The Community Infrastructure Levy (CIL), the tax on development councils can charge to pay for infrastructure, has not always had a certain future, and a succession of reforms has made planning for CIL difficult.
The Government is now consulting on further proposals for reform, but in doing so has reaffirmed its commitment to CIL; maintaining the mantra that it offers a fairer, more certain alternative to negotiated Planning Obligations. Consideration should therefore be given to the latest proposals and how they might affect development planning.
CIL was introduced on 6 April 2010 under the Planning Act 2008 and the Community Infrastructure Levy Regulations 2010.
That was the year of the General Election, and as late as February 2010, the Conservative Green Paper, Open Source Planning, had seriously mooted its repeal.
The Coalition Government decided to retain CIL, but not without reform, which came under the Localism Act 2011 and by Amendment Regulations in 2011, 2012 and - just recently - 2013. These affected not only the procedure for adopting CIL, but also the way in which it is calculated and how it can be applied by councils. However, without belittling the significance of individual reforms, the fundamental principles and mechanisms for charging and collecting CIL have endured.
CIL has since been adopted by the Mayor of London and by 11 councils, including Bristol, Portsmouth, Shropshire and the London Boroughs of Croydon, Redbridge, and Wandsworth. Many more are in the process of adopting charging schedules. However, take up has by no means been universal, which is not surprising given the inherent complexities of CIL and the uncertainty over whether and to what extent it would be retained.
Like those that have come before them, the Government's current proposals for reform would refine rather than revolutionise the established framework. A total of 25 individual reforms are proposed, some of which will be hugely significant for development planning.
The Government's commitment to CIL is reflected in Regulation 123, which provides an incentive (and de facto deadline) for councils to introduce CIL by 6 April 2014. From that date, the ability to make provision for infrastructure by planning obligation will be significantly curtailed.
The proposals would give councils another year in which to adopt CIL by delaying the effect of Regulation 123 until 6 April 2015.
Ostensibly, this is to give councils more time to grapple with the Government's various reforms. However, with take up as slow as it has been, the reality is that, without extension, Regulation 123 will not only affect individual councils, it could seriously undermine the Government's national objectives of achieving growth through sustainable development.
Time will tell whether a year is sufficient time or whether a further extension or amendment to Regulation 123 will be required.
CIL is charged at a rate per square metre on the net increase in gross internal area resulting from development in accordance with a formula set out in Regulation 40.
The formula discounts the floorspace of any existing buildings which are to be demolished or retained as part of the development. However, this is currently conditional on those buildings having been in lawful use for a continuous period of at least six months in the year immediately preceding the date on which 'planning permission first permits the chargeable development'.
This is defined as the date on which any reserved matters have been approved and any pre-commencement conditions have been discharged. The proposals would change this, by removing the requirement for pre-commencement conditions to be discharged, but even so, the date might not occur until some time after planning permission was granted. This has implications, particularly for complex redevelopment or conversion schemes and sites acquired subject to planning, both in terms of timing vacant possession and demolition of existing buildings and in terms of proving that the buildings have been used lawfully and for the requisite period. This might, for example, necessitate a Certificate of Lawfulness and statutory declarations from previous owners and occupants, which would place administrative burdens on councils and developers alike. It also contravenes the principle that (subject to the doctrine of abandonment) buildings can be re-used for their lawful use without limit of time.
The proposals would therefore remove the occupancy condition altogether, which should be universally welcomed.
CIL rates are set locally by councils and differential rates can be set by reference to area and to the type of development proposed.
The proposals would allow councils to also charge differential rates according to the scale of development. The most obvious target of the change is retail development, where different rates might (in the Government's example) be applied to 'small shops, retail warehouses and supermarkets'. However, differential rates might equally be applied according to scale of residential development; with a higher rate being most likely levied on large development and smaller schemes paying less or being exempt from CIL altogether.
The Government recognises that rates will need to be set in such a way so as not to amount to state aid. They must also be balanced, under Regulation 14, in terms of their effect on the economic viability of development (large and small) within the council's area.
Section 278 Agreements
Where CIL is adopted, Regulation 123 limits councils' ability to fund infrastructure from planning obligations, but it does not apply to highway infrastructure funded by agreement under Section 278 of the Highways Act 1980. The proposals would change this. At first blush, this would appear to favour developers; limiting their potential exposure to infrastructure funding.
However, one advantage of an agreement over CIL is that it provides control over the delivery of the infrastructure where it is essential to the development. Accordingly, the regulations will need to be carefully drafted to ensure that developers' ability to deliver the highway infrastructure that it requires is not unreasonably curtailed. One option would be to allow such works to be delivered as payment in kind. This is not possible under the current regulations. It is, though, one of the proposals made by the Government.
Payment in kind
Currently, councils can accept transfer of land for infrastructure as a payment in kind of CIL. The proposals would extend this to allow councils to also accept the actual delivery of infrastructure. This would be subject to a capital value ceiling to avoid infringement of EU procurement rules and would only apply to infrastructure not otherwise required by planning obligation or section 278 agreement - though clearly, if section 278 agreements were brought within the ambit of regulation 123, the scope for making payment in kind would be broadened.
The reduction in CIL would initially be based on an estimate of the cost of the infrastructure with provision for the developer to make a balancing payment of CIL in the event that the actual cost of the infrastructure is lower than the estimate albeit no proposal appears to have been made for a rebate to be paid where the cost of the infrastructure exceeds the estimate.
Phased payments of CIL are currently possible on an outline permission allowing development in phases. The proposals would extend this to all permissions and in so doing overcome the issue that CIL falls due, in full, immediately on commencement of development, particularly where demolition/site preparation is undertaken as a recognisable first phase. To be effective, though, this proposal will require planning permissions to be clearly worded to that effect.
Social Housing Relief
The formula for calculating Social Housing Relief is complex, but the basic principle is that no CIL should be paid on the net additional floorspace which is affordable housing.
However, this only applies to social rented, affordable rented and shared ownership housing.
The proposals would extend Social Housing Relief to include other forms of affordable housing as well as the communal areas between affordable housing and other uses. This might include discount market sales subject to certain conditions such as the price being set at least 20% below market value; the housing meets the needs of those whose needs are not met by the market; and the housing either remaining at an affordable price or the social housing relief being recycled for alternative affordable housing provision.
The current proposals are open to consultation until 28 May.
Seen in the context of the series of reforms that have already been made to CIL, they would appear to reinforce, rather than undermine, the Government's commitment to CIL and to making CIL a genuinely fairer and more certain replacement for planning obligations.
However, the proposals also serve to highlight that CIL is complex. It therefore needs to be considered carefully in heads of terms, land agreements and in planning and construction phasing.
Despite its uncertain start and all the reforms, charging schedules are being proposed and adopted across the country. The full effect may well be delayed until 2015, but that is still only two years away.