Indexation of section 106 contributions and which index applies

Indexation turns an agreed contribution into a different number by the time you pay it, and the two variables that decide how different are the index and the base date. A £450,000 education contribution agreed in 2022 and paid in 2027 might be indexed by a tender price index that rose sharply, or by a consumer price measure that rose less, from a base date that is either the date of the agreement or the date of the cost evidence the authority's own policy document was built on. Those choices can separate the same obligation by six figures.

Read the indexation clause before you negotiate the headline sum.

Why contributions are index linked

A financial contribution is a proxy for a thing the authority will build or provide. The infrastructure costs what it costs on the day it is procured, and development takes years.

Without indexation the authority receives a sum in nominal terms that buys less than the obligation was calculated to deliver, which weakens the argument that the contribution is fairly and reasonably related in scale and kind to the development under regulation 122 of the Community Infrastructure Levy Regulations 2010. Indexation maintains the real value of the obligation, and that is the justification officers give when it is challenged.

The corollary is that indexation is defensible only to the extent it maintains real value. An index chosen because it rises faster, or a base date set earlier than the date the sum was calculated, is not maintaining value. It is increasing the obligation, which is a different thing and open to argument.

Indices commonly used and how they differ

Four families appear in agreements and they behave differently.

Tender price indices are the most defensible choice for a capital contribution towards building something, because they reflect what the authority will pay. They are also the riskiest to a developer, since a construction market under pressure can move them a long way in a short time.

Building cost indices are smoother and tend to understate the cost of procuring work in a hot market. Consumer price measures have no connection to the cost of a school or a cycle route, and a clause using one is a clause that was drafted without much thought.

Two further points. Some authorities use a public sector non-housing tender price index for education contributions, which is appropriate for school building and not for anything else. And the retail prices index has historically run above the consumer prices index, so a clause specifying it produces a larger uplift than one specifying the newer measures. Where a clause names an index that may be discontinued or restructured, the clause needs to say what replaces it.

Name the series exactly. "BCIS index" is not a series. There are several, they diverge, and an ambiguous clause will be read by the authority in the way that favours the authority.

The base date and why it is disputed

This is where most indexation disputes live, and the dispute is almost always worth having.

Three candidate base dates appear in practice. The date of the agreement. The date of the planning permission or the resolution to grant. And the base year of the cost evidence underlying the authority's contributions policy.

The logically correct base date is the date on which the sum was last expressed in real terms. If the authority's supplementary planning document sets a per-pupil cost in 2019 prices, and the agreement is signed in 2026 using that figure unaltered, indexing from 2019 is arguably right, because the sum in the agreement is a 2019 sum. If the authority has already updated the figure to current prices in its latest cost schedule, indexing from 2019 charges you twice for the same period.

So ask one question before signing: is the figure in this agreement expressed in current prices or in the prices of the evidence base. Then set the base date to match, and say so in the clause rather than leaving it to a cross-reference.

Two mechanical traps sit alongside. The index figure for a given quarter is published with a lag and is often provisional before being firmed up, so the clause should say which figure applies and what happens on revision. And a base date expressed as a quarter rather than a day avoids an argument about which monthly figure to use.

Compounding and payment timing

The standard formulation increases the contribution by the proportion by which the index at the payment date exceeds the index at the base date. Applied once, from a fixed base, that is a simple ratio and it does not compound.

Compounding creeps in on phased schemes. Where each phase payment indexes from the date of the previous payment rather than from the original base date, and the clause also applies an annual uplift, the arithmetic can double count. Index every payment from the same base date and the problem disappears.

Keep indexation and late payment separate. An uplift for inflation and interest for late payment are different mechanisms, and a clause that applies both to the same overdue period charges twice. Interest for late payment should run from the due date at a stated rate above base, and indexation should stop at the due date rather than continuing while the sum is unpaid.

Where the obligation includes a cap, index the cap on the same basis as the contribution. An unindexed cap erodes in real terms and eventually becomes the binding constraint rather than the protection it was meant to be. The same logic applies to the caps in affordable housing review mechanisms.

Checking the calculation before payment

Do not pay an indexed figure on the strength of a demand. Recalculate it, every time.

1. Read the clause and write down the index name and series, the base date, the payment date trigger and the formula.
2. Obtain the published index figure for the base date and for the payment date from the publisher, not from the authority's spreadsheet.
3. Note whether either figure is provisional.
4. Apply the formula in the clause, not the formula the authority used.
5. Compare and, where they differ, ask for the authority's working before raising the point.
6. Keep a dated copy of both index figures as published, because a provisional figure that is later revised will otherwise be impossible to reconstruct.

Errors are common and they run in both directions. The frequent ones are the wrong series within the right family, a base date taken from the planning permission when the clause says the agreement, and an uplift applied to a monitoring fee that the clause does not index.

Challenging an incorrect uplift

An indexation dispute is a contractual dispute about the construction of a deed, not a planning dispute, so the planning appeal routes are irrelevant.

Raise it in writing before the payment date, with your calculation and the published figures attached. Pay the undisputed element on time, state in the covering letter that the balance is disputed and why, and ask the authority to identify the clause and figures it relies on.

Use the dispute resolution clause if there is one. An independent expert determination with a short timetable and a cost-sharing rule is far cheaper than litigation, which is why that clause belongs in every agreement containing indexed sums.

Where both parties agree the clause itself is wrong rather than wrongly applied, the fix is a deed of variation, which needs every party with an interest to join. Whether an obligation and its indexation clause survive a later consent is a separate question, covered in do section 106 obligations carry over to a section 73 permission. Where the infrastructure the contribution funds is no longer being provided at all, the route is the one described in discharging a section 106 obligation that no longer serves.

Budgeting for indexation

Treat the uplift as a cost line, not as a contingency.

Model it from the expected agreement date to the forecast payment date for each obligation separately, because payment triggers differ. Run a sensitivity on the index, since a tender price index can move several percentage points in a year. And state the assumption in the appraisal, because a viability assessment that shows contributions at nominal values understates the cost and will be corrected by the authority's reviewing surveyor.

Lenders price uncertainty. An obligation with an unnamed index, an ambiguous base date and no cap is harder to fund than the same sum with a defined series and a fixed base. Clarity in the clause is worth real money at facility stage, which is a better argument for getting the drafting right than any amount of principle.

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This is general guidance, not legal advice; check the position with your local planning authority or a qualified professional before relying on it. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.