Infrastructure Funding and Austerity: What happens to CIL funding & planning fees when a Council runs out of money?
Earlier this month, Woking Council issued a statement to the effect that it was temporarily suspending all spending on CIL funded projects and the distribution of CIL funds.
The Council has taken this step as a consequence of the extreme financial difficulties that it finds itself in. In June 2023, the Council had to issue a Section 114 Notice stopping all non-essential spending, as it could no longer balance its budget. The Council had, for all intents and purposes, run out of money.
Woking Council is not alone in facing severe financial difficulties. Croydon and Thurrock both issued section 114 notices in late 2022, and over the last twelve months a large number of local authorities have indicated that they may need to do so. Kent and Hampshire County Councils wrote to Number 10 in November 2022 indicating that without additional funding, they faced "sleepwalking into financial disaster". In July 2023, Guildford, Hastings, Southampton and Bradford all issued similar warnings, and financial reserves at Middlesbrough Council are also reported to be "critically low".
The only allowable expenditure permitted under a Section 114 Notice includes:
- existing staff payroll and pension costs.
- expenditure on goods and services which have already been received or where a contractual commitment or legal agreement exists.
- expenditure required to deliver the council’s provision of statutory services at a minimum possible level.
- urgent expenditure required to safeguard vulnerable citizens.
- expenditure funded exclusively through ring-fenced grants or other external funding which does not commit the council to significant future expenditure which is not a statutory service
- expenditure necessary to achieve value for money and / or mitigate additional costs.
- any other items as authorised by the Section 151 Officer that fall within the statutory constraints that apply.
The effects of a section 114 notice are temporary, the initial moratorium only lasting until the Council meets to discuss its financial situation and agree a way forward. That meeting has to happen within 21 days of the notice being served. It nearly always, however, triggers a period of austerity within the relevant council, with strict spending controls being imposed whilst the Council seeks to balance its budget or find additional sources of revenue.
What happens to money set aside for infrastructure funding in these circumstances is highly dependent on how that money has been secured.
s.106 Funding
The situation in relation funding secured through section 106 Agreements is usually the most straightforward.
Section 106 Agreements are contractual obligations, as well as statutory agreements that attach to, and run with, the land. Whilst the exact position may vary from agreement to agreement, depending on the exact drafting of each, as a general rule most s.106 Agreements will:
- place local planning authorities under a legal obligation to spend the funds secured on the specific items of infrastructure secured in the agreement; and
- require them to return the funds if they are not spent on the relevant infrastructure project within a specified timescale.
As such, for the most part, s.106 funds will usually be treated as 'ring-fenced' for the relevant project that they are intended to fund.
This does not, however, mean to say that those projects will actually happen - if local authority funding was needed to bring them forward, they well have to be abandoned, but it does mean that the developers' contributions towards them are unlikely to be lost.
The other key benefit that s.106 Agreements have, when compared to CIL, or the proposed Infrastructure Levy, is that s.106 Agreements usually provide for contributions to be paid directly to the authority responsible for the infrastructure being funded. This means that in two-tier authority areas, the County Council will often receive education or highways contributions direct from the developer.
This means that there is a 'fire break' in place between the higher tier and lower tier authorities in the event that one of them gets into financial difficulties - as they will generally not be dependent on each other for the distribution of s.106 funding.
CIL Funding
The position with CIL is somewhat different and, as ever when it comes to the CIL Regulations, decidedly less straightforward.
There are a number of statutory controls on how CIL funds can be spent. In particular:
- s. 216 Planning Act 2008 places charging authorities under a duty to apply CIL funds to "funding the provision, improvement, replacement, operation or maintenance of infrastructure".
- This duty is restated in reg.59 of the CIL Regulations which requires a charging authority to " apply CIL to funding the provision, improvement, replacement, operation or maintenance of infrastructure to support the development of its area".
- Reg 59A-F requires a proportion of a charging authority's CIL receipts to be passed to parish councils in specified circumstances and in accordance with a specified timetable.
- Reg 60 allows a charging authority to use CIL receipts to reimburse prior expenditure on or pay down borrowing incurred in the funding of infrastructure; and
- Reg 61 allows a charging authority to use CIL receipts to cover their administrative expenses of adopting and charging the CIL.
Unlike s.106 Agreements, however, outside of the reg.59 restrictions that relate to the 'community share', there are no obligations on a charging authority to actually spend CIL receipts within a specified period. Nor is there any obligation, in a two-tier authority area, to pass a proportion of CIL receipts on to a County Council.
As such, the most likely outcome for CIL funding that does not form part of the reg.59 'community share' (or has not otherwise been committed) is that it will simply remain unspent, until such time as the charging authority's financial position recovers.
The Infrastructure Levy
The final form of the Infrastructure Levy remains highly uncertain. The Levelling-up & Regeneration Bill is still at report stage in the House of Lords and the secondary legislation required to introduce it will not be published, even in draft, for a considerable period of time.
That said, from the information that we have to date, it looks as if Infrastructure Funding will be treated very, very, similarly to CIL funding if a charging authority finds itself in financial difficulties.
The one significant difference in the legislation that underpins the proposed Infrastructure Levy, when compared to CIL, is the fact that the government could allow IL to be used for non-infrastructure funding in specific circumstances.
If that proposal were to be taken forward, then depending on how the IL regulations were drafted, it could, in theory, allow IL receipts to be taken by the charging authority to help balance their overall budget - meaning that IL funding might be at risk of disappearing to subsidise other council priorities - such as adult social care.
Planning Fees
Planning fees are not ringfenced to fund planning departments, despite a widely held belief amongst many stakeholders that they should be. Indeed, only last month, DLUHC confirmed that it would not take steps to ringfence planning fee income. Stating instead that:
"We want to ensure that the fee increase results in additional funds being available to local authority planning departments, but we will not take ringfencing forward through legislation as this would impose a restriction on local authorities when they are best placed to make decisions about funding local services, including planning departments. However, we would expect local planning authorities to protect at least the income from the planning fee increase for direct investment in planning services."
As such, in circumstances like those facing Woking, Thurrock, and Croydon, any planning fee income would be treated in the same way as any other council revenue. In those situations, it is highly unlikely that any of the income from the upcoming planning fee increase would be protected for direct investment in planning services.
Liberal Democrat councillor Liam Lyons, Woking Borough Council’s portfolio holder for planning and regulation, said the “unprecedented financial challenges” facing the authority meant it had had to adopt spending controls preventing all but essential spending in order to ensure it can “continue to provide vital services to its most vulnerable residents”.
Lyons said “officers have advised all councillors, irrespective of their political party, that the spending controls that have had to be introduced must apply to all financial transactions which have an impact on cash coming into and leaving the council’s accounts. It is in this context that CIL commitments are required to comply with the controls the council has had to put in place.
“This is however a temporary position, and the council is planning to comply with all of its commitments and contractual requirements”, Lyons said.”
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