The NAO has published a new report, ‘Improving local areas through developer funding’, highlighting issues with the current funding system and making recommendations for improvements. The report identifies several issues with the developer funding system that have been previously raised by CIHT.

The NAO has made several recommendations to The Ministry of Housing, Communities and Local Government (MHCLG) to address these concerns, including:

• evaluating the initiatives that aim to help local authorities build the skills and capacity they need to manage developer contributions effectively;
• reviewing how financial viability assessments are used, including looking at potential conflicts of interest and assessing whether more transparent methods (like open-book costing) would work better; and
• encouraging wider use of the CIL, by removing barriers to introducing it for areas where that would be a viable approach.

The NAO has previously reported on these elements of the planning system in 2019.

Background

As part of the process of acquiring planning permission to develop new buildings on local land, such as housing, local planning authorities (LPAs) can require developers to make financial or other (in kind) contributions, to ensure that the necessary supporting infrastructure is in place around new developments, and any impacts of development are appropriately mitigated.

Developer funding is mainly secured either by negotiated Section 106 agreements between LPAs and developers, or a community infrastructure levy (CIL). Section 106 Agreements require developers to deliver certain ‘planning obligations’ to make a development acceptable in planning terms, while a CIL is a charge set by LPAs that developers must pay to secure planning permission.

There have been previous attempts to reform the current developer funding system. In 2023, MHCLG consulted on plans to introduce a new mandatory infrastructure levy that would have effectively replaced Section 106 agreements and CILs. MHCLG has since chosen not to implement the proposals. In its response to the consultation, CIHT supported the objectives of the reforms to create a simpler and more transparent developer contribution to support funding for infrastructure. However, we highlighted concerns that local authorities did not have the skills or the capacity to operate the proposed new system.

Staffing issues have been a concern within the planning sector for some time. According to the Local Government Association, 58% of local authorities in England reported they struggled to hire planners in 2022. Before the Government announced its targets, The Royal Town Planning Institute reported it expected a 12.5% increase in the number of planners would be needed between 2021 and 2031. The NAO report has raised these issues as a key concern impacting the current system, particularly relating to LPAs ability to negotiate Section 106 agreements with private developers who often possess greater resources and specialist skills for negotiation. 

CIHT has previously highlighted issues with the current system relating to downward negotiation of Section 106 agreements at the end of development projects impacting affordable housing delivery.

CIHT looks forward to working with the NAO and MHCLG to improve the developer funding system and work to creating better places with adequate transport and highways infrastructure.