England’s largest councils today have raised concerns that spending on infrastructure such as roads, schools, and medical centres could be reduced in the coming years if government reforms to developer contributions are implemented.

The warning comes in a new report from Pragmatix Advisory and the County Councils Network (CCN), which argues that the government’s forthcoming Infrastructure Levy, set to replace the existing developer contributions system, could be a ‘jack of all trades’, with little left over for infrastructure.

Under the present system, Section 106 (S106) contributions from developers help to finance affordable housing in an area as well as site-specific infrastructure, whilst the Community Infrastructure Levy (CIL) used in some areas, also raises funding for large-scale infrastructure.

The government plans to replace them with a new infrastructure levy, which will be spent on a wider array of things, including affordable housing, and local council services. The report warns that spending on infrastructure improvements may reduce under the new system.

Councils say that affordable housing is vital – especially with property prices at record highs – but the government must ensure that there is sufficient funding left over in the new system to build infrastructure to support these new homes.

Presently, two-thirds (66%) of developer contributions are spent on affordable housing, with less than 25% spent on roads, schools, transport, community spaces, and medical centres. CCN warns that the infrastructure levy risks simply replacing one broken system with another.

The report finds:

• Infrastructure worth £1.3trillion could be required over the next fifteen years as a result of projected household growth, but many county areas already have significant infrastructure shortages, putting pressure on public services and roads.
• The current system is already heavily skewed towards funding affordable housing. In total, developer contributions funded £4.6bn in affordable housing – 66% of the total £7bn pot raised. However, just £439m (6%) went to education, £294m (4%) on transport and travel and £219m on community spaces and buildings (3%). In total, £830m (12%) were CIL contributions.
• The government has said the new system will both create more affordable homes and bring in at least as much funding as the present system. To back up these claims, the report urges government to carry out further research to show how the basis of a levy affects the level of receipts it generates. This should consider geographical variations, particularly in the sale value of developments and the minimum land value for viability.
• There are already significant regional variations in what councils are able to spend on infrastructure as a result of developer contributions. Councils in the South East (£99 per head), London (£82 per person) and the South West (£67 per head) are able to spend considerably more than councils in the North West (£22 per head), Yorkshire and the Humber (£19 per head) and the North East (£13 per person). This creates a system where places with low housing growth have poor infrastructure and connectivity – and little means to create investment to level-up areas.
• Borrowing remains the single biggest source of funding for infrastructure, but under the infrastructure levy county councils will not be able to borrow against it. The second biggest source is government grant funding, with the report calling for a rethink on how infrastructure is funded in England.

With proposals for the infrastructure levy currently in the government’s Levelling Up and Regeneration Bill, the report puts forward recommendations so the new system has a greater focus on capturing funds for infrastructure such as roads and public services.

It also argues that the clauses of the bill which permit the levy to be used for purposes other than infrastructure or affordable housing should be removed as this could divert funding, which is already inadequate, to other services. In ‘two-tier’ county areas there should also be a statutory duty for district councils to work with their county councils in the preparation of levy-setting.

The government has set out an intention to introduce the levy through a ‘test and learn’ approach, which in effect means this new levy will be monitored over the first few years of its existence. CCN argues that the government should allocate certain portion of infrastructure levy receipts directly to county councils, using the ‘test and learn’ approach to determine the allocation.

In order to better capture infrastructure funding from the  planning system and ensure that funding is used on projects that will have the greatest impact, the report recommends closer partnership working, with authorities coming together at county or combined authority level to draw up long-term strategic visions for their areas, bringing back ‘strategic planning’ to county areas.

These visions, which should align with Local Plans prepared by district councils, would map out broad locations to direct housing growth and supporting infrastructure needs over a long period of time and should identify a funding package to construct and finance the infrastructure needs set out.

Cllr Roger Gough, Housing and Planning Spokesperson for the County Councils Network, said:

“Both local and national government recognise that the current developer contributions system is unfit for purpose so attempts to reform the system are admirable. But as today’s report shows, the new infrastructure levy in its current guise could be a jack of all trades; potentially replacing one broken system with another. We are concerned there could be even less money for infrastructure under the new system with these projects treated as an afterthought.

“With average house prices in rural county areas the highest in the country outside of London affordable housing provision is vital but the government must ensure there is funding left over for vital infrastructure and public services so we can grow and create sustainable communities.

“Today’s report sets out a number of key recommendations to ensure that the new system has a greater role in capturing infrastructure funding. County councils should have a prominent and formal role within any redesigned system and the clauses of the bill which permit the levy to be used for purposes other than infrastructure or affordable housing should be removed.”

Download the report here.