What Can Section 106 Money Be Used For? A Council Officer's Guide
What S106 contributions can and cannot fund — purpose restrictions, reallocation rules, and how to avoid spending money outside the agreement terms.
S106 contributions are not general-purpose funding. Every pound received through a planning obligation is tied to a specific purpose stated in the agreement. Spending it on anything else — even something that seems related — puts the council at legal risk and undermines trust in the planning system.
This guide covers the rules on S106 spending, the common questions monitoring officers face, and how to handle situations where the intended purpose no longer applies.
This covers England only. This is general guidance, not legal advice. Always refer to the specific terms of each S106 agreement.
The Basic Rule: Purpose-Restricted Spending
Section 106 of the Town and Country Planning Act 1990 allows obligations that require sums to be paid to the authority "on a specified date or dates or periodically." The specific purposes are defined in the agreement — not by the council after receipt.
Typical purpose restrictions include:
| Purpose | Common Wording | What It Covers |
|---|---|---|
| Education | "towards the provision of primary education facilities within 2 miles of the Site" | School places, classroom extensions, equipment — within the defined area |
| Highways | "towards the improvement of the junction of [Road A] and [Road B]" | Specific junction works named in the agreement |
| Open space | "towards the provision and maintenance of public open space within the Parish" | Park equipment, landscaping, maintenance within the defined area |
| Healthcare | "towards healthcare facilities serving the development" | GP surgery capacity, health centre contributions |
| Community | "towards community facilities within the District" | Community centres, libraries, youth facilities |
| Affordable housing | Usually in-kind delivery, but commuted sums for off-site provision | Affordable housing within the defined area |
The wording varies by agreement. Some are tightly defined ("towards the extension of Elm Road Primary School"). Others are broader ("towards primary education provision within 3 miles of the site"). The tighter the wording, the less flexibility the council has.
What You Cannot Do
Redirect to a Different Purpose
An education contribution cannot fund a highway improvement, even if the highway serves the school. The purpose in the agreement controls.
If no eligible education project exists within the defined area and the spend-by deadline is approaching, the options are:
- Identify an eligible project — even a small one (equipment, temporary classrooms, capacity improvements)
- Negotiate a deed of variation with the developer to widen the purpose or area (requires developer consent)
- Accept the clawback — return the money to the developer before the deadline expires
Option 3 is painful but legally clean. Spending money outside the purpose restriction risks a legal challenge from the developer and an audit finding.
Spend Outside the Defined Area
If the agreement says "within 2 miles of the Site," a school expansion 3 miles away doesn't qualify — even if it serves children from the development.
Use S106 to Fund Infrastructure Already on the Council's Infrastructure List
If your council charges CIL and your Infrastructure List identifies education as a CIL-funded category, you generally cannot also spend S106 education contributions on the same strategic infrastructure (to avoid double-counting). Site-specific S106 contributions for purposes not covered by CIL remain valid. See S106 vs CIL: A Planning Officer's Guide for how the two systems interact.
Accumulate Without Spending
Holding S106 money indefinitely is not a strategy — it's a risk. Spend-by deadlines exist in most agreements, and the Home Builders Federation actively monitors unspent balances across councils. Even without a deadline, accumulating large unspent balances invites scrutiny from auditors, councillors, and the community.
Common Spending Questions
"Can we pool multiple S106 contributions on one project?"
Yes. Since the 2019 CIL regulation amendments removed the pooling restriction (which previously limited S106 contributions to no more than 5 agreements per infrastructure project), you can now combine contributions from multiple agreements — provided each contribution's purpose restriction allows it.
This is important for large infrastructure projects. A £500,000 school extension might be funded by education contributions from 8 different S106 agreements, each for £50,000–£80,000.
Monitoring requirement: Record which contributions are funding which project, and track spend against each contribution separately. The spend-by deadlines may differ — contribution A might have 3 years left while contribution B has 7 years.
"Can we spend S106 money on staff costs?"
Generally, no — unless the agreement specifically allows it. S106 contributions are for infrastructure, not operational costs. An education contribution funds school places (capital), not teacher salaries (revenue).
However, some agreements include monitoring fee clauses, which are separate from infrastructure contributions and can fund the monitoring officer's time.
"The project we allocated the money to has been cancelled. What now?"
Reallocate to another eligible project within the same purpose and area. Document the change of allocation, including the reason the original project was cancelled and why the new project qualifies.
If no alternative project exists, the contribution is at risk of clawback when the spend-by deadline arrives. Start looking for eligible projects immediately — don't wait until the deadline is imminent.
"Can we spend accrued interest?"
Interest accrued on S106 contributions held in council accounts is generally treated as part of the contribution and must be spent on the same purpose. Some agreements specifically address interest treatment — check the wording.
The IFS Reporting Connection
Your annual Infrastructure Funding Statement requires you to report S106 money received, spent, and retained — broken down by infrastructure type. If your spending records don't track purpose categories consistently, the IFS becomes a manual reconciliation exercise.
Standardise your purpose categories across all agreements and align them with IFS reporting categories. When a new agreement arrives, assign each obligation to a standard category in your register. This saves hours at reporting time.
For a step-by-step IFS process, see How to Produce Your Infrastructure Funding Statement in Half the Time.
Sources
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