Milton Keynes Tariff: funding infrastructure upfront

Milton Keynes stands out as the only city in the UK that has seen near constant economic growth over the last ten years while maintaining stable and consistently affordable house prices. This is partly due to its consistent delivery of homes and infrastructure.106 Milton Keynes, benefitting in part from its status as a former New Town, has also benefited from innovative ways of funding infrastructure to make these new homes viable.

In 2004, to fund social and physical infrastructure in its strategic expansion areas, the city set a building tariff, or Strategic Land and Infrastructure Contract. Developers agreed to pay standardised contributions of £18,500 per residential dwelling and £260,000 per hectare of commercial land, using the legal framework of a section 106 agreement. Unlike a typical Section 106 agreement, Milton Keynes was able to borrow money from the Homes and Communities Agency to forward-fund infrastructure against expected tariff receipts, as HM Treasury was confident about the long-term certainty of receipts.107

Under the tariff model, the developer pays 75 per cent of the charge on completion rather than upfront, reducing their need for borrowing and allowing for greater certainty for both partners. Some payments can be delivered ‘in kind’ if developers provide specified infrastructure or public space. 108

Despite its effectiveness, this model, which is providing a way of introducing property taxes on a local scale, is not used elsewhere in the UK. However, the community infrastructure levy offers a similar power, and will replace the tariff in Milton Keynes. The tarrif provides a way of capturing the value of new residential rather than just commercial development (through business rate retention) which is the mechanism used for the funding of infrastructure at the Nine Elms redevelopment.109 However, the piloting of stamp duty retention could be a new mode of capturing value.

Footnotes

  • 106 Centre for Cities, (2013). Cities Outlook 2013.
  • 107 English Partnerships and Milton Keynes Partnership (2006). The Milton Keynes Tariff: An Overview of the Infrastructure Tariff and How it Works. Available at: http://www.eurim.org.uk/activities/psd/snsproc/MKPTariffBrochure.pdf. Accessed 1 September 2014.
  • 108 English Partnerships and Milton Keynes Partnership (2006). The Milton Keynes Tariff: An Overview of the Infrastructure Tariff and How it Works. Available at: http://www.eurim.org.uk/activities/psd/snsproc/MKPTariffBrochure.pdf. Accessed 1 September 2014.
  • 109 Pickford, J., (2013). ‘London project to use risky funding model’. Financial Times, 8 April 2013. http://www.ft.com/cms/s/0/fcda4910-9f64-11e2-b4b6-00144feabdc0.html#axzz3E8LMTWkC. Accessed 29 October 2014.