Partner Article

Waiting with bated breath

ACROSS England and Wales, local authorities are taking important decisions about the Community Infrastructure Levy (CIL) and what charges to exact – if any – on new developments in their area.

This levy is designed to be fairer, faster and more transparent than the previous system of agreeing planning obligations between local councils and developers.

Local authorities can choose not to impose CIL but in areas where a CIL is in force, land owners and developers must pay. The charges are set by the local council, based on the size and type of the new development.

If CIL charges are too low then local authorities will not be able to fund vital infrastructure. If they are too high this may render new development unviable with a knock-on effect on growth and new jobs.

The new CIL system has a number of benefits. It gives local authorities the freedom to set their own priorities and a funding stream. It also gives developers more certainty about how much money they will be expected to contribute. The name itself also makes the system more transparent for local people, and local authorities have to report what they have spent the levy on each year.

The application of CIL must be positive and constructive. It must not be a charge that will arrest much-needed development and economic growth. The development sector in Newcastle and the wider region is delicate. Imposing too high a levy will dissuade the landowner from selling, the developer and funder from developing, or the buyer of the property from buying.

Under the proposed CIL system, once a charge is set it is fixed and non-negotiable. This means that a local authority must be extremely careful to ensure that a sophisticated and sensitive approach is taken to CIL.

Using residential development as an example, at present the full impact of the CIL charge is likely to fall upon the landowner and be deductible from the price for the sale of the land.

Over time, the market dynamics will change. The competition for sites will increase with the likelihood that the house builder will absorb some of the CIL charge. As high demand for houses emerge, the house buyer, supported by his or her lender, will pay for the CIL charge in the purchase price.

Many believe that the CIL is a “blunt instrument” which will operate well in areas of rising value such as London and parts of the South East of England but not in other regions.

Ideally, local authorities need to have greater flexibility and discretion to operate CIL. In the meantime, there is a point in the CIL charging rate that would allow each property market to operate – the art is to find that equilibrium rate.

This was posted in Bdaily's Members' News section by Kevan Carrick .