CIL, unintended consequences and the ‘Boris bite’

I have written, at some length, on the introduction of the National Planning Policy Framework (“NPPF”) and still have some lingering concern that the in-built tensions between the presumption in favour of ‘sustainable’ development and the Coalition’s ‘Localism’ agenda will inevitably lead to both a diversity and inconsistency in planning decision making across England. 

The distillation of the accumulation of years of planning guidance into the concise NPPF designed to encourage ‘sustainable’ development (subject to protections for good design and protected land and sites including the Green Belt) has been a fractured and often bruising process. It has been broadly well received by the property industry but less so by those with an interest in protecting the natural and built heritage.

But will the NPPF actually deliver?

The NPPF, in my view, cannot and must not be viewed in isolation.  The financial implications of the community infrastructure levy (“CIL”) and the Mayor's community levy which revenue is to fund the Crossrail project (“Mayor's CIL”) must be taken into account.  There is a real risk that these may prove less palatable and ultimately impact on the financial viability of some schemes, especially around London.

So let us look at what the CIL is.

CIL is essentially a "tax" on development which is designed to be pooled by the relevant local authority to fund a range of infrastructure. The intention being to formally take a number of such contributions outside of the scope of section 106 Town and Country Planning Act 1990 (as amended) Planning Obligations and consequently outside the scope of avaricious local authorities and their ever ambitious ‘shopping list’ of funding desires. One of the charges against the planning system was that local authorities were able to hold developers to ransom with their financial demands when the only alternative was a time consuming and costly challenge by way of appeal following the inevitable refusal. CIL was and is seen as the way to provide greater clarity and certainty for developers in terms of the costs of their financial infrastructure contributions. Although the provision of affordable housing and narrow site specific considerations currently remain outside of the CIL regime there is consideration currently being given to whether and how affordable housing provision should and can be included within CIL.

Increasingly local authorities are adopting CIL. According to Planning Blog’s latest count (Jamie Carpenter CIL Watch #14 20^th April 2012),

“there are now 38 CIL charging authorities in England that have published CIL charging plans. Of those, five are already charging the levy (Newark and Sherwood, Shropshire, Redbridge, London mayoral CIL) and one (Huntingdonshire) is set to start charging on 1 May 2012. Two authorities (Wandsworth and Poole) are currently at the examination stage. A further nine have begun consulting on draft charging schedules, while 21 are at the preliminary draft charging schedule stage.”

In terms of the process of putting a local CIL regime in place local authorities must first consult on a "charging schedule" which sets out the amount payable in respect of different types of development. This will also include how it should be paid, what reliefs have been adopted, and what it is to be spent on. Proposed infrastructure projects need to be identified and costed for this exercise to have any significant validity.

Developers are to be encouraged and advised to make representations as part of the consultation process to persuade authorities to adopt relevant discretionary reliefs and procedures. These could for example include discretionary charities exemptions, payment by instalments, and the exclusion of certain types of development like development for educational purposes.

It is of course critical that developers consider very carefully the viability assumptions made by an authority in its CIL calculation and comment thereon because once set and applied to any particular development the CIL payable as a result thereof is non-negotiable and falls due (subject to any instalment provision applicable) on commencement of the development.

The Mayor's CIL is separate and came into force on 1 April. It applies to most development across London and according to recent anecdotal evidence led to something of a spike in section 106 planning gain deals being agreed ahead of this date. Schemes with planning permission but where no section 106 agreement was tied up before 1 April have to pay the Mayor’s CIL contribution on top of the section 106 payment to the relevant borough.

There are three bands of charge in the Mayor’s CIL depending on which borough the development is located in. The amount is chargeable on net additional floorspace of a development (subject to conditions). There is a nil rate charge for development for use by education and health services. The Mayor's CIL is payable on commencement of a development.  Of greater concern is that there no provision for (i) payment by instalments or (ii) charities exemption and the Mayor has elected not to adopt relief for "exceptional circumstances" which might apply where there is more payable under an existing section 106 agreement than would be payable under the CIL, and the difference may impact on the viability of the scheme. The Mayor’s CIL is apparently referred to in the property industry as the ‘Boris bite’. 

Another unintended consequence of CIL is the potential impact on the self-build industry.  The Coalition Government has recently announced a new package of support for the self-build industry. The launch by housing minister Grant Shapps was joined by a panel of celebrity house-building experts and the minister subsequently used the micro blogging site Twitter to say that the “Average cost of a new home is now over £232,000. By contrast a self-builder can build a 3-4 bed home for £150k”. I have asked the minister, by the same medium, “Does the £150K figure include land acquisition, CIL / other s106 planning obligation costs & any associated professional fees?” but so far he has not replied. 

But of more concern is that self-builders themselves are saying that some emerging CIL payment policies take no account of the size of residential schemes with the effect that there may be cash flow problems for smaller projects. This arises where the CIL charges only allow payment by installments for CIL levels above minimum thresholds which automatically disadvantage self-builders who inevitably face smaller CIL charges.

As much as these new provisions are to be welcomed I take the view that, regardless of your view of the NPPF, there is still work to be done to ensure transparent and consistent decision-making which does not stifle ‘sustainable’ development.