Palimpsest (Noun) A manuscript or piece of writing material on which later writing has been superimposed on effaced earlier writing.

Those who know me will be unsurprised that my first blog post is about the Community Infrastructure Levy (CIL). This hadn’t been my intention, but I was such a good boy in 2018 that Santa brought me a December consultation on the updated CIL regulations.  This will be the first of two posts.  This deals with the regulations and the second will cover the wider (and more interesting) issues of developer contributions and viability.

Anyone who is still reading probably knows what CIL is.   But to recap it is a £ per square metre levy payable when new developments are commenced, set and collected locally in areas that have chosen to have a charge.  It applies to uses where a Charging Authority has demonstrated a charge is viable.  Introduced by Labour in the 2008 Planning Act, regulations came into force in 2010 followed by the first local charges in late 2011.  The research is now a couple of years out of date but it is probably raising (as anticipated before its introduction) about £1 billion a year, to be spent on local infrastructure.  CIL also has the singular achievement of being the only formal development charge ever to survive a change of Government (now two). 

The Government established an independent review in 2015, chaired by Liz Peace CBE.  The Panel, of which I was a member, reported in October 2016.  We concluded that CIL works best (as in London) where charges are wide, low and simple.  The main recommendation was for a simplified version of CIL: a Local Infrastructure Tariff. 

The Government published its response in March 2018 and its proposed approach in October 2018.  It adopted some of the principles and specific conclusions but stopped short of fundamental reform.  Its objectives are:

• Reducing complexity and increasing certainty
• Increasing market responsiveness
• Improving transparency for communities and developers
• Allowing local authorities to introduce a Strategic Infrastructure Tariff
• Focusing viability assessment on plan making rather than decision making

The current consultation is on proposed changes to Regulations to help achieve the first three of these objectives.  The Government has already, in July 2018, revised viability policy in the National Planning Policy Framework and Planning Practice Guidance.

Evolution of the Regulations

For an occasional reader of legal judgments there are certain words, seemingly only used by judges, that one has to look up in a dictionary.  A palimpsest is a constantly re-written document, with each revision scrubbing out some words from, and adding words to, the previous versions.  In planning law the CIL regulations must be the ultimate palimpsest.  Originally ‘made’ in 2010 the regulations were amended in 2011 (twice), 2012, 2013, 2014, 2015 and 2018.  And unlike a real palimpsest they are not super-imposed on the original version, but published separately with cross references.  There is no official consolidated version.  This makes the regulations close to impossible to follow for anyone without a subscription to a legal database.  It has reached the point where arguably the regulations offend basic rule of law principles of accessibility, certainty and stability.

Admittedly only a small proportion of CIL liable developments will be exposed to the full complexity of the regulations, and provided they are applied properly by the Local Authority most developers won’t need recourse to them.  Nevertheless when even those who know the regulations very well can’t give definitive advice to developers or authorities on certain issues there is a problem.

At root the regulations are complex because they try to graft a taxation system onto planning law which has evolved to meet a different purpose. Subsequent changes have mainly dealt with circumstances not anticipated by the original version, or with the unintended consequences of regulations colliding with the reality of the development process.  Many changes have been promoted and welcomed by charging authorities and developers. Others have resulted from Ministerial tweaks to support favoured types of development such as Self-Build, Discount Market Sale and now Starter Homes.

Whilst these changes have been undertaken with the best of intentions and some have made the system work better they have undoubtedly made the regulations more complex and in turn have had unintended consequences of their own.  Indeed some of the changes proposed in the current round of reform are trying to fix problems caused by previous fixes.

The Current Consultation

Which brings us to the current consultation.  The consultation is quite short with the detailed changes to the regulations making up the majority of the document.  There are eleven substantive groups of changes, amending or cross referencing (at my count) over forty regulations.  Five regulations are deleted and eleven are added.

Goodbye Regulation 123

The most eye catching change, and I suspect what will be the most debated, is the proposed removal of Regulation 123.  This (well known but much misunderstood) regulation was the stick to force CIL take up by limiting ‘tariff type’ Section 106 obligations through restrictions on the number allowed, and also (in theory) to stop ‘double dipping’ by stopping authorities requiring obligations for items or types of infrastructure on which they were spending CIL.  I will deal with the likely implications in my next blog but in summary the pooling restriction has been a blunt but effective tool to scale back other obligations whilst the Regulation 123 list is an easily avoidable and hence pointless restriction.  The proposed Infrastructure Funding Statements should be a great improvement to the current lists and spending reports.

Simplifying Changes

There are a several other changes which are arguably of a ‘de-regulatory’ nature.  This includes reducing the consultation required when producing a Charging Schedule from two stages to one, providing a (welcome) reduction in the potentially severe punishment for the administrative error of not submitting a Commencement Notice, and the rationalisation of enforcement regulations.  These changes simplify the regulations and are sensible.

Complicating Changes

There are however three main changes where I have concerns.  Whilst they are intended to address real issues, they illustrate the tension between the Government’s desire to increase market responsiveness or certainty and the aim of reducing complexity.

Section 73 Applications

Two of the changes relate to how CIL is calculated for Section 73 applications – applications for ‘Minor Material Amendments’ to a planning permission.  This could include changes to design or layout but in some cases result in more floorspace or a different mix of uses.   These changes can affect the amount of CIL due and there are specific regulations to calculate this. 

Regulation 9 deals with applications where there was CIL in place at the time of the original permission.  The draft Regulations propose changes to this to clarify how indexation is calculated and how relief should be dealt with.  Current floorspace would be calculated using the original indexation and increased floorspace new indexation.  It will also take into account relief that has been granted.

Regulation 128a deals with applications where there was no charging schedule in effect for the original permission.  It was itself an amendment to the original regulations and had already been amended in turn in 2018 following a (withdrawn) judicial review from Wandsworth Council.  The draft Regulations propose two more changes.  The first incorporates social housing relief into the comparison between the previous and new permissions.  The second deals with situations where in a phased development the current Regulations can wrongly result in an increased charge.   Although the reason for the problem is simple the proposed solution requires the introduction of five new regulations over four pages.

Indexation

The third proposed change is how inflation is applied to all CIL charges through the use of indexation.  Currently the index used in the regulations is the RICS Building Cost Information Service (BCIS) all in Tender Price Index.  The Government now proposes to change this to either the Local House Price Index (using a rolling average) or the Consumer Price Index (CPI) at the discretion of the local authority.  There have been problems with the use of BCIS: it is a private subscription service and for any specific date the numbers can fluctuate, sometimes significantly, until being fixed.  However, this is not why changes are proposed, but instead to ensure that CIL rates reflect changes in values. 

The proposed changes add significant additional complexity to the regulations by having three indices instead of one (BCIS, HPI and CPI), each with a different reference date and, for HPI, a rolling three year average index for each individual Local Authority.  Authorities will need to set their indices in the Charging Schedule and/or a Statement of Rates which is updated each year.  Transitional arrangements set out which indices will apply to which charging schedules and chargeable developments.  New terms and definitions are added to Regulations 40 and 50 which set the formulae for calculating CIL.  Overall the changes add three further pages of text.  I am still working through the implications for some actual developments but it is safe to say that they won’t be simple.

Interestingly this is the only part of the Consultation which asks for comments on the principle of the change as well as whether it will achieve the Government’s objectives.

Please Respond!

The new regulations are ingeniously drafted to try to pick up all the circumstances where they might apply and make precise adjustments to achieve the Government’s objectives.  However in doing this some of them risk compounding the existing flaws in the Regulations: they are lengthy, complex and have uncertain interactions with the wider ‘scheme’.  One can’t help thinking that they are in turn likely to have further unintended effects which will then need fixing.  It would therefore be useful if, even at this late stage, the Government could consider whether there are ways of simplifying the changes, otherwise there must be a risk that in the longer term the whole system falls over.

In my experience Government and MHCLG Civil Servants are receptive to practical suggestions from charging authorities and developers to make the regulations work better.  I would encourage people to respond to the Consultation (it closes on 31 January).

Whither CIL?

The other wider challenge to CIL to watch out for will be the housing market.  CIL has been implemented through a time of rising prices in those authorities that have chosen to implement it.  Any sustained period of flat or falling prices will bring pressure on viability, and the changes to the NPPF and the Mayor of London’s ‘threshold approach’ to affordable housing are intended to make affordable housing a more ‘fixed’ component of planning obligations.  In the last downturn Government made Section 106 more flexible but political pressure on affordable housing means that would now be less palatable so there is likely to be increased pressure to ‘do something’ about CIL.

Links

If there is anyone out there for whom that was not enough CIL:

This was the report of the CIL Review Panel

The MHCLG commissioned research

The most recent statement of Government policy

The Regulations