimum thresholds that have not emerged as a result of an examination, or been justified with reference to local evidence. By preventing the Secretary of State from overriding a charging authority in those respects, the two amendments seek to avoid a scenario in which a charging authority is either prevented from developing its own IL rates or, after the lengthy and resource-intensive process of determining the IL rates and thresholds appropriate for its area, and after having them verified by an independent examiner, has them overridden by the Secretary of State.

There is nothing in the Bill to ensure that IL rates imposed by the Secretary of State in the way that the Bill allows would be based on local evidence or subject to independent assessment. There is therefore an obvious risk that the Secretary of State may, on occasion, be persuaded to bypass the IL rate-setting process on spurious grounds. We feel strongly that the process should be genuinely local, and that charging authorities should be confident, if they develop a rate or rates that are approved in examination, that they will be able to apply those without interference from the Department. I look forward to hearing the Minister’s thoughts on each of these important amendments.

[The Minister of State, Department for Levelling Up, Housing and Communities (Paul Scully)]

It is a pleasure to serve under your chairmanship, Mrs Murray, and to address the Committee and answer the questions raised. The hon. Gentleman talked about attrition rates, which are important for all of us as constituency MPs, and we all want to make sure that we get this right. I, too, thank the former Minister for Housing, my hon. Friend the hon. Member for Nuneaton (Mr Jones), for the work that he has done over the summer.

I begin by acknowledging the work of the Committee so far. The planning reforms will clearly be important in supporting our growth agenda, so I look forward to the next few days. I understand why the hon. Gentleman seeks to introduce the amendments. I will try to clarify some of the points, and to explain why we do not believe that the amendments are necessary. I will start with amendment 162.

Local planning authorities will be responsible for setting infrastructure levy rates, and for charging and collecting the levy, and they can spend the levy revenues on local priorities. When setting rates, they must have regard to the economic viability of the development of the area. I reassure the hon. Gentleman and the Committee that proposed new section 204A(2) of the Planning Act 2008 already ensures that that is the case. It states that the overall purpose of the levy,

“is to ensure that costs incurred in supporting the development of an area and in achieving any purpose specified under section 204N(5) can be funded (wholly or partly) by owners or developers of land in a way that does not make development of the area economically unviable.”

The overall purpose of the levy applies to all levy regulations, including those made under proposed new section 204G(4)(a), to which the hon. Gentleman has proposed additional text. This means that when charging authorities set rates or other criteria, they must have regard to matters specified in levy regulations relating to the economic viability of development. Although I understand his point, I hope that with that explanation, he will agree that amendment 162 is unnecessary.

Amendments 163 and 164 would prevent the Secretary of State from requiring, through regulations, that differential rates of the levy be set. They would also prevent the Secretary of State from specifying in regulations the basis on which a threshold for such rates may be determined. Again, I recognise that the aim of the amendments is to ensure that the rates are set solely by the charging authority, but I reassure the Committee that local rate-setting is indeed essential to the levy design. However, the levy must be charged in a coherent and consistent way, so that it meets its objectives of capturing more value and raising more revenue for local planning authorities, while maintaining the viability of developments across an area.

How the levy is charged should reflect the different amounts of additional value that might be generated across different kinds of development. In some circumstances, it might be necessary to require in the levy regulations that rates be set at higher or lower levels. For example, the additional value created by new floor space might be a lot greater than that created when existing floor space undergoes change of use. Similarly, the additional value generated by a residential development might be a lot higher than the amount generated by some types of commercial development, and it is right that the difference in value is reflected in levy rates.

There might be types of development on which it is simply not appropriate to charge the levy, or on which it would be appropriate to charge a reduced rate. Providing for that in the levy regulations will ensure the coherence of the regime that I talked about.

How much additional value is generated by a development depends in part on how much it cost to build, and on the value of the land before development takes place. The minimum threshold will broadly account for the costs of development in an area by charging the levy on the final gross development value. Above the minimum threshold, the levy is charged only on the additional value of a development. Without a minimum threshold, the levy would not be able to reliably capture more of the value uplift in different development types and land uses, while maintaining viability. The ability for levy regulations to require that thresholds for nil or reduced rates be determined in a specified way, including the ability to adjust them with reference to the cost of development in a charging authority’s area, is key to ensuring that this aspect of the levy function works in a coherent and consistent way.

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[Matthew Pennycook]

I appreciate that comprehensive answer from the Minister, but I am afraid to tell him that I am not reassured. I am not sure—I will happily go back and check the record—that he addressed my specific points. As I said, our concern is that the language in proposed new section 204G(4)(a), when it comes to specifying how viability is handled within the rate-setting process, refers simply to “development”. It is not consistent with the language in proposed new section 204A(2), which specifically refers to “development of an area”.

The Minister spoke in general terms about the local rate-setting process. I take no issue with that. It is absolutely right that the local charging authority looks at viability as part of that process, but the specific concern that we have, as I said, is that it may be forced to assess the viability of every site in the area that it oversees, rather than being able to undertake a general assessment of viability in that area and not have specific sites skew the results. This could potentially have very serious implications for the levy rates that are set and the ability of developers to try to drive down those rates as part of the process. We are not satisfied on that score.

On amendments 163 and 164, we do not take issue with the fact that there needs to be a minimum threshold or the need for specified ways of setting or adjusting the levy rates. Our issue is with the powers that the Bill provides for the Secretary of State to intervene and overturn a locally determined rate that has gone through an examination process. The Minister has not convinced me that there is a good reason for those powers. On that basis, I am keen to make the point that we think this is one of the many weaknesses in the Government’s proposed infrastructure levy, so I am minded to press amendment 162 to a vote.

[Paul Scully]

Let me just answer a couple of points as the hon. Member considers whether to press the amendment to a vote. I assure him that charging the levies is very much for the local authorities. The intention is to not have a system that is different for every single development, because that becomes incredibly unwieldy—that is the point of introducing this system rather than the existing, technically complex system, where developers, who have deeper pockets than many local authorities, and more expertise, get round section 106 and CIL and so on. If they so choose, local authorities should be able to have different levies in different areas within their remit, but that should not be just from development to development. That is the intention of the measures here.

The powers of the Secretary of State reflect the current system. As I mentioned, the Secretary of State has powers under the existing system and we are reserving that same right, which is to be used only very sparingly.

[Matthew Pennycook]

I thank the Minister for that useful further clarification of the Government’s intention, but in many ways he made my point for me. No one is taking issue with the fact that the Bill specifies that local charging authorities set the rate. That is absolutely right. It is an advantage of the proposed system vis-à-vis that outlined in the 2020 “Planning for the Future” White Paper, which envisaged a nationally set rate or rates. The issue we have—the Minister spoke directly to this point—is the inequality of arms between developers and local planning authorities. Our concern is that the language in the Bill will allow developers, not in the way they do with the current section 106 system but under the new system, to use their extra resources, skills and expertise to drive down levy rates at the point at which they are set, due to the way that viability is dealt with in proposed new section 204G(4)(a). I am not satisfied by the Minister’s comments, and I will press amendment 162 to a Division.

Question put, That the amendment be made.

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[Matthew Pennycook]

First, I congratulate my hon. Friend the Member for York Central on amendment 168. She rightly speaks about the importance of green space in urban areas and about how we can increase the rate of it, if anything, when it comes to individual planning applications.

I will speak primarily to amendment 59, because I think it is worth putting the following on the record. I understand the point that the hon. Member for Buckingham is making, but my reading of the Bill is that the framework established in part 4 already allows charging authorities to set different IL rates according to existing and proposed uses, and those could include different rates for greenfield and brownfield sites. So the means to resolve the issue he is driving are already in the Bill, and Buckinghamshire Council will be able to set different rates on brownfield and greenfield sites if the Bill is given Royal Assent.

Our concern is that, by seeking to make mandatory a sliding scale of charges relating to land type or existing typologies by site, amendment 59 could result in reduced infrastructure contributions and lower levels of affordable housing in areas where development mainly or exclusively takes place on brownfield land, because it would prevent charging authorities from setting rates that are effective and suitable for their area and that consider local circumstances. For example, a mandatory sliding scale of charges, as proposed in the amendment, could result in the expectation that a charging authority whose development sites are entirely or mainly on brownfield land would set low IL rates to incentivise development in that area and disincentivise development in other areas with fewer brownfield sites.

Furthermore, brownfield development in higher-value areas will almost certainly generate sufficient values to support higher levels of contributions than would be possible on greenfield sites. As such, a mandatory sliding scale of charges would mean the loss of developer contributions that could viably have been delivered on brownfield sites, with no assurance that this would be offset by a higher level of contributions on greenfield land. Labour firmly believes in the principle of brownfield first, as do the Government, and that is absolutely right. However, we feel strongly that the setting of different IL rates for different land types should ultimately be determined by individual charging authorities taking account of local circumstances, rather than by the method proposed in amendment 59.

[Paul Scully]

The Government are already providing strong encouragement for the take-up of brownfield sites—we are all agreed on that—and are prioritising suitable brownfield land for development wherever possible. There is significant investment through the £550 million brownfield housing fund and the £75 million brownfield land release fund to unlock brownfield land across different communities across the country. Our national planning policy framework makes it clear that local authorities should give substantial weight to the value of using suitable brownfield land in settlements for homes and other identified planning need.

We recognise the importance of delivery on brownfield sites, as has been raised by the hon. Member for York Central and my hon. Friend the Member for Buckingham. However, we believe that that is better achieved through planning policy rather than through a fixed algorithm that automatically increases levy charges on the basis of the proportion of greenfield to brownfield. This further amendment would add a new element to the levy formula, which would still allow for greater greenfield development in certain circumstances, but would remain a formulaic approach rather than a policy-driven one.

The proportion of greenfield development within the local authority should continue to be policy driven at that local level, as we have heard. I agree with the hon. Member for Greenwich and Woolwich that it should be the local authority—the charging authority—driving that, based on their local circumstances. In any case, proposed new section 204G(5) and (8) in schedule 11 already contains powers for the levy regulations to permit or require local planning authorities to set different levy rates for different kinds of development, and proposed new section 204G(4) makes it clear that the local authority must have regard to the increases in land value that result from planning permission. That provides a framework where, if increases in land values are higher, as we have heard is often the case with greenfield development, higher rates can be set. On that, we agree in terms of policy.

In answer to the hon. Member for York Central, I totally understand her drive when she talks about buildings going up to five storeys, and it is important that it is the local area that determines exactly these things. Whether it is the view of the Minister or the affordability of properties, that should not be determined centrally with an artificial algorithm. It very much needs to be locally driven, so that local families and communities benefit from housing themselves and from the economic value of bringing in new people and new investment. It is about getting that balance right, and that will change for different areas. It was interesting to hear the hon. Member’s tour de force—that tour of York, and I suspect I will get a bit more about green spaces later this morning.

[Matthew Pennycook]

A lot more.

[Paul Scully]

A lot more, the hon. Gentleman says from a sedentary position.

Clearly, we do need those green lungs, as my hon. Friend the Member for Buckingham said. Those of us who have an urban, suburban or semi-urban area need to get that balance right, and I would much rather that that was done through a policy framework than by an algorithm, which can be game-played by developers. It is important to get this right at a local level, so it is important to get for local authorities to get the local plan in, so that they can shape their place. They have the determination to do so. For those reasons, amendments 168 and 59 are not necessary.

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My final proposed new paragraph, (n), focuses on older and disabled people and ensuring there is proper provision around that social care. Again, we are talking, as Homes England would, not about just building but place making. That is essential to meet the needs of our communities. I would be encouraged to hear that the Government want a wider perspective on how we build our communities to be sustainable, connected, energised by their new energy sources and able to work as a community, as opposed to just building volumes of houses that have no soul.

[Paul Scully]

It has been interesting moving around some of the areas where the infrastructure levy can be used, whether for cycles, footpaths or micro-transport. The hon. Member for Greenwich and Woolwich mentioned from a sedentary position that we are going to get the good experience of York. I did not realise that we were going to have the experience of Trieste in Italy as well. It is interesting to hear about that, although I understand that in Trieste they do not have mental health provision in hospitals either because they tend to keep to people suffering with their mental health in their homes. It is a different cultural situation, but the point was taken.

The hon. Member for York Central talked about allotments. I do not want to see the community levy contributing to a dulling of good developers who want to provide community facilities as part of their place-shaping. Allotments are comparatively low cost to design and implement, but have massive social and community value. I very much understand that point. Having been the Hospitality Minister for two years, and now the Minister for Faith, I find the hon. Lady’s proposal to combine those roles in the church/pub really interesting—we will see how that goes.

This is the problem with putting lists in Bills. The list is not supposed to be exhaustive and comprehensive—there are plenty of things that charging authorities can, should and will be looking at, such as those the hon. Lady has outlined. The Bill gives a starting point, but I do not think we need to go further at this stage, because the rest of the Bill gives the local authorities wide powers, allowing them to spend the levy on the infrastructure that their communities need, rather than it being imposed by us in the detail proposed by the amendment.

I reassure the hon. Lady that, should a local authority wish to spend the levy on items of infrastructure that are not expressly stated in the list in proposed new section 204N, as long as it is infrastructure in the common sense and natural meaning of the word, it will indeed be able to do that. The levy can be spent on any infrastructure that supports the development of an area, including funding the provision, improvement and replacement, operation or maintenance of infrastructure, providing that it is in accordance with the original aim of the levy as set out in proposed new section 204A.

The Bill also allows for regulations to add, remove or vary the content of the list to support infrastructure delivery through the levy if it is necessary and if any clarification is needed.

[Rachael Maskell]

Energy should get particular mention in a redrafting of the Bill. Other countries are further advanced; we are behind. That is a specific point, and we should see that change. Does the Minister conclude that all the other issues in the amendment would be facilitated by proposed new section 204A, as set out in that broader definition of the Bill? If that is the case, I am happy to withdraw the amendment.

[Paul Scully]

I do not see the need to put energy generation in the list because, absolutely, that and the other areas she raises are included. I am happy to give her that reassurance. As long as the local authority thinks something is needed, and it fits within the definition of infrastructure—I think we can agree that all the points she raises fit within that definition of infrastructure—the answer is yes.

[Rachael Maskell]

I am grateful to the Minister for giving way again. Just for clarity: if the authority were to bring forward a proposal for microgeneration of energy or an energy facility in order to support a local town, conurbation or whatever, that would be included, too. I made the point about energy having a separate mention in the Bill because it is such a big issue and much broader than some other areas, but would that also be covered?

[Paul Scully]

Yes. If the local authority thinks it is needed, then absolutely. The discourse around housing is often just about the supply of housing, but clearly energy, and energy generation of all sorts, needs to be brought into it. We need to bring in schools, hospitals and medical facilities of all types, and indeed allotments, as she said. Yes, I can give her that assurance, and ask her to withdraw the amendment.

[Rachael Maskell]

I have heard what the Minister has said. I will take his words as authoritative—they will be in the Hansard record of today’s debate—and, as a result, I will withdraw my amendment. The point about energy is significant, not least if I look at the Derwenthorpe development by the Joseph Rowntree Housing Trust in York, which has put energy and a community centre at the heart of that social/private development. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Matthew Pennycook]

I beg to move amendment 165, in schedule 11, page 306, leave out from line 38 to line 2 on page 307.

This amendment would limit the circumstances under which the Secretary of State could direct a charging authority to review its charging schedule.

This amendment, much like amendments 162, 163 and 164, which we debated earlier in relation to the IL rate-setting process, is concerned with ensuring that the new levy system is genuinely local and that charging authorities are fully in control of developing its discretionary elements at a local level. It would remove proposed new section 204Y(1)(b), which provides the Secretary of State with the power to direct a charging authority to alter its charging schedule in a range of circumstances, including

“in any other circumstances that IL regulations may specify”.

That is of particular concern.

Given that the Bill gives the Secretary of State the power to revise individual charging schedules at their sole discretion, with no need to justify that intervention by means of any objective evidence-based criteria, we are concerned that, as drafted, it could have significant implications. For example, it could allow a future Secretary of State to require a charging authority to amend its locally developed charging schedule as a result of lobbying by a developer, without having to provide any evidence that the levy as implemented in the area in question is impairing viability and frustrating development.

We believe that this amendment is necessary to ensure that the Secretary of State cannot direct a charging authority to alter its charging schedule merely due to the passage of time or any other circumstances they see fit, given that the only justified rationale for an intervention from Ministers in relation to a charging schedule—namely, its impact on viability—is already covered by subsection (1). I look forward to the Minister’s response.

[Paul Scully]

Proposed new section 204Y(1)(b) enables the Government to require an authority to review—not necessarily alter—its levy charging schedule if a significant amount of time has passed since its last issuing, review, revision or replacement. Proposed new section 204Y(1)(c) enables the Government to require a review in any other circumstances as may be specified through regulations. It is important to have a power to direct a review to be undertaken after a significant period has elapsed since the schedule was put in place or revised. That is because there may be occasions when a schedule has been in place for many years without a proper review, and so is not up to date.

The levy will be a mandatory charge, and for many local authorities operating a levy on new developments it will be a novel means to capture land value. Monitoring and reviewing charging schedules will therefore be important, especially for authorities that are unaccustomed to charging a levy. That is why we want levy charging rates to be reviewed on a timely basis. We will issue guidance on what that might reasonably mean in terms of time and circumstances. I hope that provides reassurance, including for communities and developers, that the rates remain appropriate. We want to make sure the approach is balanced.

Historically, local planning authorities have not always reviewed and updated key documents, such as local plans, in a timely fashion, which is why it is appropriate to take this power to direct a charging authority to issue, review, revise or replace. Furthermore, it is entirely consistent for the Bill to secure timely reviews of charging schedules and to require that local authorities introduce a charging schedule in the first place. Levy charging schedules are underpinned by evidence on local economic circumstances and viability. Reviews either provide confidence that the charging schedule remains appropriate or starts a process of revision if they are considered not to be.

We also consider it important to have the power to regulate for any other circumstances in which the Government may want to direct that a review be undertaken, such as if a new local plan is issued soon after the publication of a charging schedule. Any further circumstances identified will be introduced through affirmative regulations, and so will be laid before this House and debated and approved here. With that clarification, I hope the hon. Gentleman will agree to withdraw the amendment.

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[Matthew Pennycook]

I beg to move amendment 166, in schedule 11, page 308, leave out line 25.

This amendment would prevent IL regulations making unspecified provision about how powers under section 106 of TCPA 1990 (planning obligations) are used.

The Committee will be relieved to hear that this is the last of our amendments on the infrastructure levy. It relates to the interaction of the infrastructure levy with other existing powers. As drafted, proposed new section 204Z1(1) in schedule 11 provides for future IL regulations to make unspecified provisions about how a range of existing powers, including CIL and section 106 planning obligations, are to be used or not used.

Our specific concern relates to the application of those broad powers to the use of section 106 agreements. While we appreciate fully that there are circumstances where the use of section 106 will have to be limited—for example, to avoid double charging a development for the same infrastructure item—we feel strongly, for reasons that I went into in exhaustive detail on Tuesday in relation to that part of the Bill in the round, that section 106 agreements have a crucial role to play in ensuring we secure sufficient levels of affordable housing. We are concerned that proposed new subsection (1) could be used to unduly restrict their use.

By deleting line 25 from page 208, amendment 166 simply seeks to ensure that future IL regulations cannot make unspecified provisions about how section 106 agreements are used once the levy system is operational. I hope the Minster will seriously consider accepting the amendment. If not, I feel that we need, at a minimum, far greater clarity about the precise circumstances in which the Government expect to have to restrict section 106 of the Town and Country Planning Act 1990.

[Paul Scully]

Proposed new section 204Z1 in schedule 11 enables the Secretary of State to prescribe how certain powers are to be used or not. As we have heard, proposed new subsection (1)(c) enables the Secretary of State to prescribe how section 106 applications may or may not be used alongside the levy. That power has been used previously to make provision under the community infrastructure levy regulations to ensure that section 106 obligations are necessary in planning terms, directly related to the development, and fair and reasonably related to the scale and kind of development.

We need to be able to continue to ensure, under the new system, that section 106 obligations are used in ways that are appropriate, necessary and fair. We need to be able to delineate between matters that should be funded by the levy, and contributions to infrastructure or mitigation that should be secured by the more narrowly focused section 106 agreement. That means that developers will know that they will receive consistent treatment across different local authorities.

Removing section 106 from the list of powers will mean that the Secretary of State is unable to provide clear, coherent and consistent boundaries between what the levy should be used for, and what section 106 agreements can and cannot be used for. That would remove a key provision that will provide for coherence across the levy and the planning obligations regime. It is important to remember that the levy will take most of that. It will be more complicated, niche or bespoke schemes for which section 106 will remain. That coherence is why we want to keep that power and consistency. For that reason, I hope the hon. Member for Greenwich and Woolwich will withdraw the amendment.

[Matthew Pennycook]

That is a welcome additional clarification from the Minister, and I do not want to rehearse the previous debates that we have had. As I set out at length, we believe that the infrastructure levy should be discretionary and that, if it is not discretionary, affordable housing should not be within scope, so we remain concerned about the ability of this power to restrict how section 106 agreements are used. However, I will not press the amendment to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 11, as amended, agreed to.

Clause 114

Power to designate Homes and Communities Agency as a charging authority

Question proposed, That the clause stand part of the Bill.

[Matthew Pennycook]

I have a question relating to clause stand part. The Homes and Communities Agency, which operates under the trading name of Homes England, can already be designated as a local planning authority under the Housing and Regeneration Act 2008. The clause amends section 14 of the Act to provide that, if a designation order is made under section 13 to designate the HCA as a local planning authority for all or part of a designated area, the designation order may also make provision for the HCA to be the IL charging authority for all or part of the designated area.

The current situation with CIL is that the Homes and Communities Agency, urban development corporations and enterprise zone authorities can also be collecting authorities for development where they grant permission, but only if the relevant charging authority agrees. It would appear that the new provision in the clause allows Homes England to be a charging authority for the area where it acts as the planning authority, without the need for agreement from the local planning authority, as is currently the case with CIL.

Given the circumstances, I am more than happy for the Minister or his successor to respond to me in writing at a later date, but I would be grateful if he could explain the rationale behind the change of approach, what engagement and consultation Homes England will be required to carry out with other relevant local bodies in the absence of an explicit agreement to exercise the relevant powers, and what processes Homes England will use to decide how IL should be spent in that area.

[Paul Scully]

I will write to the hon. Gentleman with further details. As he rightly says, the clause is designed purely to act as a framework for having Homes England become a charging authority as well as a local planning authority. That power has not be exercised to date, but if it were, Homes England could become a charging authority. It is important to have the power in order to allow the Homes and Communities Agency to become the charging authority as well as the local planning authority, and to specify the purpose and kinds of development. Without the clause, the levy may not be able to function effectively in areas where the Homes and Communities Agency may be designated as the local planning authority. I commend the clause to the Committee, and I am happy to write to the hon. Gentleman with further details, should he require them.

Question put and agreed to.

Clause 114 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned.—(Gareth Johnson.)