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The noble Lord, Lord Berkeley, will not be surprised by my response to his Amendment No. 438, although I appreciate his reasons for tabling it. He is seeking to ensure that organisations whose sole activity is the provision of rail infrastructure and whose profits are used solely for the provision of rail infrastructure are
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Amendment No. 438 would exempt the relevant organisation in its entirety, regardless of what type of development it undertook. That gives rise to considerable questions of fairness, but does not mean that every development that Network Rail undertakes will be subject to CIL.
In due course I shall come on to Amendment No. 437A, which defines what types of development will be CIL-liable. Subject to us being able to cover other structures, the core concept is that CIL-liable development will be development relating to buildings; we do not intend to cover day-to-day operational requirements. We will also be looking at development undertaken through permitted development rights; we do not propose that all such development should be subject to CIL.
All that should be welcomed by Network Rail, but for other development we need to consider carefully whether Network Rail should be treated differently. Imagine, if you will, a situation where two office blocks are being developed side by side, one by Network Rail as a new headquarters, the other by a different developer. Is it right that one makes no contribution through CIL to the infrastructure needs it creates in that area while the other, simply because it is being undertaken by a developer that is not Network Rail, is expected to make a contribution? That is obviously unfair. Both office blocks have an impact on the local infrastructure.
Lord Berkeley: Perhaps I may help my noble friend. Network Rail is actually two separate companies. One is a regulated company that is purely to do with operating, maintaining and enhancing the network and the stations, and is not allowed to carry out property development as she suggests. That is the regulated company, which is the subject of my amendment. The other company, which can go off and develop headquarters, would of course pay CIL. I am referring to the first company, which is regulated and cannot do anything outside the regulated railway and the stations.
Baroness Andrews: I take that point, but we have to be clear that any exemptions from CIL need to be decided on the basis of objective criteria. My noble friend’s amendment fails the second of those, which relates to fairness. I hear what he says, though, and I will consider the implications of it.
I turn to government Amendment No. 437A. The noble Lord, Lord Jenkin, asked about the large infrastructure projects and the implications they have for bad-neighbour questions. That is something we shall come on to in a later amendment that I seem to remember about how other countries deal with bad
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Lord Dixon-Smith: I thought the point the Minister has just raised was the precise justification for keeping Section 106 in situ.
Baroness Andrews: Section 106 certainly is in situ and local authorities can use it, as they do now, for a variety of purposes if they see fit. There can be all sorts of negotiated arrangements that follow from that. No one is going to put a stop to any of that.
Our Amendment No. 437 deals with the definition of “development” by amending Clause 200. It is important to get that clear because we need to set out exactly what is liable to pay CIL. Clause 200 currently provides that development will be defined in regulations; the Delegated Powers and Regulatory Reform Committee noted that in its 12th report. By providing a definition in the Bill we hope we have met its concern, and it has not commented further on that.
The amendment defines development in line with the proposal we set out in August: it will generally be development about buildings that should be liable to pay CIL. The definition sets out that the creation of a new building or anything done to, or in respect of, an existing building is development for CIL purposes. The amendment provides that the CIL regulations may modify this definition for specified works or changes of use or structures. “Buildings” is the right definition because it flows from the purpose of the CIL regime in Clause 198(2), which is to ensure the funding of costs associated with the delivery of infrastructure to support the development of an area. The assessment of those infrastructure needs is predominantly about the location of people through their occupation and use of buildings. This approach also builds on the fact that many tariff schemes do not cover this sort of development.
We could spend some time discussing the precise boundaries of our definition, but I think I can forestall that by explaining that the fact that a development relates to a building does not automatically mean that it will pay CIL. It will also need to be the sort of development that requires some sort of planning permission. The amendment proposes a regulation-making power to maintain clarity over time in the light of experience.
As a consequence of Amendment No. 437A, it is necessary to amend Clause 200(3). Amendment No. 437B removes the requirement in Clause 200(3) for the CIL regulations to define development. I hope that those are the sort of certainties which noble Lords welcome.
I turn now to the provision of affordable housing through developer contributions. The noble Lord, Lord Best, is not a man to tangle with on these issues. As usual, he has been exceptionally eloquent and powerful. I could not agree with him more that CIL must not hinder affordable housing; it must not bring disastrous unintended consequences. I am entirely of a mind with the noble Lord.
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Concerns felt by the affordable housing sector that the introduction of CIL will squeeze contributions for affordable housing have been raised with me, and we have discussed them with the charitable sector. I have said many times in this House that the provision of affordable housing is a priority for the Government. CIL is designed to complement and not reduce existing developer contributions for affordable housing, especially at this time and for all the reasons that the noble Lord made very clear. I shall set out the rationale behind our Amendment No. 437C, which provides exemptions for charities, and also address Amendments Nos. 444A and 437AA.
Amendment No. 444A would require that affordable housing contributions are calculated without reference to CIL liability, and that should a developer’s return on investment fall below a defined threshold, CIL should be reduced on a case-by-case basis. The noble Lord is concerned that the provisions for CIL will mean that developer contributions for affordable housing could in certain circumstances be squeezed. The current planning obligations regime has become an increasingly significant method of delivering affordable housing through Section 106. The noble Lord graphically illustrated some of the difficulties that Section 106 and those negotiations cause. I am very well aware of his concerns. He says that CIL will cost affordable housing billions; our calculation is that CIL is expected to raise hundreds of millions of pounds per annum. For example, with regard to the Milton Keynes tariff, £18,000 was awarded per residential unit. That is serious investment that could be used for very good purposes.
Particularly at this time, the Government are very sensitive to the need to protect levels of affordable housing contributions and are determined to put in place safeguards which aim to ensure that the introduction of CIL will not result in a reduction in the overall level of contributions secured for affordable housing. We do not intend initially to include affordable housing within the scope of what may be funded by CIL, but it has deliberately been included in the definition of infrastructure in the Bill under Clause 202(2)(g). If there were an unexpected reduction in the level of developer contributions for affordable housing as a result of the introduction of CIL, we can make regulations to ensure that CIL revenue could be used to top up such a shortfall if evidence showed that that was necessary. So there is a major safeguard there.
Our clear preference is not to activate that provision because we believe that delivering affordable housing onsite through the existing Section 106 system better meets the Government’s objectives for mixed communities. It allows the real needs of the communities to be articulated and expressed on the types of development and building. It is a complicated process because it has to meet the needs of complicated communities. That is why Section 106 is suitable and effective.
We want Section 106 to continue unhindered. We set out in the August document that planning authorities that choose to introduce CIL will be obliged to set a charging schedule in such a way as to ensure it does not impede development. We made it clear that that exercise will need to take into account the costs of meeting affordable housing requirements. In every
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The recommendations of the independent examiner, who will be looking to see whether there are flaws in those arguments and calculations, would be binding upon the charging authority. Draft charging schedules set too high could be reduced by the examiner if he considered that CIL, taken with other costs and local economic conditions, would prevent development proceeding. CIL is intended to assist in securing affordable housing, not reducing it, by providing additional revenue to support the delivery of planned infrastructure needed to unlock growth. Therefore, the levels of CIL must be set appropriately to ensure that more affordable housing contributions come forward.
I am not convinced that the proposed amendment is workable. I fear it would lead to uncertainty, complexity and delay. The amendment proposes that CIL liability should be adjusted for individual developments to take into account affordable housing contributions. That creates uncertainty over the level of CIL liability that developers will have to pay, and will lead to lengthy negotiations. It would leave at the discretion of the charging authority whether to reduce a CIL payment. There would inevitably be disputes over whether a return on investment was over or below the specified threshold. The amendment says that we would have to define that threshold in law, which would involve us prescribing a level of appropriate profit. That is an unattractive and undesirable proposition and takes us back to the site level of negotiations, which we were trying to avoid in CIL, as opposed to PGS.
The second suggested exemption would ensure that there was no CIL to pay on social housing development falling within the meaning of the Housing and Regeneration Act. That means low-cost rented accommodation and low-cost home ownership. I have already explained that we believe that Section 106 should continue to be used to seek contributions to affordable housing from commercial developers. Many local authorities have policies of that nature, but the affordable housing that they build will, as the noble Lord will agree, have an impact on local infrastructure. A child living in an RSL home needs a school just as much as one who does not.
The question therefore is whether CIL should be payable on affordable housing units as well as on market units. The noble Lord’s amendment asks that question; our answer is that it is clear that the burden on the private developer in providing affordable housing may be significant. For example, if there is a requirement to provide 30 per cent of affordable units transferable to an RSL, in writing their charging schedules charging authorities will need to think about that and ensure
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We have to guard against complexity; we are aiming at simplicity. We do not want to introduce new distortions and unfairness. However, we would like to work further with the social housing sector to see whether we can find a way to meet the noble Lord’s objectives in these proposals. We will have some conversations on that between now and Report.
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I turn finally to our Amendment No. 437C, which has not had as warm a reception as I had hoped, although I hope that what I say will heat up the Chamber a little. I do not need to be persuaded of the virtues of the charity sector. I started a charity; it became hugely successful; it did a brilliant job; it anticipated extended schools and out-of-school learning that is now the norm for this Government and in every school. I am very proud of that. However, in doing that, I came to understand full well what the charity sector faces and the serious obstacles to getting things done. Nevertheless, what we have achieved in our amendment is important.
Since we last spoke about charities at Second Reading, we have had extensive conversations with charitable organisations. They are fully aware of what we are wrestling with and what we are trying to do. Our amendment tries to ensure that no charity engaged in development work or likely to fall under CIL suffers unfairly as a result of CIL. We intend to ensure that they are able to carry on their development work and are not damaged by it, and that there are no unintended consequences for them or us.
The charity sector is enormous and complex beyond description, in type, range, nature, function and accountability arrangements. Our amendment places a new duty on the Secretary of State to ensure that the CIL regulations either provide for an exemption or reduction in CIL where the liable party is a charity or where the development in question is for charitable purposes, or provides charging authorities with the discretion to make exemptions or reductions covering one of these circumstances.
Noble Lords will be aware that “charities” and “charitable purposes” will by statutory implication carry the same meaning as in Sections 1 and 2 of the Charities Act, which we are proud to have introduced and which goes along with our work with the third sector in recent years to make sure that it is more robust, resilient, effective and democratic, and does the job that only it can do.
In recent months, we have worked closely with the sector to develop a provision that works not only for the Government but for the sector and the local
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The task for us in government is to decide where to strike the balance: whether to follow the national or local precedent in this area, or to strike out in an entirely new direction. It is not easy. We have listened to concerns—and, my word, noble Lords have been eloquent today—that charities may be adversely affected and financially impeded from pursuing their charitable activities and aims. We do not want that to happen.
We are convinced that it is right in the case of charities for the Bill to go further than granting the powers under Clause 207(1)(c) to allow for exceptions to CIL in regulations, which was our original intention. The amendment places an obligation on the Secretary of State to act on this issue through regulations. It is not permissive in the sense that noble Lords have described. It is permissive only in allowing the Secretary of State to choose from various options. The substantive point is that it requires the Secretary of State to provide some sort of exemption or reduction for charities. The permissive element is to allow for something that is workable and provides the maximum lawful benefits to charities. We know that charities engage in a wide range of economic activity with a wide range of business models. They are specifically regulated. We need to proceed carefully, which is why we are going alongside the charitable organisations to ensure that the relief that we provide is as wide as possible without breaching the criteria that we established at paragraph 4.10 in our August policy document. All exemptions under CIL will need to be measured against the fact that they should not create scope for challenge. That would be hopeless for the charitable sector. They should not be difficult to apply or create a loophole because it is not clear what it applies to; they should be fair and not create undue distortions of competition; they should not give rise to other unacceptable distortions to behaviour or create perverse incentives; and they should not lead to charging authorities suffering a disproportionate loss of revenue which might undermine infrastructure delivery.
Lord Hodgson of Astley Abbotts: I do not wish to trespass, having irritated the noble Baroness earlier this afternoon. In her amendment, proposed new paragraph (a) provides for an exemption, but proposed new paragraph (b) permits one. “Provides” is not used in both cases. Surely, we are right in saying that the second part is permissive; it is not obligatory.
Baroness Andrews: That is true, but I have said that the substantive point is that the Secretary of State is required to find an exemption and then there are some choices that are also in the text of the amendment.
The noble Earl, Lord Caithness, made an interesting point about timing. I will read Hansard carefully on that point.
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To ensure that the mechanism we provide to achieve this relief is compliant with the criteria, we have to go on talking to the charitable sector. The matter is complex and will take time. We have to consult through the draft regulations. It is therefore right that the detail of how this relief will work is laid out in secondary legislation. We have to be careful about avoidance. Proposed new subsection (4B) provides a mechanism against that. It provides a mechanism to claw back CIL money if the use of a development which was already deemed to be exempt or subject to reductions changes for a purpose which is not exempt. This addition to the Bill provides reassurance that an exemption or reduction from CIL liability relating to charities will be in CIL regulations. It is a guarantee that the Secretary of State will act. It is the right starting point for a discussion with the sectorabout how an exemption should be framed. The regulation-making power gives us the latitude to frame with care the workings of this power.
Other amendments reflect, for example, on the notion of a blanket exemption. Amendment No. 437CZAseeks to amend our amendment so that the Secretary of State cannot provide for a reduction in CIL in relation to charities or to development for charitable purposes. If she uses those powers she must provide a complete exemption. I understand the argument, and I understand the search for simplicity and certainty, but noble Lords should follow the logic of this argument too. On arguing for a complete exemption, I would be deeply sympathetic if noble Lords could tell me where a blanket exemption would start and finish, given the complexity of the sector. What would it mean in watertight legal terms? Where would the boundaries lie across this very complex sector? How would we anticipate and deal with distortions that would occur at the far edge, where charitable activity is often a minor element of major private and commercial concerns? Those are the sort of difficulties we have to face.
I am sympathetic, and I have set out the principles and safeguards that would guide us. We have the responsibility of ensuring that we have the right tools in the right place. We do not have an annual Finance Act in which we can put things right on a regular basis. That is why regulations are so useful to us, but that is why blanket exemptions cause us problems, for all the reasons I have said. Regulations will be subject to very thorough consultation. We do not want to unduly limit the relief.
Amendment No. 438A seeks to secure two exemptions in the Bill for CIL. These would be for two classes of development—developments that are solely concerned with the provision of infrastructure and developments undertaken by a charity exclusively for the charitable purposes for which the charity was established. Almost all development has some impact on the need for infrastructure. It is not a homogenous category. That is why we envisage what types of development relating to buildings will be liable to pay CIL. It is worth noting that the existing system of planning obligations can operate in relation to development consisting of infrastructure. Again, the conclusion I draw, because that can cover such a wide variety of developments, is that it is not appropriate to provide a blanket exemption for infrastructure from CIL.
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As we made clear at paragraphs 4.1 to 4.14 of the document in August, we indicated that we are giving serious thought to what type of development ought to be liable to pay CIL. Government Amendment No. 437A principally defines development in relation to buildings. I have addressed the point about development rights.
Amendment No. 438A would also exempt all charities from paying CIL where the development they undertake is exclusively for the purposes for which they were established. Our Amendment No. 437C is intended to provide assurance to noble Lords that there will be some provision providing relief in relation to charities, as I have said. Amendment No. 438B of the noble Earl, Lord Caithness, specifies that limited companies with charitable status should be included. I reassure the noble Earl that in our Amendment No. 437C, our use of the term “charity” includes “bodies corporate” and, therefore, limited companies. I hope that that will satisfy him. I am not so sure about the status of sporting clubs, although we have a fairly wide definition; I will have to come back to the noble Lord, Lord Greaves, on that.
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