Monday, 5 December 2011

The chilling effect of CIL


Local planning authorities up and down the country are busy setting their charging schedules for the Community Infrastructure Levy and it is becoming clear that, at the level at which charges are being set in quite a few areas, the cost to developers will be large enough to deter them from going ahead with planned developments. It is possible that some authorities who wish to avoid having to accept significant levels of housing development in their areas would be quite happy to deter developers in this way.

I always expected that this attempt to tax development, like all the previous attempts (‘development charge’, ‘betterment levy’, ‘development land tax’, etc.), would have a seriously depressive effect on the market. The trouble is that, whilst financial contributions under section 106 agreements are negotiable, and developers can point out to an LPA the effect which a particular level of demanded contribution would have on the viability of the project to which that contribution is linked, the charge payable under the CIL regime will be a fixed percentage calculated solely by reference to the size of the development, and there will be no scope for negotiating a lower charging level by reason of the effect which the charge would have on the viability of the particular scheme. The result will be that developers will not even bother to apply for planning permission in many areas, and so urgently needed housing, including affordable housing, will simply not get built, nor will the money required for new or upgraded infrastructure in the district get the necessary funding.

The government is anxious to promote development as one means of stimulating the economy, and in the Chancellor’s Autumn Statement they have reiterated their intention to make early changes to the legislation to enable existing section 106 agreements to be renegotiated (or, if necessary, appealed) sooner than is currently possible, so as to obviate the current drag on development which over-ambitious financial obligations under those agreements had been causing. The Community Infrastructure Levy will have precisely the opposite effect to this liberalisation of the current regime. It will be entirely counter-productive and will act as a major brake on development. That may please the NIMBYs no end, but it will have a depressive effect on an already faltering economy.

It is somewhat surprising that the government decided to stick with CIL, when they had previously expressed an intention to abolish it. They correctly saw CIL as an undesirable tax on development, and predicted that it would have the deleterious effect on the market which is now beginning to emerge. At the risk of making yet another U-turn (although they should be getting used to that by now) the government should abolish CIL or, at the very least, suspend its implementation indefinitely.

The counter-argument which may well be heard if the abolition or suspension of CIL were to be seriously considered is that the levy is essential in order to fund the infrastructure for which new development creates a demand. But it is disingenuous to pretend that it is new development and, in particular, the construction of new homes which gives rise to the need for new or upgraded infrastructure. The new schools, roads and other facilities would still be needed even if the development did not occur. Household formation is continuing apace, the population is continuing to increase, and so the need for new school places, new roads, new community facilities and other public amenities will be there even if we do not build any more homes for these people to live in.

I strongly suspect that what led the present government to decide that CIL should be introduced after all was its overriding aim to cut public spending, and CIL was no doubt seen as one of the means of ensuring this, rather than having to fund local infrastructure through general taxation. Now that ‘Plan A’ has been seen to fail, and has in fact led to increased borrowing by government (to fund additional benefits for all the people the government has thrown out of work, and to replace lost tax revenue from the resulting economic downturn), what the country needs is a good dose of Keynesian economics – a New Deal which would include the funding of new schools, libraries and other community facilities from general taxation, rather than expecting an increasingly beleaguered development industry to pay for it.

© MARTIN H GOODALL

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