UK: Proposals On Community Infrastructure Levy (January 2008)

What is the CIL?

The CIL is a standard charge to be levied on new developments. Its purpose is to fund infrastructure to support the increase in housing identified as being required, most recently in the Housing Green Paper. It is being promoted as an alternative mechanism to the unpopular Planning Gains Supplement (PGS) proposals first mooted by the Government in 2003.

However, there is concern in the development industry that the following CIL provisions in the Planning Bill may mean PGS via the back door: "the overall purpose of CIL is to ensure that costs incurred in providing infrastructure to support the development of an area can be funded (wholly or partly) by owners or developers of land the value of which increases due to permission for development". Lobbying and informal consultation are taking place.

What infrastructure will be funded by the CIL?

The DCLG intends that the definition of infrastructure in the forthcoming CIL regulations will be very broad. In addition to transport and strategic infrastructure, social infrastructure such as schools, parks, health centres and flood defences may be funded by the CIL. The DCLG paper makes it very clear that CIL should not be levied at the expense of affordable housing provision. As a safeguard, affordable housing will be included in the definition of infrastructure and CIL may be used to fund it if necessary in the future.

The DCLG does not expect CIL to pay 100% of the cost of any infrastructure, or to fund existing infrastructure deficiencies, or act as an alternative to general local authority expenditure.

There is concern, particularly from the Home Builders Federation, that if the final definition is too wide the lack of clarity may result in each authority using a different "wish list" of infrastructure and extensive "wish lists" may make development unviable.

Developers will also be looking for safeguards in the regulations to ensure that the "infrastructure" funded by CIL receipts is not the same infrastructure which is required by additional Section 106 obligations.

How will CIL be calculated?

The level of CIL will be set by charging authorities, which may be the local planning authority, the county, borough or district council, the Secretary of State, the Welsh Ministers, the Mayor of London or any other authority with responsibility for town and country planning.

The CIL regulations will set out how to calculate CIL. A minimum threshold for CIL is expected, which will exclude householder development. The DCLG wishes to see more infrastructure funding from development than under the existing Section 106 regime; so the financial burden will rise.

The charging authorities will need to identify what infrastructure is needed, how much it will cost and what contribution each development should make to that cost. They are expected to have regard to development viability and to restrict CIL to items that have a reasonable prospect of happening within the plan period. CIL charging schedules are currently expected to be tested through the development plan process.

Drawing up these charging schedules will require a skill set and resources which do not currently exist within some overstretched local planning authorities. The development plan system is already struggling to produce Core Strategies following the 2004 Act reforms.

Local planning authorities following best practice should already be developing standard Section 106 charges in their development plan documents and they may therefore have already undertaken some of the necessary analysis to inform the CIL levels; but many are not.

The need to test CIL charging proposals may further slow down the development plan process and fail to provide the certainty, flexibility and responsiveness sought from development plans and CIL. This may simply move the delay thought inherent in agreeing infrastructure funding in Section 106 negotiations from the development control stage to the development plan stage.

When will CIL be calculated and paid?

The planned point of payment is commencement of development, with proposals to allow payment by instalments. CIL is anticipated to be calculated when planning permission is fully effective, which may mean the amount of CIL will not be known at outline stage.

The payee may be the landowner or the developer. CIL may be paid in money or in kind, for example by gifting land for a particular purpose.

Surveyors ultimately expect market value and bids to reflect the amount of CIL as a development cost. However, until CIL proposals are finalised, they caution that suitable provision will need to be made in contingent land agreements to ensure landowners are not left exposed to payment of CIL despite receiving market value already reflecting the levy, and to ensure that developers are not left to pay CIL twice by it not being reflected in market value calculations.

Will there be controls on how authorities spend the CIL receipts?

The CIL regulations may impose accounting, monitoring and reporting obligations on any body which is passed CIL receipts. The regulations may require the charging authorities to publish a list of projects be funded by CIL and make provision about repayment of unspent receipts. For some authorities this will represent a tighter regime than they currently accept under Section 106 Agreements.

Will there be sanctions for developers and authorities breaching the CIL regulations?

The DCLG is minded to propose that payment of CIL be enforced by halting development, or imposing a land charge on the property to be developed, with possible criminal offences for deliberately evading or obstructing CIL.

The Secretary of State may reserve the power to cap CIL levels set by authorities and to direct spending of CIL. However, these powers will be a last resort and, in the current climate of decreasing Governmental involvement in planning decisions, may be used very selectively and therefore have little controlling effect on authorities.

Will CIL replace Section 106 Agreements?

Not entirely. The Planning Bill and the recent proposals permit, but do not require, local authorities to charge CIL. CIL was preferred to PGS as it was more akin to the Milton Keynes tariff system which is currently in operation in some local authorities to calculate Section 106 payments. If local planning authorities have chosen not to, or do not have the resources to, draw up their own tariff systems under the existing Section 106 regime, it is questionable whether they would draw up CIL charging proposals under a permissive CIL regime unless they anticipate recovering significantly more funding from developers under this regime.

Where authorities do adopt a CIL regime, the DCLG currently anticipates that Section 106 Agreements will still be required in three areas: (1) non-financial, technical or operational matters; (2) site-specific impacts on the immediate area; and (3) affordable housing provisions.

When will the CIL proposals be finalised and CIL come into force?

The DCLG is currently informally consulting with a group including HBF, BPF, London First and the Major Developer's Group. It expects to formally consult on draft CIL regulations in Autumn 2008, with a view to finalising these in Spring 2009. The regulations will then need explicit approval in the House of Commons before coming into force.

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