The Community Infrastructure Levy (CIL) is a compromise. The Planning Act 2008 and the CIL Regulations 2010 (the 2010 Regulations) establish a voluntary regime for charging authorities, with restrictions on those that fail to adopt CIL.

Its original purpose was to provide certainty and consistency in securing infrastructure investment from development, as an alternative to pure planning gain. Poor policy choices, reflected in the 2010 Regulations, mean that it cannot perform as it should, however, and the regulatory framework is the legal equivalent of the Forth Bridge.

Back to the future

The Community Infrastructure Levy (Amendment) Regulations 2012 (the 2012 Regulations) came into force on 28 November 2012. They patch up CIL (see box, right), in particular by ensuring that applications to vary conditions, extend time limits or make minor material amendments to planning permissions do not create double liability for the same development. They also correct some errors in the CIL calculation formulae. However, the tinkering does not address all the concerns about fitness for purpose and the scope for abuse that materialised in 2012.

First, it undermines plan–led growth. Charging authorities must be able to show that their CIL will not "make development of [their] area economically unviable". In reality, though, many authorities seem to prefer CIL cash to affordable housing and are setting rates to suit. By August 2012, at least five of the 43 English councils with published charging schedules had assumed affordable housing targets lower for CIL modelling than in their adopted development plans (see Inside Housing 8 October 2012).

In several cases, CIL has been accompanied by detailed new policies on section 106 mechanisms to deal with viability problems. Clear policies on viability are welcome (and overdue) but their adoption in tandem with CIL may suggest a structural flaw in the approach or a policy choice that should be effected through the local plan process.

Second, there is inappropriate use of differential rates. Areas and uses may have different CIL rates (under regulation 13 of the 2010 Regulations), but authorities and affected developers must always address two questions: is there evidence of a genuine land use distinction that enables CIL to be applied in practice; and, if so, are there real viability differences between that use or area and others? In 2012, the answer often proved to be no (see below).

The latest charging authority gimmick is to seek a higher CIL charge on development without affordable housing than development with it. How market housing being charged CIL changes in intended use when it has affordable housing as a neighbour remains to be explained at examination in public.

Third, despite being heralded as a fix, the revised CIL formula is still opaque and can give rise to wildly counterintuitive outcomes. The formula still differentiates between refurbished and demolished space. Although it gives credit for both, it effectively over–credits uses in refurbished space and under–credits new–build floorspace.

For example, in a 30,000 m² site in existing use, of which 10,000 m² will be demolished, with 20,000 m² residential new–build and 20,000 m² office in the refurbished space, assuming a £50 per m² rate for residential and a £10 per m² rate for office, there would be a CIL liability of £700,000. If the residential element is delivered in the refurbished space instead, the CIL liability falls to minus £100,000.

Properly advised, developers can exploit the anomaly significantly to reduce their CIL liability on schemes where there is substantial demolition (including permitted development changes of use from office to residential, which will still be liable to CIL in certain circumstances). The indexation formula is also an accident waiting to happen since it will deflate CIL charges when second schedules are adopted.

Finally, and crucially in 2013, developers have awoken to the uncertainty about whether CIL receipts will actually deliver new or improved infrastructure to meet development needs. There is no duty on charging authorities to spend CIL in a particular way or at a given time. CIL may now also be used for the improvement, replacement, operation and maintenance of existing infrastructure as well as provision of new. As a result, there is no clear investment pathway for CIL monies in tandem with development.

Planning conditions may still be used to secure a widening list of site–specific requirements (as described in the CIL guidance (the guidance)) and developers and authorities should work together to create delivery mechanisms to ensure that the infrastructure required by such restrictions will be delivered, including procurement frameworks that incentivise developer participation.

New guidance

Charging authorities must have regard to the statutory guidance in preparing their charging schedules. The guidance, published in December 2012, is intended to limit abuse of the system.

Charging schedules should now "be consistent with and support implementation of" up–to–date local plans. The guidance sets an expectation that CIL will not be brought forward unless there is an NPPF–compliant local plan in place. Authorities (and where they are interested, developers) should carefully check whether the underlying plan, if examined and adopted before March 2012 when the NPPF came into force, is truly up to date.

Authorities must now positively show and explain how proposed CIL rates will contribute towards the implementation of their relevant plan as a whole and support the development of their area. They must also have a genuine understanding of the total infrastructure requirement flowing from the development plan. Examiners must now establish that they have complied with the statutory drafting requirements.

This will be relatively easy to satisfy where viability testing of key development plan allocations and development types is done properly. Recent section 106 performance will also now be probed at examination, in particular affordable housing. Where authorities are deeply discounting their development plan requirements already, they will struggle to justify incompatible CIL rates. Authorities should also examine the viability of strategic sites and, in exceptional cases, the realism of some allocations will have to be revisited where they have been said to be unable to bear any CIL.

Look to windward

In 2013, advisers must be able to fully understand CIL liability and identify the most CIL–efficient route for delivery. The introduction of a local share of CIL – up to 25% for neighbourhood forums – offers an opportunity to sell major development to local people that developers should embrace. Properly structured, the CIL receipts can also be a material consideration for the planning authority and help get proposals across the line. Conversely, if CIL receipts are not dealt with adequately in officer reports they will present yet another justification for judicial review of permissions.

Sensible reform of CIL is unavoidable if it is to serve its purpose. The law on pooling restrictions, as stated, is not what was intended, because regulation 123 of the 2010 Regulations restricts reasons for approval, not reasons for refusal. Nor does it control the use of planning conditions. Positive conditions for on–site infrastructure and negative "Grampian" conditions for off–site requirements may still be used in the right context.

The guidance requires authorities to make a clear statement about how CIL, section 106 and conditions will be used together. But in requiring areas where section 106 will continue to be used for specific on–site infrastructure to be set out, the guidance appears to recognise that reasons for refusal based on the failure to deliver some forms of (what would otherwise be regarded as pooled) infrastructure are unavoidable.

The fact that authorities are currently not allowed to use CIL to repay debt should also change if the responsibility for planning infrastructure delivery is to be translated into a desire to do it. Developer works in kind should also be capable of being off–set against CIL. Allowing only the value of the land (not the cost of the works) to be netted off is pointless and undermines the ability to harness developer expertise in delivering infrastructure quickly and early in the development process.

Hiding under the layers of legal obscurity and practical folly there is a system that can be made to work. The new guidance is a step forward, but often steps beyond the remit of the examination process and is no substitute for proper reform of the law. Advisers should also be giving authorities and developers clear routes to deliver infrastructure in tandem with major development. Both the procurement regime and section 106 system can be used to create greater certainty about delivery.

Used properly, both can provide incentives for developers to participate in the delivery process.