Weaknesses in developer contributions system “undermining” ability of councils to negotiate with developers, spending watchdog warns

June 6, 2025

A report by the National Audit Office (NAO) has identified the need for improvements to the developer funding system, and has called on the Government to help local authorities build the skills and capacity they need to “manage developer contributions effectively”, and make “better use” of the Community Infrastructure Levy (CIL).

The report, published today (6 June), warns that “weaknesses” in the Ministry of Housing, Communities & Local Government’s (MHCLG) developer contributions system – intended to fund essential local infrastructure like schools, roads, public transport, and affordable housing – are “undermining” councils’ ability to negotiate with developers.

Before starting to construct houses or other buildings, developers must generally apply for planning permission.

The public spending watchdog noted: “Administering the planning system is largely devolved to local planning authorities (LPAs), including preparing local plans, which set out policies and proposals for new development, determining planning applications and enforcing planning obligations.

“LPAs can require developers to make financial or other (in-kind) contributions to them as part of the process of granting planning permission. These ‘developer contributions’ ensure the impacts of development are appropriately mitigated, and the right infrastructure is in place to support new development.”

There are two main ways an LPA can secure developer contributions:

The LPA enters a negotiated Section 106 agreement with developers, requiring them to deliver certain ‘planning obligations’ to make a development acceptable in planning terms.
The LPA imposes a Community Infrastructure Levy (CIL) on new development. Developers must pay the CIL if the LPA has chosen to set a charge in its area.

Comparing the two routes, the NAO said: “Section 106 agreements, which can be used to help fund affordable homes, are often complex and resource intensive because they are individually negotiated.

“In 2023/24, 44% of all affordable homes delivered in the year (over 27,000 homes) were funded through Section 106 agreements. However, as of October 2024 according to a Home Builders Federation (HBF) survey, 17,400 affordable homes remain unsold to registered providers of social housing.”

The NAO continued: “In contrast, the CIL is transparent and can be charged on new development to fund a wide range of infrastructure but cannot be spent on affordable housing. As of November 2024, 52% of LPAs were operating a CIL.”

Developers can use financial assessments to contend that a site is not viable, having accounted for the appropriate Section 106 contributions and a “typical profit margin” of 15-20% of the development’s value.

The NAO warned however that these assessments were often hard for local authorities to challenge due to a “lack of transparency”, “limited expertise”, and the ability of larger developers to use consultants and legal experts to find ways to negotiate contributions down.

It observed that with LPAs being stretched in terms of finances and skills, with a number of planners leaving the public sector, this makes it even more difficult to effectively challenge developers.

The report said: “Asymmetries of skills and resources between LPAs and larger developers, the complexity of financial viability assessments, and a lack of coordinated support from central government, all need to be addressed for these challenges to be overcome. Until they are, we cannot conclude that the current approach represents value for money.”

Concluding the report, the NAO recommended that the Ministry of Housing, Communities & Local Government should, in the short term:

introduce standardised templates for Section 106 documentation, and consider introducing templates for agreements, to reduce the amount of work for LPAs and improve consistency across areas;
amend the requirements relating to the content and presentation of infrastructure funding statements (IFSs), in order to make them more consistent and accessible for the purposes of local accountability;
review the perceived conflicts of interest that arise from consultants representing both LPAs and developers with regard to viability assessments, and determine whether any action is needed;
review viability assessments and how they are used, including evaluating whether removing them would make the system work better, or whether there are other ways of improving outcomes (such as open book costing);
ensure Homes England reviews the impact of the Section 106 Affordable Housing Clearing Service, looking to make it a permanent service if successful and use the information gathered for wider benefits; and
consider how it can use existing forums or communication channels to provide clarity for LPAs regarding planning matters that fall within its remit, and to signpost them to other sources of advice where appropriate.

Finally, in the longer term, it recommended the MHCLG:

encourage a greater number of LPAs to use the CIL, by reviewing and removing barriers to introducing it for areas where it would be financially viable; and
explore whether there are simpler and more effective ways of mitigating the negative effects of development, including whether the benefits of Section 106 agreements could instead be captured through an expansion of planning conditions.

Cllr Richard Clewer, Housing and Planning Spokesperson for the County Councils Network, said: “The government’s planning reforms mandate local authorities to dramatically increase their housing numbers, but there has been precious little on how to increase infrastructure funding to deliver the roads, schools, and amenities to support large-scale development. Many county and unitary councils say the pressure on their infrastructure is already critical, and for years funding for infrastructure has not kept up with development leaving areas with significant funding gaps.

“As this National Audit Office report shows, there are numerous challenges within the developer contributions system that should be addressed as part of planning reforms, such as staffing and skills gaps. Indeed, with the amount raised from developer contributions decreasing, the need to reform the system has never been greater. To this end, the government should ensure that strategic planning reforms genuinely promote closer infrastructure funding collaboration between councils and different areas, including pooling resources over a larger scale.

“Whilst some developer contributions are unspent across the country, this does not mean they are not allocated to projects. It can be an extremely complex process whereby councils have to, in some instances, secure sites and planning permissions for affordable housing or major infrastructure projects. It also takes time to secure the quantum of funding needed to fund strategic infrastructure projects, with funding coming from multiple sites. Delays can also sometimes occur due to developers build out rates and challenges as development is delivered.”

Also responding to the report, Cllr Adam Hug, housing and planning spokesperson for the Local Government Association, said: “Developer contributions play a vital part in delivering the infrastructure and affordable housing that communities need. Councils work hard to secure these contributions, but the current system is not delivering the full benefits it should.

“It's right that the National Audit Office recognises the challenges councils face, and the need for further capacity and capability support for council planning departments.

“Councils need a developer contribution system that is transparent, efficient and effective. There also needs to be urgent changes made to the viability system – for example, removing the requirement to factor in an assumed developer or landowner return or removal of viability assessments as a material planning consideration entirely.”

Lottie Winson