Indexation can be a minefield, with inaccurate formulae leading to unintended and often expensive consequences. The indexation provisions of the Community Infrastructure Levy Regulations 2010 (CIL Regulations) have recently come under fire, with an appeal on their interpretation going before the Valuation Office Agency.
On 9 February 2018, The Community Infrastructure Levy (Amendment) Regulations 2018 (2018 Amendment Regulations) came into force. These clarify what should be done in relation to permissions granted under section 73 of the Town and Country Planning Act 1990. This is the sixth set of Amendment Regulations, which only serves to expose the lack of understanding of the planning system the government had when the regulations were originally drafted .
Section 73 permissions
CIL is only chargeable where planning permission is granted after a CIL charging schedule has come into force. Therefore, there are still areas of the country where CIL is not payable. Some of these authorities are in the process of bringing in CIL; others have not even started to consider it.
When the CIL Regulations were originally passed, they did not deal with the situation where a planning permission was granted before the introduction of a CIL charging schedule, and a change was then made to that planning permission under section 73 of the Town and Country Planning Act 1990 after a CIL charging schedule had come into force. This meant that, under the CIL Regulations, as originally enacted, CIL was chargeable on the entirety of the development.
The 2012 Amendment Regulations changed this so that applicants only had to pay CIL on any net extra floor space that they had added by using section 73 to amend the planning permission.
What was the issue with indexation?
The amount of CIL charged is index-linked by reference to the national All-In Tender Price Index published from time to time by the Building Cost Information Service of RICS.
However, the drafting of the CIL Regulations did not make it clear whether, in applying the formula set out in Regulations, the index figure for the year of the original planning permission or that of the section 73 permission should be used.
Given that the original permission would not be subject to CIL at all (having been passed at a time when a CIL charging schedule had not been adopted), the common sense view would be that the index figure for the year of the section 73 permission should be used. However, the lack of clarity on the point had already led to one appeal to the Valuation Office Tribunal. In that case, it was decided that the figure for the year of the section 73 permission was the correct one.
The government has brought in the 2018 Amendment Regulations to avoid any further confusion on the issue. .
These 2018 Amendment Regulations are unlikely to be the last that we hear of CIL in the coming months. In the Autumn Budget, the chancellor announced a proposal to remove the current restriction on pooling contributions under Section 106 Agreements. The government has also suggested speeding up the process of setting and revising CIL, to enable areas to implement CIL more quickly. Other proposals set out in the Autumn Budget include changing the indexation of CIL rates to house price inflation, rather than build costs, to ensure that CIL rates keep pace with general housing price inflation. An option to charge a Strategic Infrastructure Tariff (SIT) to pay for major pieces of infrastructure may also be introduced. This will operate in a similar way that London Mayoral CIL is providing funding for Crossrail.