Councils to be handed power to borrow against Community Infrastructure Levy receipts

Local authorities will be able to borrow against future Community Infrastructure Levy (CIL) receipts so that infrastructure provision is unlocked earlier in development, the government announced last week as it published amended regulations for the levy ahead of its introduction in April.

The CIL allows local authorities to raise funds from developers alongside new building projects to help build infrastructure such as schools, roads and transport schemes as well as facilities such as libraries and leisure centres.

It is designed to replace existing planning obligation arrangements based on s.106 agreements. From April, s. 106 agreements will only be permitted if they are directly related to new developments. They will also be scaled back further by 2014.

The government claimed the levy would allow councils, if they choose to use it, to raise potentially an extra £700m a year. The CIL will also give developers certainty over the contributions they have to make and ensure they pay a “fair share” towards new local services, it said.

Key features of the amended regulations include:

• Allowing up to 100% CIL relief in exceptional circumstances where a development would otherwise not go ahead
• Allowing CIL payments to be made in-kind in the form of land provided that land is transferred with the intention of providing infrastructure
• Doubling the standard payment period to 60 days to ease cash flow for developers, and allowing payment by instalments
• Introducing the potential for local authorities to borrow against future CIL receipts to allow infrastructure provision to be unlocked earlier in development, subject to the overall fiscal position of the country
• Providing additional reliefs for developing charities
• Providing 100% exemption for most types of affordable housing
• Enabling authorities to draw the administrative costs of CIL from CIL receipts.

Planning minister John Healey insisted the new levy would be a “big improvement” on the existing system.

He said: “It puts an end to site-by-site deals, which can be lengthy and uncertain. Many councils don’t get the contribution to new infrastructure their area needs at present. The CIL will bring improved transparencies for communities who will know what infrastructure is needed and how it will be funded, and fairness and predictability for developers.”

Leading planning lawyer Stephen Ashworth, a partner at Denton Wilde Sapte, said the government was to be commended for improving the draft regulations it published in July 2009.

He said: “The ability to borrow against the infrastructure levy should be welcomed. The Treasury had always been very reluctant to give councils that ability, so it’s quite a major concession. It will help local authorities deliver infrastructure and, of course, it keeps the private sector happy because the infrastructure delivery ought to come a bit sooner.

“Giving local authorities more flexibility and trusting them a bit more in terms of allowing them to make judgements about whether a scheme is viable and whether there should be some waiver of the levy is also a useful move.”

Ashworth added: “It’s a pretty good set of regulations that will work 80-90% of the time. For local authorities, it gives most of what they would have wanted. It will give flexibility to set [the levies] pretty much how they want, it will be mandatory, it’s easily capable of being enforced and it ought to deliver some quite significant sums of money over the next decade.”

The outstanding concerns surround how the caveats attached to the exemptions will work in relation to larger-scale schemes. There are also issues over payment-in-kind, which will work for land but not the public facilities that go on it – the schools, the sports facilities and so on. “It’s a shame that the government did not trust local authorities to monitor the cost of buildings and things like that,” Ashworth said.

Much still needs to be dealt with by guidance, he added, such as the standard of information that the examination is going to run through, the approach to Grampian conditions and the obligations on local authorities to deliver the infrastructure at an appropriate time to support development.

Ashworth suggested that it is something of a myth that local authorities can choose whether to adopt CIL. “The restrictions on how you will be able to use s.106 agreements mean that effectively you have no choice because if you don’t use CIL, you are going to miss out on some very significant contributions from the private sector towards infrastructure. You would have to be, crudely speaking, stupid as a local authority to do that.”