Breaking down the levy

The government recently published further details of the Community Infrastructure Levy (CIL), the new tax on development. The powers to impose the tax are contained in the Planning Bill, which provides a framework for detailed regulations - expected to be in force in 2009. The government guidance explains what the regulations are likely to contain, but much remains speculative.

The purpose of the CIL is to generate funds for the infrastructure needs of development identified in the development plan for the area. It is one of several ideas conceived during a buoyant market, but the claim that “CIL is expected initially to raise hundreds of millions of pounds of extra funding per year towards the infrastructure that local communities need” now seems rather optimistic.

CIL is intended to be forward looking and not meant to correct existing deficiencies. It will be levied by local planning authorities on a per dwelling, per habitable room, or per square metre basis in accordance with a charging schedule. In drawing up its charging schedule a local authority may make reference to the likely increase in value arising from the grant of planning permission. Different charges can be applied to different classes of development or to development in different areas. In abstract this is simple enough but the guidance acknowledges that more work is required

CIL is not intended to replace planning obligations. It is, however, clearly intended to be a means by which local authorities can raise additional funds without being constrained by the tests of necessity, reasonableness and relevance to the particular development contained in circular 5/2005. Many in the industry will have come across local authorities who do not appear to have been inhibited by those constraints.

The charge is payable on the commencement of development but the government guidance suggests that “planning permission” and “commencement” may be given special definitions for the purposes of CIL, so that payment does not fall due until all reserved matters have been approved -or that payments are staged throughout phased developments.

It is clearly intended to be a means by which local authorities can raise additional funds without being constrained by the tests of necessity, reasonableness and relevance to the particular development

The paper contains a brief reference to the need to ensure that charges are not set at a level which could prejudice the viability of a development, and speculates that the number of cases where the level of charge set may not be affordable will be “very small”. It recognises the importance of skills needed to assess economic viability and points out that charging authorities will need to identify deficit funds and have skills in funding, financing and infrastructure delivery. There is no reassurance for the development industry that the CIL is contingent upon these skills being resourced and applied effectively or that new infrastructure will be delivered on time.

Crucially, a local authority will only be able to levy CIL if it is based on an up to date adopted development strategy for the area in which they propose to chase, and following consultation and review in a similar manner as for Local Development Documents.

The proposals as a whole assume that local authority forward planning and assessment of infrastructure requirements will be speedy and efficient, and that the CIL charging regime will be kept under frequent review and applied flexibly. For those local authorities who are not able to achieve these exacting requirements, Section 106 planning obligations will still be available as a means of funding infrastructure for the time being. In the longer term, the Government proposes to review planning obligations.

It is probably no coincidence that in the same week that the CIL paper was published the Department for Transport has published draft guidance on the funding of road and rail infrastructure for strategically significant developments such as ports and airports. There is a welcome recognition that there should be fairness and transparency in assessing funding proposals, and a recognition of the wide range of beneficiaries of new major infrastructure which extends beyond the customers of the strategic development. The same basic principles are mirrored in the CIL but there are huge complexities in devising an equitable tax on local development and then producing the infrastructure which it is intended to fund.