‘Communities losing out’ as £93m from developers still unspent by Notts councils

Nottingham city centre
By Joe Locker, Local Democracy Reporter

There are concerns communities are losing out because Nottinghamshire councils are yet to spent more than £93m in financial contributions given to them by developers as part of building projects.

Before local authorities grant planning permission for a major schemes, a developer typically agrees to contribute financially to the local area to reduce the impact of the project.

These agreements are known as Section 106 obligations, and the money provided typically goes towards affordable housing, schools, open space improvements and employment and transport infrastructure.

However, owing to the current economic climate and inflated construction costs, fewer and fewer developers are being obligated to provide financial contributions.

If assessments rule the development is not financially viable because of S106 costs, the payments may be waived.

While this alone has prompted concerns and calls for reform from some Labour councillors in Nottingham, other critics also say the economic challenges are affecting the value of financial contributions already held in the bank by councils across Nottinghamshire.

The top three councils with the most unspent 106 cash in the bank are Rushcliffe Borough Council, which has a balance of around £45m, Nottingham City Council which has £14.956m, and Newark and Sherwood District Council which has £9.781m.

According to Rushcliffe Borough Council, the sum of money it holds is down to a higher volume of growth in the borough compared to other areas.

They are followed by Ashfield District Council’s £9.6m, Mansfield District Council’s £4.1m, Broxtowe Borough Council’s £3.942m, Gedling Borough Council’s £3.6m and Bassetlaw District Council’s £2.976m.

Nottinghamshire County Council had not provided a figure at the time of publication.

Co-chair of the Nottingham Green Party and former Rushcliffe Borough councillor, Ben Gray, says he sees the length of time between when contributions are calculated and when they are eventually spent as “a huge problem”.

“For example, £500,000 for a community hub in 2014, that is delivered in 2024, would only now be worth the equivalent of £375,000 in today’s money,” he says.

“This would be bad enough, but you also need to factor in the uplift in property values.

“The same £500,000 community hub from 2014 would now cost you £766,000 to construct, and because of a ten-year delay the community will now have to make-do with something that is half as good as they were promised.

“Ten years isn’t unusual, or even particularly long in planning terms. After 20 years what has grandly been called a community centre might well be delivered as barely more than a scout hut.

“It is communities who are missing out.”

Nottingham Trent University’s Professor Peter Murphy, who worked as a senior civil servant in four Whitehall departments and spent 23 years working in local government, said the concerns are generally valid ones.

He described it as an increasing problem that is likely to get worse.

“The longer a payment stays in an account beyond what was originally intended or anticipated – by both developer and local authority – the more likely it is to be inadequate for the original intentions or agreement if it is beyond the original timescale envisaged,” he told the Local Democracy Reporting Service.

“You might say that 106 agreements should routinely make provision for inflationary changes and in earlier years this was often the case.

“But in those days – even before the long period of stable low interest rates – rates were relatively stable in the short or medium term and both local authorities and developers could at least reasonably calculate the risks to both sides.

“But in the current climate it is the uncertainty, volatility and short-term variability in rates both in the UK and abroad that isn’t making  for a business environment that is conducive to either coming to agreements or to their implementation.”

Associate Professor for NTU, Dr Peter Eckersley, whose research focuses on central and local government relations and public policy, said the agreements can almost be compared to long-term – and sometimes controversial – Private Finance Initiative (PFI) deals.

“What they agreed to pay at the beginning over the course of the contract is different in value terms than perhaps what people were expecting when the contract was agreed,” he said.

“They were kind of agreed at a time when nobody was envisaging the level of austerity that we have seen over the last few years and so they are tied into these deals.”

There is also a risk Section 106 contributions may have to be returned to developers, typically because money has not been spent within an agreed time period.

Mansfield District Council said none of its unspent money has been reclaimed, as did Nottingham City Council.

Nottingham City Council added its figure, as of March 31, includes both sums committed and sums not yet committed, and contributions it receives usually have a minimum five-year period in which it is to be committed.

What happens to interest on sums in the bank also differs depending on the authority.

A spokesman for Rushcliffe Borough Council confirmed interest earned is not retained by the council.

“In 2022/23 the interest rate applied was 1.69 per cent,” the spokesman said.

“The council is effectively the ‘banker’ for the monies and the speed of spend is dictated by how quickly development takes place in areas such as education and health, which are not the responsibility of the borough council.

“The borough council’s remit is to make S106 payments as quickly as possible when relevant development conditions have been met.”

The authority added Nottinghamshire County Council is now a signatory to funds, and receives funds from developers directly to pay for schools and other projects, so the funds held in future by Rushcliffe Borough Council will be reduced.

Mansfield DC says contributions are index-linked as per agreements, and interest is charged where appropriate on late payments which are infrequent.

Any interest will be added to the contribution, it says.

Contributions are also paid in to the council’s bank account along with the council’s other revenues, and any interest paid on these balances would be treated as income to the council which would go towards the council’s services.

Meanwhile, Newark and Sherwood DC says it does not add interest to the balance.

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