Government plans another tax raid on construction

The new Infrastructure Levy could disincentivise development, encourage complex new avoidance schemes and take money out of construction projects, it has been warned.

The government plans to replace the current system of developer contributions with a mandatory, more streamlined and locally determined approach to help pay for affordable housing, schools, GP surgeries, green spaces and transport improvements.

A consultation paper said the government wants “to make sure that local authorities receive a fairer contribution of the money that typically accrues to landowners and developers”. The levy aims to sweep away the drawn-out negotiations of Section 106 planning obligations and make clear upfront the expected value of contributions.

Ian Anfield, managing director of Hudson Contract, said: “Whenever the government wants extra revenues, it looks to the construction industry. On one hand, ministers are delaying big infrastructure projects like HS2 to save money and on the other, they are looking at introducing a new levy on infrastructure to raise money.

“The Marmite in the middle of the sandwich is being spread very thin.”

The government said a new ‘right to require’ will enable local authorities to set out what proportion of the levy they want delivered as affordable homes and what proportion they want delivered as cash.

Ian Anfield said the approach could disincentivise developers from investing in areas where local authority demands are too high and encourage elaborate avoidance schemes to side-step the levy. Local authorities could also keep hold of cash intended for construction projects and spend it on other priorities, he added.

Ian said: “Ultimately, if margins go down for the big housebuilders, they go down for everybody in the construction industry. Mud flows downhill.”

He added: “We have had Brexit restricting the flow of labour, the war in Ukraine pushing up input costs, the end of the red diesel rebate, the return of the CITB levy at full rate, the VAT domestic reverse charge hitting cash flows, the IR35 off-payroll working rules, the apprenticeship levy for larger companies, the new insulation rules and now a rehashing of developer contributions, the real purpose of which can only be to increase tax take.”