What now for the Community Infrastructure Levy, after the Budget response to recommendations to scale it back?

Proposed changes to the Community Infrastructure Levy designed to enable charging authorities to capture a greater slice of the land value uplift arising when permission is granted risk adding further levels of complexity to the system, according to experts.

Infrastructure: Budget this week set out plans to reform development tariff
Infrastructure: Budget this week set out plans to reform development tariff

In its response to the recommendations produced by a panel set up to review the Community Infrastructure Levy (CIL), the government this week failed to deliver the "Kill CIL" outcome sought by some practitioners. Instead, in the small print of the Budget, the chancellor Philip Hammond promised to consult on proposals designed to enable the development tariff to capture a greater slice of the land value uplift arising when planning permission is granted. Some observers believe that the proposals risk making the system more complicated.

The government had committed to respond in this week’s Budget to the recommendations of the CIL review panel, chaired by former British Property Federation chief executive Liz Peace. The review's report, published in February, had proposed to remove CIL and replace it with a system that would see all development face a low-level charge, with no - or very few - exemptions, the removal of the need for an examination process, and a mandatory requirement placed on town halls to adopt the new mechanism.

But the message from this week’s Budget is that CIL is going nowhere. Instead, the Budget promises a consultation on a set of reforms to the levy, including changes intended to speed up the process of introducing and revising CIL, as well as measures intended to allow authorities to set rates which better reflect the uplift in land values between a proposed and existing use. The Budget also said that the government will consult on removing section 106 pooling restrictions in some circumstances.

"This is absolutely a victory for common sense," said Stephen Ashworth, partner at law firm Dentons. "We have a workable system that needs tweaking. CIL works and can be made to work better." Ashworth said that uncertainty over the future of the levy had led to a slowdown in CIL preparation work among charging authorities. Councils should now "get on and set CILs wherever it is viable to do so," he said.

Among the proposals in the Budget is a plan to remove restrictions on section 106 pooling towards a single piece of infrastructure "where the local authority has adopted CIL, in certain circumstances such as where the authority is in a low viability area or where significant development is planned on several large strategic sites". The proposal stops short of removing the restrictions entirely, as had been proposed by the CIL review panel’s report.

Experts agree that the existing rules, under which councils are only able to pool up to five section 106 contributions to pay for any one project, have caused serious practical problems. The current restrictions, said Ashworth, are a "feast for lawyers, but no use to anyone who wants to deliver development". Independent planning adviser Gilian Macinnes, a member of the review panel, said that the existing restrictions are a problem "standing in the way of delivery".

Matthew Spilsbury, director at consultancy Turley, welcomed the proposal. He said that change would be of critical importance for strategic sites, where land can be in multiple ownership and development delivered via multiple applications. "It’s very difficult to ensure, because of the pooling restrictions, that all the infrastructure will be brought forward to facilitate the delivery of sites," he said.

However, Anita Rivera, partner at law firm Mishcon de Reya, said that care should be taken to ensure the proposals do not result in "double dipping", where developers are subject to both CIL and section 106 payments. "You have a baseline CIL, then you potentially have on top of that further section 106 obligations for low viability sites and strategic sites," she said. "Some strategic sites are caught by CIL. The Budget is implying that in those circumstances both CIL and section 106 would be charged."

Some observers have warned that the Budget’s proposal to allow authorities to set rates which better reflect the uplift in land values between a proposed and existing use risks introducing more complexity into the system, running counter to the recommendations of the CIL review panel, which were intended to deliver a more streamlined approach. The Budget proposes that, rather than setting a flat rate for all development of the same type (such as residential, commercial, etc), local authorities will have the option of a different rate for different changes in land use (such as agricultural to residential, commercial to residential, or industrial to residential).

Spilsbury said that the proposal could potentially add a further level of complexity to the system. "For example, within a residential zone, which may have a differential rate to a neighbouring zone, this suggests that you may have further differing rates for greenfield sites, brownfield sites, and various typologies within," he said. Spilsbury said that it would "clearly require additional viability evidence to support this", which could "become rather onerous".

Sara Parkinson, planning and development programme director at business group London First, said that there had been hopes that the government would bring forward a simplification of the CIL regime, with a lower flat rate that might allow for greater levels of affordable housing contributions. "What the Budget proposes is the introduction of additional types of CIL charges that can be set by local authorities," she said. "What we are seeing is another layer of CIL charging and complexity, when actually we should be simplifying the process."

Rivera warned that the proposals could have implications for affordable housing contributions. The proposals are "silent on affordable housing", she said. "CIL is non-negotiable," she said. "If you impose these further requirements, you really have to question whether it will squeeze out affordable housing.

Macinnes said that she was "torn" over the proposal. On the one hand, she said, there is an opportunity to capture more of the uplift in land values to contribute towards local infrastructure projects. The proposal, she said, should assist charging authorities "who are trying to fill an enormous infrastructure funding gap". "It will improve the situation in areas where there is an opportunity to capture more of that uplift," she said. "It very much meets community concerns about lack of infrastructure and some sites can contribute more." However, Macinnes added: "The overall aim of the CIL review panel’s recommendations was to simplify the system. This is adding complexity."

But Ashworth believes the proposal should not prove to be too onerous. "It’s easy enough to identify uses of locations where higher rates of CIL are appropriate," he said. "The detail of rates will require some scrutiny and examination time, but I don’t think that will be too difficult. In most cases, viability isn’t quite as sensitive as developers and surveyors would have you believe."

THREE MORE PROPOSED CHANGES TO THE LEVY

1. Speeding up the process of setting and revising a CIL

The Budget moots a "more proportionate approach than the current requirement for two stages of consultation and providing greater clarity on the appropriate evidence base". This, it says, will enable areas to implement CIL more quickly, "making it easier to set a higher ‘zonal CIL’ in areas of high land value uplift, for example around stations.

Spilsbury welcomed plans to accelerate the process, but said that the government should take care to not "lose sight of the necessity for the rate setting process to be based on robust viability evidence to avoid unrealistic rates being adopted and undermining deliverability". Parkinson said that there should be no reduction in the level of scrutiny that CIL charges receive through the examination process. "That’s vital so that development remains viable, we wouldn’t want to see that compromised," she said.

2. Changing indexation of CIL rates to house price inflation, rather than build costs

Under current rules intended to ensure CIL rates respond to market conditions, infrastructure levy rates are pegged to the national All-In Tender Price Index of construction costs published by the Building Cost Information Service (BCIS) of the Royal Institution of Chartered Surveyors. But the Budget proposes to index CIL rates to a measure of house price inflation in order to "reduce the need for authorities to revise charging schedules". "This will ensure CIL rates keep up with general housing price inflation and if prices fall, rates will fall too, avoiding viability issues," it said.

Macinnes welcomed the move away from the BCIS index, which is subject to a substantial subscription charge and is not publicly accessible. But Spilsbury said that changing indexation of CIL rates to house prince inflation is "an error of judgement". He said that house price changes are variable across authorities and within authorities. "Areas of lower viability could see rates increase at the same scale as higher value areas," he said. "A shift to a wider economic indicator such as RPI or CPI would be a far better strategic barometer."

3. Backing for city-regional strategic levies

The Budget endorses a proposal in the CIL review’s report to allow combined authorities and planning joint committees with statutory plan-making functions the option to levy a strategic infrastructure tariff, "in the same way that the London mayoral CIL is providing funding towards Crossrail". The Budget document said: "The SIT would be additional to CIL and viability would be examined in public."

Parkinson said that the introduction of SIT would have limited relevance to London, where the mayoral CIL is already being charged. But she questioned how this might operate outside of the capital. Parkinson pointed out that under the CIL review panel’s proposals, the SIT would have sat alongside a low-level charge. But now it will sit alongside a "potentially more complex system", Parkinson said.


Map: CIL status

Use the map below to view the status of your local council's Community Infrastructure Levy (CIL) proposals.

The map above was last updated on 31 October 2017 and is based on CIL data compiled for Planning's CIL Watch blog. Gaps appear where local authorities have yet to publish CIL proposals for consultation. For full data, including details of retail and commercial rates, as well as links to charging schedule documents, visit Planning's 'Who's Charging What?' page here. National Parks are not displayed on this map. They are separate charging authorities - local authorities are not the charging authority for land within a National Park's boundary.

COLOUR KEY

Green: Local authority already charging CIL

Yellow: Examination report published

Orange: Charging schedule submitted for examination

Blue: Draft charging schedule published for consultation

Red: Preliminary draft charging schedule published for consultation



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