beta

You're viewing our new website - find out more

Publication - Research Publication

Introduction of an Infrastructure Charging Mechanism in Scotland: research project

Published: 20 Nov 2017
Part of:
Communities and third sector, Research
ISBN:
9781788514040

This research focuses on the options for an infrastructure charging mechanism.

6 page PDF

264.8kB

6 page PDF

264.8kB

Contents
Introduction of an Infrastructure Charging Mechanism in Scotland: research project
7 Final Assessment

6 page PDF

264.8kB

7 Final Assessment

7.1 Introduction

Section 4 established revised key principles which emerged from initial stages of research and have remained a priority for the development of the infrastructure charging mechanism. The application of these principles has been discussed in some detail in the scoping subsection in Section 5.

Consequent stakeholder meetings and evaluation of options led to the development of the IGC model, which has the central and local co-ordination options. This has led directly from an analysis of the emerging options from Stage 1 and Stage 2 and as a result of establishing the practicalities of development and implementation. It is recognised that there may be areas in which certain principles play less of a role owing to the proposals.

The options must be sufficiently assessed against the criteria set out in Section 4.

In addition to meeting the key principles set out in Section 4, it must also meet the Central Assessment Criteria also set out in Section 4, drawn from HM Treasury’s Green Book on Option Appraisals. As noted, these criteria are helpful in ensuring the options considered are robust and are the ‘best fit’ based on available evidence.

Meeting Key Priorities

The proposals have been developed in line with these criteria, so the application of these principles through the mechanism are discursively treated in Table 7.1 to elucidate how these principles are fulfilled in the proposed mechanism. It should be noted that the options were formulated according to the key principles established in Stage 1 and Stage 2 of the research, but the options developed cannot be assessed against many desired outcomes associated with these principles given limited information on their application.

Table 7‑1 Assessment of Delivery Options against Revised Principles

Theme Principles & Criteria IGC




Central Co-Ordinated Option Local Co-Ordinated Option
Fairness Address cumulative impacts of development The funds should be applied to infrastructure which addresses issues emerging from multiple developments in an area. Not essential The charge would support infrastructure that is not directly associated with land, but rather serves as a ‘catalytic’ contribution.
As with the Central Option, though there may be more limited opportunities to work with neighbouring authorities.
Assess market variations on a wider geographical scale The levy should be able to ensure viability across variable market areas. Essential Specifically addressed in ‘charge’ options. Potentially met through robust area-wide infrastructure plans. Specifically addressed in ‘charge’ options. Potentially met through robust LDPs.
Ensure examination and scrutiny The levy and charging mechanisms should be subject to examination and approval by ministers Desirable Charge would be established through ministerial order under an enabling power of parliament. The charge would be within devolved powers and set nationally.
The infrastructure to which the funding is applied should be scrutinised through the plan-making process and approved by ministers. Essential ‘Area infrastructure plans’ prepared by combined local authorities or other groupings would set out a ‘fit for purpose’ schedule of required infrastructure interventions. A costed infrastructure plan, possibly accompanying a local development plan.
Monitor implementation and collection The collection of the charge should be monitored through an annual audit
Desirable The agency will submit a report to the minister on funds received, held and distributed There will be a requirement for an annual report on amounts collected and on the application of the spending.
The implementation of infrastructure programmes should be monitored through an annual audit Desirable This may be achieved through the monitoring of the infrastructure plan May be achieved through LDP monitoring reports
Apportioned according to need, responding to supply and demand Funds collected should be distributed according to need based on an objectively assessed plan Not essential Central Co-Ordinated Option will be collected by Revenue Scotland and amounts collected will be passed to the holding and distribution agency. This agency would support delivery of specific infrastructure that enables growth in any area.
Local Co-Ordinated Option would be collected by local authorities and spent at their discretion and is relevant primarily to growth in the local authority area or of benefit to growth in people and businesses.
Transparency Clear legislation to avoid conflict with S75 Ministers could pass legislation to ensure proper functioning of levy and clarifying distinction to S75 Not essential This could be provided in legislation or in policy. The IGC would maintain the importance of S75s in addressing local infrastructure requirements.
Demonstrable link between development and required charge Ministers should set out guidance on the adoption of the mechanism. Essential There will be clear guidance set out by the collecting agency, and the agency will support, serve and consider recommendations of an industry-wide advisory board to ensure that all stakeholders are represented in the process.
Unclear at this stage, though could form part of the Local Development Plan process. See Legal Implications section for specific requirements relating to the application of the mechanism.
Clear guidance to prevent overlap between charging mechanisms There should be a clear link between the charge required and the development in terms of the type of development, the floorspace, and/or the development value Essential The IGC would differentiate between development type and size, being based principally on the capital value of floorspace. This is captured through a progressive rate in some options. A regressive rate is characteristic of the ‘flat rate’ options.
Full stakeholder involvement in charge-setting process Stakeholders from various industries, community groups, etc. should contribute to the charge setting process to ensure minimum impact on viability. Essential The agency will support, serve and consider recommendations of an industrywide advisory board with representatives from various stakeholder groups. The Local Development Plan process would provide key input into identified schemes.
Clear procedures for redress There should be oversight in the collection, distribution of funds. Desirable The agency will support, serve, and consider recommendations of an industrywide advisory board. Funds received and spent will be reported annually.
Unclear—plan would require approval by ministers and funds spent could form part of the LDPs annual monitoring report.
Certainty Based on clear evidence (need, supply, demand, anticipated growth) Infrastructure should be costed and approved through the plan-making process. Possibly in the form of an infrastructure plan.
Desirable The Central Co-Ordinated Option proposes that funds are distributed by an agency to areas with a fit for purpose strategic infrastructure growth plan produced by a strategic authority or combined authorities. Fund may be dependent on a local authority identifying a required piece of infrastructure required for growth over and above other public funding.
Clarity about what infrastructure is required and where a charge will be spent Infrastructure should not be site-specific but about delivering development in line with infrastructure plans. Not Essential It is not a requirement that the types and location of infrastructure to be funded are pre-determined but should meet priorities set on behalf of ministers for the distributing agency. In the case of the Local Co-Ordinated Option, they will be held in trust by a general pool to meet local development plan.
Charges should be used to encourage sustainable economic growth Essential
Administrative boundaries should not be arbitrary The boundaries within which a fund applies should be based on existing, local authority, partnership or regional boundaries. Desirable IGC proposes function areas according to existing City Deal areas or similar combined authority geographies. The Local Co-Ordinated Option would be based on Local Authority Boundaries.
Clear process of collection Collection should be straightforward and set out in policy or legislation. Essential The collection of Central Co-Ordinated Option receipts would likely occur under the auspices of a body such as Revenue Scotland. Funds will be collected by the local authority and possibly linked to Council Tax or Business Rates. It would be ‘national’ in that it would apply to all local authorities that adopt IGC so would likely have guidance from the Scottish Government.
The means by which receipts are collected by the relevant body should be set out in guidance and should not burden local authorities. Essential
Exemptions should be driven by encouraging viability There should be flexibility in issuing exemptions (e.g. in ‘opting out’ or setting a ‘nil’ rate in specific areas or for specific uses to encourage development). Not Essential Neither IGC option considers exemptions, though the charge options consider a threshold for viability.
No redistribution out with a market area or region There should be a geographical link between a scheme and the infrastructure funded. Desirable Redistribution would be possible under most charge options given cooperation between multiple local authorities under the auspices of City Deal bodies or similar. The potential for redistribution would also be minimal given the application of the fund over a smaller geographical area.
Efficiency Robust details of infrastructure delivery Require costed and fully developed infrastructure proposals within strategic infrastructure plans. Essential Funds should be used in accordance with a costed, strategic or local infrastructure plan, identifying all sources of finance for all infrastructure.
Broader funding package established at outset Infrastructure plans should be costed, with other options for funding decided in Desirable
Should not consume local authority resources Local authorities should not be required to expend disproportionate levels of resources on the administration and collection of a fund. Essential
Expenditure of local authority resources has not been explicitly considered in this assessment. The Central Co-Ordinated Option allows for efficiencies between local authorities, which is less likely under the Local Co-Ordinated Option.
Avoid lengthy negotiations in payments What is required of developers or those submitting applications should be clearly stated in guidance. Payments required should be known in advance. Essential Sums are not negotiable, the process of which of which will be set out in guidance.

Based on the assessment of the preferred option--the IGC—against the refined principles drawn from Stage 1 & Stage 2 research and subsequent consultations, the IGC appears to adequately fulfill all essential criteria.

Central Assessment Criteria

The Central Assessment Criteria have been developed in line with Green Book guidance to ensure that the consideration of the IGC variants are robustly considered in view of their potential costs/benefits, meeting key objectives, accounting for market adjustments or variations and assessing potential risk or market uncertainty. Note that Green Book guidance has been used to provide a basis for appraisal rather than producing a full costed analysis.

The Central Assessment Criteria aims to test the robustness of the options development. Importantly, it does not test the application of the mechanism (e.g. assessing anticipated results of one option versus another) itself but assesses the means by which it has been developed and its potential to take into account various factors impacting viability, cost effectiveness, etc. Table 7.2 assesses the development of the IGC with respect to the Central Assessment Criteria.

Table 7‑2 Central Assessment Criteria

Assessment Area Description Key Considerations
Objectives As discussed in Section 4. The IGC variants meet the majority of the Objectives set out in Section 4.4. There is potential conflict however with respect to the Local Co-Ordinated Option IGC compared to the Central Co-Ordinated Option.
Cost and Value Appraisals should consider the relevant opportunity cost associated with action and inaction with respect to policy and legislative change. Assessment of benefits should consider whether an option’s benefits are worth its costs, and to allow alternative options to be systematically compared in terms of their net benefits or net costs. Estimating the ‘value’ of the charge should be based on measurable and quantifiable impacts and drawn from market data or other relevant and authoritative sources.
Both IGC variants reveals that there is potential for joint-working across local authority/geographical areas, encouraging efficiencies. This is limited amongst most options (e.g. flat rate formula set locally, and percentage formula set nationally for the Central Co-Ordinated Option and for all Local Co-Ordinated Option options).

The analysis has shown that formulas that maximize value for local authorities is a complex, non-linear formula. It is recognised in each option that there are schemes across market geographies that cannot support a uniform charge. Options have been developed that take ‘low market areas’ into consideration.

The analysis shows clear potential for centralisation of processes, though the net benefit of this for each delivery option has not been considered.

The review of options has demonstrated variable receipts across options. The ability for anticipated receipts to meet infrastructure needs will be geographically specific.
Accounting for adjustments and market variations There is potential for changes to policy to impact different peoples, groups and geographies. Distributional analysis could be undertaken based on varying market areas, and based on an analysis of impact on stakeholders (e.g. housebuilders). The impact of geography and concomitant market variations should be taken into account in identifying the costs and value/benefits of the scheme.
Assessed benefits and costs should be assessed in view of anticipated inflationary changes.
There is potential for the formula to be inflation-proof, though certain formula options do not allow this.

Market variations can be captured in this, and the mechanism would allow for redistribution across market areas. Variants of the IGC have also been considered (e.g. the Locally Co-Ordinated Option) which do not allow for significant redistribution across market areas.
Assesses potential risk and uncertainty An appraisal of relevant options should consider the inherent risks involved in making decisions in public policy. Risks should be identified and options assessed against its potential to identify and mitigate risk and to “minimise the likelihood of their materialising with adverse effects”. The successful management of risk is therefore covered qualitatively. Various options have been considered to understand the relationship between development value, residual land prices, and the amount paid through IGC whilst remaining viable. It is possible, however, that the Scottish Government should ‘pump-prime’ the system to ensure delivery of relevant infrastructure to avoid negative effects of delayed receipts in the first few years of operation.

A reduction in £75m (maximum through the Central Co-Ordinated Option) would represent a limited proportion of the Scottish land market for development. It is considered that there would be no macro-economic impacts through any option.

Conclusions

The assessment of the IGC model and its Central and Local Co-ordination Options, have shown to be robustly developed, responding to the Key Principles identified in Stage 1 and Stage 2 of this report.

There are clear differences between the Central and Local Coordinated Options, particularly with respect to the ability of the latter to respond to wider distributive issues and the potential for minimising costs and streamlining processes. This has more to do with differences in the geographical coverage of the charge, the governance and responsibility for implementation. The costs of implementation within either arrangement has not been considered in this analysis.

In most cases, there are clear similarities in that:

1.The mechanism aims to address infrastructure needs that are ‘more than local’, and maintain the importance of S75 agreements and avoid ‘double-charging’ in addressing site-specific infrastructure;
2.Viability is (albeit variably) accounted for through thresholds within mechanisms to protect lower value areas; and
3.There are limited to no exemptions to the uniform charge.


Contact