The CIL regime has had more licks of paint than the Forth Bridge since the introduction of the Community Infrastructure Levy Regulations in 2010. Eight main sets of legislative changes improved neither its clarity nor its predictability.
The latest changes – in the Community Infrastructure Levy (Amendment) (England) (No 2) Regulations 2019 – will come into effect on 1 September 2019, if approved by parliament.
They require an eye for microscopic detail, but they should deliver a fairer and more effective system if accompanied by further reform and vigilance.
Context is king
The 2010 Regulations were a compromise – improving land value capture as a lever for growth, as envisaged by the Barker Review of Housing Supply (March 2004), while tying receipts to local infrastructure.
The CIL system works well in capturing value from small and uncomplicated sites. More than half of all permissions are now subject only to CIL, according to the Ministry of Housing, Communities and Local Government. For larger and more complex schemes, though, the Regulations are a swamp.
The current changes are rooted in reform of developer contributions announced in the 2017 Housing White Paper and Budget. They are aimed at extracting more value from land, more quickly, and ensuring local communities are aware of it, while making running repairs to the worst flaws.
Changes
The government sketched out the measures and then consulted in full technical detail in 2018. The changes (Box 1) are largely uncontroversial.
Penalties are more proportionate: failure to notify a start on site will no longer invalidate exemptions and reliefs. This addresses glitches in the self-build and residential extensions exemptions that have blighted householders’ projects. It will also benefit larger schemes. Outline permissions granted after 1 September 2019 will also no longer be exposed to CIL rate changes between grant of permission and reserved matters approval.
Indexation is clearer and more certain: replacing current “pay-to-view” BCIS indexation with a single, annual open-source RICS CIL Index. Communication is better: the duty to publish annual infrastructure funding statements (containing reports on CIL and section 106 collections/spending) will help in communicating the local value of the £6bn annual contribution to infrastructure funding from development. The published data will allow the developer contribution to affordable housing funding (which has risen by around 30%, to £4bn annually) to be better understood.
Other changes are double-edged. Shrinking the current two-step charging schedule consultation into a single stage, with no statutory minimum consultation period, benefits speed but not scrutiny. Withdrawing from CIL will also be also harder – the changes include a “walk of shame” consultation, highlighting how lost infrastructure funding will be replaced.
Section 106 monitoring fees are given a statutory footing. They must be proportionate “in scale and kind to the development” (not the obligations being monitored?). They cannot exceed “the authority’s estimate of its cost of monitoring the development over the lifetime of the planning obligations which relate to that development”. The change is unnecessary given that monitoring fees can already (only) be sought where specifically justified (Oxfordshire County Council v Secretary of State for Communities and Local Government [2015] EWHC 186 (Admin); [2015] PLSCS 43) and the limits of the new power will inevitably be tested.
Section 73
The existing Regulations are a quagmire for section 73 permissions, particularly phased schemes. The amendments helpfully consolidate and clarify how charging applies to different types of permission. They also allow reliefs and exemptions to apply after a section 73 permission is implemented (and rolled over in some cases).
Pre-CIL schemes are only intended to pay the difference in chargeable value where a section 73 permission is later implemented. The changes will allow phased schemes to “balance” credits between phases where chargeable value has shrunk and those where it has grown (as long as none of the phase boundaries have changed).
The changes also broaden those made under the Community Infrastructure Levy (Amendment) Regulations 2018, to ensure that charging authorities only apply indexation gain to the increase in chargeable value resulting from a section 73 permission (rather than the entire floorspace permitted by a section 73 permission). The clarificatory changes are – unhelpfully – not retrospective. Litigation of the position for pre-1 September 2019 section 73 permissions will likely ensue.
Overall, the price tag is greater complexity: a new schedule of calculation rules and concepts (“donating” and “receiving” phases, “notional” charges and reliefs, etc).
There are a host of other small fixes, including: for the previous, inadvertent, removal of CIL notice challenge rights for unphased schemes; ambiguity over commencement notice for self-build schemes; and preventing CIL deflation for outline schemes.
Dead pool dangers
The 2010 Regulations were set up to incentivise CIL adoption with the “tariff killer” restrictions in regulation 123(3) (prohibiting more than four planning obligations being a “reason for granting” permission for the same infrastructure since 2014). The restriction has caused delays for large schemes as imagination on justifications and workarounds has been brought to bear.
The deletion of regulation 123 has therefore been widely welcomed. Caution is needed, though: the restriction has been occasionally painful, but not insurmountable. It has floodlit the specific purpose, justification and necessity for section 106 contributions, and so slashed section 106 tariff arrangements which had tended to be imposed without testing at examination in public stage. The deletion allows tariff-style section 106 charging to return, alongside CIL, as a value capture tool.
That is fine where such charges are properly examined for justification and viability. If further layers of infrastructure charging come forward outside the plan-making and examination process, the legitimacy of the additional tariff charges versus land value expectation will be up for debate at the application stage. Given the government’s focus on increasing transparency and reducing barriers to delivery, this would undermine a fundamental policy objective.
Government should be clear – in line with judicial findings development charges should be adopted through an examined process (ie CIL or local plans ) (see Parkhurst Road Ltd v Secretary of State for Communities and Local Government [2018] EWHC 991 (Admin); [2018] PLSCS 80 and R (on the application of McCarthy and Stone Retirement Lifestyles Ltd and others) v Mayor of London (on behalf of the Greater London Authority) [2018] EWHC 1202 (Admin); [2018] PLSCS 99) unless authorities are prepared to accept that those charges will be adjusted for viability. With the implementation of a new strategic infrastructure tariff in the offing, that is crucial.
Double-dipping
Previous CIL guidance suggested that local planning policies should be set to avoid “actual or perceived double dipping” (ie requiring planning obligations to fund the “same piece” of infrastructure as CIL). The regulation 123(2) restrictions were ambivalent at best, though. Authorities very quickly diluted their regulation 123 lists to be very specific or simply excluded scheme-related mitigation. The assumption that there is a moral principle backed by real legal force has therefore always been risky. The government has now effectively restated that CIL is a general infrastructure charge – there is no right to expect that CIL will address specific mitigation requirements. That underlines the need to hold the local plan and CIL processes to account.
Fixes needed
It gets better, but not easier. Further “consolidation” is planned, the housing minister has said, but significant reform is still needed (Box 2). For strategic schemes, the Regulations are still an unhelpful straitjacket. The government should explore the use of CIL agreements – that preserve the overall CIL liability but allow it to be phased and offset by agreement. That should include fixing existing works in kind and land contributions allowances so that they alleviate the delivery burden on authorities and play to developers’ strengths. It should also consider extending the freedom now given to the mayor of London to repay specific infrastructure debt from CIL, to help forward fund infrastructure delivery where it is unlocking new homes.
Box 1: changes at a glance
- New section 106 monitoring fees power
- Pooling and double dipping restrictions removed
- Infrastructure funding statements required from 2020 (annual reporting on developer contributions, spending and CIL rates)
- Commencement notice penalties diluted
- Indexation arrangements clarified – RICS CIL Index from 2020
- Section 73 changes – balancing and indexation fixes, easing of relief arrangements
- Starter homes exemption clarified
- Charging schedule consultations reduced to one round with no mandatory timeframe
- Consultation where CIL is dropped
- Enforcement process upgraded: bailiffs replaced with High Court enforcement officer process
Box 2: reforms needed
The following should be allowed:
- CIL appeals to run where development is started
- Partial reviews of charging schedules (in line with the 2017 Budget) – provide flexibility to correct strategic site assumptions
- Authorities to borrow against CIL to forward infrastructure identified in local plans
- CIL agreements for major schemes, including works in kind arrangements
- CIL reviews to be triggered where high CIL rates are causing “red flag” failures (eg affordable housing yield)
Roy Pinnock is a partner at Dentons
