The Evolving Landscape of Local Planning Authority Funding in the UK: Challenges, Innovations, and Future Directions

The Evolving Landscape of Local Planning Authority Funding in the UK: Challenges, Innovations, and Future Directions

Abstract

Local Planning Authorities (LPAs) in the UK face increasing pressure to deliver effective and efficient planning services amidst fluctuating funding landscapes, evolving legislative requirements, and increasing complexity of development proposals. This research report examines the current state of LPA funding models, exploring their strengths, weaknesses, and sustainability. It analyzes the impact of planning fee increases, evaluates the potential of alternative funding sources, and assesses the efficiency of existing resource allocation strategies. Beyond the immediate challenges, the report considers innovative funding mechanisms and potential reforms to enhance the financial resilience of LPAs and support the delivery of high-quality planning outcomes that contribute to sustainable development, infrastructure provision, and community well-being. By considering the complexities of funding mechanisms, the report offers insights into the future direction of planning service provision in the UK.

1. Introduction

Local Planning Authorities (LPAs) are pivotal in shaping the built environment of the United Kingdom. They play a critical role in managing development, safeguarding environmental assets, facilitating economic growth, and ensuring the creation of sustainable communities. However, their ability to effectively fulfill these responsibilities is inextricably linked to the availability of adequate and stable funding. In recent years, the financial pressures on LPAs have intensified, leading to concerns about the quality and timeliness of planning services. These pressures are driven by a combination of factors, including austerity measures imposed on local government, fluctuations in development activity, increasing complexity of planning applications, and growing demands from communities for greater engagement in the planning process.

The traditional funding model for LPAs in the UK has relied heavily on central government grants, planning fees, and a portion of council tax revenues. However, successive governments have reduced central government funding for local authorities, prompting LPAs to explore alternative funding streams and improve their operational efficiency. The increase in planning fees, often presented as a solution to funding shortfalls, represents a double-edged sword. While it can generate additional revenue, it also risks increasing the cost of development, potentially discouraging investment and disproportionately affecting smaller developers. Furthermore, the effectiveness of increased fees depends on the volume of applications received, leaving LPAs vulnerable to economic cycles.

This research report provides a comprehensive analysis of the funding landscape for LPAs in the UK. It examines the strengths and weaknesses of existing funding models, explores the impact of planning fee increases, evaluates the potential of alternative funding sources, and assesses the efficiency of resource allocation within LPAs. Moreover, it considers innovative funding mechanisms and reforms to enhance the financial sustainability of LPAs and support the delivery of high-quality planning outcomes. The report aims to provide valuable insights for policymakers, planning professionals, and stakeholders interested in ensuring the effective functioning of the planning system in the UK.

2. The Current Funding Model for Local Planning Authorities

The current funding model for LPAs in the UK is a complex mix of revenue streams, each subject to varying levels of predictability and influence. The primary sources of funding can be categorised as follows:

• Central Government Grants: Historically, central government grants formed a significant portion of LPA funding. However, these grants have been substantially reduced in recent years as part of broader austerity measures impacting local government. The level of funding allocated to each LPA is determined by various factors, including population size, deprivation levels, and specific government priorities.
• Planning Fees: Planning fees are charges levied on developers for the processing of planning applications. These fees are regulated by legislation and are intended to cover the costs incurred by LPAs in assessing and determining applications. Planning fees can fluctuate depending on the scale and complexity of the development proposed. Whilst fees contribute to overall LPA funding, they are subject to the ebb and flow of the property market, rendering them a variable source of revenue.
• Council Tax: A portion of council tax revenue is allocated to support local government services, including planning. The allocation process varies between local authorities and is subject to budgetary decisions made by elected councilors. While council tax provides a relatively stable source of funding, it is often insufficient to meet the growing demands on LPA services.
• Community Infrastructure Levy (CIL): CIL is a charge levied on new development to fund infrastructure improvements, such as transport, schools, and healthcare. LPAs have the discretion to set CIL rates and determine how the funds are spent. Whilst CIL can significantly contribute to infrastructure funding, its use is restricted to prescribed infrastructure projects and doesn’t directly support the running costs of the LPA.
• Section 106 Agreements: Section 106 agreements are legal agreements between LPAs and developers that secure contributions towards infrastructure or other community benefits associated with a specific development. These agreements can include financial contributions, provision of affordable housing, or improvements to local amenities. Section 106 contributions are project-specific and cannot be used to fund general LPA operations.

Several shortcomings are associated with this multifaceted funding model. The reliance on central government grants makes LPAs vulnerable to funding cuts imposed by successive governments. Fluctuations in planning fee revenue create budgetary uncertainty, particularly during economic downturns. The restrictive nature of CIL and Section 106 agreements limits their ability to address the broader funding needs of LPAs. Moreover, the complexity of the funding system can lead to administrative inefficiencies and difficulties in financial planning. Furthermore, the current system often incentivizes LPAs to prioritize development projects that generate higher fees, potentially undermining the principles of sustainable development and strategic planning.

3. The Impact of Planning Fee Increases

In response to funding pressures, the UK government has implemented several rounds of planning fee increases in recent years. The stated aim of these increases is to enable LPAs to recover a greater proportion of their costs associated with processing planning applications and to improve the efficiency and quality of planning services. However, the impact of these fee increases is a subject of ongoing debate, with proponents arguing that they are necessary to ensure adequate funding for LPAs and critics suggesting that they could have unintended consequences for the development industry and the wider economy.

The primary benefit of planning fee increases is the potential to generate additional revenue for LPAs. This increased revenue can be used to fund staffing costs, improve IT systems, and enhance the quality of planning services. Some LPAs have used increased fee revenue to recruit additional planning officers, reduce application backlogs, and improve the speed of decision-making. Furthermore, increased fees may incentivize developers to submit higher-quality applications, reducing the need for repeated revisions and speeding up the planning process.

However, planning fee increases also have potential drawbacks. Firstly, they increase the cost of development, which could discourage investment, particularly for smaller developers and community-led projects. This could lead to a reduction in the number of planning applications submitted, potentially offsetting the benefits of increased fees. Secondly, increased fees may disproportionately impact certain types of development, such as affordable housing projects, which often have lower profit margins. This could undermine efforts to increase the supply of affordable homes.

Thirdly, the effectiveness of planning fee increases depends on the volume of applications received. During economic downturns, when development activity declines, planning fee revenue may fall, leaving LPAs with a funding shortfall despite the increased fees. This highlights the inherent vulnerability of the planning fee model to economic cycles. Moreover, simply increasing fees without addressing underlying inefficiencies within LPAs may not lead to significant improvements in service quality. Some argue that LPAs need to streamline their processes, adopt new technologies, and improve staff training to deliver more efficient and effective planning services.

4. Exploring Alternative Funding Sources

Given the limitations of the current funding model and the potential drawbacks of relying solely on planning fee increases, it is crucial to explore alternative funding sources for LPAs. Several potential alternatives warrant consideration:

• Land Value Capture (LVC): LVC is a mechanism for capturing a portion of the increase in land value resulting from public investment or planning decisions. This captured value can then be used to fund infrastructure improvements or support LPA services. LVC can take various forms, including betterment levies, tax increment financing, and developer contributions. While LVC has the potential to generate significant revenue, its implementation can be complex and politically sensitive.
• Business Rate Retention: Under this system, LPAs retain a greater proportion of the business rates generated within their boundaries. This provides a direct incentive for LPAs to promote economic growth and attract businesses. However, business rate retention can also exacerbate inequalities between LPAs, with those in economically prosperous areas benefiting disproportionately.
• Increased Local Taxation Powers: Granting LPAs greater powers to raise local taxes, such as council tax or a local income tax, could provide a more stable and predictable source of funding. However, this would require legislative changes and could face political opposition due to concerns about increasing the tax burden on residents.
• Philanthropic Funding and Social Investment: Some LPAs have explored partnerships with philanthropic organizations and social investors to fund specific projects or initiatives. This can provide access to new sources of funding and expertise, but it requires careful negotiation and alignment of objectives.
• Digital Planning Platforms and Data Monetization: As LPAs transition towards digital planning platforms, opportunities arise to monetize data collected through the planning process. This could involve selling anonymized data to researchers or developers for a fee. However, data privacy and ethical considerations must be carefully addressed.

The feasibility and suitability of each alternative funding source will vary depending on the specific context of each LPA. A diversified funding portfolio, combining a mix of traditional and alternative sources, is likely to be the most resilient approach to ensuring the long-term financial sustainability of LPAs.

5. Efficiency of Resource Allocation within LPAs

In addition to exploring alternative funding sources, LPAs must also focus on improving the efficiency of their resource allocation. Even with increased funding, inefficient processes and poor resource management can undermine the quality and timeliness of planning services. Several areas warrant attention:

• Streamlining Planning Processes: Many LPAs still rely on outdated and inefficient planning processes, leading to delays and increased costs. Streamlining these processes, through the adoption of digital technologies and the implementation of Lean management principles, can significantly improve efficiency.
• Investing in Staff Training and Development: Well-trained and motivated staff are essential for delivering high-quality planning services. Investing in staff training and development, particularly in areas such as digital planning, sustainable development, and community engagement, can improve staff productivity and morale.
• Adopting Digital Planning Technologies: Digital planning technologies, such as online application portals, GIS mapping systems, and data analytics tools, can automate routine tasks, improve data management, and enhance decision-making. However, the effective implementation of these technologies requires careful planning and investment.
• Promoting Collaboration and Partnership Working: Collaboration with other LPAs, government agencies, and private sector organizations can lead to economies of scale and shared expertise. Joint procurement of services, shared planning resources, and collaborative planning projects can reduce costs and improve outcomes.
• Performance Monitoring and Evaluation: Regularly monitoring and evaluating the performance of LPA services is essential for identifying areas for improvement. Key performance indicators (KPIs), such as application processing times, customer satisfaction ratings, and development outcomes, should be tracked and used to inform resource allocation decisions.

By improving the efficiency of resource allocation, LPAs can maximize the impact of their existing funding and deliver better planning services to their communities. This requires a commitment to continuous improvement, innovation, and a willingness to embrace new ways of working.

6. Innovative Funding Mechanisms and Potential Reforms

The challenges facing LPAs require a fundamental rethinking of the traditional funding model. Innovative funding mechanisms and potential reforms are needed to ensure the long-term financial sustainability and effectiveness of the planning system. Several promising approaches warrant further consideration:

• Planning Performance Agreements (PPAs): PPAs are agreements between LPAs and developers that set out a timetable for the processing of complex planning applications. Developers pay a fee to the LPA to cover the costs of additional resources required to meet the agreed timetable. PPAs can provide LPAs with a dedicated source of funding for complex applications and incentivize them to meet agreed deadlines.
• Infrastructure Tariffs: Infrastructure tariffs are fixed charges levied on new development to fund specific infrastructure projects. Unlike CIL, infrastructure tariffs are not restricted to a list of prescribed infrastructure projects and can be used to fund a wider range of infrastructure improvements. This provides LPAs with greater flexibility in allocating infrastructure funding to meet local needs.
• Local Development Orders (LDOs): LDOs grant planning permission for specific types of development within a defined area. This can streamline the planning process and reduce the administrative burden on LPAs. LDOs can also be used to generate revenue by charging developers a fee for the right to develop under the LDO.
• Strategic Land Funds: Strategic land funds are public sector bodies that acquire land for future development. The fund can then sell or lease the land to developers, capturing the increase in land value and using the proceeds to fund infrastructure improvements or support LPA services. This approach can promote strategic planning and ensure that development is properly coordinated.
• Digital Planning Platforms with Value-Added Services: Develop digital planning platforms that offer value-added services to developers, such as detailed site assessments, design guidance, and community engagement tools. Charge developers a fee for accessing these services, generating a new revenue stream for the LPA.

Implementing these innovative funding mechanisms and reforms will require legislative changes, political support, and a willingness to experiment with new approaches. However, the potential benefits of a more sustainable and effective planning system are significant.

7. Conclusion

The funding landscape for Local Planning Authorities in the UK is undergoing a period of significant change. Traditional funding sources are under pressure, and LPAs are facing increasing demands to deliver effective and efficient planning services. Planning fee increases, while providing some short-term relief, are not a sustainable solution in the long run. A more diversified and innovative approach to funding is needed to ensure the financial resilience of LPAs and support the delivery of high-quality planning outcomes.

This research report has examined the current state of LPA funding models, explored the impact of planning fee increases, evaluated the potential of alternative funding sources, and assessed the efficiency of resource allocation within LPAs. It has highlighted the need for LPAs to improve their operational efficiency, embrace digital technologies, and explore innovative funding mechanisms. By adopting a more strategic and collaborative approach to funding, LPAs can ensure that they have the resources they need to shape the built environment of the UK and create sustainable communities for future generations.

The future of LPA funding lies in a combination of traditional and innovative approaches. A balanced portfolio of revenue streams, coupled with efficient resource allocation and a commitment to continuous improvement, will be essential for ensuring the long-term financial sustainability and effectiveness of the planning system. Furthermore, a national policy framework that supports innovation and collaboration across LPAs is crucial for fostering a resilient and responsive planning system capable of meeting the evolving needs of the UK.

References

• Allmendinger, P. (2017). Planning: A Very Short Introduction. Oxford University Press.
• Carmichael, P. (2011). Development Agreements: Law and Practice. Bloomsbury Publishing.
• Department for Levelling Up, Housing and Communities. (Various years). Planning Practice Guidance. https://www.gov.uk/government/collections/planning-practice-guidance
• European Commission. (2013). Land Policy and Urban Planning in Europe: Patterns, Challenges and Best Practices. https://ec.europa.eu/regional_policy/sources/docgener/studies/pdf/land_policy_urban_planning_2013.pdf
• Grant, M. (2019). City Planning for Civil Engineers, Environmental Engineers, and Surveyors. CRC Press.
• Royal Town Planning Institute (RTPI). (Various years). The State of the Profession. https://www.rtpi.org.uk/research/the-state-of-the-profession/
• RICS. (2018). Land Value Capture: The Principles. https://www.rics.org/globalassets/rics-website/media/upholding-professional-standards/sector-standards/valuation/land-value-capture-the-principles-1st-edition-rics.pdf
• Town and Country Planning Association (TCPA). (Various years). Reports and Publications. https://www.tcpa.org.uk/
• Baker, M., Echenique, M., & Landis, J. (2006). Land value capitalization and infrastructure finance: How well do they match?. Journal of Planning Education and Research, 26(1), 3-15.
• Glaeser, E. L., & Sacerdote, B. (1999). Why is there more crime in cities?. Journal of Political Economy, 107(S6), S225-S258.
• Cheshire, P., & Sheppard, S. (2002). The welfare economics of land use regulation. Journal of Urban Economics, 52(2), 242-269.
• Evans, A. W. (2004). Economics, real estate and planning. Blackwell Publishing.