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My proposal for ensuring that that happens comes in these two parts. Amendment No. 134 simply exempts all social housing from CIL. It uses the definition of social housing in the Housing and Regeneration Act 2008. That is nice and clear and clean. The more social housing in a development—25 per cent, 35 per cent or 50 per cent—the more exempt properties as far as CIL goes, and therefore the lower the amount of CIL. In effect, it would be on a sliding scale depending on how much social housing there is in the development, so there would be no encouragement for any house builder not to proceed with a scheme on the grounds that because of CIL it cannot afford to produce as much social housing and affordable housing as it could before. It removes that excuse and allows schemes to proceed. All schemes would be covered; small ones as well as larger ones covered by partnerships under Section 106 which deals with housebuilders. They would all be covered and no CIL would be payable on social housing if Amendment No. 134 is accepted.

Amendment No. 151 comes at this from a slightly different angle. It looks at schemes where there is a deal with a developer, a Section 106 agreement. Some 74 per cent of all social housing last year was secured through this technique of piggybacking on the work done by housebuilders, although since housebuilders are now doing so much less, that figure is in decline. This amendment ensures that the percentage—the quota—of social housing in Section 106 agreement deals will not be reduced because CIL is being charged on the developer. It gives priority to the social housing element. If that means that the scheme does not stack up with the addition of the payment of CIL at £10,000, or whatever it is, per home, the social housing does not take the hit. A reduction in CIL has to bear the consequences of that extra charge. CIL would have to be reduced, but the percentage of affordable housing would not be reduced.

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However, each site is different. The circumstances of each piece of land mean that a negotiation would be necessary to see whether CIL has tipped the scheme over the line of viability. I have dealt with sites where we have discovered methane gas, which required all kinds of extra work later on, and where we have had basements that we did not know were there, which added extra cost. I have had to deal with the great crested newt single-handedly in armed combat. There are archaeological finds all around York that hold schemes up interminably. In all those cases, the fee would go up. We can no longer afford either to produce more affordable housing or to pay CIL on top of the other costs that we face.

If my amendment is accepted, CIL would always take the strain, but it would require negotiations in each case. It is a messy arrangement. Of course, local authorities might decide, particularly in the present financial climate, not to risk losing social housing and affordable housing and not to levy CIL at all. That might be an option for them, but that could be throwing the baby out with the bathwater since CIL is there to raise money for infrastructure, and we may well need that funding. I think, but I am not sure, that local authorities could charge differential rates according to how much social housing and affordable housing is delivered—so less CIL if a developer produces 50 per cent affordable housing and more CIL if it produces only 25 per cent. Again, that does not have the advantages of a clean, clear exemption, so I prefer my first amendment which, in effect, treats all social housing as defined by Section 68 of the Housing and Regeneration Act as if it were a charitable endeavour, which it clearly is. It legally is for some, but not for all, housing associations.

That brings me to a critical issue and a critical question about the relationship between social housing, which is what my amendments are about, and developments by charities for charitable purposes, which the Minister has tabled an amendment to cover and which is of much interest to many other Members of your Lordships' House. Will all the provision of social housing by housing associations that are legally charities be exempt in any case, so that Amendment No. 134 is not necessary for charitable housing associations?

About 70 per cent of all housing associations are charities, although probably only 50 per cent of the output comes from those housing associations. Are we safe in relying on the charitable exemption for at least half of the housing, or are we safe for the whole lot? Will all the provision of social housing by housing associations, by those that are charitable and by those that are not registered as charities, but which are producing identical homes for exactly the same people with the same needs as charitable housing associations—activity which is, by definition, being used for a charitable purpose, as it is being done in the same way by charities elsewhere—be covered by the exemption for charitable purposes?

If we have to draw a distinction between housing associations that are charities and those that are not, we get into extremely murky territory. Will housebuilders have to choose to work only with the charitable housing associations to keep CIL down? Will local authorities trying to raise reasonable sums of CIL have to work only with the non-charitable housing associations,

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which will have to pay CIL? Will the Government have to pay extra social housing grant to the non-charitable housing associations so that there is a level playing field between organisations doing identical things but with different constitutions? Your Lordships would not be able to distinguish between housing associations that are charities and those that are not, because it is often for purely historic reasons that they have chosen in their constitution whether to be a charity. Drawing those lines will create all kinds of difficulties.

Will all social housing be deemed to be outside CIL, if and when the Minister’s amendments on charities and charitable purposes are carried? I can think of no greater charitable purpose than housing the homeless. I very much hope that all social housing will be covered by the amendments that follow and that my amendments will be deemed redundant. Nevertheless, until I am assured that that is the case, I beg to move.

Lord Dixon-Smith: My Lords, for my security, I remind the House of interests that I have previously declared in this field. I preface my remarks by assuring the noble Lord, Lord Best, that I support his plea for social housing to be exempt from CIL.

We need to remind ourselves that Section 106—which, if you listened to the noble Lord, Lord Best, you might think was devoted to social housing—is in fact devoted to a much broader spectrum of infrastructure. I will list merely some of it: off-site road improvements, which may be some way away but can be of significant benefit to the community; off-site major extensions to sewage works; off-site recreational facilities in the form of playing fields; and many other things of that ilk. A Section 106 negotiation with the local authority depends very much on the balance of those facilities and how much the local authority thinks that it can, so to speak, screw out of the developer in total.

There is an individual negotiation on every development. The local authority usually finishes up well satisfied, and the original landowner or developer usually finishes up reasonably satisfied. The balance may depend on all sorts of things. It depends on the priorities of the area at the time. Not least of the complications—this is one of the great difficulties that we face—is trying to assess the impact of CIL on those negotiations, which is why earlier, slightly tongue in cheek, I suggested that where Section 106 applies, perhaps CIL should not apply. If CIL is an additional factor in the negotiation—we will know what the CIL factor is—it will certainly absorb the proportion of benefit that is negotiable for the local community because it will be a fixed sum in the first instance. It will be there, and it will be absolute. The CIL negotiations will start after that. CIL will not be additional to the sum that can be raised; it will be a part of the sum that can be raised. We must recognise that, with CIL in place, the negotiation on Section 106 arrangements will be proportionately diminished. That may conceivably have an effect on the totality of the provision of social housing, although it is impossible to say for sure. That is the brutal reality with which we have to deal.

This is where we get into a different sort of negotiation over the meaning of infrastructure and so on. I absolutely support in simple form the principle that the noble

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Lord, Lord Best, is applying. I entirely agree with his amendment in so far as it states that social housing should not be eligible to be charged for CIL. That is an absolutely correct principle, but when one gets into the wider fields of what he was saying, and starts to deal with Section 106, I am afraid that the negotiation will be quite harsh.

10 pm

The noble Lord is absolutely right to mention the enormous change in the atmosphere since the Government prepared the Bill. In that brief period, we have seen the virtual collapse of the housing industry. My understanding, as I said at an earlier stage of the Bill, is that applications for housing development have virtually disappeared from planning committee agendas, because no one knows where anything is going or indeed what the value of the assets about which they are talking might be. They might still be able to calculate their construction costs with a degree of accuracy, but no one knows what the site value is and no one can really say what the underlying value of any product might be. Until those issues are clarified, this standstill will continue.

The noble Lord, Lord Best, and others were absolutely right, for a time, most authorities will not want even a hint of CIL to be floating around as an additional charge on development, because most of them will be desperate to see the construction process recommence. If there is a hint of an additional charge, it will delay that construction. It is in no one’s interests that the construction industry is at a standstill for a day longer that it has to be.

To be honest, when I look at the Bill, I feel rather as I felt when I was in Syria a little while ago—as though I am looking at historical remains that have been newly excavated and exposed, and are in perfect form to some degree, although we have been criticising it like mad. It is a little like digging out a wonderful bit of wreckage from a different era, because the change in atmosphere has been so great. So while I support the noble Lord, Lord Best, in the principle of his proposal, I do not accept the totality of his argument. We need to recognise that we are now—tragically, dare I say—in desperately different circumstances. To some degree, all our discussion on the community infrastructure levy is academic, which it will remain for some time until there is a reasonable recovery in the construction industry.

Lord Cameron of Dillington: My Lords, I support the amendment proposed by my noble friend Lord Best. If you ask local government officials or councillors in my part of the world—the south-west of England—what is the biggest problem besetting their communities and that the Government have yet to deal with, the answer will resoundingly come back that it is the lack of affordable housing, either to let or to buy. When I read the Secretary of State’s Second Reading speech in the other place, indicating that the Government hope to raise £500 million per annum from CIL, my first thought was, “Crikey, where does that put affordable housing?”. It undoubtedly will be a serious problem.

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I was pleased when I saw that the Government intend to keep Section 106 agreements vis- -vis affordable housing. They have become a tried and tested method of increasing the affordable housing that is available and are now the main weapon in the armoury of local authorities. The percentage of affordable housing started very small, but now it has increased even for quite small developments, and 30 per cent is not completely unusual. But each agreement takes account of the economics of the scheme in question. They may differ from village to village or from town to town within a local planning authority.

The local authority would not want to kill off housing development per se. Although we need affordable housing, we need all sorts of housing development, because that makes the whole ladder. Affordable housing is the bottom rung, but people have to be able to move up from the bottom rung to make it available for the next generation and others coming along.

I was glad that Section 106 has become an effective tool. It would be a great shame to waste it or—this is the nub of the amendment—have it swamped by CIL to the detriment of affordable housing. I strongly support my noble friend, especially in his Amendment No. 134. I hope that Amendment No. 151 will bring forth greater clarity from the Government on the relationship between Section 106 and CIL.

Baroness Hamwee: My Lords, we support the noble Lord, Lord Best. Rather like the noble Lord, Lord Cameron, we support in particular Amendment No. 134.

Baroness Andrews: My Lords, as always, I am grateful to the noble Lord, Lord Best, for enabling us to have this discussion on the implications for affordable housing. I much appreciate the intention of his Amendments Nos. 134 and 151 to seek to protect the provision of affordable housing secured through developer contributions.

I will not repeat what he says so much more powerfully than I can. We are facing a very difficult situation for the reasons given by the noble Lord, Lord Dixon-Smith. The noble Lord, Lord Best, pointed out how it is impacting on the ground. Certainly, the Government are extremely sensitive of the need to protect levels of affordable housing contributions. That is the substance of what I want to say and underlines everything. We have put in place extensive safeguards in the design of CIL to ensure the continued delivery of affordable housing through the use of planning obligations is embedded in the setting and operation of CIL on the ground.

These safeguards include ensuring careful consideration of local economic viability and affordable housing needs in the setting of CIL charges, as well as a prudent backstop measure to address any potential shortfall in affordable housing contributions arising from CIL if evidence shows that that is necessary. These are two extremely important safeguards.

As we set out in the CIL August policy document in paragraph 3.42, local planning authorities that choose to introduce a CIL will be obliged to set a charging schedule in such a way as to ensure it does not impede

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development. That exercise will be bound to take into account the costs of meeting affordable housing requirements. CIL is going to be driven by the local vision set out in the local development plan with its ambitions for housing and affordable housing. A draft charging schedule will be tested through public consultation and independent examination. This examination will test whether the levels of CIL set out in a proposed schedule would put at risk development when taken with other costs faced by developers, such as affordable housing obligations. My noble friend Lady Ford explained on the previous amendment something of the background to the way these decisions are made. The recommendations of the independent examiner would be binding on the charging authority. The independent examiner could recommend reducing the level of CIL in a draft charging schedule if, when taken with other affordable housing costs and local economic conditions, it would prevent development proceeding. If there is 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.

The amendments seek to provide additional security for affordable housing. Amendment No. 151 would require that affordable housing contributions are calculated without regard to CIL liability. It is difficult to see how Section 106 negotiations between developers and authorities could ignore a clear and known cost in the development’s finances, even if it was illegal to take those costs into account. I fear that this amendment could lead to a lot of legal dispute and confusion. I also think the development industry might be extremely alarmed by this proposal because it makes no provision for CIL charges to be adjusted to take account of Section 106 contributions. That would undermine the existing checks and balances I have already set out which we have provided for in the setting of the charging schedule. So even if it were possible for CIL to be ignored for the purposes of the Section 106 discussion, there would be a real danger that total developer contributions for Section 106 and CIL could be set too high, making development unviable and resulting in no new affordable homes being provided.

Amendment No. 134 again seeks to ensure that the introduction of CIL does not adversely affect social housing development. I am sympathetic to the principle of this amendment in that it seeks to shield social housing explicitly from CIL liability. I regret, however, that the amendment as it stands does not look workable and could give rise to unintended consequences. For example, the amendment refers to a definition of social housing that was written for the Housing Act earlier this year and for entirely different purposes. I fear it could be manipulated for the avoidance of CIL payment. For example, shared ownership is included in the definition contemplated by the amendment. That could present a loophole whereby shared ownership accommodation could be exempted from CIL but quickly staircased out to full ownership and lost to the open market. I think the noble Lord recognises that problem. A developer could build shared ownership housing with the sole intention of qualifying for CIL exemption, but on completion the property could

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quickly convert to full private ownership. We have to ensure that there is no scope for that sort of abuse of definition. Furthermore, the amendment potentially exempts private housing on developments which are mixed and contain both social and private housing because it does not, for example, contain the words “exclusively” or “wholly”. That could lead to a serious avoidance problem.

The intention of this amendment is to protect social housing contributions through a total CIL exemption. But social housing in itself creates the need for infrastructure and services in much the same way as other housing does. It could not be otherwise. Reflecting that, there is no general exemption for affordable housing providers from the current planning obligations regime. In its present form, therefore, I do not believe that the intended outcomes of this amendment can be guaranteed, or that unintended consequences could be avoided. I therefore propose that this important issue is better served by more detailed consideration in regulations.

We have already taken powers in Clause 203(6)(f) which are necessary to make provision for how social housing developers are to be treated in a more considered way. I want to give the noble Lord and the whole House a firm commitment that we will explore with the social housing sector how a significantly reduced rate of CIL could be specified in regulations for affordable housing development. Indeed, I can tell the House that discussions have already started, focusing initially on the difficult issue of definition that I have mentioned.

10.15 pm

Lord Dixon-Smith: My Lords, does a seriously reduced rate include a zero rate?

Baroness Andrews: My Lords, for the reasons I set out, affordable housing providers already pay something under Section 106 obligations. We do not think that a nil rate is appropriate; I am talking about a significantly reduced rate.

The noble Lord asked about RSLs which are charities and fall into the 70 per cent category. We will come to the charities amendment next, but he will appreciate the complexities of definition in the terms “charities”, “charitable purposes” and so on, and he knows that RSLs come in all shapes and sizes with all sorts of conditions attached. Some RSLs sell on their property and are involved in different sorts of relationships. While I can say that all RSLs which meet the charitable definitions in our amendment could be covered, I also want to be absolutely certain that I do not mislead the noble Lord or the House because of the complexity of these definitions and the situation of different housing associations. I therefore propose to write to the noble Lord, particularly after we have debated the charitable exemption as a whole, to ensure that we understand the position of RSLs. However, we are content that those which meet the definitions could well be covered.

The Earl of Caithness: My Lords, the noble Baroness said something that slightly perturbed me. I believe she said to my noble friend Lord Dixon-Smith that, “We are not convinced that a zero rate would apply”. Surely this is for the local authority, or have I got that wrong? Are the Government now going to tell local

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authorities what the rate should be? If a local authority wants a zero rate, surely it can have that, or are central government going to say, “No, you cannot have a zero rate”? That is rather a new aspect.

Baroness Andrews: My Lords, as I understand it, local authorities can set a nil rate of return, but in terms of the principle, we will set out guidance in the regulations that will observe consistency with the way in which affordable housing developers are treated under other planning obligations. If I am incorrect about that, I shall write to the noble Earl and noble Lords.

Lord Best: My Lords, I am grateful for the support from all parts of the House, particularly for the amendment that simply exempts affordable housing from CIL. There was little sympathy for the other amendment, and I entirely understand why. I would not wish to press it too far myself because, as both the Minister and the noble Lord, Lord Dixon-Smith, pointed out, it adds complexity to complexity. The aim must be simply to try to exclude affordable housing.

I sympathise deeply with the Minister in trying to construct the definitions that would achieve such an exclusion sensibly. She hopes that they will be ready in time to be written into regulations. I would not have thought there was much difference between setting them out in regulations and putting them in the Bill, except for the added comfort of having them in legislation. However, I am grateful to the noble Baroness for undertaking to prepare these definitions in draft form and giving us a chance to look at them, particularly in the light of how they relate to the current obligations. An extraordinarily complicated addition to the mix is that of housing associations that are definitely charities and therefore covered by the next amendment, again adding complexity to complexity. At this point, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Berkeley moved Amendment No. 135:

135: Clause 202, page 115, line 34, at end insert “where the building does not form, or form part of, infrastructure to which CIL can be applied under section 208”

The noble Lord said: My Lords, we move from which types of organisation and project can receive CIL—which include roads, railways and maybe even third runways—to who is liable. The question of liability started with everybody being liable, including roads and railways. Then, the Government’s policy of continuous improvement turned “who is liable” in Clause 202 of the last version of the Bill to, in this section:

“‘development’” means,

the creation of a new building”—

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