Can You Use Section 106 To Buy Drugs (And To Fund Other Public Services)?

It is frustrating to see public bodies, stymied by the lack of other funding sources, challenge the grant of planning permissions by way of judicial review in a bid for financial contributions from the developer. Frustrating because at root these are services which should properly be funded by the taxpayer; frustrating because the public body invariably loses, having spent public money in the litigation and exposed itself to the award of costs; frustrating because the challenge invariably slows down delivery of the development for which planning permission has been granted.

We’ve seen it with the police (e.g. R (The Police and Crime Commissioner for Leicestershire) v Blaby District Council (Foskett J, 27 April 2014) (a case which largely concerned the timing of contributions towards for instance additional police cars and radio transmitters)); with adjoining local authorities concerned to have their share of affordable housing (e.g. R (Luton Borough Council v Central Bedfordshire Council (Court of Appeal, 20 May 2015), and, above all, we have course seen it with NHS Trusts.

The issue as to the extent to which it is appropriate for financial contributions to be secured by way of section 106 agreement towards the delivery of health services has been rumbling on for years – see for instance the 20 August 2020 piece What the health? The planning system and healthcare service funding by Lichfields’ Myles Wild-Smith. Myles refers to recovered appeal decisions where the agreed section 106 provisions included a financial contribution towards the provision by the local Foundation Trust of acute and community health facilities and the encouragement that this has given NHS bodies over time to take this approach. The root of the issue for NHS Trusts is what can only be described as a flaw in the Government’s current funding mechanism which does not necessarily take into account the costs of provision of additional services to cater for an increase in population in the first year that population numbers are increased, leading to a “funding gap”.

The issue has now come before the Planning Court in the landmark case of R (University Hospitals of Leicester NHS Trust) v Harborough District Council (Holgate J, 13 February 2023) – “landmark” partly because four of the six barristers involved are from Landmark Chambers but more perhaps because Holgate J does not just dismiss the claim by the claimant NHS Trust on the facts but goes on to consider the wider principles engaged.

From here on in, I am largely going to be shadowing Nicola Gooch’s blog post Mind the Funding Gap: The curious case of s.106 contributions funding NHS services. If you’ve already read that, feel free to skip ahead. If you haven’t…

In basic summary, Harborough District Council granted planning permission for an urban extension to Lutterworth, comprising up to 2,750 dwellings and associated development. The University Hospitals of Leicester NHS Trust did not object to the development in principle but  had been seeking that the council secure a contribution, via the section 106 agreement which was being negotiated, “of about £914,000 towards the delivery of health care by the Trust to mitigate what are said to be the harmful effects of additional demands upon its services from that proportion of the people moving to the site who would be new to the Trust’s area (referred to as “new residents”). The Trust estimates that the 2,750 houses on the site would accommodate 7,520 people, of whom 38.5%, or 2,896 people, would be new residents in the Trust’s area.”. The council considered the request and did not accept that it was justified (I don’t know but, aside from concerns as to whether such a contribution was legally appropriate and justified in planning terms, there may have been an underlying issue, frequently present: against the constraints of project viability,  requiring such a contribution may have entailed less potential funding for affordable housing or other priority requirements of the council or county council).

Paragraphs 8 to 12 of the judgment describe the so-called “funding gap” (and this is the aspect of the judgment I am focusing on – the judgment also addresses, and rejects, some related grounds of challenge). The purpose of the contribution sought was to provide “funding for additional staff, drugs, materials and equipment” during the relevant part of the first financial year in which a “new resident” begins to occupy a dwelling.

Paragraphs 22 to 29 of the judgment set out the legal principles in relation to material considerations and section 106 agreement.

The council didn’t accept that the case for the “funding gap” had been made out. Holgate J agreed with the council that this was indeed a relevant consideration and that the council had reached a rational conclusion that the Trust had failed to provide any sufficient information to show that there was any “funding gap” and accordingly the contribution sought would have failed the “necessity” test in regulation 122 of the CIL Regulations.

After Holgate J gives what he describes as the “short answer”, he then goes on to consider “wider issues”.

141 The question therefore arises how could an applicant for planning permission for a new development be required lawfully by a system of land use planning control to contribute to the funding of treatment within the NHS? It is well established that planning permission cannot be bought and sold, for example, by making a payment for community purposes unrelated to the development authorised. Furthermore, planning legislation does not confer any general power to raise revenue for public purposes (see e.g. Attorney General v Wilts United Dairies Limited (1921) 37 TLR 884; (1922) 38 TLR 781; McCarthy & Stone (Developments) Limited v Richmond London Borough Council [1992] 2 AC 48).

142. Ordinarily a resident of the development at East Lutterworth who had moved to the Trust’s area would previously have been the responsibility of a CCG elsewhere in the country. So it has not been suggested that the development would increase the burden on the NHS in England as a whole. The attempt by the Trust to obtain a financial contribution under s.106 therefore depends upon their demonstrating a localised harm. The only harm they seek to rely upon concerns the provision by the Trust of services commissioned by the CCGs. On the Trust’s own case, that has to depend upon them showing a funding gap in relation to treatments for residents new to the area during their first year. The Trust accepts that there is no justification for any payment relating to other “first year” residents who are simply moving home within the Trust’s area, or to any resident after their first year at East Lutterworth. The extent to which funding is available to the Trust for the services it provides to the CCGs is the only possible justification for drawing these distinctions. Whether a funding gap genuinely exists was critical to the Trust’s request for a financial contribution under s.106.

143. Accordingly, HDC was fully entitled to ask questions and to seek information in order to see whether there is a real funding gap for treatment by the Trust of “new” residents in their first year of occupation. Indeed, if the local planning authority had agreed to require the developer to pay the contribution sought by the Trust before granting planning permission without being adequately satisfied that there was a relevant funding gap, it would have been open to criticism. In the event of the issue having to be determined in a planning appeal, HDC would have been at risk of being ordered to pay costs for unreasonable conduct.”

“147. But what if in a future case a NHS trust could demonstrate that it would suffer a funding gap in relation to its treatment of new residents of a development during the first year of occupation? On one level it would be a matter for the judgment of the local planning authority as to whether the three tests in reg.122(2) of the CIL Regulations 2010 are satisfied and whether it would be appropriate to require a financial contribution to be made, after taking into account other requirements and any impact on the viability of the scheme. But all that assumes that there is no legal (or other) objection to a contribution of the kind sought in the present case. The argument in this case does not enable the court to decide that issue as a legal question. This judgment should not be read as deciding that there would be no legal objection.

148. Where a housing development is carried out, some of the new residents may be entitled to social welfare benefits, which, like the need for secondary healthcare, arises irrespective of where that person lives. Of course, no one would suggest that the developer should make a contribution to funding those benefits.

149. The funding of treatment in NHS hospitals would appear to be different in two respects. First, in an area of net in-migration any increase in the need for treatment and staff will be experienced in the relevant local area, not nationally. Second, because the patients would receive treatment even if they had not moved home, a local funding gap would only arise if funding for the relevant NHS trust did not adequately reflect a projected increase in population and/or the national funding system did not adequately provide for a timely redistribution of resources. Population projections will involve some areas of out-migration as well as areas of net in-migration. It is therefore significant that CCG funding across the country takes into account ONS population projections. Accordingly, in the distribution of national funds there may be increases or decreases in funding for individual CCGs by reference to size of population.

150. It seems to me that two points follow. First, even if it could be shown in a particular area that there is a funding gap to deal with “new” residents, HDC was entitled to raise the possibility that this is a systemic problem in the way national funding is distributed. Although the Trust criticised HDC for taking it upon themselves to raise this point, it strikes me as being a perceptive contribution to a proper understanding of the issue. If there really is a systemic problem, this may raise the question in other cases whether it is appropriate to require individual development sites across the country to make s.106 contributions to address that problem.  However, for the purposes of dealing with the present challenge, HDC’s decision rested on the Trust’s failure to show that there was a funding gap in this case, not any systemic issue.

151. Second, whether there is a lack of funding for a Trust to cope with the effects of a substantial new development is likely to depend not on those effects in isolation, but on wider issues raised by the population projections used as one of the inputs to determine funding for CCGs. The interesting arguments from counsel in this case suggest that these issues merit further consideration as a matter of policy outside the courts and even outside the planning appeal system.”

Some significant points to reflect on arising from the passages above:

  • Even if a “funding gap” by a provider of public services is demonstrated, not only does the decision maker still need to determine whether a contribution is justified “whether the three tests in reg.122(2) of the CIL Regulations 2010 are satisfied and whether it would be appropriate to require a financial contribution to be made, after taking into account other requirements and any impact on the viability of the scheme” but it should not be taken for granted that there will not be a legal objection to the making of the contribution.
  • If the underlying issue which led to the case is a “systemic problem in the way national funding is distributed… this may raise the question in other cases whether it is appropriate to require individual development sites across the country to make s.106 contributions to address that problem”.
  • There may well be problems with population projections used as one of the inputs to determine funding for clinical commissioning groups.

I would suggest that all three points require serious reflection both by the Department of Health and Social Care and by DLUHC

In the meantime, for the rest of us, the judgment is a reminder of the careful scrutiny that needs to be given to proposed planning obligations, so as to ensure that they meet the necessary legal tests. In a climate where there is often insufficient Government funding to pay for public services (and/or inadequate methodologies for determining the funding that is needed – as seems to be the case with health funding) , these issues are continually going to arise. Local residents have a right to expect that new development does not lead to unacceptable burdens on local services, but there are legitimate limits on the costs which can be borne by development. After all, the needs of new residents in a development were previously being met, and funded, elsewhere. Our planning system is increasingly an indirect tax collection system – and I fear that the impending Infrastructure Levy regime will only make matters even worse.


Simon Ricketts, 18 February 2023

Personal views, et cetera

Photo courtesy of Christina Victoria Craft via Unsplash

Author: simonicity

Partner at boutique planning law firm, Town Legal LLP, but this blog represents my personal views only.

One thought on “Can You Use Section 106 To Buy Drugs (And To Fund Other Public Services)?”

  1. This is scary stuff. Not the drug dealing but the taxpayer fighting the taxpayer like two pups fighting for a scrap of food. The excellent idea that the Department of Health might talk to the DLUHC to each other is highly unlikely

    But if they did they might decide and that neither will fund any legal action by any of their ‘pups’ is highly unlikely. This wouldn’t have huge ramifications for the legale profession but perhaps it might apply to government to meet the ‘funding gap’.


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