## Planning On The Doorstep: The Big Issues - Money Money Continues To Be A Huge Issue For Councils And Communities Across The Country; An Issue That Councillors Face Regularly On The Doorsteps Of Their Electorate. This Advice Note Describes Payments Available For Councils Who Deliver Growth And Details How Local Authorities Can Map These Payments To Inform Their Planning Decision Making.

 

Funding level: £50m Business Rate income: £100m Business Rate income increases by 5% (£5m) = 10% increase in 'funding level' Council receives 5% up-lift of £2.5m from the £50m funding level  
 

Introduction 
 
Building new homes, commercial space and infrastructure projects supports economic 
growth. And growth ultimately means more economic output.  Growth relies on land and 
buildings being available, and this is where planning comes in. Local authorities, and 
especially local councillors, need to be aware of the direct and indirect financial returns 
when determining planning applications.  
 
The government has introduced a series of payments for councils when they deliver growth: 
New Homes Bonus (NHB), Business Rate Retention (BRR) and the Community Infrastructure 
Levy (CIL). Below you can read what these mean for your community.  
 
New Homes Bonus 
NHB was introduced in 2010 and gives a payment to a council for every new home built in its 
area. It is paid by the Treasury each year for six years and is based on the amount of extra 
Council Tax revenue raised for new-build homes, conversions and long-term empty homes 
brought back into use. There is an extra payment for providing affordable homes. The 
baseline for each local authority is set every year and is based on the previous year's 
collection of Council Tax.  The amount is calculated by multiplying the annual net change in 
housing stock (adjusted for Band D equivalency) by the average Band D Council tax in 
England for the previous year.  
 
For 2013/14, the NHB was £1,444.13, with a £350 supplement for affordable homes. To 
estimate future income for NHB the 2013/14 calculation is applied to the council's housing 
trajectory and projected specific housing growth data. There are no restrictions on how the 
money can be spent by a council.   
 
You can find out how much your council's NHB allocation is via the link below: 
https://www.gov.uk/government/policies/increasing-the-number-of-available-
homes/supporting-pages/new-homes-bonus. 
 
Business Rate Retention 
Business Rates or National Non-Domestic Rates (NNDR) are set by the government's 
Valuation Office Agency with the local authority collecting and passing the money to the 
government.  Previously the government would distribute the pooled income to councils 
based on population and assessed need as part of formula grant.  Councils where Business 
Rate income is higher than the formula grant subsidise those councils where it is lower. This 
base funding level is set for seven years, presently until 2020.   
 
Since April 2013, BRR allows councils to retain a proportion of business rate growth that they 
deliver in their area. The amount retained is worked out by having an initial 'funding level' 
set for each local authority based upon the formula grant they had previously received. A 
council's proportional increase in income from Business Rate growth will be capped as a 
proportion of the 'funding level'. For example: 
 

   - 
       A 1% increase in business rates income = no more than a 1% increase in funding, 
       except where this would impose a levy rate of more than 50p in the pound.  
   - 
       In these cases the levy will be set so the authority keeps at least 50p in each pound 
       of growth in its business rate income.  
   - 
       This means that, even after the government's 50% central share, at least 25p in each 
       extra pound of business rates generated locally will be retained locally.   
 
In certain locations the amounts will start to add up. As with NHB, this does not directly 
impact on a developer's budget. Further information on BRR from central government can 
be found via the link below: 
 https://www.gov.uk/government/collections/business-rates-retention.  
 
Community Infrastructure Levy 
The CIL was introduced in 2010 as a levy on new development.  District or unitary councils 
set their own levy to pay for infrastructure; this levy does impact on developers' budgets 
and development viability. The rates need to be set at a level that balances the need to pay 
for infrastructure vs the impact on development viability. It is optional and councils can set 
some variety of charges within their area by type of development or by area. 
 
A proportion of the money collected must be spent in the area within which it was collected, 
to enable communities to feel the direct financial impact of development.  The rest must be 
spent on infrastructure to further growth.  Be aware that a council's ability to pool s106 will 
be severely limited from 2015. 
 
Why are councils implementing CIL? 

1. CIL can significantly increase funding for your local infrastructure priorities. 
2. CIL ensures the widest range of developers make a fair contribution. 
3. CIL supports a strategic approach to development management, investment and 
delivery cash flow. 
4. CIL gives districts control over spend priorities. 
5. CIL provides up-front transparency, consistency and speed of negotiations reduces 
developers' risk and will encourage development in difficult economic conditions. 
6. Initial investment to create the charging schedule can lead to reduced management 
costs for the charging authority going forward. 
 
Proportional impact of CIL on development viability A common myth about CIL is that, from a development viability perspective, it is off-putting. 
In the vast majority of cases the reality is very different.  
- 
A 10% various in build costs has an impact on viability 20 times that of a £10/sqm variance in CIL charge. 
- 
A 10% various in sales values has an impact on viability 40 times that of a £10/sqm variance in CIL charge. So, in the vast majority of cases, it is sales values that determine whether residential 
schemes go ahead or not. This appreciation of the impact of CIL on development viability is being played out in charging schedules across the country. Sheffield, Kingston, Bexley and 
Newham have all set CIL rates in areas of limited viability on the basis that it is not the overwhelming reason for development not coming forward. Full detailed guidance on CIL 
can be found on the PAS website:  
http://www.pas.gov.uk/3-community-infrastructure-levycil;jsessionid=F3B16D55E01C846EAD3CDB36CBF96B82.  
Combined Funding (Blending NHB, BRR and CIL) 
Councils from across the country are finding that implementing CIL will only make a small contribution (5-15%) to meeting the infrastructure funding gap.  Councils now collecting CIL 
back up this projection; whilst some of the numbers are large (£6m for the GLA, £100,000 for Redbridge, £260,000 for Bristol) they are insufficient to meet  the cost of strategic infrastructure.  Few infrastructure items are delivered through one single source of funding; 
it is a blend of several sources including CIL, NHB, BRR, and others - and probably some borrowing to make up any shortfall.   
 
This table summarises the three sources of funds and their key characteristics: 
 

Policy 
Source 
Trigger 
Duration 
Influence 
Ringfenced? 
CIL 
Developer 
Commencement 
Small 
Over 
To 
of development 
number 
entire 
infrastructure 
of 
process 
payments 
over 12-
18 
months 
NHB 
Government 
Occupation of 
6 years 
None 
No 
home 
NNDR 
Government 
Occupation of 
In 
None 
No 
business space 
perpetuity 

 The income profile of the three tools therefore varies over time, as shown below in the 
graph highlighting how long each financial tool gives a return each year with housing 
completions. CIL and NHB can be a high portion of returns but will vary over time relating to housing 
completion rates and will eventually stop. However NNDR will alter but can continue giving a return indefinitely. 
Summary 
These financial returns, to be spent on infrastructure, can be a material consideration in the 
determination of planning applications. 
 

Examples  
Below are some examples of where councils have sought to inform their decision making by 
understanding how these payments interrelate with their plans for development and 
regeneration.  
 
Example 1 - City in South West England 
The impact of infrastructure being funded in the early phases. 
Background: The council was assessing how infrastructure delivery would bring forward 
development across ten strategic sites in the centre of the city. Some important strategic 
infrastructure was needed to release development capacity on these strategic sites but 
there were no means of funding it. The council needed a business case for investment that 
was more than simply new homes.   
What they did: A development finance model was devised to calculate the potential CIL, 
NHB, Business Rates and Council Tax income streams. That future income was set alongside 
valuation work for sites owned by the local authority to assess the potential future capital 
receipts.   
The result: The timing of the income was modelled alongside infrastructure costs and 
development phasing, to provide an investment programme cash flow. This whole process 
added practical delivery information to the council's Masterplan for the city. 
 
Example 2 - Outer London Borough, Strategic Infrastructure Investment Planning  
Looking at the local infrastructure delivery plan and prioritising the items within it. 
Background: The council decided to prioritise the infrastructure items based on their 
financial and regenerative impact. This required them to define what infrastructure projects 
were truly enabling and would have a probabilistic causal link to the release of a 
development site to bring forward new homes and employment space.  
What they did: Where infrastructure items were deemed to have a direct impact, the 
council calculated CIL, NHB and NNDR - generated by the development site and compared 
that with the cost of the infrastructure item. The work included an investigation into the 
alternative development scenarios for each of the boroughs' growth areas to establish the 
associated regenerative benefits of each infrastructure item. The table below sets out the 
projected income from each of the funding sources over the plan period: 
 

| 2013-14     | 2015-2024    | 2025-2034    | 2035-2044    |
|-------------|--------------|--------------|--------------|
|             |              |              |              |
| Whole       |              |              |              |
| Borough     |              |              |              |
| £13,239,915 |              | £137,087,736 |              |
| CIL         | £4,042,752   | £48,145,998  | £38,146,752  |
| NNDR        | £1,946,535   | £15,659,223  | £47,859,440  |
| NHB         | £2,033,934   | £33,587,776  | £27,805,634  |
| CT          | £2,614,925   | £17,461,796  | £9,947,610   |
| S106        | £2,601,769   | £22,232,944  | £4,906,100   |

 
The result: A high-level impact assessment and starting point for a detailed business case for 
each infrastructure item. Further work was undertaken to review which option should be 
pursued to maximise the regenerative and financial benefits for the borough. This work is 
informing the council's local infrastructure investment programme. 
 

Example 3 - Outer London Borough, Development Finance Analysis 
Trying to understand the direct financial benefits of its regeneration programme. 
Background: The council commissioned a study to understand the direct financial benefits of 
its regeneration programme to inform the borough's medium term financial strategy and 
test regeneration investment options. 
What they did: This required a calculation of CIL, NHB, NNDR, Council Tax, asset sale values 
for the local development trajectory and required detailed analysis of each major 
regeneration programme, in terms of costs and phasing.  The council developed alternative 
strategic scenarios and analysed the direct financial impact of each. This was being used by 
the council to inform its strategic decisions whilst the regeneration department is being 
outsourced. 
The result: The two charts below demonstrate the cumulative income from CIL and NHB and 
the annual income from Business Rates and Council tax for the council: 

 

 
Example 4 - Outer London Borough, Office Market Study 
Making an area attractive for investment. 
 Background: The council has a well-articulated regeneration agenda, with high-profile 
projects ongoing in the town centre. They initiated a huge investment programme in the 
public realm to enhance safety and remodel the urban fabric to make the area more 
attractive for investment. However, there were still issues with the town centre - mainly 
due to the poor performance of the office market. 
What they did: The council initiated a project to assess the planning issues, viability and 
market conditions that are influencing the office market and what tools the council could 
utilise to address the problems; as well as engaging with landowners and occupiers to 
understand the barriers to development. The team produced a development finance model 
that considered the direct financial benefits of growth alongside the potential downstream 
regeneration benefits to demonstrate whether there was a business case for intervening in 
any given site. The tables below give a comparison of cumulative income from a site 
depending on whether it was developed as a majority office or majority residential use: 

 

The result: The work made the case for increased Economic Development Team budget and 
has influenced the council's £400m infrastructure investment programme. 
 

Example 5 - Planning Application Discussions 
Taking local finance considerations into account as a material planning consideration. 
Background: A senior development control officer had always prioritised large housing 
proposals as he felt they were politically high profile and because they had the biggest 
impact on the area. 
What they did: He had found himself in protracted s106 negotiations with a new business 
park proposal. He felt that he was fighting the council's corner by holding out for greater 
commuted sums. However, one day the Business Retention figures were brought to his 
attention.  He suddenly realised this was worth millions to the council and that the money 
could be spent on related regeneration priorities. 
The result: He moved to soften his stance on the application and section 106 to speed up 
the process.* 
 
*Section 70(2) of the Town and Country Planning Act 1990 (as amended) provides that 
authorities must have regard to local finance considerations as far as material. Section 70(4) 
of the 1990 Act (as amended) defines a local finance consideration as a grant or other 
financial assistance that has been, that will or that could be provided to a relevant authority 
by a Minister of the Crown, or sums that a relevant authority has received, or will or could 
receive, in payment of the CIL.  
 
Whether or not a 'local finance consideration' is material to a particular decision will depend 
on whether it could help to make the development acceptable in planning terms. It would 
not be appropriate to make a decision on the potential for the development to raise money 
for a local planning authority. In deciding an application for planning permission or appeal 
where a local financial consideration is material, decision takers need to ensure that the 
reasons supporting the decision clearly state how the consideration has been taken into 
account and its connection to the development. 
 
This PAS publication was researched and written by CIL Knowledge. 
 

                                        
Web: www.pas.gov.uk 
Email: pas@local.gov.uk 
Tel: 020 7664 3000 
Twitter: @pas_team