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Community Infrastructure Levy 
Rate Setting 
July 2014
Context
The Funding Pie 
The levy cannot be expected to pay for all of the infrastructure required: 
• 5-10% 
• Consider CIL as just one small part of a more complex blend of 
funding. 
Local 
Government 
Grants 
CIL 
s106 
Regional Growth 
Borrowing 
Capital reciepts 
Business Rate 
Retention 
Fund 
Value
The proportional impact of CIL on 
development viability 
36 
31 
26 
21 
16 
11 
6 
1 
£10/ sq m variance in CIL rate 10% variance in build costs 10% variance in sales values
Preparatory work
Getting started 
Developing a 
Working Hypothesis 
What might the 
schedule of rates 
look like in your 
area?
Charging 
Authority:_________________________ 
Development 
Type/ scale 
Area 1 
_______________ 
Area 2 
_______________ 
Area 3 
_______________ 
Area 4 
_______________ 
Type 1 £ £ £ £ 
Type 2 
£ £ £ £ 
Type 3 
£ £ £ £ 
Type 1, Scale A £ £ £ £ 
£ £ £ £ 
£ £ £ £
Simplicity v Complexity 
Simplicity 
• single rate (?) 
• requires minimal evidence 
• need to set near the lowest 
value use / area (an 
opportunity cost?) 
Complexity 
• differential rate (probably) 
optimises income for 
infrastructure 
• “Progressive”: the most 
profitable developments pay 
more 
• too complex may be off-putting 
and awkward to 
operate 
• too complex likely to require 
greater justification through 
evidence.
Differential vs Single Rate 
Differential Rate 1 
income (£/time) 
Use / Area A Use / Area B Use / Area C 
CIL 
Viability 
levels 
Differential Rate 2 
income (£/time) 
Single Rate 
income (£/time)
Workshop
Format and considerations 
• Hosted by project sponsor 
• With or without members depending on level of knowledge 
• Viability advisor in attendance 
• CIL income projection model linked to charging schedule 
• A buffer of around 25% below maximum CIL rates 
• How do changes in CIL rates effect income
CIL Income Projections
Maximum CIL Rates
Summary
Summary 
• Direct the viability work using your own local knowledge. 
• You are required to involve developers prior to the 
publication of draft rates 
• Use a rate setting workshop that brings together viability 
and projected income to reach an optimal solution
Questions 
www.CILknowledge.com

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Viability rate setting

  • 1. Community Infrastructure Levy Rate Setting July 2014
  • 3. The Funding Pie The levy cannot be expected to pay for all of the infrastructure required: • 5-10% • Consider CIL as just one small part of a more complex blend of funding. Local Government Grants CIL s106 Regional Growth Borrowing Capital reciepts Business Rate Retention Fund Value
  • 4. The proportional impact of CIL on development viability 36 31 26 21 16 11 6 1 £10/ sq m variance in CIL rate 10% variance in build costs 10% variance in sales values
  • 6. Getting started Developing a Working Hypothesis What might the schedule of rates look like in your area?
  • 7. Charging Authority:_________________________ Development Type/ scale Area 1 _______________ Area 2 _______________ Area 3 _______________ Area 4 _______________ Type 1 £ £ £ £ Type 2 £ £ £ £ Type 3 £ £ £ £ Type 1, Scale A £ £ £ £ £ £ £ £ £ £ £ £
  • 8. Simplicity v Complexity Simplicity • single rate (?) • requires minimal evidence • need to set near the lowest value use / area (an opportunity cost?) Complexity • differential rate (probably) optimises income for infrastructure • “Progressive”: the most profitable developments pay more • too complex may be off-putting and awkward to operate • too complex likely to require greater justification through evidence.
  • 9. Differential vs Single Rate Differential Rate 1 income (£/time) Use / Area A Use / Area B Use / Area C CIL Viability levels Differential Rate 2 income (£/time) Single Rate income (£/time)
  • 11. Format and considerations • Hosted by project sponsor • With or without members depending on level of knowledge • Viability advisor in attendance • CIL income projection model linked to charging schedule • A buffer of around 25% below maximum CIL rates • How do changes in CIL rates effect income
  • 15. Summary • Direct the viability work using your own local knowledge. • You are required to involve developers prior to the publication of draft rates • Use a rate setting workshop that brings together viability and projected income to reach an optimal solution

Editor's Notes

  1. It is important to get rate setting right. This presentation starts off with two issues that contextualise the rate setting process (these should be considered alongside all other advice giving in this seminar series). It then goes in to share some approaches and techniques developed when we worked with the CIL Front Runners. Collectively these tricks and tips should help you navigate the CIL rate setting process.
  2. When setting CIL rates it is important to understand CIL in context. You are required to consider your infrastructure funding requirements and what contribution CIL will make. Whilst CIL is an important source of funding for infrastructure, it is just one of many funding mechanisms. The Levy is unlikely to contribute more than 5-10 per cent of funding for your infrastructure requirements (depending on you local circumstances, such as, the extent to which you have prioritised your infrastructure requirements, and the level of growth expected in your area). Other significant sources of infrastructure funding will include: Section 106 planning obligations, which will still play an important part in on-site mitigation Capital receipts from the sale of existing assets Business Rate retention, which can make a significant contribution in growth areas Grants such as education funding, albeit that a proportion of these may go directly to Academies or Free Schools, and Borrowing It is worth noting that many Authorities that were early adopters of CIL have used it as leverage (or match-funding) to attract far greater sums of money for infrastrutcure. CIL rarely pays for whole items of infrastructure alone.
  3. When setting rates you are also required to consider CIL’s potential impact on development across the area, as well as the impact on the delivery of your local plan. You will often be engaged in discussions with objectors that focus on the impact of CIL on particular developments. It is important to understand that CIL has a relatively minor impact on development viability when considered against other factors impacting on viability. This diagram shows the relative impact of a £10 variation in CIL against a 10% variation in build costs and sale values. The impact of 10% variance in build costs will be 20 times as significant as a £10psm variation in CIL The impact of 10% variance in sales values will be 40times as significant as a £10psm variation in CIL
  4. We recommend that those Charging Authorities that are at the beginning of the CIL research process develop a working hypothesis for your CIL rates. You will know your area better than many. You will have an understanding or a hunch as to where rates may vary across your area or between uses in your area.
  5. In order to record your working hypothesis we recommend you develop a simple matrix and host a short workshop for key decision-makers and technical experts within your Authority. In that workshop ask them to complete the matrix based on their knowledge. This should enable you to develop an understand of what variations / scenarios to test thoroughly through technical viability. The outcomes of this workshop will also help you develop a brief for viability consultants should you need to appoint them.
  6. Another factor that should be considered at the early stages of developing a CIL charging schedule is the issue of Simplicity vs Complexity. A single rate or simple set of rates requires less evidence to justify variations – spatial variations can be difficult to justify if there is not clear difference in viability across your area. Several Charging Authorities have chosen a simple approach because it is easy to operate and easy for the development industry to understand. However, the nature of a simple rate means that you need to set your single rate at a level that does not have a significant impact on your local plan delivery, which usually means the rate not only doesn’t impact on housing, but also commercial developments (these are usually lower value). The nature of this approach means you may well be forgoing potential income from higher value developments. Setting differential rates is most likely to optimise CIL income and therefore provide a greater contribution towards your infrastrutcure. Some have seen this as a more progressive approach in that it sets a levy commensurate to the profit for each development type. Furthermore, greater investment in infrastructure can support development viability in your area. However, be warned, the greater the number of rates, the more evidence is needed to justify each variation in the context of one another. This can create a complex picture of the development industry (when it’s purposes is to provide a clear, predictable up-front cost that is absorbed in land transactions). Complex rates can also be more complex to administer. The message from the early adopters of CIL is to strike an appropriate balance between simplicity and complexity (leaning to the side of simplicity if in doubt!!)
  7. The rate setting process is a local judgment that should be informed by and consistent with the technical evidence. The technical evidence can be highly complex and there is no technically perfect answer to CIL, so viability consultants should not be the final arbiters of CIL rates: that is for the Charging Authority (and the Examiner!). We strongly recommend you set rates through a Rate-Setting Workshop, where key decision-makers in your local authority a brought together, getting to hear from those that have produced the technical evidence, then discuss their options, finally coming to a consensus on the preferred rates (prior to formal consolation).
  8. Having worked with the early adopters we believe that there are some pre-conditions to a successful rate setting workshop. It needs to be hosted by the CIL project sponsor – usually a senior manager. It may or may not include elected members – if members are in attendance it is vital that they are fully briefed beforehand. Receiving a barrage of complex technical evidence is very unlikely to result in a clear decision being made quickly. Your technical viability advisor should be in attendance to present the findings and answer technical questions You should be able to project CIL income for the various rates discussed so that decision-makers can sensitivity test the impact of their decisions on addressing the infrastructure funding gap (as well as viability). You should not set rates at the maximum level. You should considered rates that allow for unusual circumstances for developments.
  9. An example of income projections
  10. An example of rates indicating maximum and minimums.
  11. In summary rate setting is an evidence-based judgement. It is best undertaken through a process that allows key decision-makers to understand the technical evidence, debate the implications of rates and come to consensus on their preferred rates. There are many ways this can be achieved, however, lessons from the CIL Front Runners group showed clear benefits to: Developing a working hypothesis for CIL rates (this helped shape the commissioning of viability studies as well as developing understanding and buy-in from decision-makers at an early stage) Hosting a rate setting workshop with all key decision-makers in attendance (ensuring attendees were very well briefed beforehand)