The new mayoral community infrastructure levy: what do developers need to know?

Out-Law Analysis | 10 Aug 2017 | 10:09 am | 4 min. read

ANALYSIS: The mayoral community infrastructure levy (mayoral CIL) is changing. Property developers and anyone with a property interest in greater London should be aware of the mayor's plans to replace the existing MCIL1 with MCIL2.

MCIL2 will be used to contribute to Crossrail 2, the mayor's stated next priority infrastructure project. The mayor is expected to provide 50% of the funding for Crossrail 2. The mayor is targeting receipts of £4.5 billion from MCIL2, which represents approximately 15% of the mayor's 50% share of Crossrail 2 and therefore a significant proportion of the overall funding.

MCIL1 will come to an end on 31 March 2019, together with the mayor's section 106 Crossrail charges (Crossrail S106). The mayor's £600 million target contribution towards Crossrail from MCIL1 and Crossrail S106 is expected to be realised this year, ahead of schedule.

A consultation on MCIL2 closed on 7 August 2017. Here are ten things developers should know about the proposals.

When will MCIL2 take effect?

The new charging regime, MCIL2, is due to come into effect on 1 April 2019.

What will MCIL2 cost?

MCIL2 is more expensive than MCIL1, even as against the predicted MCIL1 indexed rates for 2019.

Expect a rush to achieve the grant of full planning permissions and the discharge of reserved matters prior to 1 April 2019 in order to fall under the old, cheaper MCIL1 charging regime. However, you can also expect boroughs to be supportive of the rush to get planning permissions through before MCIL2 comes into effect as a more expensive MCIL will mean a reduced S106 'pot' locally, particularly given the mayor's 35% requirement for on-site affordable housing.

Will MCIL2 be charged in the same way as MCIL1?

Like MCIL1, MCIL2 will be charged on all development except for education and health. The rates per band are expected to increase, as set out in the preliminary draft charging schedule (PDCS) (16-page / 2.7MB PDF) published by the Greater London Authority (GLA).

However, there are some exceptions. Special increased MCIL2 rates will apply to commercial (offices), retail and hotel uses in central London (the 'Central Activities Zone' or CAZ) and the Isle of Dogs.

What happens to Crossrail S106?

Crossrail S106 charges will cease for projects gaining planning permission on or after 1 April 2019.

The equivalent charges will be 'rolled up' into the proposed special MCIL2 rates to be charged on commercial (office), retail and hotel uses in the CAZ and the Isle of Dogs. The one kilometre radius charging zones around greater London Crossrail stations will be abolished. This is because it would overcomplicate MCIL2, particularly when station locations are not yet known and also because the mayor is exploring proposals for land value capture, which contain other mechanisms for capturing value outside of the CIL regime.

Other than for offices in the Isle of Dogs, MCIL2 is more expensive than Crossrail S106. This is especially the case for retail and hotels in the CAZ, where the proposed MCIL2 charge equates to an over 50% and over 90% increase respectively.

Clarification is required on how outline and phased full planning permissions attracting Crossrail S106 charges will be treated where they are granted prior to 1 April 2019, but their reserved matters or phases are not approved until after that date, so that they will be liable for MCIL2. Transitional provisions will be needed to avoid double-counting in this instance.

The PDCS supporting information document (14-page / 775KB PDF) published by the GLA in June 2017 states that: "Whilst only one mayoral CIL will be chargeable at any one time, it is conceivable that there may be two mayoral CIL charges levied in the first years of MCIL2. This is because, under the regulations, any chargeable development permitted before April 2019 - but implemented after this date - would continue to attract MCIL1 charges".

Further clarity is needed on the duration of such a transitional period and how it would operate in practice.

Do the CAZ and Isle of Dogs special charging areas stay the same?

No. Both areas will become slightly bigger. Check the plans in the mayor's PDCS if you are proposing to develop in or around the existing CAZ or Isle of Dogs Crossrail S106 areas, particularly if you are proposing commercial, retail and hotel development within those areas that from 1 April 2019 will attract special, higher MCIL2 rates instead of Crossrail S106.

Waterloo, the Vauxhall Nine Elms and Battersea Opportunity Area (VNEB) and Elephant and Castle are proposed to be brought within the CAZ.

Are there any changes to the CIL banding?

Other than for commercial, retail and hotels within the CAZ and Isle of Dogs, the three charging bands will be similar, save that:

  • Waltham Forest and Enfield will move into band two;
  • LLDC and OPDC will be in band two (representing an increase in CIL in Newham around Stratford and a decrease in CIL in north Hammersmith within OPDC); and
  • Greenwich will move down into band three.

When will the MCIL2 examination in public (EiP) take place?

MCIL2 EiP is expected to be run in conjunction with the new London Plan EiP. The mayor is intending that the MCIL2 charging schedule should align with the new London Plan policy priorities.

When can we expect a further MCIL charging review?

Crossrail 2 is a 40-year project. MCIL3, which would also contribute towards Crossrail 2, is expected to follow approximately five years after the coming into effect of MCIL2.

Will future CIL reform plans affect MCIL2?

At present, there is no clear indication of when the government will announce a timetable for CIL reform so the GLA is proceeding with MCIL2 under the current CIL regime. However, if the recommendations of the CIL review team published in October 2016 are taken forward, MCIL2 would readily translate into a strategic infrastructure tariff (SIT) which is based on and recognises the success of MCIL1 in collecting monies from a wider geographic area at a low rate to contribute to one significant piece of infrastructure.

Is the mayor expecting to be able to borrow against future CIL receipts?

Transport for London (TfL) and the GLA expect to be able to borrow against future CIL receipts at some point, and believe when they negotiate for this ability they will not be met with resistance. Their funding model relies on the ability to borrow post-2031.

Clare Mirfin is a planning law expert at Pinsent Masons, the law firm behind Out-Law.com.