Why CIL’s inflexibility could prove its downfall
Amid the current turmoil, I think I might be the only person to have noticed the 10th anniversary of the coming into force of the Community Infrastructure Levy (CIL).
The levy is a charge on new development levied by local authorities. The rate is set per square metre locally, and the revenue funds infrastructure projects. For example, the mayor of London charges £80 per square metre in central London.
In 2017-2018, CIL raised £457m across England and Wales. Revenue has been steadily rising since CIL was introduced, with over 160 local authorities charging CIL by May 2019 and, according to one December 2019 estimate, another 40 authorities or so preparing to introduce the charge. That would mean over half of all local authorities have decided to deploy CIL in their areas.
Amid the current turmoil, I think I might be the only person to have noticed the 10th anniversary of the coming into force of the Community Infrastructure Levy (CIL).
The levy is a charge on new development levied by local authorities. The rate is set per square metre locally, and the revenue funds infrastructure projects. For example, the mayor of London charges £80 per square metre in central London.
In 2017-2018, CIL raised £457m across England and Wales. Revenue has been steadily rising since CIL was introduced, with over 160 local authorities charging CIL by May 2019 and, according to one December 2019 estimate, another 40 authorities or so preparing to introduce the charge. That would mean over half of all local authorities have decided to deploy CIL in their areas.
Challenges in a crisis
Most of the money is raised in London and the South East of England: of that £457m, roughly a quarter – £108m – was raised by the mayor of London to contribute towards the cost of Crossrail, and his CIL has raised a whopping £490m since it was introduced in 2012.
Even so, CIL has been subject to many criticisms, leading to various reviews such as that led by Liz Peace.
The main complaint is the levy’s complexity, which was layered on top of an already unpopular system of negotiated contributions (planning obligations, which mostly fund social housing). Developers also complain about a failure to spend CIL receipts in a timely way, and the potential for CIL to stop otherwise viable development happening in the first place.
This last objection is the one that really counts in our current circumstances. During its 10-year lifetime, CIL has benefited from a benign environment of economic growth and almost continual rises in land values, especially in London and the South East, and excepting retail property.
But the Covid-19 outbreak seems likely to cause a recession, with land values potentially falling sharply in the short term.
Press pause
Crucially, there is no speedy mechanism allowing CIL rates to react to a dramatic change in land values. Unlike most other property taxes, CIL is levied on a pounds per square metre basis, not as a percentage of sale value. So, if the costs of a development scheme (including CIL) stay broadly the same, while the sale price falls, then the profitability of the scheme may go negative. The scheme gets delayed.
There are plenty of other reasons why development schemes won’t proceed in a recession. CIL might be the least of a developer’s worries, and the negotiated element of developer contributions could absorb some of the shock.
But CIL’s inflexibility could prove its downfall if the forthcoming downturn is anything other than a short sharp shock. Covid-19 has created the biggest test which CIL has yet faced. If the downturn is lengthy, local authorities may need to hurriedly cut CIL rates to help return development to viability. Or press the pause button on introducing CIL altogether.
Miles Gibson is executive director, research, at CBRE
