Community Infrastructure Levy

PRELIMINARY DRAFT CHARGING SCHEDULE

Consultation Feb 27th 2013

to April 12th 2013

February 2013

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CONTENTS 1.0 INTRODUCTION 1.1 What is Community Infrastructure Levy? 1.2 Why introduce CIL? 1.3 How do I comment on this Charging Schedule? 2.0 READING BOROUGH COUNCIL’S CIL 2.1 Proposed CIL Rates 2.2 Exemptions 2.3 Instalment Policy 3.0 EVIDENCE 3.1 What evidence is required? 3.2 Up-to-date Development Plan 3.3 Infrastructure Delivery Plan 3.4 Economic Viability Assessment 4.0 CIL ADOPTION PROCEDURE 4.1 What is a CIL Charging Schedule? 4.2 What are the key stages? 4.3 What are the next steps? APPENDIX 1: CHARGING ZONE MAPS

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1.0 INTRODUCTION 1.1 What is the Community Infrastructure Levy (CIL)? 1.1.1 The Community Infrastructure Levy (CIL) is the Government’s vehicle to

collect pooled development contributions to fund the infrastructure needed to support growth and development. The Community Infrastructure Levy Regulations were brought into force on 6 April 20101. Amendment Regulations were brought into force in 20112 and 20123.

1.1.2 Section 216 of the Planning Act 2008 defines the types of infrastructure that

CIL can be used for:

• Roads and other transport facilities;

• Flood defences;

• Schools and other educational facilities;

• Medical facilities;

• Sporting and recreational facilities; and

• Open Spaces. 1.1.3 It is intended that it supplements, but does not replace, other public sector

revenue funding streams. 1.1.4 It is a fixed, non-negotiable charge and is therefore transparent and

predictable. It applies to most forms of new development and is chargeable at £rate per m2 on any development resulting in a net increase of 100m2 or more of floorspace (GIA4), or where one or more dwellings are created by the development.

1.1.5 CIL is set locally based on an up-to-date relevant Plan, infrastructure planning

and an assessment of economic viability. It will be a standard charge per square metre applied to all chargeable development5 paid at the commencement of the development or by instalments if an instalment policy is in place. Affordable housing and buildings used by charities are exempt from paying CIL. There is also the potential for a local authority to offer what is referred to as Exceptional Circumstances Relief and Discretionary Charitable Relief, but there are a number of specific criteria which need to be met.

1.1.6 S106 planning obligations will still exist alongside CIL, but from April 2014 (or

the introduction of CIL by a Local Authority – whichever is earlier) their use will be very much scaled back. Their primary focus will be to fund development specific mitigation measures, to make a development acceptable

1 http://www.legislation.gov.uk/uksi/2010/948/pdfs/uksi_20100948_en.pdf

2 http://www.legislation.gov.uk/uksi/2011/987/pdfs/uksi_20110987_en.pdf

3 http://www.legislation.gov.uk/uksi/2012/2975/pdfs/uksi_20122975_en.pdf

4 Gross Internal Area 5 There are some exceptions – buildings into which people do not normally go; and a building into which people

go only intermittently for the purpose of inspecting or maintaining fixed plant or machinery. (Section 6 (2) of CIL

Regulations 2010) e.g. pylons and electricity sub stations

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in accordance with legal tests6. S106 will continue to be used for affordable housing provision. It will also be possible to secure improvements, through planning conditions, to mitigate the impacts of the development proposed.

1.1.7 The Council will be producing supplementary planning documents for S106

obligations related to affordable housing, site specific requirements and employment and skills, to be used alongside CIL7.

1.2 Why introduce CIL? 1.2.1 CIL will become the primary means of funding strategic infrastructure to

support growth and planned development. For many years the Council has secured S106 planning obligations from developers to fund a range of infrastructure provision. From April 2014, or once CIL is introduced locally, the role of S106 will change significantly and will be limited to site related mitigation. The pooling of a maximum of five obligations only will be possible8. CIL will need to be introduced locally in order to support both strategic and development specific infrastructure requirements within the Borough.

1.3 How do I comment on this Charging Schedule?

1.3.1 This is the first stage in preparing for the introduction of CIL. All responses

will be fully considered and will inform the production of the Draft Charging Schedule which will be submitted for Examination.

1.3.2 The Preliminary Draft Charging Schedule (PDCS) is available for consultation

between Wednesday 27th February 2013 and Friday 12th April 2013. Comments on this Charging Schedule should arrive no later than 5pm on Friday 12th April 2013. Please note that all comments will be publically available.

1.3.3 Comments can be submitted in the following ways:

Via email: to ldf@reading.gov.uk; or Via post: to LDF Team, Reading Borough Council, Civic Offices, Reading, RG1 7AE

1.3.5 The PDCS, its supporting Economic Viability Assessment Report (BPS, 2013), and Reading Borough Council’s Infrastructure Delivery Plan (2011) are available to view at Reading Borough Council’s Civic Offices, at all libraries, or online at:

www.reading.gov.uk/businesses/Planning/planning-policy/community-infrastructure-levy/

6 Necessary to make the development acceptable in planning terms; directly related to the development; and

fairly and reasonably related in scale and kind to the development (Regulation 122 (2) of CIL Regulations 2010). 7 A Draft Affordable Housing Supplementary Planning Document and Draft Employment Skills and Training

Supplementary Planning Document were consulted on Nov-Dec 2012. 8 The Council will only be able to pool new S106 obligations, following the introduction of CIL, if there are not

already 5 or more for that item or type of infrastructure entered into from April 2010, unless for affordable

housing or other items not considered as infrastructure, where no pooling limitations will apply.

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2.0 READING BOROUGH COUNCIL’S CIL 2.1 Proposed CIL rate 2.1.1 The proposed CIL rates are as follows:

Table 1: CIL Rates

Use Charging Zone Location

Rate /m2

Residential / Hotels / Care Homes / Private Rented Hostel Accommodation (including student accommodation)

Boroughwide £140

Retail Central Reading* £0

Retail (including foodstores)

Remainder of Borough

£200

Offices Central Core** £30

All other chargeable developments

Boroughwide £0

* Reading Central Area: defined in the Reading Central Area Action Plan (2009) ** Walk time catchment of Reading Rail Station 2.1.2 The Maps at Appendix 1. show the relevant boundaries for each of the proposed charging zones. 2.2 Exemptions 2.2.1 The CIL Regulations exempt the following development from CIL Liability:

• Development by registered charities for the delivery of charitable purposes (charitable relief);

• Those parts of a proposed development to be used for affordable housing (referred to as social housing relief9);

• The conversion of a building previously used as a dwelling house to two or more dwellings;

• Development of less than 100m2 of new build gross internal floorspace, unless to create a new dwelling;

• Development of buildings and structures into which people do not normally go, e.g. pylons, wind turbines, and electricity sub-stations.

2.2.2 The Council also has the discretion to offer other CIL relief, namely:

9 Communities Infrastructure Levy Relief: Information Document (CLG, May 2011)

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• Charitable Relief - in cases where the whole or part of the chargeable development is held as an investment from which the profits will be applied for charitable purposes; and

• Exceptional circumstances relief – can be given where the cost of complying with the S106 is greater than CIL liability; requiring payment of CIL would have an unacceptable impact on the economic viability of the chargeable development; and granting relief would not constitute a notifiable state aid10.

2.2.3 At this time the Council is considering offering Exceptional Circumstances

Relief, however this does not form part of the legal process of developing a charging schedule, so should the Council decide to offer such relief this will be publicised separately in accordance with the relevant CIL Regulations.

2.3 Instalments Policy 2.3.1 The Council proposes to offer an instalment policy as set out in Table 2 below.

This is identified for information only as the CIL Regulations do not require the policy to form part of the charging schedule, although comments are welcome on the suggested policy.

Table 2: Instalment Policy

CIL Liability Number of Instalments

Due Dates related to commencement11

Up to £25,000 1 100% within 60 days

£25,000 to £250,000 2 50% within 60 days 50% within 120 days

£250,000 to £500,000 3 25% within 60 days 25% within 120 days 50% within 180 days

Over 500,000 4 25% within 60 days 25% within 120 days 25% within 180 days 25% within 240 days

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Further detail in Community Infrastructure Levy Relief: Information Document, CLG, May 2011 11

The Commencement Date will be the Commencement Notice Date as advised by the developer under CIL

Regulation 67.

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3.0 EVIDENCE 3.1 What evidence is required? 3.1.1 In setting the CIL rate/s the Council must “…aim to strike what appears to the

Charging Authority [Reading Borough Council in this case] to be an appropriate balance between:

• The desirability of funding CIL and the actual and expected costs of infrastructure required to support development; and

• The potential effects of the imposition of CIL on the economic viability of development across its area”12.

The Examiner will test whether in setting its CIL rate/s the Council has fulfilled this balance. 3.1.2 The Charging Schedule must be informed by appropriate available evidence, detailed further in Section 3 below, which should include:

1) An up-to-date Development Plan; 2) Infrastructure planning; and 3) Assessment of economic viability.

3.2 Up-to-Date Development Plan 3.2.1 The preparation of the Preliminary Draft Charging Schedule has been based on

the policies and proposed level of growth set out in the Council’s Local Development Framework. This comprises an adopted Core Strategy (2008), a Reading Central Area Action Plan (2009) and the Sites and Detailed Policies Document (October 2012).

3.2.2 The Core Strategy sets out the spatial vision, strategic objectives and strategic

policies for managing development within the Borough. This is the key document and the other LDF documents’ roles are to implement the policies of the Core Strategy and provide further detail to the strategic policies. The Core Strategy identifies the key locations for growth and overall housing growth of 10,930 dwellings from 2006 to 2026. Specific site allocations are set out within the Reading Central Area Action Plan and within the Sites and Detailed Policies Document, the latter covering the remainder of the Borough excluding the Central Area.

3.3 Infrastructure Delivery Plan 3.3.1 The Council needs to demonstrate that new or improved infrastructure is required to support planned development and that there is a ‘gap’ in available funding.

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Regulation 14, CIL Regulations 2010

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3.3.2 The Council’s Sites and Detailed Policies Document (2012) includes an Infrastructure Delivery Plan (IDP) Schedule. This is supported by a more detailed IDP (July 2011)13 the purpose of which is to identify the key infrastructure to support future growth, resulting from additional housing and employment allocations during the Plan period to 2026.

3.3.3 For each infrastructure type the IDP identifies the existing position, impact of change, and priorities. The IDP includes a schedule of specific infrastructure projects with proposed timescale, estimated costs and funding, where known (Schedule 1). Some further work has been undertaken to refine and update this schedule and this demonstrates that there is an estimated total infrastructure cost, during the plan period to 2026, of £315 million. Based on total estimated funding of £118 million there is an estimated aggregate funding gap of £197 million to which CIL could contribute.

3.3.4 Further work will be undertaken to refine this further as part of the evidence base to show the specific infrastructure that the Council desires to fund in whole or in part by CIL. This will feed into the production of the next stage - Draft Charging Schedule. 3.3.5 The Council can use a percentage of CIL, as defined in the CIL Regulations, to

finance administrative expenses in connection with CIL. In addition there will be a meaningful proportion of CIL receipts from an area, to be used by neighbourhoods for infrastructure projects within that area14. This will be to manage impacts of development.

3.4 Economic Viability Assessment 3.4.1 The Council needs to demonstrate that the proposed levy rate/s will

contribute towards the implementation of the relevant Plan and support development across their area and show why the proposed levy rate/s sets an appropriate balance between the need to fund infrastructure, and the potential implications for the economic viability of development across the area. This does not mean that every scheme would need to be viable, but that the majority would be. Statutory Guidance (2012) states that “Charging Authorities (RBC) should show…that their proposed charging rates will contribute positively towards and not threaten delivery of the relevant Plan as a whole at the time of the charge setting and throughout the economic cycle.”15

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http://ww2.reading.gov.uk/documents/servingyou/planning/local_development_framework/Full_Infrastructure_

Delivery_Plan_0711.pdf

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A recent ministerial statement (Jan 2013) confirmed that for areas without a parish or community council

“..the local planning authority will engage with the communities where the development has happened to agree

how best to spend this money” (Nick Boles MP). No percentage has been identified. Regulations are anticipated

in Spring 2013. 15

Community Infrastructure Levy Guidance, CLG, 2012 (para. 30).

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3.4.2 The Council commissioned consultants BPS Chartered Surveyors to undertake a broad assessment of the economic viability of introducing CIL. They completed their assessment in January 2013, which has informed the rates proposed for the CIL for Reading. The full assessment is available to view at http://www.reading.gov.uk/businesses/Planning/planning-policy/community-infrastructure-levy/cil/

3.4.3 Consultants were commissioned to consider and advise on the scope of use classes to apply CIL charges to and provide justifiable CIL rates. They were also asked to consider whether there needed to be different rates for different locations within the Borough and to allow for different density levels.

3.4.4 In summary the consultant undertook residual development appraisals using a bespoke Excel based evaluation tool. The valuation identified the Gross Development Value minus the overall development costs (construction costs, fees, finance and profit) to determine a residual value. Costs include site specific S106 obligations and provision of affordable housing. In simple terms where an appraisal showed a surplus, after allowing for land costs, it was assumed that a sum would be available to pay towards CIL.

3.4.5 Although appraisals were based on current costs and values, in view of the current economic climate the consultant undertook a number of sensitivity tests including a reduction and increase in sales values of 10%, as well as a reduction of developers’ profit by 3%.

3.4.6 In order to reflect that some sites will have pre-existing development, and that in some cases this would be deducted from the overall CIL charge, an assessment was made of the average level of floorspace present for sites of a specific size. This figure was then applied to the residual value to determine the maximum level of CIL £/m2 that the scheme would be able to sustain before becoming unviable.

3.4.7 As the market improves there will be the need to reassess the economic viability of development in the area and to address this through a revised CIL charging schedule.

3.4.8 The residential modelling was based on five hypothetical sites of a range of sizes and unit numbers derived from an analysis of allocated and windfall sites. Each of these was then modelled against different percentage levels of affordable housing and tenure mixes. This resulted in 62 no. scenarios being modelled.

3.4.9 Three levels of CIL charge were modelled for residential to identify how many scenarios at each charge level remained viable and how many became unviable at these trial levels.

3.4.10 The conclusion from the viability assessment is that it would be possible to charge residential at a CIL rate of up to £140/m2, which would be a rate that would enable the provision of affordable housing to continue at approximately existing levels.

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3.4.11 A number of development types were grouped together under the commercial

scenarios:

• Scenario 1: In town - Offices (B1)/ General industrial (B2)/ Storage and distribution (B8)/ Non-residential institution (D1)/ Assembly and Leisure (D2).

• Scenario 2: In town - Office (B1)

• Scenario 3: Out of town – Office (B1)

• Scenario 4: Out of town – retail (A use classes)/ office (B1)

• Scenario 5: Retail warehousing and food superstore/ hypermarket

3.4.12 Most commercial developments were assessed as either higher marginal or currently unviable. The assessment demonstrates that a CIL tariff of £200/m2 will be viable in the current market for out of town retail (including foodstores) and £30/ m2 for B1 office in the walk time catchment of Reading Rail Station.

4.0 PROCEDURE FOR CIL ADOPTION 4.1 What is a CIL Charging Schedule? 4.1.1 The final CIL Charging Schedule should be a short financial document, which

sets out the Council’s CIL rate/s, which will apply to new development within their area. If there are different rates relating to different areas within the Borough then the Charging Schedule needs to be accompanied by a map to clearly explain those areas and the relevant rates that will apply.

4.2 What are the key stages? 4.2.1 There are two key stages: Preliminary and Draft Charging Schedules, both of

which must be subject to consultation. The Draft Charging Schedule will be subject to independent examination before the Charging Schedule can be adopted.

4.3 What are the next steps? 4.3.1 Following the collation and assessment of responses on the Preliminary Draft

Charging Schedule, a Draft Charging Schedule will be prepared. This will be submitted to an independent Examiner chosen by the Local Authority. Once the Draft Charging Schedule is submitted there will be a further period of 4 weeks for comments to be made. This might result in proposed modifications, which will also be forwarded to the Examiner. Anyone who has commented on the Draft and/or the Modifications can request to appear at the Examination. The following identifies the key stages in the preparation and adoption of CIL and the estimated timescales.

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Draft Charging Schedule – (Min) 4 weeks Jun-Jul 2013

(Prepare Proposed Modifications if required) Submit to Independent Examiner August 2013 Examination October 2013 Examiner’s Report November 2013

Adoption by Reading Borough Council Full Council Early 2014 Implementation of CIL by Reading Borough Council Early 2014

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APPENDIX 1: CHARGING ZONE MAPS

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