Comment upon the Community Infrastructure Levy

The Government included provision in The Planning Act 2008 (www.opsi.gov.uk) which received Royal Assent in November 2008 for a Community Infrastructure Levy ('CIL') in England and Wales. Detailed proposals and draft regulations were published on 30 July 2009 and the consultation period for these has recently closed. It is expected that the Department of Communities and Local Government will lay CIL regulations in Parliament early in the New Year with the intention that they come into force on 6 April 2010.

CIL is a charge on development which local planning authorities (District and Unitary Authorities and National Parks) can choose to set and which is aimed at helping fund infrastructure developments identified in their development plans.  Local planning authorities will be empowered (but not required) to implement CIL; The Planning Act 2008 defines what types of infrastructure projects are covered and these include transport, flood defences, recreational facility provisions and open spaces. 

CIL will sit alongside the existing Section 106 provisions and it is expected that, in time, the scope of Section 106 provisions will progressively reduce and focus wholly on affordable housing.  CIL will be a mandatory charge rather than a negotiable Section 106 agreement and will, accordingly, be more inflexible in nature. It is expected to be based on a simple formula which will relate the size of the charge to the size and character of the development at £ per square metre of gross internal floor space with no liability in respect of the use of open land nor sub-surface development.

Local authorities wishing to introduce CIL will have to have an up to date development plan. In addition, Councils will need an infrastructure planning process in place, based on the development plan vision for the area, to enable them to identify the likely infrastructure requirements and costs as the basis for the CIL charging schedule. Deducting the sums likely to be available from mainstream funding programmes will largely set the shortfall to be raised from CIL.  Where authorities opt for CIL, there will need to be a whole new set of governance arrangements for the collection and spending of the funds.

We accept that there is a place for a CIL regime and feel that our clients would, in principle, be receptive to a framework that is transparent, equitable, administratively efficient and has a clear nexus to their specific developments. The draft proposals fall some way short in satisfying these requirements. Our specific observations in relation to the proposals are set out below:

• It is expected that the liability for CIL will fall on landowners, because developers would negotiate a discounted land value for land when they buy it, to offset their CIL liability.  This could, in turn, have implications for the supply of land available for development.
• Having CIL sit alongside Section 106 (whose scope will admittedly be reduced) is an imperfect solution.  A better solution would be to have a consolidated approach where account was taken of both elements in the context of a development.
• We consider that (a bit like the REIT legislation) it is probably the worst time in the property cycle to introduce this levy and care needs to be taken so as to ensure that development activity is not either delayed or shelved on the basis that it is no longer economically viable with the imposition of a CIL. 
• A great deal of power is reserved for local authorities with limited checks and balances.  There is also a big question mark over whether local authorities have the resources and infrastructure to implement CIL properly - if they do not then we will end up with an imperfect regime and we consider that the proposals present every opportunity for that to happen.
• From a taxation perspective relief must be made available for property investors and investor-occupiers for any payments made under CIL and the current distortion in the provisions removed.
• There is no obligation upon local authorities to deliver infrastructure relevant to a specific development project. Accordingly, there is the potential for CIL to be purely a tax.

We will be following the progress of CIL over the coming months.  It would be fair to say that many of the parties who have publicly responded to the consultation have expressed their strong reservations over the format of the proposals. It is hoped that the Department of Communities and Local Government will take proper account of these in formulating the final regulations in order to ensure that they are made as attractive as possible.