Engineering consultants call for infrastructure levy reform

New analysis by the Association for Consultancy & Engineering (ACE) reveals that two fifths (40%) of the receipts from a levy on developers meant for local infrastructure improvements remains unspent by councils in England and Wales.

The Community Infrastructure Levy (CIL) was introduced in 2010 as a form of institutionalised baksheesh. CIL is meant to help local councils secure the revenue needed to meet the impact of new property developments – for example improving local transport links or helping to build new schools or medical centres.

The ACE says that the CIL should be scrapped and gradually replaced with a local property sales tax.

Freedom of information requests submitted by ACE show that despite raising more than £1.1bn for councils across England and Wales between 2014 and July 2018, £443m remains unspent and is just sitting in council bank accounts.

The research also that only 43% of councils in England and Wales (148 out of 348) demand levy payments.

ACE chief executive Hannah Vickers said: “While councils are deciding not to implement the levy, or sitting on the funds raised, local infrastructure is bearing the brunt of increased strain whenever new homes or retail developments are green-lit. This means more cars on our local roads, more pupils in our crowded schools and longer waiting lists at the GP. Given the current financial demands on councils this is surprising state of affairs.

“It’s clear that the original intention of the levy as a means of fairly raising money for supporting infrastructure is failing. The upcoming budget is an opportunity for the government to address this imbalance and put in place a system which is simple and transparent. At the moment the system is failing old and new residents alike.”

The ACE’s report, Scrapping the Levy, also highlights a number of regional disparities. More than half (56%) of unspent CIL is with councils in Greater London, while Birmingham and Newcastle have, to date, not spent any of the collected levy.

The report says: “Given that less than half of councils and authorities in England and Wales charge CIL, and that of these only 60% of CIL is actually spent, it is clear the CIL is not delivering nearly enough funding for infrastructure in England and Wales. It is imperative the levy is reassessed to ensure councils can raise the necessary infrastructure funding required. Reasons for low uptake of the CIL vary, but broadly it is felt that implementing the levy is too difficult and resource consuming for local authorities. Furthermore, it is likely that most councils realise that the cost of setting up the levy would be greater than the sum of the funds received and, as a result, have been dissuaded from adopting the CIL.”

The ACE advocates replacing the CIL with a property sales levy in the medium to long term.

It says: “Property owners benefit hugely from improvements to infrastructure in their area through increased property values. Those that benefit the most from these projects should also be expected to make a contribution towards them. This would take the form of a Property Transfer Tax as is currently implemented in the state of New York. A 1% tax is applied on the sale of a property if it is worth less than $500,000, and a 1.425% tax if the value is more. ACE estimates that this tax could raise an additional £2.16bn per annum on the sale of housing across England, based on the average house prices of regions in 2017 and using the same threshold as New York.

“The levy would represent an ongoing revenue stream for local authorities, which could potentially yield up £62bn in long-term bonds based on our estimates for this levy.”

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