Recommendations of the CIL Review Team: Local Infrastructure Tariff
The Government has released the report by the CIL Review Team, submitted in October 2016, titled A New Approach to Developer Contributions.
At the same time the DCLG has also published its latest analysis of the CIL titled The Value, Impact and Delivery of the Community Infrastructure Levy, DCLG February 2017.
The Government has said in the White Paper that it will consider the options for reforming the system of developer contributions and will publish its response to the CIL Review. It has committed to making an announcement in the Autumn Budget 2017.
The following is a summary of the chief recommendations made by the CIL Review team.
Overview: the current operation of the CIL
The Review has concluded that the CIL has failed in its original purpose to provide a faster, fairer and more certain and transparent system of securing contributions to strategic infrastructure.
The adoption of CILs has been patchy, tending to be confined to areas with highest residential sales values. The effect of numerous exemptions and reliefs has tended to undermine the effectiveness of the CIL, placing greater burdens on non-exempted developments, tipping these towards unviability and resulting in a reduction of affordable housing contributions. The regulations surrounding the CIL have become excessively onerous and complex, increasing uncertainty especially in relation to what contributions can still be collected via S106 obligations. The CIL also transfers the responsibility (and therefore the risk) for infrastructure delivery to the local authority, which often lacks the expertise to deliver the projects required. Moreover, because local authorities are unable to borrow against future CIL receipts, bridge-funding is difficult to assemble. This results in uncertainty and delay with the implementation of projects. This inability to provide enabling critical infrastructure owing to funding uncertainties is adding to delay on some projects where upfront infrastructure provision is required to unlock delivery.
The Review team concluded that a comprehensive reform of the CIL is required.
It has recommended replacing the CIL with a Local Infrastructure Tariff (LIT).
The LIT could be complemented by an additional ‘low-level’ (i.e. low cost) Strategic Infrastructure Tariff (SIT) similar to the Mayor of London’s CIL, where justified.
In addition to the LIT, S106 obligations will still need to be collected from major schemes (11 dwellings or more) but will be subject to further clarity and streamlining of the rules relating to S106.
Main recommendations for the LIT
The LIT would provide the means of ensuring that all development, almost without exception, makes some contribution to wider infrastructure needs. It would not address site specific mitigation. Site specific mitigation would still need to be provided via S106 obligations.
The LIT, like the CIL, would be set and collected by local authorities. It will need to be set at a sufficiently low level (i.e. low cost) to account for the continuing need to collect S106 obligations and to ensure viability across the planning area in most circumstances.
Larger developments would need to pay the LIT as well as provide S106 obligations. Large developments are defined as those of 11 dwellings or more.
Small developments of ten dwellings or fewer (or which have a maximum combined gross floor space of no more than 1,000 square metres) would be exempt from S106 obligations. They would, however, have to pay the LIT.
The LIT cannot pay for all the infrastructure that is needed. It is merely a way of making all development provide a fair contribution towards the infrastructure required.
Calculation of the LIT
An easier method of calculating the LIT would streamline the process of setting up and collecting the LIT. This will reduce the burden on local authorities as well as encourage more LITs to be put in place. This would greatly assist the Local Plan making process.
The LIT would apply to virtually all development without exception.
The LIT is to be a relatively low level charge.
The LIT would be calculated using a national formula based on local market value set at a rate of £ per square metre.
The recommended calculation is to take a sum of between 1.75 and 2.5% of the sale price for a standardised 100 square metre sized three bedroom family home in the district in question, and divide that by 100 to reach a square metre rate. This rate would then be applied to all residential development in the local authority area.
Therefore, if you used 2% of the sale price, and the average sale price for a three bedroom home is £300,000 in a local authority area, then that gives you a figure of £6,000. Divide that by 100 gives you a square metre rate of £60.
The Review team has provided some calculations using its recommended method in appendix 5. These provide an indication of the likely rates that should result using this new method in different parts of the country.
Data on typical sales prices for three bedroom homes is commonly available on property websites.
The Review team acknowledges that the calculation is crude, but it at least has the merit of simplicity and this will avoid bureaucracy and the cost associated with implementation. It would also obviate the need for time and resource consuming CIL examinations. It would also allow for broadly similar LIT rates to be set in comparable parts of the country, instead of some of the widely different rates being set under CIL in areas with similar prices (e.g. Wokingham at £365 psm and Reading at £120 psm).
The Review team recognises that in areas where there are wide house-price differentials the local authority might choose to subdivide its local authority area into different charging areas if the market assessment made it expedient to do so.
How would the LIT be applied?
The LIT will be applied to all “new buildings”. Although the standard rate approach works best when applied to residential development, it is difficult to achieve the same degree of simplicity for commercial development. Nevertheless, commercial development should not be exempted because commercial development depended on infrastructure just as much as residential development did. Different formulae would need to be agreed for different types of commercial development. The rate for commercial development should not exceed the residential rate.
LIT should be charged on gross development such as where development involves replacing a building, not its refurbishment. Where extra storeys or extensions are added the LIT should only be paid on the basis of the additional space created. Where there is a change of use the LIT should be paid on the whole development at the rate for the new use, even if this change of use does not require planning permission by virtue of being permitted development.
The Review recommends no (or very few) exemptions to the LIT.
The simplified system should obviate the need for examinations. Any issues raise through representations can be addressed through written representations and considered by an ‘appointed person’.
How should the LIT be monitored and reviewed?
The LIT can be spent on anything in the local authority’s published infrastructure plan or the infrastructure plan of a wider-than-local grouping of authorities.
The report recommends that the Regulation 123 list should be abandoned as this is ineffective as a guide to the allocation of funds (the list changes too easily). Instead local authorities should report via their Annual Monitoring Reports on how the money has been spent.
A review of the LIT is to be triggered by a review of the Local Plan (i.e. every five years according to the White Paper).
How would the LIT support infrastructure delivery?
The report recognises that local authorities currently struggled to provide infrastructure because they were unable to borrow against future CIL receipts. This made it difficult to allocate and plan for large scale infrastructure projects. The Review team has strongly recommended that the Government addresses how funds might be made available to local authorities to support the provision of upfront infrastructure needs prompted by development. This might entail the establishment by the Government of a growth or infrastructure fund to complement the LIT.
LIT and S106
Schemes of ten dwellings and fewer should be exempt from S106 or tariff type contributions but they will need to pay the LIT. Schemes of 11 dwellings or more will need to pay the LIT and S106.
These measures should provide a simplified system of contributions for 85% of applications for residential development.
There is, however, a need to reform the rules governing S106, in order to reduce the time and bureaucracy involved in negotiating those obligations.
Most important is the need for strict adherence to the Regulation 122 tests: namely that obligations should only be sought where these are directly related to the site in question, and are fair and reasonable in scale and kind. The report states that the regulation needs to be strengthened and its application firmly mandated.
The pooling restriction in Regulation 123 needs to be lifted (limiting pooling of S106 for specific items of infrastructure to no more than five schemes). This was originally intended as a way to encourage local authorities to adopt the CIL, but has in fact militated against its take-up, since most local authorities and developers prefer the pooling S106 route as a more flexible and certain way to deliver infrastructure needs. The limitation on pooling creates an obstacle to delivery where a planning obligation is the only realistic way to mitigate impact.
However, where standardised S106 obligations are sought from a collection of smaller than ‘strategic’ sized schemes, these contributions will need to be controlled by a strengthened Regulation 122 test and clearer guidance in the NPPG on planning obligations and the CIL/LIT. This is to avoid the potential for abuse under the new system with local authorities imposing additional layers of obligations on such developments.
The report advises against exemptions from LIT for large developments but it acknowledges that there may be circumstances where it is appropriate for developers and local authorities to agree ‘bespoke’ frameworks relating to the payment of LIT/S106/affordable housing and details relating to phasing and payments. To this end local authorities should be given the flexibility to offset the LIT against S106 for larger/strategic developments.
The use of standardised S106 obligations templates is encouraged for non-infrastructure items, but must be Regulation 122 compliant.
The report recommends that the Government advises on proposed heads of terms for S106 agreements and that these are submitted with planning applications. This will require clear guidelines on the publication requirements for S106 agreements.
The report acknowledges that the supply of affordable housing has sometimes suffered as a consequence of CIL but the report sees no alternative to the need to continue negotiating affordable housing as part of the S106 arrangement. It is hoped that the lower level of LIT will result in less impact on development viability and increase the headroom to provide affordable housing.
Strategic Infrastructure Tariff (SIT)
The report acknowledges that it may be appropriate for a cluster of local authorities (e.g. Combined Authorities) to collect an additional contribution to pay for infrastructure over a wider than local level. This would have to be a low level charge (i.e. low cost). It would be collected to pay towards ‘one or two agreed specific infrastructure projects’.
The SIT would be similar to the Mayor of London’s Crossrail CIL. The SIT would need to be restricted to a small number of well-defined infrastructure projects.
The SIT would need to be set at a sufficiently low level to ensure that no developments were rendered unviable and it must take account of the LIT. The SIT would only ever make a limited contribution towards the cost of the defined items of strategic infrastructure.
Place of infrastructure within the local plan making process
The report concludes that the LIT will feed-into the plan-making process (thereby becoming a fixed input). It does not need to be developed concurrently with the Local Plan. Nevertheless, there would need to be close integration between local plan-making and planning for LIT/S106 obligations.
The report acknowledges that it would be sensible to set the LIT on a wider than local basis. The area could relate to the housing market area (HMA) and/or the functional economic area (FEA). The report recommends that the Government considers incentivising such cooperation.
Local authorities should provide annual updates on what infrastructure has been delivered. These updates should be included in each local authority’s Annual Monitoring Report.
The report is anxious to avoid undermining LIT by allowing the dissipation of funds into neighbourhood projects. There is a need for better integration of neighbourhood projects with the objectives of the Local Plan so that best value is obtained.
The abolition of the pooling restriction placed on S106 obligations will enable environmental mitigation measures, such as the Suitable Alternative Natural Green Space (SANGS) mechanism that is in place in the Thames Basin, to continue in operation. The report acknowledges that environmental mitigation payments sought alongside CIL/LIT can threaten viability. It is important, therefore, that the LIT is set at a sufficiently low level.
The report recommends that the Government publishes guidance on how environmental mitigation is addressed as part of its reforms to streamline S106 procedures.
The proposals in the report for a streamlined SIT/LIT/S106 regime will require a complete overhaul of the existing regulations. The current regulations are overly complex and difficult to interpret. A capped, lower level LIT, with no exemptions, will enable simpler regulations to be drafted. Simpler regulations would reduce the cost of implementation for local authorities and developers.
Interim re-drafting is advised to address the immediate problems of the Regulation 123 pooling restriction and the restriction on ‘in-kind’ contributions.
LIT should eventually replace CIL entirely, therefore a cut-off date would need to be agreed. The report suggests 2020.
Unlike the CIL, which is voluntary, the report recommends mandating every authority to put in place a LIT except where the LIT receipts would be so low that it would not be worthwhile administering one.
The Government will need to give consideration to issues of transition in those authorities that already have a CIL in place, such as how they change from a CIL to a LIT, how current planning permissions will be treated against the new LIT, and how to minimise delay.
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