The Infrastructure Levy should be designed to maximise land value capture. It must:
- Take a zonal approach to setting the levy to both control and capture land values. This would mean local authorities could vary the rate they charge within their boundaries, setting higher rates where potential uplifts in land value are greater (such as green field sites) and reduced rates where they are lower (such as brown field sites in need of remediation).
- Retain upfront affordable housing commitments, fixing these in local plans. This would assign an affordable housing requirement to all sites in a local plan, meaning it is a fundamental part of land values.
To work effectively, the new system must rebalance the power between developers, landowners, and local authorities. To do this the Government should:
- Reform Compulsory Purchase Order (CPO) rules to ensure that local authorities can more effectively purchase land where it is being held back from development. This would help prevent landowners holding back sites in the hope of persuading local authorities to revise down their infrastructure levy rates.
- Promote and enable local government to take an active role in the land market, investing in resource to support them to assemble sites for development, shaping the nature of their communities.
Political accountability and transparency will be key to an effective local Infrastructure Levy system. This should mean:
- Setting strict tests and benchmarks for Infrastructure Levy rates and thresholds. This should include setting regional benchmarks which local authorities must reference in rate setting.
- Making transparency on levy receipts a requirement for local authorities, capturing data locally and publishing this centrally.
These reforms should be part of a move towards an infrastructure first approach:
- Government should roll-out the Single Housing Infrastructure Fund (SHIF) alongside these reforms, ensuring a balance between capital funding and levy receipts in funding infrastructure. This will be particularly important in areas where levy receipts will be lower, particularly to achieve wider plans for levelling up.