Consultation - design and implementation of the Building Safety Levy

The government has launched a consultation seeking views on the design and implementation of the Building Safety Levy. The Levy will be paid by developers and charged on new residential buildings requiring building control approval in England. The government estimates that it needs to raise £3bn from the Levy.

The Levy will be used to pay for ‘remediation of cladding in buildings over 11m in height’. This will, presumably, be the same test as applies under schedule 8 of the Building Safety Act 2022 (BSA) which defines how this is measured and also applies the alternative test of five storeys. The Levy will also support the government’s stated aim of protecting taxpayers and leaseholders from meeting remediation costs.

The headline of the consultation refers to the Levy as being relevant to “new residential” buildings. However, the BSA and the consultation refers to the Levy as potentially applying to buildings that contain one or more dwellings or other accommodation, including temporary accommodation, eg a hotel. We read this as meaning it will also apply to certain mixed use schemes.

Since the original consultation, the scope of the Levy has expanded to apply to all new residential developments (regardless of height) that require building control approval. The original proposal saw only certain high rise residential buildings in scope.

The consultation seeks views on various aspects of Levy, some points of note from the consultation include:

Who pays?

The consultation notes that the ‘Client’ will be responsible for payment of the Levy.

It states that ‘[b]y ‘Client’ we mean any named person or organisation for whom a construction project is carried out, including as part of their business’. The government considers that as the client holds responsibility for the construction project, ‘they should also be responsible for payment of the levy’. As with the Building Safety Act 2022, it may not be clear if this would include, for example, an investor acquiring a building through a forward funding or forward purchase arrangement where that entity is not the party named as “client” under the building contract but there is a “construction contract” of sorts being for the forward funding agreement or forward purchase contract.

How will it be calculated?

Two options for calculation are set out in the consultation. The government proposes calculating the Levy on either a ‘per unit’ or a ‘per square metre’ basis. Views are sought on what would be the best basis for implementation.

The consultation also notes that the government is considering setting differential Levy rates based on geography to ‘protect the viability of projects where land values and house prices are lower than in other areas’. Views are sought on this and also whether the differential levy rate should be based on local authority boundaries (the government’s preferred option) or implemented on a regional basis. The government is also considering setting a differential rate based on whether it is a brownfield or greenfield development. These measures are intended to support the government’s ‘Levelling Up Agenda’.

Three yearly reviews of the Levy are being considered but views are sought on review frequency.

The consultation also acknowledges there are other charges in places such as the Residential Development Property Tax (which unlike the Levy is based on profit), Community Infrastructure Levy and S.106 payments. The consultation states the government is considering the cumulative impact of these measures and this may be taken into account when setting levy rates.

Will there be any exemptions?

Certain exclusions are proposed including affordable homes and various community facilities.

Exclusions for developments which are under ten units (or the square metre equivalent) are being considered as a way of supporting small and medium size enterprises. The treatment of conversions is also being considered.

In relation to affordable housing, the consultation also raises the prospect of a significantly discounted Levy if the development includes a specified proportion of affordable housing.

The consultation notes that the government has not yet determined its approach for ‘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 we are seeking on design elements of the levy’. The government states it will consider the case for each following the consultation process and wider engagement with industry.

How will it be administered?

Local authorities are viewed as best placed to act as the Levy collection agency. It is proposed that a proportion of the Levy be retained by local authorities to meet their administration costs. The balance will be returned to the Department for Levelling Up, Housing and Communities.

The consultation envisages a self-assessment element supported by documentation, with 60% of the Levy payable at the ‘notice to commence’ stage. This must be paid with a set time frame otherwise a local authority will be able to issue at stop notice. An assessment will then take place and the final 40% will be due prior to the final certification stage. The two stage process is intended to provide for some flexibility in the build process.

Although stop notices and withholding final certification are proposed as the principal sanctions for non-payment, other sanctions including financial penalties for non-payment are under consideration.

Views are also sought on possible transitional arrangements.

The secretary of state will set the Levy rate(s). The consultation does not set out possible rates.

The consultation closes on 7 February 2023 and details of how to respond are set out in the consultation. The consultation does not give a proposed date or timeframe for implementation. The details will be set out in secondary legislation.