The Infrastructure Levy: A Transformative Shift in UK Planning and Development Funding

Abstract

The Infrastructure Levy (IL) represents a pivotal and transformative reform within the United Kingdom’s approach to funding infrastructure and affordable housing necessitated by new developments. Conceived to largely supersede the Community Infrastructure Levy (CIL) and significantly reduce the reliance on Section 106 agreements, the IL introduces a fundamental shift towards a value-based calculation method for developer contributions. It assigns a significantly expanded and mandatory role to local authorities in the proactive preparation of detailed charging schedules and comprehensive infrastructure delivery strategies. Furthermore, a crucial innovation is its explicit expansion of the scope for allocating IL funds, including the direct provision for affordable housing. This comprehensive report undertakes an in-depth analysis of the IL’s intricate framework, meticulously examining its multifaceted implications for developers, local authorities, and the broader planning and socio-economic landscape of the UK.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

1. Introduction

The landscape of the United Kingdom’s planning system has been characterized by a continuous evolution, marked by successive waves of reforms aimed at enhancing the efficiency of development processes and, critically, ensuring that new growth is adequately supported by requisite infrastructure. The introduction of the Infrastructure Levy (IL), primarily legislated through the Levelling Up and Regeneration Act 2023, marks a profound and potentially epoch-making shift in this ongoing evolution. Diverging significantly from its predecessors—the Community Infrastructure Levy (CIL) and the long-standing Section 106 agreements—the IL is conceptualized as a mandatory, nationally-mandated but locally-set, value-based charge that local planning authorities will be required to levy on new developments. This report undertakes a rigorous examination of the IL’s conceptual underpinnings, its proposed operational structure, the anticipated direct and indirect impacts on key stakeholders including developers, landowners, and local authorities, and its overarching potential to fundamentally reshape the financial mechanisms for infrastructure and affordable housing provision associated with future development across the nation. The imperative behind this reform stems from a recognition of persistent challenges in infrastructure delivery, the urgent need to accelerate affordable housing provision, and the aspiration for a more transparent, predictable, and equitable system for capturing a portion of the uplift in land value generated by planning permission (GOV.UK, 2023a).

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

2. Background: Evolution of Developer Contributions

For decades, the UK planning system has sought mechanisms to ensure that new developments contribute to the infrastructure and community facilities they necessitate. This has led to the evolution of various developer contribution frameworks, each with its own strengths and limitations.

2.1 Section 106 Agreements

Section 106 of the Town and Country Planning Act 1990 (as amended) has long served as the primary legal instrument enabling local planning authorities (LPAs) to secure planning obligations from developers. These agreements, often referred to as ‘planning obligations’ or ‘developer contributions’, are legally binding agreements between a developer and a local authority. Their fundamental purpose is to mitigate the impacts of development that would otherwise render a planning application unacceptable in planning terms (UK Government, 1990).

Historically, Section 106 agreements have been highly versatile and site-specific. This bespoke nature allowed LPAs to negotiate precise contributions tailored to the unique circumstances of each development, covering a vast array of infrastructure needs. These could range from direct financial payments for off-site highway improvements, contributions towards public transport, and open space provision, to the direct provision of community facilities such as schools or health centres. Crucially, Section 106 has also been the principal mechanism for securing affordable housing provision, either as on-site units or as commuted sums (Tees Law, n.d.).

Advantages of Section 106:

• Flexibility and Site-Specificity: S106 agreements can be tailored precisely to the needs arising from a specific development, addressing its direct impacts. This allows for a granular approach to mitigation.
• Wide Scope: They can fund a broad spectrum of infrastructure and community benefits, from physical infrastructure to social and environmental improvements.
• Affordable Housing: Until the IL, S106 was the primary tool for negotiating and delivering affordable housing units as part of a development.
• Direct Delivery: In some cases, developers could be obligated to directly provide infrastructure or facilities, rather than simply paying a sum.

Disadvantages of Section 106:

• Lack of Transparency: The bilateral and often confidential nature of negotiations could lead to a perceived lack of transparency and public scrutiny regarding what contributions were secured.
• Inconsistency: Contributions could vary significantly between similar developments or across different local authority areas, leading to concerns about fairness and a ‘postcode lottery’ effect (House of Commons Library, 2023).
• Time-Consuming and Resource-Intensive: Negotiations could be protracted, leading to delays in planning permissions and requiring significant legal and planning resources from both developers and LPAs. This added to development costs and timelines.
• Viability Challenges: Developers often cited viability as a reason to reduce or avoid contributions, leading to complex and often disputed viability assessments that could further delay projects and reduce the quantum of contributions.
• Pooling Restrictions: Following the introduction of CIL, statutory limitations (initially Regulation 123 of the CIL Regulations 2010, later amended) were placed on the pooling of more than five S106 contributions towards a single piece of infrastructure. This was intended to prevent ‘double-dipping’ alongside CIL, but it inadvertently constrained the ability of LPAs to fund larger infrastructure projects requiring multiple smaller contributions (Planning Advisory Service, 2019).

2.2 Community Infrastructure Levy (CIL)

The Community Infrastructure Levy (CIL) was introduced by the Planning Act 2008 and brought into force by the CIL Regulations 2010 (subsequently updated) with the explicit aim of providing a faster, fairer, and more transparent way of funding infrastructure to support development. CIL was intended to be a standardized, non-negotiable charge, applied to a broad range of developments, primarily calculated based on the gross internal floor area of new buildings (Planning Act 2008; Tees Law, n.d.).

Under CIL, LPAs had the option to prepare and adopt a ‘charging schedule’ specifying the rates per square metre for different types of development and in different geographical zones. These rates had to be set following an extensive evidence base, public consultation, and independent examination by a planning inspector, ensuring they were viable and supported growth. Once adopted, the CIL charge was mandatory for relevant developments, automatically applied at the point of planning permission, thereby reducing the need for individual negotiations (GOV.UK, 2019a).

Advantages of CIL:

• Transparency and Predictability: Once a charging schedule was adopted, developers could clearly calculate their potential CIL liability, offering greater financial certainty than negotiated S106 agreements.
• Simplicity (in theory): The tariff-based approach aimed to simplify the process of securing contributions, reducing the time and cost associated with S106 negotiations.
• Broad Application: CIL could capture contributions from a wider range of developments, including smaller ones that might not typically trigger S106 agreements.
• Automatic Trigger: The levy was triggered automatically by planning permission for CIL-liable development.

Disadvantages of CIL:

• Lack of Responsiveness to Market Conditions: CIL rates were fixed for several years (subject to indexation), meaning they did not easily adapt to fluctuations in market values or development viability, potentially making some developments unviable during economic downturns or failing to capture higher land value uplifts during booms (House of Commons Housing, Communities and Local Government Committee, 2018).
• Inability to Directly Fund Affordable Housing: CIL was explicitly designed for general infrastructure funding and could not directly fund affordable housing. While affordable housing provision was often a key consideration when setting CIL rates (to ensure overall viability), the direct delivery of affordable homes remained reliant on S106 agreements.
• Complexity in Implementation: While simple in concept, the administration of CIL proved complex for many LPAs, requiring significant resources for evidence gathering, schedule adoption, collection, and reporting.
• Exemptions and Reliefs: A range of exemptions and reliefs (e.g., for affordable housing, self-build homes, charitable development) added layers of complexity to the system.
• Interaction with S106: While CIL aimed to largely replace S106, S106 agreements continued to be used for site-specific mitigation and affordable housing, leading to a hybrid system that some found more, rather than less, complex. The ‘pooling restriction’ for S106 further complicated funding for larger infrastructure schemes.

A government review of CIL in 2018, led by Liz Peace CBE, concluded that while CIL had delivered some benefits, it was ‘not fulfilling its potential’ and recommended significant reforms, including exploring a value-based levy (Peace Review, 2018). These recommendations heavily influenced the conceptualisation of the Infrastructure Levy.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

3. The Infrastructure Levy: Key Features and Implementation

The Infrastructure Levy (IL), introduced primarily through the Levelling Up and Regeneration Act 2023 (LURA), signifies a radical departure from previous developer contribution models. It aims to address the limitations of CIL and S106 by creating a more efficient, transparent, and responsive system for capturing development value to fund infrastructure and affordable housing.

3.1 Value-Based Calculation

One of the most fundamental innovations of the IL is its shift from an area-based (per square metre) calculation method, as seen with CIL, to a value-based approach. The IL will be calculated as a proportion of the gross development value (GDV) of the completed development, above a fixed ‘minimum threshold’ or ‘retained share’ for the developer (GOV.UK, 2023b). This means the levy liability will directly reflect the uplift in land value generated by the grant of planning permission and the subsequent development.

The rationale behind this value-based approach is multi-faceted:

• Capturing Land Value Uplift: The planning system inherently generates significant increases in land value when permission is granted. The IL is designed to capture a greater proportion of this uplift for the benefit of local communities, aligning contributions more closely with the economic success and profitability of developments.
• Responsiveness to Market Conditions: By linking the levy to GDV, the IL will inherently adjust to fluctuations in property values. During buoyant market conditions, the levy collected will be higher, potentially increasing infrastructure funding capacity. Conversely, in weaker markets, the levy will decrease, theoretically safeguarding development viability by ensuring contributions do not disproportionately burden less profitable schemes.
• Viability and Certainty: The concept of a ‘fixed retained share’ for the developer is crucial. This is intended to ensure that developers always retain a specified minimum proportion of the development’s value, thereby providing a ‘floor’ for viability and encouraging development even in areas where margins might be tighter. The precise mechanism for calculating this ‘retained share’ and GDV will be critical and defined in forthcoming regulations (GOV.UK, 2023b). This is a key departure from the existing viability assessments under S106, aiming for greater upfront certainty.

The specific rates (the percentage of GDV levied) will be set locally by LPAs within a nationally prescribed framework, allowing for regional variations in land values and development economics. The levy will be charged at the point of final development value determination, likely at the point of sale, with interim payments potentially allowed for larger, phased developments. This contrasts with CIL, which is typically charged at the commencement of development (Charles Russell Speechlys, 2023).

3.2 Mandatory Nature and Local Authority Role

Unlike CIL, which was optional for local authorities to implement, the Infrastructure Levy will be mandatory for all LPAs in England. This fundamental shift aims to ensure a universal approach to capturing development value and funding infrastructure, reducing the disparity in developer contributions across the country.

LPAs will be endowed with significantly enhanced responsibilities under the IL:

• Charging Schedules: Each LPA will be required to prepare and adopt its own IL charging schedule, which will set out the rates (as a proportion of GDV) that apply within their area. These schedules will need to be evidence-based, subject to public consultation, and potentially independent examination, similar to CIL, to ensure their soundness and viability (GOV.UK, 2023b). The ability to set varying rates for different areas or types of development within their jurisdiction will allow for local nuance and responsiveness to local market conditions.
• Infrastructure Delivery Strategies (IDS): A cornerstone of the IL is the mandatory requirement for LPAs to produce and regularly review a comprehensive Infrastructure Delivery Strategy (IDS). The IDS will be a publicly available document outlining the infrastructure needs of the area, identifying strategic priorities, detailing how IL receipts will be spent, and explaining how those investments align with the Local Plan. This aims to provide greater transparency and accountability for how developer contributions are utilized, ensuring funds are directed towards agreed community priorities and critical infrastructure to support growth (GOV.UK, 2023b; Planning Advisory Service, 2023). The IDS will need to encompass all forms of infrastructure, including transport, education, health, green spaces, and crucially, affordable housing.
• Proactive Planning: The mandatory nature and the requirement for robust IDS mean that LPAs will need to adopt a more proactive and strategic approach to infrastructure planning and delivery. This shifts the emphasis from reactive, site-specific mitigation (S106) or broad tariff collection (CIL) to a more integrated approach where infrastructure provision is front-loaded and strategically aligned with local growth ambitions.

3.3 Expanded Scope for Affordable Housing

A critical and widely welcomed feature of the IL is its explicit capacity to fund affordable housing directly. Under the CIL regime, affordable housing provision remained largely dependent on Section 106 agreements, often subject to complex viability negotiations that could reduce or eliminate affordable housing commitments. The IL seeks to fundamentally change this dynamic (GOV.UK, 2023b).

Under the IL, LPAs will be able to utilize collected funds to directly provide or commission affordable housing. Furthermore, there is provision for developers to provide affordable housing ‘in-kind’ (i.e., by building affordable units as part of their development) and receive a credit against their IL liability. This ‘in-kind’ contribution mechanism is designed to incentivize the direct provision of affordable homes on-site, a preference for many communities.

The aim is to simplify and accelerate affordable housing delivery by:

• Reducing Viability Assessment Burden: By embedding affordable housing provision within the overall IL framework, the intent is to reduce the need for iterative, project-by-project viability assessments that have often hampered affordable housing delivery under S106.
• Increased Certainty: Developers will have greater clarity on their affordable housing obligations upfront, as these will be part of the defined IL rates and mechanisms.
• Broader Funding Pool: Affordable housing will be funded from the general IL pool, rather than being solely reliant on individual site negotiations, potentially allowing for more strategic and consistent delivery across an area.

While the IL is intended to be the primary mechanism for affordable housing and infrastructure contributions, Section 106 agreements are expected to retain a residual role for highly site-specific mitigation, bespoke planning requirements, and complex legal agreements that cannot be adequately addressed by the standardized IL (GOV.UK, 2023b). However, their scope will be significantly narrowed to avoid duplication and complexity.

3.4 Process and Administration

The full operational details of the IL will be set out in secondary legislation and regulations. However, the broad administrative process is anticipated to involve:

• Valuation at Point of Permission: While payment occurs later, the initial determination of potential liability (or calculation of the value uplift) is expected to be linked to the grant of planning permission.
• Assessment and Payment on Completion/Sale: The final IL liability will be assessed based on the actual Gross Development Value at the point of sale or practical completion of units. This requires robust valuation methodologies and potentially independent assessment.
• Payment Mechanisms: Payments may be phased for larger developments, or triggered by the sale of individual units, aligning cash flow more closely with developer receipts. This is a significant shift from CIL’s upfront payment model.
• Monitoring and Enforcement: LPAs will need robust systems to monitor development progress, track sales, accurately assess GDV, and enforce payment. This will require new data capabilities and potentially increased valuation expertise within authorities.
• Dispute Resolution: Mechanisms for resolving disputes between developers and LPAs regarding GDV assessment or levy calculation will be essential, likely involving independent arbitration or appeals processes (Planning Advisory Service, 2023).

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

4. Implications for Developers

The introduction of the Infrastructure Levy represents a significant paradigm shift for developers operating in the UK. The value-based calculation method and the overhaul of existing contribution mechanisms necessitate a comprehensive re-evaluation of financial strategies, risk assessment, and land acquisition approaches.

4.1 Financial Planning and Project Viability

The transition from a largely fixed-cost levy (CIL) or a negotiated obligation (S106) to a value-based contribution fundamentally alters the financial calculus for developers. The IL, being a proportion of the Gross Development Value (GDV) less a ‘retained share’, means that the final levy liability becomes inherently variable and directly linked to market performance.

• Volatility of Contributions: Developers will face greater uncertainty regarding their precise IL liability until the point of sale or completion. In periods of high market demand and rising property values, the IL contribution will increase, potentially capturing a larger share of the development’s profitability. Conversely, during economic downturns or periods of stagnating property values, the IL liability will decrease, theoretically providing a degree of ‘viability protection’. However, this volatility necessitates more sophisticated financial modelling, scenario planning, and stress-testing of projects under different market conditions.
• Impact on Profit Margins: While the ‘fixed retained share’ aims to ensure a baseline profit, the variable nature of the IL means that a larger proportion of ‘excess’ profit (above the retained share) will be captured. Developers will need to adjust their expected rates of return and ensure their models accurately reflect this dynamic. This could lead to a reassessment of which projects are financially attractive, favouring those with strong, stable projected GDVs.
• Cash Flow Management: The proposed payment schedule, potentially linked to the sale of units or completion, could offer some cash flow benefits compared to the upfront payment required by CIL. However, accurate forecasting of sales velocity and unit values will be crucial for managing liquidity and ensuring funds are available when IL payments fall due.
• Increased Valuation Complexity: Determining the final GDV will be critical. This may lead to disputes between developers and LPAs over valuations, requiring independent expertise and potentially new negotiation frameworks. The cost and time associated with robust valuation exercises will need to be factored into project budgets (Charles Russell Speechlys, 2023).

4.2 Impact on Land Values

The introduction of the Infrastructure Levy is expected to have a profound impact on land values, particularly for sites with development potential. Economic theory suggests that a levy on development value will largely be capitalised back into land prices, meaning landowners will bear a significant portion of the cost through reduced sale prices for their land (House of Commons Library, 2023).

• Residual Land Value Model: Developers typically determine the maximum price they are willing to pay for land using a ‘residual land value’ model. This calculates the land value by subtracting all development costs (including construction, professional fees, finance, and developer profit) and now, critically, the IL liability, from the projected GDV. A higher IL rate or a larger captured share of value means a lower residual land value, leading to reduced offers for land.
• Negotiation Dynamics: This shift will alter the negotiation dynamics between landowners and developers. Landowners will need to adjust their price expectations, particularly in high-value areas where the IL is likely to be substantial. Developers will be incentivised to seek land at prices that reflect the anticipated IL burden.
• Differential Impact: The impact on land values will not be uniform. In high-value areas with strong demand and high GDVs, the IL could represent a substantial cost, leading to a more significant downward pressure on land prices. In contrast, in lower-value areas, where GDVs are more modest, the IL may be less burdensome, potentially having a lesser impact on land prices or even encouraging development where previous viability concerns were marginal.
• Land Banking and Speculation: There is a potential for some landowners to hold onto land in anticipation of future changes in IL rates or market conditions, although the mandatory nature and broad application aim to minimise this. However, the direct link between value and levy could incentivise faster development once land is acquired, to realise the GDV and meet the levy obligation promptly.

4.3 Certainty and Transparency (from a Developer Perspective)

While the government aims for greater certainty and transparency with the IL, developers’ experience may be nuanced:

• Rate Certainty vs. Cost Certainty: Developers will have upfront certainty about the IL rate (the percentage of GDV). However, the ultimate monetary cost will remain uncertain until the GDV is finalised at completion or sale. This contrasts with CIL, where the per-square-metre rate and hence the monetary liability was known much earlier in the process. This shift could introduce new forms of financial risk.
• Reduced Negotiation Burden: A key benefit for developers is the anticipated reduction in protracted and often contentious Section 106 negotiations, particularly regarding affordable housing and site-specific infrastructure that can be funded by the IL. This should streamline the planning application process and reduce associated legal and consultancy fees.
• Simpler Planning Permissions: With less reliance on bespoke S106 agreements, the legal complexities associated with planning permissions are expected to decrease, potentially accelerating the granting of consents once the IL framework is fully operational and understood (Charles Russell Speechlys, 2023).

4.4 Relationship with Section 106

While the IL is designed to largely supersede CIL and diminish the role of S106, the latter will not be entirely abolished. Section 106 agreements are expected to retain a narrow, residual role for:

• Site-Specific Mitigation: For highly unique and complex site-specific impacts that cannot be adequately addressed through the general IL framework (e.g., specific biodiversity enhancements, heritage impacts).
• Legally Intricate Requirements: For matters requiring ongoing monitoring, complex phasing agreements, or where specific land charges are necessary beyond financial contributions.
• Large, Strategic Sites: For very large, phased developments that require complex master planning and coordination of significant infrastructure where the IL alone might not be sufficient or flexible enough. The pooling restriction on S106 will also be removed once IL is fully implemented, allowing for greater flexibility for these residual agreements (GOV.UK, 2023b).

Developers will need to understand this new division of labour to navigate their obligations effectively, ensuring no ‘double-dipping’ occurs where the IL is intended to cover the same infrastructure or affordable housing as a residual S106.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

5. Implications for Local Authorities

For local authorities, the Infrastructure Levy presents a profound shift from an optional, tariff-based system (CIL) and a negotiated, site-specific system (S106) to a mandatory, value-based approach. This necessitates significant changes in strategic planning, financial management, and operational capacity.

5.1 Strategic Infrastructure Planning

The IL places local authorities firmly at the helm of strategic infrastructure planning and delivery. The mandatory requirement to prepare and regularly review an Infrastructure Delivery Strategy (IDS) is central to this expanded role.

• Enhanced Responsibility: LPAs will be directly responsible for identifying the long-term infrastructure needs of their areas, aligning these with their Local Plans and broader strategic objectives (e.g., climate change adaptation, economic growth, social equity). This requires a robust evidence base, comprehensive needs assessments, and a clear understanding of growth trajectories (Planning Advisory Service, 2023).
• Integrated Planning: The IDS is intended to foster a more integrated approach to planning, ensuring that infrastructure provision is proactively considered alongside housing and employment growth. This moves beyond simply reacting to development proposals to actively shaping the development landscape through strategic infrastructure investment.
• Prioritisation and Allocation: LPAs will have the autonomy and responsibility to prioritise infrastructure projects based on local needs and strategic goals. The IDS will serve as a transparent roadmap for how IL receipts will be allocated across various infrastructure types (transport, education, health, green spaces) and, crucially, for affordable housing. This local discretion aims to ensure funds are spent where they are most needed and will have the greatest impact on community well-being and sustainable growth.
• Collaboration and Engagement: Developing and implementing a robust IDS will require extensive collaboration with utility providers, health authorities, education providers, transport bodies, and other statutory consultees. Crucially, it also necessitates meaningful engagement with local communities to understand their infrastructure priorities and ensure transparency in decision-making (GOV.UK, 2023b).

5.2 Financial Management and Transparency

The financial management implications for LPAs under the IL are substantial. The value-based calculation means that IL receipts will be inherently more volatile than CIL, posing new challenges for financial planning and budgeting.

• Volatile Income Streams: LPAs must be prepared for fluctuations in IL income, which will directly correlate with the performance of the local and national property market. During economic downturns, IL receipts could fall significantly, potentially impacting planned infrastructure projects. This necessitates more sophisticated financial forecasting, contingency planning, and the establishment of reserves to smooth out income volatility (House of Commons Library, 2023).
• Collection and Administration: LPAs will need to establish new robust administrative systems for assessing, collecting, and monitoring IL payments. This includes valuing developments at the point of sale/completion, tracking property transactions, and managing potential payment disputes. This will likely require significant investment in IT systems, staff training, and potentially new valuation expertise within authorities.
• Ring-fencing and Accountability: The transparent allocation of IL funds, as mandated by the IDS, will be crucial for maintaining public trust. LPAs must demonstrate that funds are being spent effectively on the infrastructure and affordable housing they were intended for, and not diverted to general council budgets. Regular public reporting on IL receipts and expenditures will be essential (Planning Advisory Service, 2023).
• Funding Gaps: While the IL aims to capture more value, it is unlikely to fully cover all infrastructure needs. LPAs will still need to identify and secure funding from other sources, including central government grants, borrowing, and other local funding mechanisms, necessitating a comprehensive funding strategy within the IDS.

5.3 Enforcement and Appeals

LPAs will be responsible for enforcing IL payments and managing any appeals or disputes that arise. This will require clear regulatory frameworks and efficient processes.

• Valuation Disputes: The most significant area of potential dispute is likely to be the valuation of the Gross Development Value (GDV). Developers and LPAs may hold different assessments of a development’s final value, leading to challenges. Robust, transparent valuation methodologies and independent arbitration or appeal mechanisms will be vital to resolve these efficiently (Charles Russell Speechlys, 2023).
• Compliance and Penalties: LPAs will need effective mechanisms to ensure developers comply with their IL obligations, including provisions for penalties for late payment or non-compliance. This will require a clear legal framework and diligent enforcement.

5.4 Cross-Boundary and Strategic Infrastructure

A key challenge for LPAs will be how the IL contributes to larger, strategic infrastructure projects that span multiple local authority boundaries (e.g., major road networks, regional hospitals, significant public transport schemes). While individual LPAs will collect IL within their areas, mechanisms for pooling funds or securing contributions for such regional infrastructure will need to be developed, potentially through combined authorities or specific government grants alongside IL receipts (Planning Advisory Service, 2023). This remains an area requiring further detailed policy articulation.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

6. Broader Implications for the Planning System

The Infrastructure Levy is not merely a financial mechanism; it is designed to be a catalyst for broader systemic changes within the UK’s planning framework. Its introduction is expected to have far-reaching effects on how development is planned, funded, and delivered, though several potential challenges and considerations warrant careful attention.

6.1 Simplification and Transparency

The government’s stated objectives for the IL include achieving greater simplification and transparency in the system of developer contributions (GOV.UK, 2023b).

• Reduced Legal Complexity: By replacing the often-complex, bespoke S106 agreements with a more standardized, value-based levy, there is an expectation that the legal complexities associated with securing developer contributions will be significantly reduced. This could lead to fewer protracted negotiations, fewer legal challenges related to planning obligations, and a faster determination of planning applications where these contributions were previously a sticking point.
• Clearer Public Understanding: The mandatory nature of the IL and the requirement for public Infrastructure Delivery Strategies (IDS) are intended to make the connection between new development and the provision of local infrastructure more transparent to the public. Communities should theoretically have a clearer understanding of how development in their area directly contributes to local amenities and affordable housing, fostering greater trust and engagement in the planning process.
• Predictability (for the system): While the monetary value for developers might be less certain upfront (as discussed), the system itself aims to be more predictable for planning authorities. Knowing that all developments above a certain threshold will contribute via the IL, and having a strategic IDS in place, should allow for more proactive and predictable infrastructure planning at the local level. This contrasts with the optional and sometimes fragmented nature of CIL implementation.

6.2 Potential Challenges and Considerations

Despite its ambitious aims, the effective implementation and long-term success of the IL face several critical challenges and considerations that need careful management:

• Viability Risks and Economic Downturns: The value-based nature of the IL, while designed to be responsive, carries inherent risks during economic downturns. If property values fall significantly, IL receipts could plummet, leaving LPAs with substantial funding shortfalls for planned infrastructure. This volatility necessitates robust financial contingency planning, potentially through the establishment of strategic infrastructure funds or mechanisms for central government support during periods of low receipts. The ‘fixed retained share’ aims to protect viability, but its precise calibration will be crucial to avoid stifling development in marginal areas or during recessions (House of Commons Library, 2023).
• Valuation Complexities and Disputes: The assessment of Gross Development Value (GDV) will be critical. GDV is not a universally agreed definition and can be influenced by numerous factors, including sales rates, market sentiment, build costs, and developer profit margins. Establishing a standardised, transparent, and robust methodology for GDV assessment will be paramount to minimise disputes between developers and LPAs. This will require significant expertise in valuation and potentially an independent arbitration body (Charles Russell Speechlys, 2023).
• Local Authority Capacity and Expertise: The mandatory nature of the IL and the extensive requirements for developing Charging Schedules and Infrastructure Delivery Strategies will place significant new demands on local authorities. Many LPAs, particularly smaller ones, may lack the in-house planning, legal, valuation, and financial expertise to effectively implement and manage the new system. Significant investment in capacity building, training, and guidance from central government will be essential to ensure equitable and effective implementation across all LPAs (Planning Advisory Service, 2023).
• Funding Certainty vs. Flexibility: While the IDS aims to provide strategic direction, the potentially volatile income stream from IL could challenge LPAs’ ability to commit to large, multi-year infrastructure projects. Balancing the need for long-term funding certainty with the inherent flexibility of a value-based levy will be a delicate act.
• Impact on Different Development Types: The IL’s impact may vary significantly across different development types (e.g., large residential schemes, small infill developments, commercial, industrial). The rates and thresholds will need to be carefully calibrated to avoid disproportionately burdening certain sectors or stifling specific types of development crucial for economic growth (e.g., brownfield regeneration in lower-value areas).
• Transition Period Challenges: The transition from the existing CIL/S106 system to the IL will be complex. There will be a period where different regimes run concurrently, particularly for developments with existing planning permissions or S106 agreements. Managing this transition smoothly, providing clear guidance, and addressing legacy issues will be a major undertaking for both LPAs and developers (GOV.UK, 2023b).
• Contribution to Levelling Up: A key aim of the Levelling Up agenda is to reduce regional disparities. The IL’s ability to genuinely support this aim will depend on whether it effectively captures value and funds infrastructure in areas most in need of levelling up, or if it primarily benefits areas with already high land values. Mechanisms to redistribute funds, or to provide additional central government support, might be necessary to ensure the IL truly contributes to equitable growth across the country.
• Pace of Infrastructure Delivery: While the IL aims to simplify funding, its ultimate success rests on whether it genuinely accelerates the delivery of vital infrastructure and affordable housing. If administrative burdens, valuation disputes, or income volatility slow down the planning process or infrastructure investment decisions, the core objectives may not be met.
• Affordable Housing Delivery: While the expanded scope for affordable housing is welcome, the practical delivery will depend on how the ‘in-kind’ credit system works, whether IL receipts are sufficient to meet housing needs, and whether LPAs have the capacity and strategic vision to utilise these funds effectively for diverse affordable housing tenures. The specific types of affordable housing that can be funded via the IL will be crucial.
• Data and Monitoring: Effective evaluation of the IL’s success will require robust data collection on GDV, IL receipts, and expenditure. Transparent reporting and monitoring frameworks will be essential to understand the levy’s impact on development viability, affordable housing delivery, and infrastructure provision over time.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

7. Conclusion

The Infrastructure Levy represents one of the most significant and ambitious reforms to the United Kingdom’s system of developer contributions in recent memory. By proposing a fundamental shift from area-based tariffs and bespoke negotiations to a value-based mechanism, the IL seeks to create a more equitable, transparent, and responsive framework for funding essential infrastructure and, crucially, for the direct provision of affordable housing. Its mandatory nature, coupled with the empowered role of local authorities in strategic infrastructure planning through the development of comprehensive Infrastructure Delivery Strategies, signals a determined effort to ensure that new development genuinely contributes to the sustainable growth and well-being of communities (GOV.UK, 2023a).

For developers, the IL introduces a new dynamic in financial planning, requiring sophisticated valuation and risk assessment, and is expected to influence land values as the levy is capitalised into land prices. While the prospect of reduced negotiation burden from Section 106 agreements offers a potential streamlining benefit, the variability of contributions tied to Gross Development Value presents a new layer of financial uncertainty. For local authorities, the IL demands significantly enhanced strategic planning capabilities, robust financial management systems to navigate volatile income streams, and increased internal expertise to administer the new regime effectively (Planning Advisory Service, 2023).

Beyond these direct implications, the IL’s success will be measured by its ability to genuinely simplify the planning system, increase the pace of infrastructure delivery, and critically, accelerate the provision of much-needed affordable housing. However, the path to full implementation is fraught with potential challenges, including the complexities of valuation, the need for substantial local authority capacity building, and the inherent risks associated with income volatility during economic fluctuations (House of Commons Library, 2023). The precise details, to be enshrined in secondary legislation and regulations, will be paramount in determining the IL’s practical efficacy.

Ultimately, the Infrastructure Levy holds the potential to be a transformative tool for capturing a fairer share of development value for public benefit. However, its success will depend not only on the robustness of its legislative framework but also on meticulous implementation, adaptive management in response to unforeseen challenges, and continuous evaluation to ensure that the ambitious objectives of the levy—a more efficient, transparent, and responsive system for funding growth—are indeed met, delivering tangible improvements for communities across the UK.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

References

• [1] Charles Russell Speechlys. (2023). The Infrastructure Levy – a new planning tax. Retrieved from https://www.charlesrussellspeechlys.com/en/insights/expert-insights/real-estate/2023/a-new-planning-tax-the-infrastructure-levy/
• [2] GOV.UK. (2019a). Community Infrastructure Levy (CIL). Retrieved from https://www.gov.uk/guidance/community-infrastructure-levy
• [3] GOV.UK. (2023a). Levelling Up and Regeneration Bill: factsheet Infrastructure Levy. Retrieved from https://www.gov.uk/government/publications/levelling-up-and-regeneration-bill-factsheets/levelling-up-and-regeneration-bill-factsheet-infrastructure-levy
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