Agenda item

The Leader of the Council to submit a report updating Members on the prospect of Leicestershire County Council accepting the Housing Infrastructure Funding award, the expectations they have placed upon Melton Borough Council including with regard to risk sharing and development of the revised Masterplan as a key element of the supporting information required by Homes England.

Cabinet:

 

2.1  NOTED:

a)    the progress made towards acceptance of the Housing Infrastructure Fund (HIF) award and the positive and collaborative work undertaken between Melton Borough Council, Leicestershire County Council and developers.

b)    the significant efforts that Melton Borough Council has undertaken to support infrastructure delivery within Melton.

c)    that the decision as to whether to accept the Housing Infrastructure Funding rests with Leicestershire County Council and the risk associated with the delivery and funding for Highways and Education is a statutory function of the County Council which the Borough Council is committed to support.

 

2.2  APPROVED the proposed development layout included in Appendix A which will further develop the Masterplan to guide the consideration of future planning applications in the South Sustainable Neighbourhood area and support the County Council’s intention to accept the Housing Infrastructure Fund award.

 

2.3  APPROVED in principle that the Borough Council enters into a risk sharing agreement on the basis of the principles set out in this report, specifically at section 5.10 which limits its financial liability as proposed i.e. up to £1m cap (capital) or £50k cap (revenue).

 

2.4 Subject to 2.3 and the County Council agreeing to proceed with the Borough Council’s proposed cap, APPROVED the delegation of authority to the Director for Corporate Services in consultation with the Leader of the Council to negotiate the practicalities, parameters and terms of the risk sharing agreement before seeking approval from Council.

Jim Worley, Assistant Director for Strategic Planning and Delivery introduced the report, the purpose of which was to update Members on the prospect of Leicestershire County Council accepting the Housing Infrastructure Funding (HIF) award, the expectations they have placed upon Melton Borough Council including with regard to risk sharing and development of the revised Masterplan as a key element of the supporting information required by Homes England.

 

Mr. Worley confirmed that the Council and its partners were committed to the project.  Leicestershire County Council (LCC) had invited the Council to work with them towards satisfying Homes England’s pre-contract conditions and developers and other stakeholders (Davidson’s, Greenlight and Truframe) had also expressed their desire and commitment to work collaboratively to complete the project.

 

Mr. Worley highlighted that the HIF bid was based on maximising development potential, seizing opportunity and accelerating development.  A revised Masterplan was required by Homes England, as part of the pre-contract conditions and a development framework (Appendix A), viability assessment, ‘planning strategy’ and Housing Delivery Strategy had been developed (as detailed at paragraphs 3.2, 3.3 and Section 5 of the report) to form a basis for establishing the revised Masterplan.

 

Dawn Garton, Director for Corporate Services advised of the original basis for the financial risk sharing principles agreed between LCC and this Council for the project.  They were based upon the fact that the Council had historically received financial benefit of development in the area through the New Homes Bonus Scheme and that it was therefore proposed part of this gain would be shared with LCC.  However, the New Homes Bonus Scheme is being phased out and,, as things stand, there would be very limited direct financial benefit from development to the Council.  Underwriting the financial risk (market and developer) from the Council’s core funding was out of proportion to its resources.  Should the risk be realised, the Council would not be financially sustainable.

 

Mrs. Garton explained that the Council had limited reserves to draw upon and any payment would need to be borrowed and the debt serviced from the revenue budget.  This would impact its financial viability and on the level of services provided from core funding, resulting in a redirection or reduction of services. 

 

Mrs. Garton advised that although not providing the level of underwriting requested by LCC, the affordable limit of the financial risk sharing was £1m, which created an incentive on the Council to ensure the s106 monies for projects are collected.  Entering into a risk sharing agreement at the level being requested by LCC would place the Council’s future financial sustainability at risk and be potentially unlawful.

 

Councillor Joe Orson, Leader of the Council noted the recent collaborative work between LCC and this Council and thanked developers for confirming their commitment to the project.  He noted the forthcoming meeting with the Director of Housing Delivery the Ministry of Housing, Communities and Local Government (MHCLG) and representatives from Homes England with a view to discussing the current position.  He reiterated that given the scale of our budgets and financial risks associated with goving further, the £1m was the maximum risk sharing cap this Council should agree and thanked Alicia Kearns MP for her support on this. He also noted that any contribution would be a pioneering agreement and beyond the scope of the Council’s statutory responsibilities.

 

During discussion the following points were noted:

 

• The support and recognition received from Alicia Kearns MP for the Council’s aims and aspirations to deliver the project.
• Members thanked Councillor de Burle for his work.
• Members thanked the community and Councillors (former and current) for their support of this project.
• That the HIF application was made by LCC and as a delivery partner the Council had supported the application but, been consistently clear about the financial limits of its support.  The councils were working collaboratively to secure the HIF award and progress the project, which would benefit the whole of Leicestershire.
• The importance of the project to economic development and the amount of work which had already been undertaken.
• LCC as Leicestershire’s Highways Authority had the ultimate responsibility to ensure delivery of this project.
• The Council had to consider its fiscal responsibilities and statutory duties.  The risk sharing amount proposed by LCC was unreasonable and untenable.
• If LCC believed the risk was too great for them to hold (with their annual budget of nearly £500m), it was not credible to transfer the risk to this Council (with a budget of only £5m).
• The Council had an excellent record of obtaining developer contributions (approximately 99.8%).  Whilst the planning authority can do nothing about the market risk, should development come forward, it has demonstrated its capability of extracting the required contributions to secure long-term funding for the project.
• This project was a significant commitment for both councils with 10 years of austerity having impacted on both.  Members appreciated the position held by LCC but could not risk the Council’s financial sustainability.

 

Cabinet:

 

1)        NOTED:

a)     the progress made towards acceptance of the Housing 

Infrastructure Fund (HIF) award and the positive and collaborative work undertaken between Melton Borough Council, Leicestershire County Council and developers;

b)    the significant efforts that Melton Borough Council has

undertaken to support infrastructure delivery within Melton;

c)    that the decision as to whether to accept the Housing

Infrastructure Funding rests with Leicestershire County Council and the risk associated with the delivery and funding for Highways and Education is a statutory function of the County Council which the Borough Council is committed to support;

 

2)        APPROVED the proposed development layout included in Appendix A which will further develop the Masterplan to guide the consideration of future planning applications in the South Sustainable Neighbourhood area and support the County Council’s intention to accept the Housing Infrastructure Fund award;

 

3)        APPROVED in principle that the Borough Council enters into a risk sharing agreement on the basis of the principles set out in this report, specifically at section 5.10 which limits its financial liability as proposed i.e. up to £1m cap (capital) or £50k cap (revenue);

 

4)        Subject to 2.3 and the County Council agreeing to proceed with the Borough Council’s proposed cap, APPROVED the delegation of authority to the Director for Corporate Services in consultation with the Leader of the Council to negotiate the practicalities, parameters and terms of the risk sharing agreement before seeking approval from Council.

 

Reason for the decision

 

On 15th December 2020 Leicestershire County Council’s Cabinet resolved to accept the Housing Infrastructure Fund award by means of a ‘Grant Acceptance Agreement’ with Homes England, subject to a number of conditions being met. Amongst these are acceptance by Melton Borough Council of the principle of a risk sharing  agreement  comprising, in summary:

•   Approval of an updated Masterplan for the area based upon the development framework presented (Appendix A to this report);

•   Appropriately resource the project with regard to its scale and complexity;

•   Prioritise developer contributions for education and highways in particular when handling planning applications;

•   Underwriting any shortfalls in developer contributions for infrastructure sought by the County Council that the Borough Council fails to secure through s106 agreements ;

•   Aim to secure delivery of 150 homes in land currently outside the MSSN area.

     Their report stipulated their expectation that underwriting also extends to ‘market failure’ should development not occur as anticipated for whatever reason.

 

A revised Masterplan is necessary in order to meet the requirements placed upon the County Council by Homes England to accept the HIF. It is one of a number of key documents required by Homes England in order to meet circa 20 pre-contractual conditions in order to secure the funding. At this stage a broad framework has been produced and agreed to provide a baseline for future planning work which would include a full revision of the approved Masterplan, which in turn would then provide the framework for the consideration of future planning applications.

 

Its key purposes are to demonstrate how the objectives of the HIF award would be realised in terms of the quantity, location and acceleration of development. Alongside the newly proposed development layout, a viability assessment, a ‘planning strategy’ (the approach to be taken to secure planning permission for both the MMDR and the development in the area), and a Housing Delivery Strategy (timetable, phasing and progress of the housing) have been developed. These are required  to demonstrate the achievement of the HIF objectives relating back to the initial application, and to demonstrate viability of the overall project including the recovery of ‘forward funded’ infrastructure provision to enable recycling of the funds to other projects in future. Through the effective work of officers and the collaborative approach taken, it is proposed that these documents are approved and used as a basis for establishing an updated masterplan which can be agreed by all parties. 

 

Any agreement with the County Council regarding the potential for any shortfall of recovered infrastructure costs is a requirement introduced by the County Council in order to protect their financial position. It is a worst case scenario whereby infrastructure investment is not recovered via s106 agreements associated with future development. This could be because the recovered funding is not secured through section 106 agreements and/or the developments do not proceed to a point where the payments are due. Whilst the former may be a consequence of the Council being unable to require developers to sign a suitable S106 agreement, the latter could be considered a market failure to deliver which is outside the Council’s control.

 

Given their statutory responsibilities, this risk rests with the County Council, nevertheless, Melton Borough Council has indicated its willingness to agree to such an approach and as such is prepared to meet this expectation in principle. However the extent of any underwriting needs to remain within affordable limits and the Council has clearly and repeatedly advised the County Council that exposure to a maximum sum of £1 million at any one time (or its equivalent in annual revenue terms) is its affordable limit. This is to ensure the Council does not jeopardise its financial sustainability and its fiduciary responsibilities. Through its Cabinet decision on 15th December, the County Council has indicated that the level of the proposed cap is insufficient but has not indicated what scale of underwriting is requested. Any increase to the proposed cap has the potential to impact the Council’s core service provision and ultimate financial viability. 

 

The Borough Council has previously embarked on several Masterplanning exercises and has engaged significantly with County Council colleagues and developers on this project. The Council is confident it can meet with the request to adequately resource and maintain its commitment to the subsequent masterplanning project work going forward.

 

The Council has a strong record of securing developer contributions requested by the County Council, and recognises that those for essential infrastructure should be afforded the highest priority. Over a 5 year horizon the Council has secured over 99% of the requests submitted and has resisted claims made by developers for concessions based upon viability. The current Masterplan for the area reiterates this priority and it is anticipated that the future impending Developer Contributions SPD will similarly recognise the importance of their priority.

 

The revised development framework (Appendix A) identities additional land for the provision of c.150 dwellings, and the utilisation of some 9ha of allocated employment land for housing, with its partial replacement to the north across Leicester Rd. The recommendations above provide for the development of a Masterplan on this basis and the status of this, and how it may develop in future is addressed in greater detail in section 5 below.