Marginal sites

40. Several witnesses made arguments in favour of discounts for sites where the proposed development is of only marginal economic viability. BISL, for instance, argued that the introduction of PGS would have a negative impact on developments in the sport, leisure and tourism sector in part because such developments were typically low value and therefore would be less attractive to local planning authorities which may be tempted to favour high value developments in order to maximise PGS returns; and in part because such developments were typically of only marginal viability in the first place.[76] As a result, it argued, the Government's proposals for PGS should be limited in scope to affect only housing developments and the existing pattern of Section 106 arrangements should be retained for all other developments.[77] Sport England told us that "any additional costs [on community facilities] will lead to poorer facilities being developed for the local community" and that "these organisations should be exempt from the PGS levy".[78] These arguments, however, overlook the fact that because PGS would be levied as a proportion of land value uplift, the marginal nature of some developments would automatically be reflected in the liability: the lower the land value uplift, the lower the PGS liability. Indeed, a series of projections undertaken by English Partnerships, which assumed a PGS rate of 20 per cent, showed that "on some of the most marginal sites, because there is only a marginal uplift in land values, there would be an overall reduction in the PGS/Section 106 burden under the new system (see table 2, below).[79]

Table 2: Case study showing the impact of PGS compared to the current system on a marginal development.

Note: This case study is based on a real, not a theoretical, development. It relates to a site in London Thames Gateway with planning permission for 250 homes of which 35 per cent are to be affordable. The site is currently used. Source: Ev 39

41. Moreover, as PGS is intended to increase the overall pool of resources available for investment in infrastructure, far from undermining the provision of community sporting, leisure and other facilities, it should provide local authorities with an opportunity to improve provision. We find no grounds for PGS exemptions or discounts for developments of marginal viability.

42. The Quarry Products Association made a similar argument relating to the application of PGS to developments where any land value uplift was temporary and short term in nature. We are not persuaded that there should be a general exemption for temporary developments. We recognise that there may be a risk of increased bureaucracy in capturing very short-term temporary developments.

Brownfield sites

43. It is clear from the consultation document that the Government is willing to consider discounting PGS rates for developments on brownfield sites. Our witnesses were divided on this suggestion. Some, like RICS, believed that without discounts or an exemption, "the Government's object of generating more housing on brownfield sites would be hindered rather than helped" by PGS.[80] Several witnesses argued that the marginality and complexity of development on many brownfield sites meant that such developments should be exempt from PGS or at least liable at a substantially discounted rate. London First, for instance, told us that "The rate of PGS should be substantially reduced for brownfield sites. More appropriately they should be exempt".[81] The Treasury Committee has advocated full consideration on the part of the Government of a discounted rate or exemption for brownfield site developments.[82]

44. Other witnesses, such as the TCPA argued that the Government already operates sufficient incentives to make brownfield site development viable.[83] Indeed, such measures have had some success. In 1997, 57 per cent of new housing was built on brownfield land. By 2004 the percentage had increased to 70, exceeding the Government's own target by some 10 percentage points.[84] Others pointed out that some brownfield site development was potentially lucrative and therefore that no blanket exemption or discounts were warranted.[85] Indeed, 72 per cent of all development takes place on brownfield sites, and the proportion is rising, which not only reinforces the point that such developments can be profitable but also means that any exemption or discount would have a significant effect on PGS revenue.[86]

45. There would be a number of practical problems associated with the introduction of exemptions or discounts for brownfield sites. The first would be reaching a robust definition of 'brownfield', which the HBF said "could prove very difficult". [87] Additional complexities arise over assessments of developments on a mixture of land types and disputes over classifications would also be hard to avoid. We accept that the costs of development on brownfield sites, particularly those sites where extensive remediation work is involved, would be significantly higher than the costs associated with equivalent developments on greenfield sites. These additional costs, however, are already reflected in the price a developer is prepared to pay for the land in the first place, and thus would be reflected in any calculation of CUV. Where the land value uplift is minimal, so too will be the liability for PGS. In those instances where land retains a negative value after the granting of planning permission the PGS liability would be zero.

46. Encouraging the use of brownfield sites is a critical element in sustainable economic development and sustainable urban regeneration. The Government has, however, a range of other policy instruments in place already to promote brownfield development, instruments which can be more finely attuned to specific development and specific local circumstances than a blunt-edged discount, while maintaining a uniform PGS rate across all developments will help to ensure that the levy is transparent and predictable and can be efficiently assessed and collected. We are not persuaded by the case for discounts against or exemptions from PGS liability in respect of developments on brownfield land.

Small-scale developments and a minimum threshold

47. The Government proposes that home improvements, where such works require planning permission, should be exempt from PGS.[88] We agree that it would be impractical to bring home improvements into the scope of PGS - the costs of liability assessment and payment collection on a host of very small-scale projects would to be likely to exceed any revenue derived. We are not convinced, however, that a blanket exemption for home improvements alone is the most sensible option. The Government will also need to consider how to treat very small-scale improvements to non-residential property where the costs of assessment and collection may also exceed liability and where the application of PGS may serve as an unnecessary disincentive to desirable enhancements.

48. Professor Hennebury, Professor of Property Studies at the University of Sheffield, told us that "an automatic low threshold will increase take and reduce administrative costs".[89] RICS suggested that one way to implement a minimum threshold involved artificially inflating CUV by, perhaps, 10 or 20 per cent, thus reducing the difference between CUV and PV and, in turn, PGS liability.[90] Any development which resulted in a land value uplift which was less than CUV plus the inflated element would therefore have zero PGS liability. This proposal is attractive, particularly as it would exclude a number of marginal developments while avoiding the need to define any further exemption criteria. We are, however, concerned that it may entail detailed valuations to establish CUV and PV, the costs of which could represent a significant proportion of the overall costs for the very small-scale projects which a minimum threshold would otherwise protect. We recommend a minimum threshold for PGS liability which puts very small-scale developments, including home improvements, outside the scope of PGS liability. This threshold should be set at a very low level to preserve PGS revenue and to prevent market distortions.

Sustainable development

49. Development, including housing growth, could have a major impact on the environment in terms, for instance, of energy consumption, water demand and transportation usage. Several witnesses drew our attention to development on flood plains in particular. Between 2000 and 2005, 11 per cent of all new houses were built in flood hazard zones. This is not just an historic problem: ninety per cent of the 120,000 planned houses in the Thames Gateway development, for instance, are expected to be in high flood hazard zones.[91] We do not wish to understate the seriousness of the difficulties to which these circumstances give rise. This is not only a risk for individual householders who may be subjected to flooding and, following revised guidance from the Association of British Insurers in January 2006, unable to secure insurance against flood risk; it also makes the task of flood risk management more complicated. Several witnesses suggested that developers should be entitled to a discounted PGS rate in respect of developments which meet high sustainability standards. This would, however, create a perverse incentive for sub-standard developments to be favoured by local planning authorities over those matching exacting environmental standards: only those developments which did not meet the standard would generate the maximum in terms of PGS receipts for the local authority. We are in no doubt that the Government needs to take these issues seriously to protect householders. Indeed, we have already voiced our commitment to managing the environmental impact of development and suggested that the Government considers ways in which the planning system can contribute to tackling climate change.[92] We do not, however, believe that PGS is the appropriate vehicle to effect such change.

Conclusions on exemptions and discounts

50. The Government should resist all calls to grant exemptions and discounts other than for very small-scale developments. To do so would increase the complexity of the tax and risk market distortions. There is a risk that financial advantages for developments desirable in policy terms will have the perverse effect of encouraging local authorities to permit the kinds or locations of development being discouraged in order to increase their revenue-take. Where exemptions and discounts have been sought to drive certain desirable behaviours, other mechanisms can be used to achieve the same ends. Where exemptions and discounts have been sought to maintain project viability, the arguments that PGS threatens viability are not convincing. The Government should keep PGS as transparent, straightforward and cost effective as possible.

77   Ev 2 Back

78   Ev 12 Back

79   Q 137 Back

80   Q 49 Back

81   Ev 9. See also, Ev 13-4 Back

82   Treasury Committee, Fourth Report of Session 2005-06, The 2006 Budget, HC 994-I, para 111 Back

83   Ev 86 Back

84   Land use change statistics in England to 2004, in Planning- gain consultation, para 4.4 Back

85   Q 213. See, for example, Q 10 Back

86   Q 220 Back

87   Ev 114 Back

88   Planning-gain supplement consultation, para 4.6 Back

89   Q 6 Back

90   Q 77; Ev 91 Back

91   Ev 1 Back

92   Third Report from the ODPM Committee, Session 2005-06, Affordability and the Supply of Housing, HC 872, paras 143-6 Back