The Council was advised that it would cost £75,000 to set up CIL and around £50,000 per year to administer it by an independent consultant it jointly commissioned with a group of Black Country authorities. It also found that significant revenues would not start to be collected until late in 2016. Iain Gilbey, a planning expert at Pinsent Masons, warned that this could constrain the Council's ability to secure developer funding.
“Local authorities have been jumping on the bandwagon in 2012 to start promoting and implementing CIL, following a slow start in 2010-11," said Marcus Bate, a planning and CIL expert at Pinsent Masons, the law firm behind Out-Law. "With public sector funding shrinking, the attraction of an additional revenue stream is obvious. However, Wolverhampton’s analysis provides a sobering warning to those authorities expecting to realise substantial CIL receipts in the short term, particularly as the Council’s assessment of the timing of receipts doesn’t take into account further delays arising from phased schemes and/or the application of an instalment policy.”
The Committee Report recommended that the Council "should not pursue" the introduction of CIL for Wolverhampton "at the present time".
"As the development market is currently recovering from an unprecedented dip in land values, it is recommended that this position should be reviewed in 2013 in the light of up-to-date market evidence," the Committee Report said.
The Council concluded that estimated CIL revenues might not be sufficient to cover annual implementation costs. "A more appropriate comparison, though, would have taken into account the maximum amount of CIL revenues which the Council could lawfully have applied to fund its administrative costs, being 5% of annual CIL revenue," said Bate. "The resulting comparison, £4,000 available v £50,000 required, shows how inadequate the 5% cap is for some local authorities and why the Government’s proposed change to the CIL Regulations to release this cap will prove popular with them.”
“The decision not to progress CIL at this point in time is not purely linked to the issue of high costs and low revenues, relevant though those factors are. The Cabinet Report openly acknowledges that the Council does not want to deter new investment “because equivalent development in adjacent areas is less expensive”," said Bate.
"The consideration of deterring development is consistent with the policy guidance in the NPPF (paragraph 175) which states that CIL should support and incentivise new development. But the consideration of neighbouring areas highlights the political and commercial tensions and competition underpinning this new tax system.”
The Council has agreed that a further report should be produced in 2013 to review its position regarding CIL and planning obligations.
It is estimated that revenues from CIL in Wolverhampton would not start to be collected until late 2016. "CIL can only be collected on sites with a new planning permission following adoption of the CIL," the Council said. "There is often a time lag of 1-3 years between grant of permission and start of construction, when CIL is collected."
CIL would only be viable for supermarkets and housing development, the Council said, but because permission has recently been granted for three supermarkets to serve the city centre there are likely to be no other large convenience retail developments emerging over the period 2015 - 2018.
The Council also found that the majority of the housing growth in Wolverhampton either has planning permission and would therefore not be liable to pay CIL or is planned for lower housing development value areas where it would not be viable to charge CIL.
If housing development trends continue, the Council could generate CIL revenues of up to £80,000 each year, for developments in the higher value west of the City. However, it found that this would not be enough counterbalance the cost of implementing CIL.
"If Wolverhampton adopted a CIL, over the period August to March 2018 the estimated staff and budget costs would total £250,000, based on £75,000 set up costs and 3.5 years administration costs at £50,000 per year," the Committee Report said.
"The estimated revenue over this period would total £120,000, made up of 1.5 years, from October 2016 to March 2018, income at £80,000 per year. This represents an overall cost to the Council of £130,000 up to 2018."
"Whilst there is the potential for additional revenue costs arising from the administration and implementation of a CIL scheme, it is possible this could be an investment which is worthwhile making in the future at some point in order to secure key regeneration funding," the Council said. "At present, however, the dip in development land values questions the cost effectiveness of introducing a CIL scheme at this point."
Gilbey warned that Wolverhampton’s decision "will inevitably constrain its ability to secure developer funding for strategic transport, education and green infrastructure, particularly once the restrictive rules on pooling S106 contributions come into play in April 2014."
"This experience again highlights the need for local authorities to balance carefully the revenue generating potential of CIL against the inevitable brake on development that inappropriate rate setting will cause. However, to be left with no CIL charging schedule in place after the April 2014 deadline will store up further difficulties for authorities,” said Gilbey.