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What an infrastructure levy could mean for Scotland

Stefano Smith

With the Planning (Scotland) Bill expected to introduce secondary legislation for a local infrastructure levy, key policy considerations must now be made.

Specifically, which organisations will be liable for paying the levy, and how can policy-makers ensure it doesn’t deter infrastructure delivery – particularly when it comes to the specific levy rate?

The bill currently provides an ‘enabling power’ for ministers to implement an infrastructure levy. A bone of contention, however, is that much of the infrastructure levy detail remains undetermined as part of the secondary legislation.

Nevertheless, an additional and complementary infrastructure-charging mechanism, such as a levy, could provide an additional and valuable tool in the funding toolbox to support Scottish infrastructure.

Why is an infrastructure levy needed?

There is general agreement over the disjoint between infrastructure delivery and planning development, and the challenge this poses for the Scottish planning system. Securing investment is becoming increasingly difficult.

Concerns have mounted over whether planning obligations can support infrastructure development. Local authorities place a heavy and increasingly unviable reliance on the private sector to fund improvements using the blunt tool of section 75 contributions.

In areas with relatively low market demand, planning authorities cannot recoup infrastructure costs through s75 agreements, further polarising the market and housing delivery.

“New thinking on infrastructure funding to support development is urgently needed”

Innovative attempts by planning authorities to make fair and effective use of planning obligations should be shared and encouraged. But even in more buoyant housing market areas, s75 agreements have limitations, and evidence suggests they contribute significantly to delays throughout development.

The levy would address some of these shortfalls and help capture land-value uplift in a transparent, equitable way. It applies to a regional middle tier of infrastructure between national investment and local site-specific assets.

The proposed enabling power to provide for a levy would supplement planning obligations, not replace them. Scottish housebuilders contribute more than £80m of planning obligations annually through affordable housing, schools and other infrastructure – all of which already comes off the value of land.

An infrastructure levy could collect up to £75m annually, in addition to planning obligations, without double-dipping. This represents about 10 per cent of the Scottish land market for development – less than 0.05 per cent of Scottish GDP. It’s not a huge contribution, but potentially significant within a cocktail of funding that includes planning obligations.

Land value capture measures

The committee tasked with scrutinising the bill recently agreed an amendment allowing councils to compulsorily purchase land at existing use value in designated simplified planning areas (masterplan consent areas).

MSPs agreed to amend the bill so that the amount councils pay landowners in new MCAs is not inflated by development prospects.

The amendment states that MCAs may include provision for compulsory purchase and covers practicalities such as how the purchase price is to be fixed. It also requires ministers to set out the rest of the detail about the process through regulation.

Housebuilders have understandably called the measures premature for including a ‘land value capture’ metric in such a way. Further debate over this proposed amendment will need careful consideration, particularly in terms of potential unintended consequences.

New thinking on infrastructure funding to support development is urgently needed. Planning must regain confidence in delivery, as the potential to identify, co-ordinate and deliver infrastructure is not currently being realised.

Stefano Smith is planning director at WYG

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