Joelson Wilson
Thursday 02 February 2012

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Community Infrastructure Levy

CIL was introduced under the Planning Act 2008 to be spent on providing infrastructure to support development, but now can be spent on maintaining and operating that infrastructure too. Section 205 of the 2008 Act confirms its overall purpose as ensuring the costs of infrastructure to support the development of an area can be met (wholly or partly) by owners or developers of land in a way that does not make development of the area economically unviable.

CIL was intended to enable additional money to be raised to fund infrastructure than Section 106 Agreements allow. The CIL Final Impact Assessment revealed only 6% of permissions make Section 106 contributions. As well as offering a source of extra funds CIL should also offer a more certain and transparent basis for developers to price schemes.

In preparing to adopt CIL, charging authorities must comply with the regulatory requirements as modified by the Localism Act including the appointment of an independent examiner. Charging authorities need to decide an appropriate balance between infrastructure gap funding and development by ability in their area and how much potential development they are willing to put at risk through the imposition of CIL.

Following the Localism Act’s reforms to the CIL regime, the examiner’s role is to consider whether the charging authority complied with the drafting requirements under Part 11 of the 2008 Act and the CIL Regulations 2010. In particular by using evidence to identify the infrastructure funding gap that could be met by CIL to determine whether an appropriate balance has been achieved.

The Localism Act now confirms that development must still overall be viable and there must be appropriate evidence confirming that development of the area in line with the up-to-date development plan has not been put at serious risk. Government guidance dictates that in considering whether the development plan and its targets have been put at serious risk, examiners should only consider whether the proposed CIL rate will make a material or significant difference to the level of risk on the basis that the development plan and its targets could already be at serious risk in the absence of CIL.

Any recommended modifications to the draft charging schedule made by the examiner will no longer be binding on the charging authority unless it is rejected for adoption. The Localism Act reforms mean that an authority can correct errors itself to enable the adoption.

CIL is non-negotiable as a result and in combination with Section 106 continuing to cast a shadow on appraisals, the development sector is recognising the importance of both collaboration in and thorough scrutiny of the CIL set in process.

On December 1st 2011 Newark and Sherwood District Council adopted the first CIL charging schedule. The Council is now authorised to charge new development at published rates. As a result it may no longer treat any Section 106 obligations that secure infrastructure on its published list as a reason for granting consent. Similarly it cannot take account of more than five post April 2010 contributions to the same infrastructure as a reason for approval.

This is intended to inhibit if not prevent planning authorities asking for planning contributions to infrastructure that should be paid within CIL.

Once regulations (via the Localism Act) come into force charging authorities must also pass a meaningful proportion of CIL receipts to Parish Councils. Others close behind include the Mayor of London. If mayoral CIL is adopted in April, development in London’s boroughs will be charged at £20 – £50 per square metre to raise £300M for Crossrail until 2018. In setting their own CILs and applying Section 106, boroughs will then have to factor in the overall effect on development viability. In many areas, including those that gain little directly from Crossrail, the impact will be significant. The mayoral CIL is expected to net around £40M per year and Croydon’s emerging charge is expected to take its planning related receipts from £2M via Section 106 to £7M per annum. Because CIL will not replace all Section 106 requirements, there is every reason for those interested in delivering development to scrutinise charge setting process.

CIL rates may be differentiated by the type of use and by area. The guidance says such differences must be restricted to viability reasons alone. At Newark and Sherwood the examiner rejected differential rates for large and small retail units without a very clear viability justification for such rates that could be said to unreasonably favour small retailers over large ones and/or constitute a policy decision by the charging authority to support smaller units.

The mayoral CIL is a further example of the difficulties that can arise where insufficient attention is paid to the rationale for the amount of infrastructure for which CIL is to be used and the reasons for setting differential rates. The guidance confirms that in identifying the cost of infrastructure that they wish to fund from CIL, charging authorities will want to consider what additional infrastructure is needed in their area to support development and what other funding sources are available. The Mayor’s charging schedule sets out to find the whole of the costs of Crossrail from CIL and will require all boroughs to contribute regardless of their relationship to the Crossrail infrastructure.

Two issues arise from this. Firstly, whether adequate attention has been paid to the desirability of funding either the whole or just a part of the Crossrail cost from CIL. Secondly, where different charges are levied in different areas there needs to be clear evidence that there are no state aid issues. While the relationship between development in an area and Crossrail may have justified different charges, the Mayor rejected this approach as a basis for setting differential charges. He is instead relying on house price differences as a proxy.

CIL is payable in one go unless charging authorities adopt a statement allowing payments by instalment. Unfortunately the statement is not considered in the CIL setting process and can be changed or reviewed at any time. Where there is a borough instalment policy in place this will have precedence even if the Mayor had already published an earlier conflicting one. This gives real power to the boroughs which could publish an instalment policy that dictates the payment timetable for the mayoral CIL.

The CIL does not spell an end to Section 106 obligations. It is likely that Section 106 Agreements will be reborn as local authorities ensure that they have clear policy justification in local plans and supplementary planning documents for sites specific mitigation and softer types of contributions i.e. those not within the scope of CIL such as employment and training obligations.

Once CIL is adopted planning obligations must not be a reason for approval where they concern things on an authority’s published regulation 123 infrastructure list. Nor may they be a reason for approval if they seek to pull more than five CIL obligations including those since April 2010. For authorities that have not adopted CIL, similar restrictions will apply after 6th April 2014. As well as participating in the CIL process itself, developers and their advisers will need to monitor this use of policy to avoid “double dipping” i.e. being asked to pay under CIL and planning agreements. At the same time authorities will need to be careful about what they include on their published infrastructure list. For every type of development it mentions, Section 106 is intended by the Department for Communities and Local Government to be unavailable under regulation 123(2). Being very specific and limited about the projects mentioned preserves the availability to use the full range of powers where appropriate.

The government has recently consulted on further reform of the CIL regulatory framework. It remains to be seen how it will legislate to pass money that was intended to deliver essential strategic infrastructure to neighbourhood bodies. The option to reintroduce affordable housing as a category on which CIL can be spent also raises some difficulties. In practice it is likely that although more cash would be raised, less affordable housing and less mixed tenure developments would result. That would be a poor planning outcome.

Several areas need further reform. Firstly the regulatory framework should work to secure delivery of infrastructure. At the moment it doesn’t as authorities may simply pass on CIL receipts even they are not actually used to deliver infrastructure. Similarly developers should be entitled to expect that Grampian conditions (restricting development until delivery of specific infrastructure) will only be permissible where they match timescales in the authority’s delivery programme.

Secondly, better guidance is needed to assist promotion of area regeneration by setting CIL at a level that will boost investment. The guidance currently states that differential rates need to be justified by reference to the economic viability of development. Given the regulatory context that is not surprising but the statement in the guidance that charging authorities should not set differential rates by reference to the cost of infrastructure, either in different zones or for different classes of development is policy not law. An allocation of CIL based on impact or other patterns that don’t directly stem from viability differences is legally permissible.

What differential rates must not do is fall foul of the state aid rules that generally prohibit selective advantage being confirmed on economic undertakings. The recent preliminary charging schedule for Croydon, for example, will need to include far greater justification for the central area rate it proposes.

Authorities can accept payment in kind for CIL liabilities and the previous minimum threshold (£50,000) has been removed. This credit is still only the value of land transferred and not the cost of any work that has been undertaken.

CIL has changed since 2008. It was meant to broaden the base of contributors to infrastructure and ensure that developments with small impacts contribute. It was also meant to ensure infrastructure delivery and wipe out planning agreements other than for affordable housing and site specific obligations. Although CIL ensures broad based contributions, payment is normally on the basis of an ability to pay rather than being broadly related to the infrastructure needs generated by that class of development. Although not a charge to the margins viability it has moved away from an impact fee towards a value capture mechanism.

It offers no comfort that the infrastructure needed to support development will actually be provided. Indeed that aim has been undermined as money can be diverted to operation and maintenance of infrastructure and part will be paid across for the use of local communities. Proposed protections against “double dipping” are not wholly effective. Disappointingly a raft of CIL charging schedules and arrangements are being put in place that deliver too little. With relatively limited changes, CIL could be made to work much better.