Select Committee on Environmental Audit Minutes of Evidence

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 tax.

  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.


  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 approaches.

    —  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.


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.

Market volatility

  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 betterment taxation

(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 outcome.


  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 measures—bus 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.


1.1  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.

Table 3


Population Annual spend on bus infrastructure (2003-04) Spend per person

7.6 million £43.5 million£6
Nottingham270,000£1.4 million £5
Brighton125,000£490,000 £4

  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 services.

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.


2.1  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 infrastructure—for 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 school.

2.2.3  School travel plan co-ordination

  According to interim research for DfT on soft factors[4]local 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 million.

    —  "Micro-infrastructure" such as cycle shelters and lockers for every school would cost £100 to £200 million.

    —  Revenue funding for school travel promotion work with every school would cost roughly £26 million per year.

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 habits.

    —  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 and confidence.

    —  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.


3.1  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 roads.

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 and 2010.

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 IPPR[5]suggests the historic cost of 100 20mph zones between 1994 and 2002 was about £4 million, indicating somewhat higher annual spending of about £500,000.

  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.

April 2004

4   Sloman, L, Cairns, S and Goodwin, P (2003) The impact of soft factors on travel demand, summary report to Department for Transport seminar, December 2003. Back

5   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

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