11 Jul 2018

The National Infrastructure Assessment (NIA) makes simple and clear recommendations about the Compulsory Purchase regime available to local authorities for the delivery of infrastructure. It acknowledges the need to strengthen compulsory purchase powers. The current regime is described as "costly, time consuming and uncertain". As has been advocated by the Compulsory Purchase Association, a move to an assessment of valuation earlier in the process, is suggested. The National Infrastructure Commission (NIC) suggests that such a process could "save money and provide more certainty for the parties involved". The NIC suggest that building in the US appraisal style approach to compulsory acquisition could be achieved by 2021.

Would this work?

Earlier discussion on value is standard in the United States where right of way acquisition processes commence with appraisals of land value being carried out, either on a joint basis, or with the acquiring body and landowner receiving their own appraisal reports. As a result the use of condemnation (the compulsory taking of land) is relatively rare when compared with the UK. In the UK the suggestion of a CPO being a "last resort" can in practice easily be circumvented by acquiring authorities. The uncertainty and apparent (or actual) unfairness that results would be reduced if a requirement for engagement on value is required by statute or at least strengthened Guidance that is enforced by the Secretary of State. If nothing else it would manage expectations and allow for more realistic planning for relocation. Indeed, NIC could also consider recommending that the process would be further strengthened if the US principle of not allowing land to be taken until compensation actually has been paid is also adopted. The Government has made moves in recent reforms to make the principle of advance payments better reflect the role their name suggests. That is payment in advance of compulsory purchase powers being exercised, but it still remains at the discretion of the acquiring authority and the advance payment is set at the acquiring authority's assessment.  This makes relocation impossible in many cases for smaller businesses. 

In addition requiring compensation payments to be made earlier and with adjustment to the current rates of interest to a more commercial basis would make the process fairer for all parties. It would however be potentially more expensive for those assembling land at least in the short term. The Government has not yet brought into force the statutory interest regime. These steps may at first seem contrary to swift and economic infrastructure provision. But in reality placing the burden on promoters would reduce uncertainty, unfairness and objection and make for a more efficient process overall. That is a more equitable and appropriate balance between the competing interests. 

Land Value Capture

Allied to compulsory purchase is of course land value capture. The NIC recommends that local authorities should be entitled to recover increase in land value following the infrastructure provision. This could be by way of levying zonal precepts on Council Tax where infrastructure investment drives up property values. But the NIC indicates that land value capture is "not the silver bullet for funding local infrastructure". Instead it suggests largely leaving alone the existing section 106 regime and CIL processes. One significant, long overdue (and very welcome) suggestion made is to remove the current restriction on pooling of section 106 contributions. This restriction, imposed really only to try to compel authorities to embrace CIL, has no practical purpose and now largely operates to inhibit developer contributions to local infrastructure. A greater level of reform is resisted by NIC on the basis that it would "lead to costs and delays in the short term". No mention is made of suppressing market value for compensation following compulsory purchase as a means of value capture.  Indeed, no reference is made to the recent changes to the Compensation Code to reflect the disregard of land value increases as a result of recent infrastructure provision when land is taken for subsequent compulsory purchases, provided for in the Neighbourhood Planning Act 2017.

Conclusions

Overall the NIC's assessment of compulsory purchase and land value capture is welcomed. It is constructive in proposing reform but otherwise it does not look to rock the boat. There is no doubt that the current processes provide a good platform and fundamentally the CPO process and Compensation Code works reasonably well for all parties. That is not to say that it should not be reformed where reform is appropriate. Having a statutory requirement to carry out early appraisals and having a genuine system of advance (or, more properly named, on time) payments of compensation would greatly assist the land assembly process. This would also provide a level of fairness that is currently missing, particularly for businesses with limited land assets of value because of their holding fairly is a short-term leasehold. It should also be combined with the principle that relocation (rather than extinguishment of businesses) should be the standard requirement for promoters, if economically viable and appropriate. Authorities should be tested on their genuine attempts at assisting with relocation. If this happens there is no doubt that the process of compulsory acquisition would both be fairer and quicker; something advocated as being required for several years. It is also likely that it would ultimately cost less overall, albeit this would change the funding profile by requiring some upfront investment by the acquiring authority.