Hammond starts CILly season early

As we approach Christmas the urge to make “CILly season” based puns becomes almost irresistible.  This is even more the case when justified by the Government’s long awaited (by CIL geeks including me, if no one else) response to Liz Peace’s report on potential reform of the Community Infrastructure Levy.

This was, if you will recall, published in February this year – after having been originally commissioned by David Cameron’s government in 2015 to see if CIL was living up to its pre-launch promise of a faster fairer and more transparent way of collecting developer contributions (Spoiler Alert – it concludes it isn’t).

The Government then postponed a response until today’s budget.  You can read the relevant text here – and we are promised a DCLG consultation paper – but from the content of the statement it is clear that the Government’s intentions do not go as far as the Peace report suggested.  And will certainly disappoint the not insignificant number calling for the wholesale abolition of the system altogether.

In the plus column is sensible recognition that the restrictions on pooled s106 contributions are not working, especially for the larger schemes, and that a more permissive approach is necessary.  It is clear that developers and LPAs are having to work creatively to deal with these restrictions but this isinevitably causing confusion and inconsistencies between LPAs adopting varying degrees of caution.

The potential for a Strategic Infrastructure Tariff is also probably sensible (aside from the opportunities for mischief presented by the acronym), although care will need to be taken that charge setting of local affordable housing policies, local CILs and the SIT is properly coordinated.  The Peace review had suggested that the Mayor of London’s CIL (simple, relatively low, flat rate, etc) could point the way not just for SITs but for a reformed and improved LIT.

But unfortunately that is not the way we seem to be going.  It’s worth bearing in mind that the Peace report pointed to a new approach offering “a consistent, simpler contribution system that will prove less controversial for developers, communities and local authorities.

But most of the other reforms – on face value at least – seem to lean in the opposite direction.

Firstly indexation.  The non-sensical use of the BCIS All In TPI index (to which most people do not have access) is implicitly recognised.  But its replacement by a house price index does not seem remotely rational, not least because CIL can relate to all types of development, not just housing.

Whilst I am of course entirely confident that the new national housebuilding target of 300,000 per year will permanently tame this beast, house price inflation remains hugely unpredictable and does not provide long term stability even for residential development.  For non-residential development (and remember, all development in greater London, for example, is charged a mayoral CIL by default, not just residential) its effect could be catastrophic (and impossible to model as part of area-wide viability assessments).

Taking the £50/sqm MCIL charge as an example, if London house price inflation had been applied to it, would now stand at £81/sqm, rather than £63/sqm, after indexation.

Even if a national, rather than local, index was applied surely it could not be right that the viability of development (including  non-residential development) in areas of the country not experiencing house price growth could be exposed to further risk because of rises elsewhere.  If the intention is to make CIL easier to adopt and review by shortening the consultation process, then surely simple indexation against CPI/RPI and regular reviews would suffice.

The complexity of differential indices – either regionally or indeed by use – does not bear thinking about.  And of course the existing problems of indexation still need to be fixed.

In the same way, the most concerning (to me as a practitioner) element of this is the suggestion of differential rates based on land use pairings.  Eg agricultural to residential, office to residential, etc.  At the moment the system is fairly agnostic about the existing  use of land or buildings – it is (except when the quirks and gremlins bite) ‘just’ concerned with the use to which any additional floorspace is put.  This is still complicated enough in practice as anyone who is still reading this post is likely to be able to attest.

So imagine if the existing uses of the land / building also had to be taken into account, both in establishing the CIL liability and indeed in rate setting and area wide FVAs.  Whilst I can see the superficial attractiveness of trying to return CIL to the Promised Land of neat, tidy value capture when agricultural land is released for development use, the majority of cases are just not that simple.  Trying to set, and apply, a variety of charges to account for value differentials between every conceivable combination of uses sounds daunting both conceptually and procedurally, given that the mechanics of the system are creaky even at the moment.

The potential complexity – and potential for unintended consequences if applied in a similar way to the current system – is huge and surely disproportionate to any potential additional gains.

If and when there is a more comprehensive look at the role of the green belt and its potential use in some cases, perhaps the question of developer contributions and land value uplift is better tackled as part of that conversation, rather than trying to address it now through CIL.

Finally – rate setting.  It is proposed to allow CIL to be implemented and revised more quickly.  In one sense this may help; the need for two rounds of consultation could potentially be reduced and, as the funds deliverable from CIL rarely come close to the cost of the infrastructure needed, having to prove the cost of the infrastructure as well as what development can  reasonably be expected to bear may not be necessary.  But it is vital that this accompanied by changes to the tests Examiners apply in considering charging schedules, so that there is real scrutiny and an opportunity to make changes at examination, rather than perpetuating a system that can seem skewed in favour of the charging authority.  Perhaps this should explictly also be linked to local plan reviews and policies on affordable housing so that all planning costs on developers are looked at comprehensively.

So there is much to look forward to (!) as both Christmas and – hopefully – the promised CLG consultation approach.  And I haven’t even had a mince pie yet.

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