The Government published a Policy Document on the Community Infrastructure Levy (CIL) on 5 August 2008. It gives the clearest picture yet of the likely size, scope and effect of the proposed reforms to the planning system. The Government intends that the reforms will speed up the planning process, giving more certainty and transparency to the planning gain system while making better provision for the infrastructure required to facilitate development.

The Planning Bill, which includes the relevant enabling legislation, is currently before Parliament. The relevant legislation will actually be implemented by the Secretary of State (with the consent of HM Treasury) laying regulations before Parliament. The Policy Document anticipates that this will be done in Spring 2009.

The Policy Document proposes that:

  • CIL will not be mandatory, but its adoption will be at the discretion of the relevant “Charging Authority” (ie District Councils, Metropolitan District Councils, Mayor of London etc).
  • Even if the CIL regime is adopted, the existing Section 106 arrangements will continue in respect of, at least, the provision of affordable housing (and possibly other matters).
  • The amount of CIL payable should be clearly and transparently set out in a “Charging Schedule” with the intention that there will be a greater level of certainty as to what charge is made in respect of any given development. A tariff-based approach is suggested, where residential developments may be charged a fixed fee per dwelling, with commercial development charged a fixed fee according to developable area (eg £X per square foot).
  • The CIL will capture contributions from a much greater proportion of development requiring planning permission than is currently the case (the Policy Document indicates that only 17% of planning permissions granted in 2005-2006 involved Section 106 contributions). The link between the development site and use to which planning gain funds are put (currently necessary) is likely to be broken.
  • The relevant Charging Authority may only use the CIL revenues for “infrastructure” although it is expected that the definition will be very wide. It is intended that the revenues should be used for new infrastructure projects, rather than addressing existing inadequacies (although, in practice, this differentiation may not be possible eg increasing the capacity of an existing traffic island).
  • Because the relevant Charging Authority will no longer have to demonstrate a direct relationship to the contributing development, it is hoped that CIL revenues will facilitate “sub-regional infrastructure projects” (ie those infrastructure projects affecting more than just one local authority).
  • Payment of the CIL will be triggered by commencement of development, rather than grant of planning permission and there may even be a payment window or payment instalment option to delay further the trigger date for payment (although not, it seems, to postpone the payment obligation to the date when the developer will actually realise its gains from the development). Clearly, this may impact on a developer’s cashflow, particularly if CIL payment mechanisms do not accommodate phased development.
  • There will be a limited number of exempt developments, although little detail is given as to what these may be. It seems clear that householder improvements (such as a conservatory or extension) will be exempt. The application for planning permission is the trigger point for inclusion within the CIL regime, so it would seem likely that any development not requiring planning permission will also be exempt (eg that undertaken pursuant to the General Permitted Development Order).
  • The tax treatment of CIL is briefly mentioned in the Policy Document which suggests that CIL will be “a deductible expense when calculating profits for Corporation Tax or Income Tax purposes” (with some exceptions in respect of non-trading fixed assets).
  • The CIL rates may vary from authority to authority, particularly as they are intended to reflect the anticipated costs of infrastructure projects (less any other available funding) in the relevant Charging Authority’s local development plan/regional spatial strategy.

Should I be doing anything?

  • Developers may wish to consider lobbying the relevant Charging Authority to include any particular item of infrastructure required to unlock their site in the local development plans.
  • Infrastructure contractors may also want to consider whether they should ensure that a forthcoming infrastructure project can be funded through the CIL.
  • Any Section 106 agreements entered into prior to implementation of the CIL should include transitional provisions.
  • If a developer feels that the total planning gain payable in respect of a development will be increased by the CIL, a planning application should be made prior to its implementation.
  • Clearly, local authorities will need to decide whether or not to implement the CIL regime. If they do implement it, they will need to consider the soundness of the existing development plans (eg in respect of the level of detail on proposed infrastructure). Setting the Charging Schedule at the right level will be absolutely critical, as will providing for the correct monitoring and auditing of both the collection and expenditure of the CIL revenues.
  • It seems likely that revenues arising from the CIL will be more certain and consistent than Section 106 revenue. This will allow for infrastructure projects to be “forward funded” in a way that may not be currently practicable. Regional Development Agencies (and bodies such as English Partnerships) may wish to create a Regional Infrastructure Fund (along the lines of the existing South West Regional Infrastructure Fund) to forward fund infrastructure projects in their region, ahead of the CIL contributions being received.
  • Existing private sector infrastructure funds should consider the implications of the proposed powers for local authorities to “lend, guarantee or indemnify” against the CIL revenue stream.
  • Lobby now for any changes to the proposed CIL structure, prior to regulations being passed by the Secretary of State!