by Charles Howell, Partner

The Community Infrastructure Levy (CIL) is a tax that local authorities can use to charge on new housing and commercial developments in their area, with the objective of enabling local communities to pay for capital items such as roads, landscaping, and social facilities including Meeting Halls, Schools, Health Centres, public open space, etc.

Shropshire Council has decided to implement the CIL for new housing developments from January 2012. Shropshire is a "pioneer authority" in as much as it is one of the first to adopt the levy, and other local authorities in England and Wales will follow its progress.

The CIL replaces a somewhat ad hoc system of "Section 106 Agreements", whereby contributions to public infrastructure were agreed on a site by site basis between Councils, land owners and/or developers.

In theory the CIL is straightforward and will deliver local infrastructure projects in response to community demands, and provides developers with certainty as to the costs involved in a particular scheme.

In the Shropshire Council area the charging structure is currently subject to an independent examination, but is expected to be effective from 1 January 2012. The regulations state that all planning permissions on new housing sites granted after this date will be liable for CIL. The levy will not affect development that has an existing planning consent.

In Shropshire the proposed levy rate is £40 per sq m of new housing development in Shrewsbury and the market towns, and certain "key centres", and £80 per sq m elsewhere. No charge will be made for affordable housing or for employment related or non residential types of development, although Section 106 contributions will still be negotiated for commercial schemes. All new build dwellings of any size will be liable. Conversions of buildings, small extensions and changes of use of existing buildings however will not.

The Council consider that the levy will not increase the cost of housing, as prices are set by market conditions. However, it will form part of the development appraisal for a housing scheme, and as such the CIL may have the effect of depressing residential land values as developers take the cost into account in assessing schemes. In theory at least it thus has the effect of reducing much of the "windfall" gain of large increases in values upon the grant of planning consent for residential development.

Some commentators have questioned whether this reduction makes it worthwhile for land owners to bring sites forward, although over time normal commercial pressures will presumably apply and sooner or later suitable sites should be developed.

In the meantime however, it has been suggested that the introduction of the CIL may stifle development, particularly in rural areas.

Very roughly, by way of example, the charges work out at about £2,500 for a small house in Shrewsbury, but for a larger dwelling in a rural area, a levy of perhaps £10,000 could be expected. Shropshire Council justify the differences in cost by the fact that it is usually more expensive to provide appropriate infrastructure for new development in rural areas than urban centres.

From a business perspective, house builders and land owners will be looking for certainty and consistency over a period of years, so that the viability of a scheme can be worked up. It can sometimes take a decade or even longer to bring forward appropriate housing sites, and changes in taxation or other charging structures can have the effect of inhibiting development. The CIL is an attempt to provide this consistency. It remains to be seen as to whether in practice - particularly given the uncertain economic climate - the introduction of the CIL will have the desired effect of increasing house building and providing the support infrastructure for local communities that is needed for such schemes.

On balance, however, any attempt to apply uniformity and clarity to development taxation is to be welcomed, especially if it also provides local communities with a direct financial route to much needed investment.

Further information can be found on the following websites:
Department for Communities and Local Government: www.communities.gov.uk
Shropshire Council: www.shropshire.gov.uk
Planning Advisory Service: www.pas.gov.uk