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Who remembers the Community Infrastructure Levy– the Labour legislation that was rushed through just before the election in 2010? Its aim was to use development to provide the funds for essential infrastructure identified in up-to-date development plans, to reduce the reliance upon S106 Agreements and to distribute some of the monies raised to the communities in which the development takes place. In opposition the current Government thought this a daft idea that they would soon repeal, though in power they swiftly adopted it as part of the Localism agenda. All coming back to you now, is it?
Since then things have moved on, so here’s an update, with special emphasis on what’s happening in the capital.
The Mayor of London has formally submitted his proposals for a London-wide CIL and, as we speak, (28 November - December) the proposals are under scrutiny by an independent examiner. The levy is intended to raise £300 million towards the delivery of Crossrail. It forms part of the funding package for the project agreed between the Mayor and government ministers, so, no pressure on the independent examiner, then.
In round terms the levy has been broken down, borough by borough, into three zones which, geographically, do not follow the Crossrail route. Top payers will be developers in Camden, the City, Westminster, Hammersmith & Fulham, Islington, Kensington & Chelsea, Richmond and Wandsworth, and in these areas the levy will be £50 per square metre for nearly all new development, excepting certain health or education projects. In Zone 2 the charge will be £35 per sq m and in the outer, Zone 3 boroughs it will be £20. There is to be no distinction between the types of new development, as there will be in other parts of the country (see below).
The levy is levied on net increase in floorspace, so you take from the proposed space any space that exists on the site at the time of the permission before applying the appropriate rate or, if you prefer to do the maths:
Check this out. Download the PDF with the CIL Exercises here and all will become clear (not). In future we may need to add a mathematician to the project team.
This may come as a surprise to those of you who recall that developer contributions have to be directly related to the development and necessary to allow the proposal to go ahead, but CIL, of course, sidesteps the rules that apply to S106 Agreements and, apparently, each London borough will see its economy benefit from Crossrail from between £15 million and £115 million per annum.
In calculating the developer contributions/CIL in London, it is important to remember that, in addition to the Mayor, each borough will be setting its own CIL rates and that these can vary from place to place and from use to use, or not as the case may be. Still in London, the Borough of Redbridge is the only authority to submit its CIL schedule and have it examined. Here all new development, no matter what type, will be charged at the rate of £70 per sq m (gross internal for schemes of 100 sq m or more or dwellings of whatever size).
On this basis, therefore, developers in Redbridge will be paying £35 per sq m to the Mayor and £70 per sq m to the local authority, so a commercial scheme of, say, 5000 sq m will require CIL payments of £525,000, index-linked, of course, by reference to the magic formula, where the year of the permission is (Ip) and the year that the rate took effect (Ic). The price of certainty is not cheap, but it does have a direct bearing on the value of a development and on the price paid for developable sites.
Outside the capital things are moving a bit slower, as you’d expect, but there will shortly be a rush of local authorities putting up their CIL schedules for public examination, in the wake of Newark and Sherwood and Staffordshire, where CIL schedules have now been approved. In the first of these, where the charges took effect on 1 December, there is no charge for hotels, offices, housing or community uses, while industry levies vary from 0 to £20 and retail can cost as much as £125 per sq m. Other districts taking up CIL have until April 2014 to get their acts together.
CIL is going to be as varied and as complicated as the formula by which it can be worked out, but it is going to be essential for the development industry to keep a close eye on each scheme as they come forward for consultation, examination and adoption. The levy may well become a prime determinant of where development will take place.
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