A community case for taxation

Funding schools, parks and roads could soon become a real challenge for councils that don't embrace a scheme to raise tax from developers and time is running out
Swings on playground, night
The community Infrastructure Levy means councils can raise funds for projects like playgrounds by taxing developers. Photograph: Roy Ritchie/Getty

The government has renewed its commitment to a scheme allowing local authorities to fund local infrastructure by taxing developers, but councils need to be aware that time is running out to make the transition from old rules to new.

The Community Infrastructure Levy (CIL), which was introduced in April 2010, means councils can raise funding for projects such as roads, schools and playgrounds by taxing development projects that take place within their boundaries.

The government has now called for volunteer councils to pilot the levy, which has historically had a low take up. Many local authorities had put off work on the levy while awaiting clarity over its future, but a set of revised regulations and the proposed pilot scheme has shown that the tax is here to stay.

Some authorities have made good headway in adopting CIL since restrictions to planning obligations, commonly referred to as section 106, were introduced last year.

Three main restrictions have been imposed on section 106; infrastructure funded under this must now be directly linked to a specific development; be necessary to make a scheme acceptable in planning terms; and be of a proportionate scale to the project in question.

Section 106 had previously been used to fund all kinds of infrastructure before the property market crash but CIL, with its fixed tariff, is intended to create a fairer and more predictable system.

These rules mean that many of the projects traditionally funded by section 106, such as infrastructure which is not linked to a specific development but supports general growth within an area, can only be funded using CIL.

In some areas, councils have already created their own local development tax using section 106. But in April 2014, restrictions on section 106 get tighter still and these local tariffs will become illegal. Apart from some very specific cases, CIL will then become the only option for funding infrastructure. Funding schools, parks and roads could soon become a real challenge.

Some authorities are choosing to avoid the risk of setting illegal tariffs, which is allowable now could still become so by 2014.

This week, North Northamptonshire joint planning committee will consider a report that its proposed section 106 tariff could be unlawful under the existing restrictions, and that CIL should be prepared instead. But other authorities seem blind to the changes taking place.

Sophie White, assistant director at commercial property consultancy, Drivers Jonas Deloitte, is working with several authorities on implementing CIL. She says: "Local authorities don't realise how tight the section 106 controls are. They don't realise how limited their ability to raise capital is."

Despite this, interest in adopting CIL has historically been low. Research by Drivers Jonas Deloitte, carried out after the levy was announced by the previous administration, found up to 80% of councils were unsure whether they would opt in. But if any are still unsure now, the time to decide is fast approaching.

Stuart Andrews, head of planning at commercial law firm Eversheds, says: "The 2014 date should loom large in the minds of authorities because it's going to come round rapidly. Local authorities need to do an awful lot of groundwork to meet that deadline."

Newark and Sherwood district council became the first local authority to put out a draft CIL charging schedule, setting the level of the tax, for consultation in December. Growth point manager, Adrian Kerrison, says the process from starting work to implementation is likely to take around a year.

But Newark and Sherwood was already well down the line with its core strategy. Drawing up a development plan will be the first step for many authorities, after which work on CIL can start.

Stephen Tapper, president of the Planning Officers Society, says he believes councils have enough time, but it is a major task in complex growth areas. Many councils need to start soon if they are to be ready in time.

"An awful lot of councils will be working on core strategies to get them approved," he says. "Then they will be in a position to prepare for CIL, which in due course will be the only game in town. I would urge councils to move their core strategies forward quickly."

CIL may not meet all councils' infrastructure requirements. But with the restrictions on using section 106, it will be crucial to meeting the demands of growth. Starting work now is almost certainly better than dealing with a budget deficit later.

Mark Wilding is senior reporter at Property Week

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