Opinion

Developing problems

Finance | Nick Ivey | 1 Oct 2008

The Planning Bill may have horrific consequences for charities, argues Nick Ivey.

The planning bill includes a new tax on development called the Community Infrastructure Levy (CIL). Community Amateur Sports Clubs (CASCs) and other not-for-profit organisations involved in the provision of community or public service but who have not got charitable status will also be adversely affected.

The government has long wanted to tax the uplift in land value when planning permission is granted. The original planning green paper proposed this, and in 2005 Kate Barker, an economist at the Bank of England, recommended what became the Planning Gain Supplement (PGS). The proposal was for a tax, administered by HM Revenue and Customs, at around 20 per cent of the increase in the value of the land. PGS even got as far as preparatory legislation, but it was met with widespread opposition from the property industry, specifi-cally surrounding potential difficulties ensuring that the system was administered fairly. It was ultimately dropped by Alistair Darling in the Pre-Budget Report last October.

It is a skeleton Bill which will be introduced largely by regulation. Indeed so much of the Bill relies upon the subsequent passing of regulations that there are huge areas of uncertainty, though the fact that there will be a new tax on development with no charitable exemption is clear.

Local authorities will be responsible for the collection and distribution of the funds, which will be used to finance infrastructure projects such as roads, to support the development of an area. Authorities will judge the amount required for local infrastructure projects before calculating the contribution expected from the CIL once national and regional funding is taken into account. Each authority that wishes to charge CIL must set out a draft charging schedule (to be verified by an independent party) encompassing the various rates for different types of development. The charge will be paid when Developing problems“development is commenced in reliance on planning permission”, but “development” and “commencement of development” are to be defined by regulations.

Charging is expected to be per square metre, though crucially, the original proposal that it should be linked to the uplift in land value brought about by the granting of planning permission has been dropped.

As it stands at the moment, CIL will be devastating for any charity wishing to develop land. As the Bishop of Southwell and Nottingham stated in the Lords second reading debate, “unless an exemption is made for charities, CIL will impose a completely new financial burden on them that they will find difficult to bear.” Commercial developers will be able simply to pass on the cost of the CIL to the customer, but charities wishing to develop land for their own purposes will have to foot the costs of the tax at the onset of development. This will prevent many charities from undertaking projects even though the projects may themselves be of value to future community development or an important source of funds for the charities to be spent on their charitable purposes.

There is not much sign of joined-up government here. Charities have long been granted exemption from all taxes (except VAT) because their activities are regarded as for the wider public good. The Office of Third Sector defines its role as ensuring that “the legal framework helps charities to develop their activities and services.” But the Department for Communities and Local Government, which is responsible for the Planning Bill, has declared that it envisages “no exceptions” to CIL.

The Bill is currently about to start its committee stage in the House of Lords. Several peers have already raised concerns about the lack of an exemption for charities and a campaign for an exemption for charities is far more likely to succeed in the Lords than in the Commons. A group of interested parties, including Bates Wells and Braithwaite, the Charity Tax Group, the Churches’ Legislation Advisory Service and the NCVO are lobbying Parliament to obtain an amendment to the Bill. It is absolutely vital that as many charities as possible express their concern about the proposal.

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