We reported last summer on the Government's 2021 consultation about the design and implementation of the Building Safety Levy (the "Levy"). It is intended to contribute to the costs of anticipated building safety expenditure to ensure that neither the taxpayer nor tenants have to pay for the remediation of safety defects in the existing high-rise housing stock. Since that consultation, the scope of the Levy has expanded to apply to all new residential developments that require building control approval (with a few exceptions). The Building Safety Act 2022 has also been enacted, section 58 of which gives the Secretary of State broad powers to raise a Levy on any in-scope building. In light of the changes from the original scheme, the Department for Levelling Up, Housing & Communities launched a second consultation on 22 November, which closes on 7 February 2023.
How have the proposals changed since the previous consultation?
There are several changes since the Levy was initially mooted in February 2021, including:
- Scope: The key change is the scope of the Levy; the initial proposal was that the Levy would be payable on the development of new residential buildings of 18 metres or more in height or at least seven storeys tall. The Levy will now be charged on all residential buildings save for specific exclusions. The list of exclusions has been widened as well; the initial proposals specifically included high-rise care homes and student accommodation in the regime and it seems that care homes are now excluded while senior living and student blocks are under consideration for exclusion.
- Regular reviews: The most recent consultation acknowledges that the remediation fund to which the Levy will contribute may need to be adjusted, up or down, to reflect changes in the number of buildings that require remediation. The Government also recognises that the development sector needs some certainty on the Levy rates to allow them to project plan effectively, and that the Levy will have an impact on the viability of some projects. They are therefore proposing to review the Levy rate and design of the Levy regularly and are considering regular reviews every 3 years.
- Sanctions: the principal sanction for non-payment remains the ability to halt a development, by either issuing a stop notice or withholding final certification. The 2021 consultation set out some suggested financial penalties whereas the 2022 consultation suggests mirroring the sanctions in force in relation to the Residential Property Developer Tax, whereby the amount of the penalty is calculated by applying a percentage to the amount of money owed. The percentage applied depends on whether the failure was careless, deliberate, or deliberate and concealed.
What will the Levy rate be?
The Government wants to take into account the responses to this consultation before finalising how the Levy will work and is therefore not setting out possible Levy rates in this consultation.
How does this consultation affect developers and investors in the build to rent, purpose-built student accommodation and senior living sectors?
The consultation states that the Government has not yet determined an approach for the build-to-rent, purpose-built student accommodation and older people’s housing sectors given their varying business models, the different timescales at which profit is realised and the feedback they are seeking on design elements of the Levy. They will consider the case for each once they have finished this engagement process. It is therefore crucial that those sectors respond to this consultation.
Conclusion
The Government is keen to engage with the real estate industry to canvass opinions on the Levy. The 2022 consultation states that the "Levelling Up agenda is a moral, social, and economic programme for the whole of government to spread opportunity more equally. We are seeking your views on how best to set levy rates that will best support those aims and capture the different values from developments in different areas on as equitable a basis as possible." This is a good opportunity to point out any situations in which their proposals will have unforeseen consequences. If you would like to speak to us about the Levy or the consultation, please get in touch with your usual contact, Ed Colclough or Kyle Rainsford.
A summary of questions in the consultation paper
- Will the Building Safety Levy impact on other charges made in relation to residential buildings including Community Infrastructure Levy, section 106 payments or the Infrastructure Levy that will replace the existing system of developer contributions?
- Who should act as the collection agency for the levy?
- What proportion of receipts should the agency retain?
- How frequently should revenue returns be provided to DLUHC?
- Should there be regular review points and, if so, how often?
- Request for views on the two-step process and charging points for the levy.
- Request for views on the percentage split, i.e., charging 60% of the levy prior to commencement stage and 40% at final certification.
- What do small or medium enterprises consider will be the impact of these levy payment points on their ability to build? If so, what could help?
- What should be the principal sanction to ensure the levy is paid?
- What sort of breaches are likely to occur and how best can they be avoided?
- Is it reasonable to consider mirroring the sanctions regime of the RPDT in relation to the levy?
- How might levy design avoid mistakes, gaming, and fraud, or else maximise positive incentives?
- Which of the suggested calculation basis options is the best basis on which to implement the levy; per unit or per square metre?
- How best should small, medium sized builders be protected? Is exempting smaller developments the best way?
- Should Government set differential levy rates based on geography based on the different land values and house prices in different areas?
- Which of the two options is preferred: local authority boundaries or a regional basis?
- Should there be different levy rates applied on brownfield and greenfield developments in the same geographic area? If so, should the differential be the same in every geographic area?
- What amount of grace period should be set for projects that have already started the building control process on the date the levy goes live?
- Are the proposed exclusions the right ones? These are: affordable homes, NHS hospitals, NHS medical centres and NHS GP practices, supported housing, residential care homes, children’s homes, conversions, improvements to owner/occupied homes and refurbishments, refuges and residential domestic abuse facilities, criminal justice accommodation, military barracks and other military establishments, and small developments of under 10 units or equivalent per square metre.
- Should build to rent developments, purpose built student accommodation, and/or older people’s housing also be excluded?
- Would excluding developments under 10 units (or the square metre equivalent) protect small and medium sized enterprises? What might the alternatives be?
- Should there be a discounted levy rate for the entirety of a development where that development provides a specified proportion or number of affordable homes?
