Now does not seem a good time to introduce a new and controversial land tax that may pull some funds into local infrastructure provision but will certainly add confusion and uncertainty at a time when the economic system is least able to absorb it.
Community Infrastructure Levy
In 2007 the planning gain supplement (PGS) was shelved after an outcry from both private and public sectors. The government is now legislating for mark two: the community infrastructure levy (CIL). Provisions to introduce the new tax are contained in the Planning Bill, now before Parliament, and are expected to come into force in autumn 2008, although much longer will be needed to get the tax off the ground. The current realm of s106 agreements under the Town and Country Planning Act 1990 is set to change, and developers need to make themselves aware of the CIL regime. The problem, as always, is to know what changes are coming. The CIL suffers from the same basic flaws as its predecessors, and the government has done little to address them. The legislation and accompanying advice offer minimal guidance. Until regulations and statutory orders are made it is difficult to know the details. Cynics may plan on the premise that it will never come into effect, but for most of us the task is to make sense of the legislation and plan for it.
The CIL is not a national payment but an optional, locally set payment. Regulations are unlikely to come into force until spring 2009 and will enable authorities to produce a charging schedule that will set out the infrastructure requirements for the area. This will be consulted through the local development framework process. The charging schedule is to be flexible to react to changes in values, and charging is to be set at a level to encourage – rather than inhibit – development.
This will be based on evidence of uplift in value due to the granting of planning permission, taking into account elements such as the requirement to provide affordable housing on-site. How many hard-pressed authorities have the resources and know-how to plan, cost and take through the local planning process such controversial proposals? Relatively few, one suspects.
CIL liability and application
The amount of CIL payable will be calculated when the planning permission is granted or, as the case may be for outline applications, at the approval of final reserved matters. CIL revenues will be spent on infrastructure to support the development of an area. Here is the second problem: developers are used to paying for the social infrastructure required, but they need to be sure of delivery. Paying very substantial sums to a local authority without any guarantee of when the infrastructure will be provided is not a game the private sector will play.
What is infrastructure?
The meaning of infrastructure is being defined widely, to include: schools, local healthcare, public and community transport, cycling and pedestrian facilities, flood defences, parks and green spaces, police stations, community safety facilities, and sports and recreational facilities. Affordable housing has been included as an afterthought to provide an alternative to s106 contributions.
Funding infrastructure
The advantageous predictability of CIL receipts will allow local authorities to bring forward capital funds, known as forward funding, from public-sector bodies such as English Partnerships or the regional development agencies. At a sub-regional level, local authorities can work together to pool CIL revenue to address the sub-regional infrastructure requirements identified in the regional spatial strategy.
Exemptions
There are a number of exemptions under the new CIL regime that may prove fruitful for planning applicants. There will be no liability to pay CIL when it is below the de minimis threshold, no liability for household developments by homeowners, and there will be a series of other exemptions as set out in regulations. The new regime deems that such other exemptions must avoid definitional issues to avoid challenge and uncertainty, must not create undue distortions of competition (illegal state aid), must not create perverse incentives to develop in an undesirable way when the exception depends on a threshold and, finally, must not lead to the charging authority suffering a disproportionate loss of revenue.
Payment of CIL
A granted planning permission will set out the number of CIL-chargeable units the developer is permitted to build, whether they are housing, commercial and/or industrial. The amount of CIL payable will equate to the number of CIL-chargeable units multiplied by the rate in the charging schedule, but this will also be subject to indexation. The developer will issue a CIL commencement notice, including information on the date of commencement and the parties liable to pay CIL, which can be withdrawn and re-submitted if circumstances change.
CIL liability arises on commencement and, when the development is phased, CIL liability will arise separately in respect of the commencement of each phase. The landowner, developer or a third party may be liable to pay, as set out in the commencement notice identifying the party, and liability may be joint and several. The regime accounts for CIL being payable within a 28-day payment window, with payment by instalment being possible for developers with CIL liabilities that exceed a certain threshold. However, payment by instalment is not available to developers who fail to submit a commencement notice before beginning work.
consequences of non-compliance
There are a number of measures that may result as consequences of non-compliance with the CIL regime:
- Interest: the charging authority will be permitted to add interest when payment of CIL is late.
- Surcharge: the charging authority may impose
- a 5% surcharge when payment is outstanding beyond 28 days, with the option of an additional surcharge after 90 days outstanding.
- CIL stop notice: a legal requirement to halt development when payment is overdue and the warnings of CIL stop notices have been ignored.
- Seizure of assets: the charging authority will have the power to seize assets of the liable party to recover the amount owed.
- Criminal offence: the charging authority can apply to the magistrates for the party who failed to meet the CIL liability to be imprisoned for up to three months.
It is important to note that there may be rights to appeal against these sanctions.
The Future of s106 Planning Obligations
Local authorities will have the choice as to whether to adopt the CIL system in their area or continue using the planning obligations that currently exist under s106. Where CIL payments are in force, planning obligations are likely to have reduced scope, limited to affordable housing and matters relevant to the development site only – ie physical access, physical safety and design/landscaping. The government is considering whether there could be a common starting point for negotiation on affordable housing, reducing the time for negotiation of s106 obligations. Planning obligations may also be used to deliver land for community facilities, such as schools, rather than forcing authorities to purchase or compulsorily purchase land.
Section 106 agreements and unilateral undertakings will still be used for developer contributions towards affordable housing so that it is provided on-site, regardless of the fact that CIL revenue is to be spent on infrastructure, which includes affordable housing. There has been concern that there will be lower levels of affordable housing if CIL is not set at a sensitive level. This will be monitored by the government, who are not intending to ‘top-up’ affordable housing contributions from s106 obligations with CIL, but will do so if evidence shows that CIL is reducing affordable housing provision.
Double payment
Another issue that is yet to be addressed is the potential for ‘double payment’ and the classification of on-site and off-site infrastructure. Take the following example:
- Planning permission is granted for a development that will affect a junction in the vicinity of the site. The council may wish to place a condition on the planning permission that the development cannot be occupied until improvement works are undertaken on the junction.
- Where the CIL is in force, we can see that these works are off-site infrastructure, which may be included in the CIL charging schedule. However, there may be no guarantee of when these works will come forward under the CIL.
- If the condition is imposed it will sterilise the development unless the developer undertakes the works, potentially having to pay twice.
- If those junction works are not set out in the charging schedule, the developer will have to pay CIL according to the charging schedule and pay for the works to be undertaken, even though they are not on-site works.
Watch this space
This is a developing scenario. Legal drafting needs to include CIL provisions, but just how to provide for the possible eventualities is a work in progress until more is known.
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