Introduced to simplify the process to allow councils to raise funds from developers, the Community Infrastructure Levy (CIL) was intended to provide a fair means for councils to mitigate the impact of new developments on the local community.
It was meant to provide a universal way for councils to raise funds towards local roads, the building of schools or GP surgeries. Complementing existing Section 106s agreements, the legislation meant that any property development, large or small, was expected to contribute in proportion to their impact on the local community.
However, our new research reveals that this is far from the case. On one level, very few councils are choosing to implement the levy in the first place – 57% to not do so. Put simply this means that most developments in England and Wales are not contributing fairly to the system.
Of the 43% of councils who do use CIL, some £443m is currently sitting unspent in their bank accounts. Given the financial constraints that councils are currently under, this is somewhat surprising; this is money that should be invested in local infrastructure for the benefit of the local community.
In 2015, the independent CIL Review Team was tasked by government to look into the effectiveness of the levy and its findings, published a year later, have been reinforced by our own analysis. Councils at the time complained that CIL was overly complex and this has been reinforced by our own informal conversations with planners – the legislation runs at over 155 pages, with some 129 specific regulations. Given the fact that in many cases councils’ planning departments have been cut even closer to the bone in the last few years, is it any wonder CIL remains misused and misunderstood?
With the Budget next week there is an opportunity for the chancellor to address this situation. Firstly, we’re calling for a simplification of the system to make it easier for councils to raise the funds in the first place. Secondly, we want to ensure that there’s more transparency in the system, so councils know how to spend the money, developers know what they’re contributing to and local residents are aware of how the funds will be dedicated to local infrastructure. All of this should compel councils to better spend the levy.
In the medium term, our proposed solution is for England and Wales to explore the potential for a Property Sales Levy. Inspired by the Real Property Transfer Tax currently in place in New York City, this would apply a 1% to 1.425% charge on the sale of a property destined for local infrastructure. We estimate that a similar tax could raise an additional £2.16bn across England – more than all local councils spent on transport infrastructure in the last year.
But perhaps more importantly it’s transparent, simple and fair. Levied by HMRC and distributed equitably, it would reduce the complexity and bureaucracy of the existing system and would also create a clearer link between infrastructure investment and the resulting increased property values.
Whether a Property Sales Levy or another idea, it’s clear that the system is in need of reform. For the government to come anywhere near its ambitious target of 300,000 homes a year we need to nurture an environment that welcomes new development. Infrastructure spending is one of the keys to this, but the complexity of the current system is holding us back.
Hannah Vickers is chief executive of the Association for Consultancy and Engineering (ACE).