Revised Community Infrastructure Levy regulations come into effect today, but fresh confusion over how to apply them leaves some redevelopments facing large bills even where there is no net additional floorspace. More changes to the regulations are essential – the heart of the problem involves a little maths, but bear with it as this is the kind of maths where hundreds of millions of pounds are at stake!
CIL – a new charge on development to pay for infrastructure – is a simple idea that is proving fiendishly difficult to implement. To avoid penalising brownfield redevelopments existing floorspace can be offset against the CIL charge. But things get complicated when different CIL rates are applied to different types of development (homes, shops, offices etc).
The Governments intends the offset to be against all new uses in proportion, irrespective of the charges. It included a formula (Regulation 40) in the original 2010 Regulations to show how this offsetting should be done:
(If you must know, then C is the area of the proposed development, E is the area being demolished, and Cr is the amount of the new development liable for a charge at any particular rate.)
The trouble is that the formula didn’t work, as it failed to take account of retained space (for example a listed building kept as part of a larger masterplan redevelopment). Today a new Regulation 40 comes into effect, with a revised formula:
(Now G is the area of the proposed development, while Gr and Kr are the new and retained areas chargeable at a particular CIL rate.)
Unfortunately, this new formula doesn’t work as intended either. In some circumstances a redevelopment can end up paying CIL even if no net new space is created. The same issue applies to the separate formula in Regulation 50, covering exemptions for affordable housing.
The developments that will suffer are mixed-use schemes with some retained space in places where different uses are charged at different rates – and so far almost all published CIL schedules have a range of rates. In these circumstances (often complex brownfield regeneration schemes that are already on the edge of viability) a hefty CIL charge could still be liable even where there is no increase in floorspace.
So we went back to (O-level?) maths to come up with a solution:
(Where K is all retained floorspace.)
Or for mathematical purists, this, which is the same thing simplified:
If CIL is going to apply as intended then the regulations will need to be changed again to include this formula.
It would be easy to criticise, but as it happens errors in regulations are actually rather common. Earlier this year the National Planning Policy Guidance was initially published with a footnote reference to the Bruntland Definition of Sustainability that turned out to actually refer to the UN mandate for peacekeeping forces in Cyprus! In 1953 Australia managed to accidentally change its national flag by signing into law the wrong dimensions for the Commonwealth Star.
However, given the stakes for the development sector (and the economy as a whole), the concern is whether CIL can actually be made to work as intended. Even if the formula is changed again as shown above, to make it apply as intended, there remains a risk that it could deter mixed-use development.
The pattern emerging from councils preparing their CIL charges is for high charges on residential development (the most viable land use in many areas), and lower charges on many employment generating uses.
You would think this would encourage employment uses, and that seems to be the intention. But for redevelopment, with existing floorspace to offset, it actually makes it very costly to include anything but residential. A balanced mix of other uses will just dilute the benefit of the offset, meaning there is less to set against the high residential CIL charge.
As with previous attempts to tax development value before it, CIL is showing that reality can be more messy than expected, and the jury remains out on whether it can ever be made to work. In the meantime remember this formula: (Gr-Kr)(G-K-E)/(G-K) as it’s where CIL Reg 40 should eventually end up.