Memorandum from Friends of the Earth
Response to specific questions from the Environmental
Committee following Friends of the Earth's oral evidence session,
24 March 2004.
This note expands upon Friends of the Earth's
oral evidence in relation to land taxation issues and addresses
three principal questions:
1. To what extent we support the Barker
reports broad analysis of the balance between VAT and land taxes
2. The case for betterment taxation
3. Specific issues of implementing a betterment
Please note that our thinking in relation to
questions 1 and 3 is developing. We have further analysed the
principles of betterment taxation, based on a longer paper commissioned
from the University of Sheffield. We are happy to submit this
paper if the committee requires more detail.
1. THE BARKER
We made clear in oral evidence that we did not
support the overall analysis of the Barker Report in relation
to its implications for housing provision and the land-use planning
system. However we do broadly concur as to the need for a model
of land development taxation and that this would be more desirable
than changes to VAT.
Our provisional overall view is that there is
a lack of clarity in current debates over land taxation between
the differing taxation approaches available and the key objectives
that such regimes are attempting to achieve.
In our view there are three principal land taxation
Impact fees which deal with specific
consequences of particular developments.
Extension of general taxation instruments
such as VAT to the cost of development including land and materials.
(One might also mention the capital gains tax and corporation
tax are currently applied to those profiting from land development).
Betterment taxation which has the
principal aim of recouping the value created by the state which
currently accrues to private landowners.
In our view land and development taxation should
have three principal objectives:
1. Provide a way of mitigating the direct
impact of development on infrastructure or the environment.
2. Recoup the betterment value created by
the grant of planning permission by the state.
3. Encourage the environmentally efficient
use of land.
In order to achieve these objectives we support
a combination of impact fees and betterment taxation. We broadly
support Barker's reservation about the use of VAT which is limited
by law in relation to the rate at which it is set. This limitation
reduces the scope of VAT to encourage environmentally efficient
use of land by creating meaningful incentives and differentials
between greenfield and brownfield development. More importantly
VAT is not sensitive to betterment values. We do acknowledge that
action is needed to equalise VAT between new build and repair
and renovation of residential development.
2. THE CASE
Recouping a public asset
The interrelationship of the property development
market and the land-use planning system creates a substantial
and unrecouped public asset known as betterment. This betterment,
which arises from the increase in the value of land after the
state's grant of planning permission, has been subject to varying
tax regimes during three historical periods. This tax, which was
severe at between 40% and 100% of development value, had a dramatic
impact on the property market by reducing the supply of land and
thus increasing its cost to the property development industry.
Replacing planning gain
Current policy toward economic instruments in
planning is vaguely drawn. The main instrument is ad hoc
planning obligations. These legal obligations provide an informal
and variable impact fee system to mitigate the environmental and
social costs of development. Such obligations involve lengthy
and complex negotiations and provide highly variable yields to
localities, often referred to as "planning gain", which
are dependent on the differential strength of regional property
markets. Planning obligations are generally related to development
costs rather than values and can be viewed as charges rather than
taxes. Such measures are therefore in principle regressive, inequitable
and inefficient financial instruments. We concur with the Barker
report that some form of impact fee system which could deal with
the specific infrastructure impacts of development should be retained
in a codified way.
The environmental benefits of betterment tax
Betterment taxation can influence the consumption
of greenfield sites to achieve an environmentally more benign
land-use pattern. It is likely to reduce the supply of land to
the market thus increasing costs and so reducing demand, but in
order to achieve a focused intervention for the reuse of brownfield
sites it would need to have a graduated structure. This graduation
would need to address the spatial variations in the strength of
the property market, sectorial differences in the different elements
of property development, for example between office and industrial
development, and finally would need to be hypothecated so revenues
were applied in a way to facilitate the regeneration of urban
areas or mitigate environmental harm. We acknowledge that the
need to set betterment at a politically acceptable rate may limit
its effectiveness. Given wider macro economic forces and the complex
disincentives for the development of brownfield sites, betterment
taxation is likely only to be a contributory factor to a more
environmentally efficient use of land and should be seen alongside
other measures represented in the land-use planning system.
The impact of the betterment tax on competitiveness
A betterment tax would impact on competitiveness.
The degree of this impact is dependent on the rate at which it
was established and how far graduation measures conflicted with
market behaviour. It would also depend on where the tax burden
fell. For example, if costs fell on land ownership interests rather
than the built development industry, the effect on competitiveness
would be reduced. The tax would need to overcome the very significant
problem of establishing and collecting the true development value
for each project, a process likely to create additional administrative
burdens on industry. It should be noted, however, that considerable
complexity and inefficiency already exists in the current system
of planning obligations particularly with regard to the valuation
of proposed developments.
Betterment taxation may lead to a slight reduction
in the cyclical nature of the property development market. Such
a tax is likely to suppress volatility to some degree by decreasing
the elasticity of supply of land.
It is possible to identify three major implementation
issues based on the experience of previous attempts to introduce
(i) The level of betterment taxation.
Historically betterment taxation rates were
based on the laudable principle that all the value created by
the state should be recouped by it. Experience after the 1947
Planning Act illustrated that such a 100% levy effectively killed
off the speculative market in land, reducing supply to a very
low level. One might argue that in an era when it was assumed
that most development would be delivered by the public sector
it was not a problem. The repeal of betterment taxation in the
1950s led to a resurgence of private sector development and it
is clear that a future betterment tax would have to be set at
a socially acceptable level. This figure would need to take account
of the fact that the private sector is already paying considerable
and complex informal taxes through planning gain deals which go
beyond the mitigation of direct impact of development.
(ii) Cross-party consensus.
The reintroduction of betterment a tax in the
1960s and again in the mid-1970s under Labour administrations
were set to a more modest but still relatively high rate of 40%.
These taxes had a disproportionate effect on reducing land supply
because the opposition made clear that they intended to repeal
the legislation if they came to power. Landowners therefore horded
the land in the hope of receiving the full value later. In the
future it would be vital to have a consensual approach to setting
taxation rates at levels which do not snuff out all land speculation.
(An initial view based only on a judgement between what might
be politically acceptable to industry yet still relatively effective
in delivering environmental goods would be around 20%).
(iii) Estimating land values.
While betterment taxation is more efficient
and progressive than the current planning gain system it is founded
on the ability to achieve accurate assessments of land values
in particular localities and potentially for differing development
sectors. Calculating land values is complex and might require
inter and intra regional variations. While such measures would
make the tax market sensitive, it may not be desirable since a
flat rate betterment taxation measure would have the effect of
creating higher returns in areas of high development pressure
and therefore land value. This in itself may be a desirable redistributive
While the introduction of a betterment tax has
a number of problematic issues, its desirability must be seen
in the light of current policy. Planning obligations are increasingly
recognised to have significant disbenefits, notably: their regressive
nature in terms of the spatial distribution of such planning gains,
their procedural complexity and cost, their uncertain policy basis,
their environmentally regressive impact on land-use patterns by
encouraging the development of larger greenfield sites and finally
public perception of such obligations as lacking transparency
and accountability. The political consequences of such disbenefits
should not be underestimated nor the hidden economic costs on
the development community.
The introduction of betterment taxation would
in principle overcome much of the public concern over the conduct
of planning obligations, removing the negotiating and trading
aspects of current practice. Such a tax would provide a mechanism
for resolving much of the complexity of the current system, providing
certainty to the development community (assuming rates were not
draconian) and transparency to the general public. Betterment
taxation would, in principle, be equitable allowing distribution
of revenues on the basis of need rather than market circumstance.
It should be noted, however, that betterment taxation would remove
the aspect of local flexibility and direct hypothecation that
is currently enshrined in the planning obligations system.
A graduated betterment tax would deliver the
much debated "greenfield levy". However, the introduction
of comprehensive betterment tax may provide a coherent framework
of taxation within which to influence other undesirable environmental
outcomes, for example, traffic generation which could be incorporated
within the overall and framework of betterment. This would avoid
the introduction of a plethora of one-off economic measures to
deal with specific environmental problems (graduated betterment
could provide a framework to deal with other contentious developments
in the areas of minerals and waste).
Our overall conclusions are twofold: first that
current policy on economic instruments in land use planning and
specifically planning obligations is confused, regressive and
tends to increase the consumption of large greenfield sites. Second
that betterment taxation offers a partial solution to aspects
of these problems, particularly in the realm of equity and procedural
transparency, and therefore deserves further careful exploration.
The following expands on Friends of the Earth's
oral evidence in relation to costing three transport measuresbus
lanes, safe routes to schools, and lower speed limits. This is
based on research for the Way to Go campaign, a coalition of over
25 environment, transport and social justice organisations. A
full briefing is available from Friends of the Earth.
1. NETWORKS OF
1.1 What is being costed?
This section costs provision of the following:
a programme of bus lanes and other
capital measures to improve bus services as part of quality bus
partnerships in all urban areas; and
effective promotion and marketing
of bus services.
1.2 How much would it cost?
Some local authorities are already spending
substantial sums on bus lanes, bus priority at traffic lights,
electronic bus time information and other capital measures to
improve bus services. In the most successful local authorities,
this is coupled with promotion and marketing. Table 3 summarises
annual spending on capital schemes in London, Nottingham and Brighton.
CAPITAL SPENDING ON BUS INFRASTRUCTURE
||Annual spend on bus infrastructure (2003-04)
||Spend per person|
If all English urban areas with a population of 20,000 or
more invested at a similar rate of about £5 per head, the
total amount invested would be £165 million per year, or
£990 million between now and 2010.
Figures for local authority spending on marketing and promotion
of bus services are available for Nottingham and Brighton and
amount to roughly 30-50 pence per head per year. If all English
urban areas with a population of 20,000 or more had a similar
revenue budget for public transport publicity and marketing, the
total per year would be £10-£17 million.
1.3 Who benefits, and how?
Investment in quality bus partnerships is helping to deliver
significant increases in passenger use. Bus use is currently rising
at about 13% per year in London and 5% per year in Brighton. Over
the last three years Nottingham has reversed historic declines
in bus use, and is now achieving small increases of about 1% per
year. More bus use in these areas is helping relieve traffic congestion,
benefiting residents and businesses. People on lower incomes,
older people and young people would benefit most from better bus
1.4 Where might the money come from?
Some cities are already spending substantial sums on bus
infrastructure. However, others are reluctant to invest in bus
lanes, especially where they will take road space away from cars
or where local businesses object. The main problem is not lack
of funding, but lack of political will.
2. SAFE ROUTES
2.1 What is being costed?
Providing basic infrastructure improvements around every
school, plus "micro-infrastructure" such as cycle shelters
and awareness-raising at every school.
2.2 How much would this cost?
The cost of these measures can be divided into three parts:
Capital funding for on-road infrastructure improvements
such as traffic calming.
Capital funding for "micro-infrastructure"
on the school site, such as cycle shelters or lockers.
Revenue funding, mainly for local authority staff
costs to promote school travel plans.
2.2.1 On-road infrastructure
From provisional analysis of data currently being collected
by Transport 2000 for the Department for Transport as part of
the Making School Travel Plans Work research project, we
know that where local authorities have invested in infrastructure
improvements such as pedestrian crossings, pavement widening,
cycle lanes and traffic calming, they have typically spent between
£30,000 and £75,000 per school, or on average about
£100 per pupil place. This is not sufficient to buy a complete
"Danish style" safe routes network, but it is enough
to pay for basic essential infrastructurefor example £30,000
might pay for one pedestrian crossing and some footway improvements.
There are roughly 6.5 million school age children in England,
suggesting that the cost of basic `safe routes' infrastructure
for every child might be of the order of £650 million.
In an urban area like Merseyside, with 582 schools, the total
cost would be £17£44 million. Currently the five
local authorities in Merseyside have allocated about £650,000
per year to these measures. To provide basic safe routes infrastructure
at every school by 2010, capital funding would need to increase
by a factor of between four and 11 times.
2.2.2 School site micro-infrastructure
Funding for "micro-infrastructure" such as cycle
shelters and lockers provides a strong incentive for schools to
get involved in travel planning. Where local authority school
travel advisers are able to offer this incentive, it is generally
about £5000 to £10,000 per school. This is enough to
purchase (say) two cycle shelters. There are roughly 18,000 primary
schools and 3,400 secondary schools in England, so it would cost
£100 to £200 million to offer this support to every
2.2.3 School travel plan co-ordination
According to interim research for DfT on soft factorslocal
authority staff costs to promote and develop school travel plans
are about £4 per pupil place targeted. This funding is required
every year to sustain schools' involvement in walking buses, walk
to school days, curriculum work and other travel behaviour initiatives.
With 6.5 million school-age children, the annual cost of school
travel work if every school were targeted would be £26 million.
Basic "safe routes" infrastructure
for every school would require a capital programme totalling £650
"Micro-infrastructure" such as cycle
shelters and lockers for every school would cost £100 to
Revenue funding for school travel promotion
work with every school would cost roughly £26 million per
2.3 Who benefits, and how?
Money spent in this way benefits parents of school-age children
and children themselves. The main benefits are:
Children get healthy exercise (if they walk or
cycle to school), reducing obesity and encouraging active travel
Some teachers report that children who walk or
cycle to school are better able to settle down to work once they
arrive, concentrate better, and have greater road-safety awareness.
At schools where truancy or lateness is a problem, walking bus
schemes can improve attendance and punctuality.
Where school travel work involves a whole community
it can increase social capital. Some school travel co-ordinators
report that walking buses in areas of high unemployment are getting
parents more involved in their local community and building skills
Traffic emissions and congestion are reduced in
the morning peak.
2.4 Where might the money come from?
Even in local authorities with quite generous allocations
of LTP capital funding for "safe routes" infrastructure,
the proportion of the total LTP settlement allocated to safe routes
is small. For example York spends about 1% of its LTP allocation
on safe routes capital measures. The 2004-05 LTP settlement for
all local authorities in England was £1.9 billion. Allocating
6% of this to safe routes infrastructure would enable some improvements
at every school by 2010.
The government has recently announced a programme of £50
million over the next two years for safe and healthy travel to
school. This includes £35 million towards micro-infrastructure
at schools, set at £5,000 for primary schools and £10,000
for secondary schools. This level of funding will encourage many
schools to get involved in travel planning, and will go some way
towards the £100 to £200 million that would be needed
for all schools. The package also includes £7.5 million per
year for local authority school travel co-ordinators. This will
provide some of the estimated £26 million annual cost of
working with all schools on travel plans. The outstanding amount
could partly come from existing local authority revenue budgets.
For example, local authorities such as Buckinghamshire and York
have already found sufficient revenue resources to work with about
two-thirds of their schools.
3. LOWER SPEED
3.1 What is being costed?
This section costs the implementation of 20mph zones enforced
by physical traffic calming where necessary, or by signs without
physical measures elsewhere.
3.2 How much would it cost?
When 20mph limits are introduced in residential streets,
the actual reduction in vehicle speeds is greater if the new speed
limit is combined with traffic calming. This might suggest that
physical design changes should be introduced in all residential
streets. However, the cost of such an approach would be substantial:
TRL calculated that the cost of introducing traffic calming and
area-wide safety management in all urban areas would be around
£3 billion (based on 1995 figures).
Sign-only 20mph zones are less effective in terms of speed
reduction, but they nevertheless have some effect on speeds and
there is evidence suggesting they reduce casualties. Research
published by the Scottish Executive looked at before and after
traffic speed data from 75 trial sites where the speed limit had
been reduced to 20mph without any changes to the design of the
road (but in most cases with publicity measures). The average
reduction in 85th percentile speed was quite small, from 29.4
mph to 28.3 mph. However, casualties across 59 sites for which
data was available fell by 42%, and deaths and serious injuries
fell by 59%.
This suggests that there would be merit in setting the default
speed limit in residential streets at 20mph, even where traffic
calming measures cannot be afforded immediately.
There are many streets where traffic calming would bring
additional benefits. The calculations below assess the cost of
introducing a traffic calming programme comparable to that in
Hull in all urban areas with populations of 20,000 or more. Hull
already has more than 112 20mph zones covering 26% of the city's
3.2.1 National sign-only 20mph limit on residential streets
The Scottish trial cost £369,315. Data on 68 of the
trial sites, covering more than 31,000 households, suggests that
the average cost per household was £10.30.
There are just under 20 million households in England. It
is not possible to say how many of these households live on residential
streets. However, at an upper limit, the cost of implementing
sign-only 20mph limits on all residential streets might be roughly
£200 million, or £33 million per year between now
3.2.2 Hull-style traffic calming and 20mph zones
Hull introduces roughly 20 local safety schemes on residential
roads every year. According to the 2003 APR the programmed cost
in 2003-04 was £330,000 for 23 schemes. However, a report
by IPPRsuggests the
historic cost of 100 20mph zones between 1994 and 2002 was about
£4 million, indicating somewhat higher annual spending of
The population of Hull is 311,000, suggesting an annual cost
per city resident of £1 to £1.60. Scaling this up to
cover the 33 million people in towns of over 20,000 in England,
the annual cost of replicating Hull's programme elsewhere would
be £33 to £53 million. The cost between now and 2010
would be £198 to £318 million.
3.3 Who benefits, and how?
Lower speeds on residential streets would reduce road deaths
and injuries. Between 1994 and 2002, IPPR estimates traffic calming
in Hull has saved about 200 serious injuries and 1,000 minor injuries.
Introduction of 20mph limits and traffic calming should be
focussed in areas of greatest deprivation, where the incidence
of child pedestrian injuries is greatest. When Hull began its
programme of traffic calming and 20mph zones in 1994, there was
a strong correlation between numbers of child pedestrian casualties
and an index of ward deprivation. That correlation has now been
broken and children in the most deprived wards in Hull are no
longer at greater risk.
3.4 Where might the money come from?
Local authorities are already spending significant sums on
traffic calming and 20mph zones, so not all the cost identified
above would be new. Hull's LTP allocation is roughly £8 million
per year, so the proportion of funds allocated to traffic calming
and 20mph zones is only about 4% of the total. If local authorities
collectively were to spend £83 million per year on 20mph
zones, this would represent only 4% of the LTP settlement.
3.5 To what extent might 20mph limits pay for themselves?
The Scottish 20mph trials were conservatively calculated
to have delivered casualty savings worth £177,000 in the
first year, equivalent to a first year rate of return of 48%.
This suggests that a 20mph signing programme would pay for itself
over a period of about two years.
According to IPPR research, the programme of traffic calming
and 20mph zones in Hull between 1994 and 2002 delivered savings
worth well over £40 million, suggesting that by 2002 the
programme had paid for itself at least ten times over.
Sloman, L, Cairns, S and Goodwin, P (2003) The impact of soft
factors on travel demand, summary report to Department for Transport
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Grayling T, Hallam, H, Graham, D, Anderson, R and Glaister, G
(2002) Streets ahead: safe and liveable streets for children.
Institute for Public Policy Research. Back