The Government's proposals

1.  We urge the Government to consider a range of means to secure for the public benefit a portion of land value uplift which results from the granting of planning permission. Such consideration should include comparative cost-benefit analyses of PGS and scaled-back Section 106 arrangements on the one hand and, on the other, a fully effective utilisation by local authorities of Section 106 powers, including possible reforms and enhancements. (Paragraph 8)

The levy base

2.  We agree with the Government that the granting of planning permission is the most appropriate point at which to calculate PGS liability as it is a clearly identifiable point in the planning process and would capture the majority of any land value uplift. It should, however, be defined as the point at which sufficient planning permission has been granted in order for development to commence. (Paragraph 10)

Calculating PGS liability and valuation methodology

3.  We agree that actual valuations should be used in the calculation of current use value and planning value for PGS purposes. (Paragraph 15)

Valuations

4.  Standard definitions and procedures will be critical to the success of PGS and thus will determine the extent to which it can contribute to the provision of infrastructure and growth in the housing supply. We recommend that the Government conduct a further round of consultation with industry and other stakeholders specifically on definitions and procedures relating to current use value and planning value. Such consultation has to be concluded prior to any implementation of PGS. (Paragraph 16)

5.  We prefer the Government's proposal that developers should be responsible for calculating current use value and planning value, drawing on the existing expertise within the private sector, through a system of self-assessments monitored and endorsed by the Valuation Office. (Paragraph 17)

6.  We recommend that the Government set a minimum value of zero for current use value. This would reduce any perverse disincentive to brownfield site development which PGS could otherwise represent. (Paragraph 18)

7.  We recommend that calculations of current use value and planning value reflect actual site conditions, including implemented planning permissions, as well as actual patterns of land ownership and actual liabilities and interests. No assumption of freehold vacant possession should be made. (Paragraph 19)

Self-assessment approval

8.  We recommend that the Government work with the Home Builders' Federation and other stakeholders to develop a pre-clearance system for PGS self-assessments and that such a system be incorporated into the PGS regime. (Paragraph 20)

PGS liability and option agreements

9.  We welcome the Government's willingness to consider the impact of PGS on development on land with option agreements. Any special arrangements will need to be agreed and promulgated prior to the implementation of PGS. (Paragraph 21)

Scope

10.  We welcome the proposed broadening in the scope of development gain capture and endorse the proposal that liability should be based on the land value uplift achieved rather than on the nature of the development. (Paragraph 22)

The PGS rate

11.   We recommend that the Government provide us with regular updates on the progress of its research into the impact of PGS on the markets for housing and land. (Paragraph 23)

12.  while we accept that in some specific instances PGS may generate less revenue than the current regime would, the important question is whether PGS can generate additional revenue overall. (Paragraph 26)

13.  It is clear that extensive further research and statistical analysis is required to enable the Government to determine the rate at which PGS should be set. (Paragraph 30)

14.  In making its determination of the PGS rate, the Government will need to strike a balance between setting the rate too high, which could discourage development and encourage avoidance, and setting it a rate which will cover the additional costs of administering the tax, generate a surplus over current arrangements and provide a contribution to investment in strategic infrastructure. It will need to make a strong case to support its determination if the rate does not fall within the anticipated range if the proposals are to retain credibility. In any case, we would expect the analysis and statistical modelling supporting the Government's determination to be made publicly available and open to widespread scrutiny. (Paragraph 32)

Changing the PGS rate

15.  We welcome the Government's understanding that it would be impractical to vary the PGS rate frequently. The need to keep revisions to a minimum makes it all the more important to establish a workable rate at the outset. (Paragraph 33)

Point of payment

16.  None of our witnesses favoured requiring payment at the point at which full liability is established. We agree with the Government that to do so would be impractical. (Paragraph 34)

Definition of commencement and start of works

17.  We recommend that the Government and stakeholders reach a mutually agreeable and robust definition of commencement of development prior to the introduction of PGS. (Paragraph 35)

Deferred payments

18.  We recommend that the Government permit phased PGS payments particularly in relation to those large sites where development itself is phased. (Paragraph 37)

19.  one implication of a deferred payment scheme would be to increase the gap to be bridged by forward funding and therefore increase the size of the initial dowry required from Government. (Paragraph 38)

Revenue collection

20.  we concur that it is appropriate for central Government to collect PGS payments. (Paragraph 39)

Marginal sites

21.  We find no grounds for PGS exemptions or discounts for developments of marginal viability. (Paragraph 41)

Brownfield sites

22.  We are not persuaded by the case for discounts against or exemptions from PGS liability in respect of developments on brownfield land. (Paragraph 46)

Small-scale developments and a minimum threshold

23.  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. (Paragraph 48)

Conclusions on exemptions and discounts

24.  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 (Paragraph 50)

Timing of the provision of infrastructure

25.  the Government is silent on how it will ensure that PGS supports infrastructure in a timely and predictable way. We would welcome clarification from the Government on this specific point. (Paragraph 51)

26.  Ministers suggested that local authorities could secure funds to provide timely infrastructure through a "prudential borrowing regime" in which they could take out loans against expected PGS receipts. If the Government is to proceed with this suggestion, we will require regular updates on progress and further clarification on the details of the operation of the scheme. (Paragraph 53)

27.  The proposal that local authorities should borrow against expected PGS receipts is entirely unattractive. It would be an unnecessarily expensive option for local authorities. Moreover, the primary purpose of PGS is to provide the resources for infrastructure to free up land for development and support housing growth, not to enable local authorities to acquire debt. That would be a retrograde step from the existing arrangements. Servicing debt is not an appropriate use for PGS revenue. (Paragraph 54)

28.  Local solutions to forward funding could be permitted to persist alongside the national PGS regime. This may be a particularly appropriate solution for growth areas and areas where there is a single body able to provide forward funding, as there is in Milton Keynes. (Paragraph 56)

29.  A substantial element of Government forward funding to enable infrastructure to be provided in a timely manner is essential to the successful operation of PGS. Without substantial forward funding there is no way that PGS can deliver the certainty for local authorities and developers which is essential if the tax is to be effective and to carry the confidence of stakeholders. We are adamant that the Government should not proceed with PGS unless and until it has made provision to bridge the time difference between the need for expenditure and the receipt of PGS funding. (Paragraph 57)

Funding strategic infrastructure

30.  We welcome the Ministers' commitment that the PGS revenues allocated to strategic infrastructure will be additional to rather than instead of funds already provided through other means. (Paragraph 59)

31.  We recommend that the criteria and priorities for strategic infrastructure funding are determined through a broad and inclusive process, incorporating the views of not only regional and sub-regional bodies but all statutory planning consultees. (Paragraph 60)

32.   The Government will need to provide a significant element of pump-priming in respect of strategic infrastructure as well as forward funding local infrastructure requirements. (Paragraph 61)

Impact on the supply of affordable housing

33.  We welcome the Minister's assurance that the Department of Communities and Local Government was working to establish the reasons behind the shortfall between Section 106 affordable housing commitments and delivery. We look forward to seeing the outcomes of this research. (Paragraph 65)

34.  We recommend strongly that the Government, through planning guidance and target setting, ensure that meeting affordable housing targets is not jeopardised in favour of revenue raising. (Paragraph 67)

35.  We recommend that the local authorities remain free to require developers' contributions to affordable housing even where such provision is not co-located with the related development. Local authorities should also be able to use PGS revenue to support affordable housing where appropriate. (Paragraph 68)

36.  Retaining affordable housing within the scope of planning obligations is wholly appropriate: it will serve to ensure that affordable housing has the first call on any land value uplift and it will provide a means to deliver sustainable mixed communities. Even so, if the potential for PGS to increase the supply of affordable housing is to be fully realised, the Government needs to increase the scope of developments subject to Section 106 agreements beyond the current limits, to ensure affordable housing is eligible to benefit from PGS receipts and to facilitate more local authorities making fully effective use of planning obligations. (Paragraph 69)

Allocating PGS revenue

37.  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. (Paragraph 73)

38.  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". 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. (Paragraph 74)

39.  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". (Paragraph 75)

Transitional arrangements

40.  We recommend that these arrangements include a short period only between any announcement that PGS will be introduced and the date on which the scheme comes into effect, with special transitional arrangements for those areas committed to a tariff-based model where a longer timeframe of preparation may be required. All applications for planning permission made before the announcement should be exempt from PGS (and subject to the existing range of Section 106 arrangements) regardless of the date of determination. (Paragraph 76)

Impact on the planning system

41.  Ensuring that the scope of scaled-backed Section 106 arrangements is not subject to the same vagaries of interpretation will be critical to retaining the credibility of the new tax. We welcome, therefore, the Government's statement that "the scope of planning obligations would be defined on a statutory basis". (Paragraph 77)