House of Commons - Communities and Local Government Committee

Select Committee on Communities and Local Government Committee Fifth Report

6 Chapter Six: Allocating PGS revenue

70. PGS payments are to be collected centrally. The Government then has to consider how best to allocate the revenue generated among local authorities. Diss Town Council said that there was "a very strong case" for ensuring that PGS revenue is "distributed locally, for the benefit of the community in which it is generated".[135] Similarly, London First told us that "at a time when Government policy is to increase development and community involvement in the planning process, it is critical that communities see direct benefits from development, beyond the development itself […] Without this, opposition to development is likely to increase".[136] Many other witnesses agreed that it was important to maintain a local link between revenue generation and investment in infrastructure.[137] We recognise that the Government proposals for PGS would, if implemented, make more opaque the link between development and the provision of local facilities funded through locally negotiated Section 106 agreements. It seems to us however that this will have advantages as well as disadvantages. It will, for instance, reduce the pressure on local planning authorities to permit otherwise undesirable developments solely to gain specific local benefits.

71. The Minister for Housing told us that "you would expect most areas to be seeing something of an increase overall in the resources that they would get" but the Financial Secretary added that "you cannot say in the short term that every local authority will gain from this".[138] Within the South East, for example, there is no correlation between the amount of housing growth, the cost of infrastructure and the likely yield from PGS. Unless there is a redistribution mechanism the impact of PGS will be widely variable. SEERA proposes that the redistribution should be handled through a Regional Infrastructure Fund, based on priorities set by the Regional Assembly, following the model successfully developed by the Regional Transport Board. Similar proposals are under consideration in the South West and East of England.[139]

72. Maintaining a direct link between the locality in which revenue is generated and that in which investment is made—local gain for local pain, as the TCPA put it—is not incompatible with an element of redistribution.[140] The Chartered Institute of Housing and Bedfordshire Councils Planning Consortium agreed.[141] PGS is expected to result in higher returns overall than the existing Section 106 arrangements, not least because a large proportion—some 93 per cent—of developments at present is not subject to any planning obligations at all.

Table 4: Proportion of planning permissions with planning agreements

Type of development Major Minor All

1997-8 2003-4 1997-8 2003-4 1997-8 2003-4

Dwellings 25.8% 40% 3.5% 9.2% 7.1% 13.9%

Offices and light industry 13.1% 20.4% 1.3% 2.6% 2.6% 5.8%

General industry and warehousing 5.6% 12% 0.6% 0.9% 1.4% 3.4%

Retail, distribution and servicing 18.9% 21.4% 1.5% 1.8% 2.7% 3.7%

All other major developments 7.5% 1.8% 0.7% 2.3%

North 14.8% 18.3% 1.5% 1.7% 1.4% 4%

South 22.9% 29.4% 1.9% 6.4% 1.6% 8.9%

Permissions with planning obligations 1.5% 6.9%

Source: Department for Communities and Local Government, Valuing Planning Obligations in England: Final Report, May 2006, table 2.4

73. We expect a small surplus to be available after a portion has been top-sliced for strategic infrastructure projects and each local authority has been allocated funds at least equivalent to those which they would have expected under the current system. The allocation of this remaining portion of PGS revenue provides the Government with the opportunity to target resources: as the RTPI argued "some mechanism must be found to redistribute; otherwise […] two effects may happen: first that one might ratchet up development pressure within those areas that are already experiencing development pressure but, secondly, that those areas in need of infrastructure […] will not receive the benefit from Planning Gain Supplement unless there is some redistributive mechanism".[142] The Minister for Housing argued that there was already a strong correlation between those areas in need of infrastructure investment and those areas where the most PGS revenue was likely to be generated. Working on this basis however seems to us to be missing an opportunity to support development in those areas where development has historically been set back by poor infrastructure.[143] As the RTPI told us "infrastructure helps to make markets and to shape markets in areas where markets are not working very well".[144]The TCPA and others supported an element of redistribution in PGS revenue allocation.[145] This view is supported by the SEERA-commissioned report which made a strong case for the inevitability of a proportion of revenue raised needing to be redistributed out of the area of origin, even if the funds are required to meet infrastructure requirements relevant to the needs of the area in which the funds were generated. The entirety of any surplus after allocations to local authorities and to strategic infrastructure should also be allocated to development-related infrastructure and not absorbed into general Government funds. The local authority distribution formula should allow for an element of targeting resources to areas of greatest need. It is essential however, that any targeting is not undertaken to the extent that it would risk undermining the link between particular developments and local infrastructure provision. There should be a statutory undertaking that a majority of PGS revenue is returned to the local area affected by the development. A clear funding formula should be used to determine precisely how much revenue is returned to each local authority.

74. Providing demonstrable benefits for local areas will be a key element in the implementation of PGS. This process should be as transparent as possible. Local authorities, and the communities which they represent, should be able to see precisely how much revenue has been raised in their area and how much has been made available for investment in infrastructure. John Healey MP, Financial Secretary to the Treasury, said that the Government "would have to find a way, I think, of making sure that [PGS] operated transparently so that it was obvious to those in any local authority area what the gains were from any potential development".[146] We agree. We recommend that the Government also, through transparent means, make available data enabling comparisons between the hypothetical benefits that would have accrued in a particular area under Section 106 and that are realised under PGS.

75. Some witnesses were concerned that if the amount of PGS revenue allocated to individual local authorities were directly linked to the amount of PGS revenue generated in their area, developments with a low PGS liability—which are often those of significant value to local communities such as sporting or leisure facilities, redevelopment of brownfield sites or remediation of contaminated land—would be disadvantaged if local authorities sought to maximise their returns.[147] Other witnesses, when questioned did not see this as a significant risk: the RTPI acknowledged the risk but said that it was "not a main fear".[148] Similarly, the TCPA argued that at present "local authorities do not prioritise raising revenue from Section 106 over resisting greenfield development. It seems to us that a number of authorities are quite able to resist that temptation in the current system and they should be able to resist the temptation in the new system".[149] We agree with the Minister in this regard: perverse decision-making for financial gain is no more likely to occur under a PGS regime than under current arrangements and that "ultimately, local authorities have to take responsible decisions in the interests of the whole community and they are democratically accountable for those decisions […] to the extent that sports and recreation ought to be part of other planning systems and planning strategies". [150]