Councils warn of impact of proposed Building Safety Levy on s106 contributions

The Government’s proposed Building Safety Levy could damage the delivery through section 106 agreements of affordable housing and infrastructure, and leave homeowners and councils footing the bill for building defects.

That warning has come from the Local Government Association (LGA) in its response to a Government consultation.

The levy seeks to ensure taxpayers and leaseholders do not pay for the remediation of historic building safety defects by instead raising funds from developers towards this, an objective the LGA supported. It is among legislative changes following the Grenfell Tower fire disaster.

But the LGA said an unintended consequence could be “that local communities will ultimately pay the price for historic failures in regulation and practice, in terms of less infrastructure and affordable housing being delivered [through section 106]”. 

The LGA also feared the levy might lead to a reduction in the quality, sustainability standards or overall size of new homes “as developers seek to reduce the overall cost of development to maintain profit margins”.

There was also a danger that the selling prices of new build homes would increase to cover levy costs where market conditions allow, “meaning that new home purchasers will ultimately be funding building safety remediation works”.

Some sites might be stalled or abandoned if developers felt the levy charge rendered these unviable. 

The LGA also objected to the Government’s proposal to make each local planning authority set up separate processes to act as a collection and administration agency for the levy.

It said a simpler and cheaper alternative would be to expand the scope of the Residential Property Developer Tax (RPDT).

Requiring each council to set up its own levy collection system would be misguided “when there is already a single point of collection mechanism that exists at national level”.  

The LGA said RPDT could easily be expanded to include more developers by altering the eligibility criteria and/or changing its parameters.

This could be achieved by reducing the annual allowance for the RPDT from the current £25m, altering the 4.0% supplementary charge or extending the proposed 10-year period or through a combination of these factors.

“Despite recognition that requiring local authorities to act as collection agents will mean that there will be many bodies collecting and returning the levy to Government, and the LGA proposing an alternative solution, it is disappointing that the Government has confirmed that local authorities will be designated as the collecting agent for the levy,” the LGA said. 

“We continue to consider it highly inefficient and an unreasonable additional burden to require hundreds of local authorities to collect the levy on behalf of the Government, when there is already a single point of collection mechanism that exists at national level.”

Setting up new processes to handle the levy would require significant investment by local authorities for a system that could be unnecessary within a decade as historic  building faults become remediated.

The LGA called for a minimum lead-in time of 12 months before any new levy collection regime comes into effect, with new burdens funding issued to councils before they are expected to start preparations, “rather than simply a promise that new burdens funding will be on its way and that councils should begin preparations in advance of it reaching them”. 

Mark Smulian