Examination of Witnesses (Questions 121-139
MR JOHN
CALCUTT, MR
TREVOR BEATTIE
AND MR
DENNIS HONE
8 MAY 2006
Q121 Mr Betts: Welcome to the Committee
for our session on planning gain supplement. Can I first of all
give the apologies of the Chairman of the Committee, Dr Phyllis
Starkey MP, who unfortunately has a visit in her constituency
today at which she has to be present. With that I will first of
all ask if you would, for the sake of our records, identify yourselves.
Mr Calcutt: Good afternoon, gentlemen.
My name is John Calcutt and I am the Chief Executive of English
Partnerships, I will add by way of a rider of four days' standing.
I have my colleagues here, Dennis Hone and Trevor Beattie who
I will ask to respond I think to the majority of your questions.
Q122 Mr Betts: I hope that was not
a plea for easy questions—the fact you have been there for
only four days. We accept that you will pass to your colleagues,
that is only appropriate. Could we begin by dealing with the issue
of the West Bedford scheme and also eventually the Milton Keynes
scheme as well. You referred to your role in brokering the West
Bedford scheme to deliver yours and the Government's objectives.
Could you explain how the model works and the role that you played
in developing it?
Mr Hone: In simple terms, there
is a situation in Bedford where 2,250 homes have been granted
outline consent but subject to funding of a by-pass road that
was beyond the abilities of fragmented land ownership, so English
Partnerships was asked by the Government Office if we would look
into how we could assist the situation. We worked with ODPM, the
Department for Transport as well as the land owners, to broker
a funding arrangement whereby we would forward-fund the road but
subject to a share of land value capture over and above the section
106 obligations of the land owners. So in simple terms, we were
acting as a banker in some respects who is investing in the road
contract but then taking a share of land values at a later date.
Q123 Mr Betts: So is it a collective
form of section 106 in a way?
Mr Hone: It is over and above
the section 106 obligations which are placed on the land owners.
They are obviously funding the normal requirements but because
the road spreads over a number of different land interests it
was not possible for them to fund the infrastructure, it had to
bridge various areas and the local river there on I think two
occasions, and there would have been disproportionate impacts
on different land owners. This issue had actually held up development
for over 10 years.
Q124 Mr Betts: Do you think that
sort of approach could be replicated for similar schemes or even
for different schemes of a significant size in other parts of
the country?
Mr Hone: I think it is possible
depending on the individual circumstances. I would add that although
English Partnerships were involved, we would not necessarily say
there is a single solution which is applicable without looking
at the individual circumstances. The principle of looking at forward-funding
infrastructure to unlock difficult planning areas and permissions
is something we could carry forward in other areas.
Q125 Mr Betts: If we had planning
gain supplement, would you not simply be able to collect the planning
gain supplement from all the different land owners, put it into
a pot and do what you have done?
Mr Hone: There is a timing issue
in that the planning permissions could not come forward until,
in this case, the funding solution had been found for the road.
That was the impasse. There may have been other niceties to the
discussions but the reality was that the planning permissions
could not be unlocked until the road was funded, the land owners
were unable to have viable schemes with funding the road upfront,
and it needed a public sector injection to meet the initial costs
to make it come forward. The planning gain supplement would come
after, as they went to start on site, but it would not provide
the road necessarily, although the exact mechanics of planning
gain supplement have not been worked out through the consultation
document and it may be possible through some of the monies which
go into central government that monies could be set aside either
through the Communities Infrastructure Fund or other sources to
enable those types of strategic transport works to come forward
in advance of development.
Q126 Mr Betts: Moving on to the Milton
Keynes tariff system which we had some evidence on previously,
is this scheme preferable to planning gain supplement? Are you
suggesting a tariff scheme should run parallel to planning gain
supplement? Is Milton Keynes not really a unique situation which
means that approach probably is not applicable to many other parts
of the country?
Mr Hone: The tariff situation,
as you will be aware, is based on looking at the infrastructure,
both local and strategic, that is required to support a fairly
defined number of houses in terms of their growth and employment
opportunities. In Milton Keynes we know in terms of designated
areas for growth, 33,000 houses have to come forward by 2016 and
from the areas which are going in you can plot the infrastructure
that is required, look at the total costs and available sources
and then work back to a tariff which can be applied against individual
housing units and employment, so we end up with a calculation
which says we need £18,500 per house and something like £260,795
per hectare on employment to fund all the infrastructure necessary
to support the growth of Milton Keynes. There are three issues
which I think are fundamental to make the tariff work. One is
the co-operation of the land owners. We are somewhat fortunate
in the Milton Keynes situation that over 90% of the land required
is in the ownership of five owners. The co-operation of land owners
is important. Second, you need a co-ordinated planning approach
because it has to be based in planning allocations which are coming
forward. Third, similar to the West Bedford scheme, you need the
ability to forward-fund infrastructure, so that in terms of the
role English Partnerships is playing we are still forward-funding
elements of infrastructure in co-operation with the highways authority
and the Highways Agency to support growth and then receiving payments
back from developers as consents are granted and development takes
place.
Q127 Mr Betts: You indicated there
is a backward working out of how much we need to invest in infrastructure,
divide it by how many houses, and that is the amount per property,
but when Milton Keynes came to speak to us they said they had
not got enough money for infrastructure and an additional residue
of funding was needed. Does that suggest that the tariff was not
set at a high enough level?
Mr Hone: The thing with the tariff
is that it has to be set at an amount which enables development
to come forward and does not set an artificial barrier to development,
and it has to be done, as I said before, in co-operation with
the land owners. It is cemented through an over-arching section
106 arrangement, and that has to be defensible. That is why the
calculations are done to show that it is a defensible sum. Under
the Milton Keynes model, some 100% of strategic infrastructure
is funded and 75% of all the local infrastructure needs are funded.
The Council therefore on a bill of £1.6 billion has to find
some £40-50 million to make up the 25% in local infrastructure,
but they already receive substantial amounts in terms of capital
allocations from DfES for education and through other government
funding streams. So in terms of the calculations we made, we believe
it was a fair and equitable funding arrangement which enables
existing funding sources to continue but also for development
to not be adversely affected. Just to make a final point in closing
on this, I think it is really important whether it is a tariff
arrangement or a PGS arrangement that it does not substitute for
existing government funding streams, and that is the way the MK
tariff has been calculated. Milton Keynes Council's point is that
they have no certainty in the long-term government funding streams
which have been anticipated under the MK tariff.
Q128 Mr Olner: On the West Bedford
one, are we talking about land which was zoned for residential
use or green belt land or agricultural land, where there is a
massive uplift in the value of the land? Or are we just talking
about land which was zoned residential where planning permission
has been granted?
Mr Hone: It is land which is zoned
for residential development. There is a substantial uplift. I
have to stress that there are very complicated arrangements in
terms of both the road that is going through and also the requirements
the local authority have placed on the developers through section
106 arrangements. The issue here is very much that to meet the
obligations under section 106, which involved meeting all of the
costs of affordable housing without housing corporation grant,
and building of the schools and so forth in advance of development,
they could not viably bring forward the cost of the road as well.
As I say, there has been an impasse there for some 10 years.
Q129 Mr Olner: Milton Keynes have
given us evidence, as Mr Betts alluded to, and were fairly sceptical
as to whether the scheme they had got for the tariff would work
anywhere else. Milton Keynes is a new town compared to many areas
of the UK, have they got a unique position with the housing corporation
and the fact they were a new town?
Mr Hone: I would not say they
have a unique position; not entirely. The position is where you
have a comprehensive area for development, you can plan out exactly
across that area what is required to support growth and the different
funding sources and infrastructure requirements to make it happen
sustainably. I would have thought there are examples in other
places where that could happen in terms of new towns, as you have
alluded to them, without naming places but within the growth areas.
Q130 Mr Olner: Could you make a stab
at one?
Mr Hone: It is invidious to do
that but Harlow is within the growth area where it may work in
terms of the growth to the north of Harlow. But the point I wanted
to make is that you have to have a willing land owner who wants
to enter into these arrangements, and if you have a fragmented
approach where you have umpteen land owners it is going to be
very difficult to construct a tariff arrangement in that situation.
At Milton Keynes we were very fortunate that you could get the
five major land owners who hold over 90% of the land allocated
for the expansion of the town into this arrangement and then,
because it is based very much on local and strategic needs, you
could enforce that against other planning applications as they
come forward.
Q131 Mr Olner: You did say, Mr Hone,
that there are varied interests in the provision of infrastructure
to increase areas of residential housing. There is the local one,
there is the regional one, there is a national one. Given that
this tax is going to go firstly to the Treasury, how do you see
that being redistributed to all of the players ie local, regional
and national?
Mr Beattie: English Partnerships'
contention of course is that there would be scope under PGS to
run a tariff alongside the PGS mechanism. Where local authorities
and groups of local authorities can get together, where the conditions
which Dennis has mentioned would be satisfied, where the right
relationship exists between the uplift to be captured on the site
and the cost of the infrastructure, there is scope to get together
to produce a tariff. In our consultation response, we have suggested
in that situation the top slice, the 20% Communities Infrastructure
Fund, should still be chargeable but otherwise the area should
be exempt from planning gain supplement so it should not go up
to the Treasury in the first place.
Q132 Mr Olner: But most of us who
have been representing coalfield communities for many years know
about the problems we had with additionality with the money we
had from Europe to boost the infrastructure. It would be very
easy, would it not, for national government to keep to itself
some of that planning gain supplement instead of feeding into
the infrastructure they would normally fund?
Mr Beattie: That is why our contention
right at the front of our consultation response is that this should
be seen as additional, and what is raised should be additional
to and there should be no take from central government.
Q133 Mr Olner: What would you do
about the geographical problems of some people being able to raise
more planning gain supplement but have a harder fist to fight
for a better section 106 than others? How would you smooth out
within the planning gain supplement the differences between the
North East and the North West, and the South East and South West?
Mr Beattie: Planning gain supplement
generates more value where there is a higher value uplift to be
achieved, but that is already the case in the coalfield areas
where English Partnerships spends disproportionately more, where
values are low and there is very little value to be unlocked.
We already do that in support of section 106. We will continue
to do that in support of planning gain supplement. That is one
of the merits of a national agency like English Partnerships.
Q134 John Pugh: You favour a mixed
economy—section 106 agreements, planning gain supplements
and tariff based systems. It could be argued that is slightly
confusing for the developers, they do not have predictability,
they do not have clarity, they do not know what they are going
to be hit by. Is that a fair surmise and does it matter anyway?
Mr Beattie: Certainty for developers
is the key to this. Whatever system of planning gain supplement
comes out, it should be based around giving a clear, transparent
and certain system for developers. It is our contention that you
can implement PGS to provide such certainty, although a lot of
the details are not in here yet, but that the tariff is a very
simple arrangement of developers using enlightened self-interest
effectively to get together to define what they need and get the
resources for what they need; a very clear prospectus. It is perfectly
possible to achieve the same through PGS but the consultation
as it stands at present has not sketched that out.
Q135 John Pugh: What would be the
consequences of a degree of uncertainty?
Mr Beattie: There would be a possible
reduction in the amount of land coming forward for development.
Q136 John Pugh: You argue for greater
research to be done on the impact of removing education from section
106 agreements. Why do you do that?
Mr Beattie: Our response included
seven case studies and when we ran them we found that education
accounted for the vast majority, between 45 and 80%, of the section
106 which English Partnerships would no longer be paying under
the new system. A lot of what we currently do centres around the
provision of new primary schools—for example the new school
at Greenwich, the new school at Northampton—because we find
you need the school to attract the high quality development, you
cannot wait for the development to come along and provide the
school later. It determines most people's choice of community
and where they want to live. So we think that education funding
is very central to this. If you included education funding within
the site-specific section 106, you would in effect be acknowledging
the way people treat and relate to their local primary school;
it is a local, site-specific facility servicing that community.
Q137 John Cummings: In your memorandum
you include a number of case studies which show that the impact
of the introduction of PGS would vary greatly depending on the
rate at which it is set. How adequate can any assessment of the
impact of PGS be without the knowledge of the rate at which it
is to be set?
Mr Beattie: We had to take a series
of assumptions and our case studies are based on assumed rates
of PGS of 20%. We have made a number of other assumptions as well
just to work it through, but we worked it through on a consistent
basis. What I would say about those case studies is that they
are real sites, they are seven real sites, and what they show
is on unviable brownfield sites, as we know, no PGS is payable,
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. In other words,
part of my answer to the coalfield site issue is actually the
amount of take from them will reduce increasing their viability.
Q138 John Cummings: So you are quite
confident in the studies you have carried out?
Mr Beattie: We are confident in
the studies we carried out on the basis of the assumptions which
we have taken where the information did not exist in the consultation
document. We have made assumptions.
Q139 John Cummings: If the Government
were to proceed with its proposals for PGS, at what level do you
think the rate should be set? What do you consider to be a modest
amount?
Mr Beattie: It is not for us to
speculate on what a modest amount is, it is for ministers to set
the rate.
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