Partner Article

Will government reforms on the Community Infastructure Levy (CIL) prove positive?

Darron Barker, Head of national commercial property consultancy Lambert Smith Hampton’s (LSH) Newcastle office, considers the Government’s latest reforms to CIL.

What is CIL?

CIL is a new levy designed to enable local authorities to raise funds from developers undertaking large scale projects in their area to pay for supporting infrastructure works. It applies to all planning permissions in areas with an adopted CIL (including some permitted development) for new builds of 100 sq m or more of gross internal floor space or one or more dwellings, even if below the 100 sq m threshold. Following a consultation by the Department for Communities and Local Government (DCLG) on CIL reforms in April 2013, new regulations were laid before Parliament in December 2013.

What is the extent of the reforms?

The main thrust of the reforms to CIL is a 12 month extension to the adoption deadline. Although welcomed, it is rumoured that around 55% of councils will still miss the new deadline of April 2015 because of already overstretched resources and the mere fact that they will still be able to apply section 106 planning obligations to specific developments.

Other significant changes include the introduction of an “Evidence Based Test” designed to strike an ‘appropriate balance’ between the funding of infrastructure from CIL and its potential effect on the economic viability of development; ‘payment in kind’ provisions to allow developers to pay CIL via the provision of on-site and/or off-site infrastructure; and reliefs and exemptions for charities, social housing, those building for themselves and exceptional circumstances.

Why the need for change?

CIL was conceived by the previous government in very different economic circumstances to those that exist today. The theory was that section 106 would become a minor element, however the main concern is that CIL will become one of three taxes that exist in parallel to affordable housing and section 106 contributions. The economic downturn experienced in the North East region has given local authorities little encouragement to do away with section 106 agreements and affordable housing.

It is becoming increasingly apparent that CIL is viewed as an extremely complex tax that is proving very difficult to unravel and implement, particularly in the north of England where development viability is a real issue. The consequences of this are very dangerous in an area that desperately needs new development.

The inappropriateness of CIL in a depressed marketplace is contributing to the failure to deliver development which has been rendered even more unviable than it was before. There is a school of thought that councils may see CIL charge rates as a way of supplementing their income in order to counteract the squeeze on their budgets. Developers may well encounter situations where they are paying both under CIL and section 106 agreements, which is actually prohibited under the Regulations. The retail sector is concerned that some local authorities may be proposing a two tier levy in the form of a higher charge for out of town retailers which is being viewed as a way of seeking to rebalance development towards the high street.

Where do we go from here?

The reforms are intended to come into effect early this year, with the objective being to improve the understanding and operation of CIL.

The proof will, as they say, be in the pudding and it will be interesting to see if the reforms do in fact unlock swathes of new development before the next General Election. So far, the reality is that CIL is creating more confusion and inefficiency than the section 106 process.

This was posted in Bdaily's Members' News section by Rosie Bellerby .