The Community Infrastructure Levy (CIL) on new developments is hindering rather than helping smaller house-builders trying to meet the growing UK housing shortage, the Federation of Master Builders (FMB) has warned.

Nick Boles MP, the Planning Minister, today outlined plans to give up to 25 per cent of the CIL charged on new homes directly to community bodies such as parish councils, in a bid to ease local objections to new development. But the FMB restated its opposition to CIL in principle, saying the building industry needs less not more bureaucracy and red tape.

Brian Berry, Chief Executive of the FMB, said: "While we appreciate the Government’s attempts to tackle the yawning housing deficit by incentivising new development, it is difficult to see how this latest announcement is going to kick-start the building of the quarter of a million new homes Britain needs every year just to keep up with demand.

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"A better way to give house-building the shot in the arm it so desperately needs is to reduce the twin burdens of planning red-tape and taxation on developers, and to speed up the introduction of the Business Bank to make finance available to cash-strapped SME developers. Our recent State of Trade Survey shows last year was a bleak one for new-build starts, and ministers must act as a matter of urgency to support the sector."

CIL came into force in April 2010, to fund upgrades to local infrastructure such as roads and schools wherever development was taking place. Local councils can choose whether or not to charge the levy, and initially take-up was slow. However it is anticipated that by 2014 around half of all councils in England and Wales will charge it on any new home requiring planning permission, including self-build projects.

(CD/GK)