Examination of Witnesses (Questions 140-159)
MR JOHN
CALCUTT, MR
TREVOR BEATTIE
AND MR
DENNIS HONE
8 MAY 2006
Q140 John Cummings: But you argue
that a modest rate of PGS can be absorbed in some areas. What
would be a modest rate for my area in the North East, do you think?
Mr Beattie: It is not for us to
take a view on that. We have run it through at a rate of 20% and
the figures are there in our consultation response.
Q141 Mr Betts: You are the experts
in development, are you not? You know what works and what does
not work, so I think we have an interest in knowing what your
view is of the rate.
Mr Beattie: We think at 20% it
works. Can I give an example of why I think at 20% it works which
I know reasonably well? One of our examples is a greenfield site
where at 20% the take from PGS and section 106 under the new system
is greater than the existing section 106 take. If you run at a
rate of 15%, interestingly the old and the new system takes are
exactly the same. That is for a greenfield site needing substantial
infrastructure. That suggests to me that for that sort of site,
that is roughly the right area.
Q142 John Cummings: I am trying to
tease a bit more out of you here. Is the rate of PGS which could
be absorbed before PGS becomes a disincentive to investment consistent
across the country or does it vary with different types of development
and different locations?
Mr Beattie: It varies very dramatically.
On page 8 of our consultation document we show that the PGS rate
at which PGS and new section 106 would equate to the old 106 for
greenfield sites actually varies between 7% and 22.5%. So it is
very variable site to site.
Q143 John Cummings: You have mentioned
the PGS rate set at 20%, is this a cash equivalent of developers'
contributions to infrastructure provision, or would it actually
be less under PGS than it is at present?
Mr Beattie: That depends on the
site, it depends on the section 106 obligations already on the
site. As I was explaining, on some sites the new system under
our figures shows you will be paying less, on some it shows you
will be paying more.
Q144 John Cummings: Why do you argue
that only a low rate of PGS can be accommodated?
Mr Beattie: Because the new system
will apply comprehensively to development across the piece. It
is equitable in that respect in that it applies to development
across the piece, whereas currently only about 40% of development
is subject to section 106 obligations.
Q145 Mr Betts: Is there a case for
a variable rate?
Mr Beattie: I do not think so,
no. We were talking about clarity and certainty and a complex
range of different rates would obstruct that clarity and certainty.
We have, however, suggested there might be a case for a discount
of the rate for five-star environmental developments, actually
linking up fiscal policy and environmental policy. We think there
is a great opportunity to do that here. But a framework of different
rates—no.
Q146 Mr Olner: It is okay having
planning gain supplement if that raises more revenue for infrastructure
than 106 does, but if you are going to have a rigid 106 system
and it is argued the reason for bringing in planning gain supplement
is that some authorities are better at negotiating 106 agreements
than others, there is going to be some disparity. How do we bridge
that? Mr Hone is nodding so he knows what I am saying.
Mr Hone: It is obvious if you
apply a constant rate across the country, it will have different
impacts in different areas. English Partnerships are not saying
it will not. What we are saying is that if you are bringing in
planning gain supplement, you need to do it in a way which gives
absolute clarity to the developers. We are sub-dividing, as it
were, the section 106 negotiations because certain elements are
staying under section 106 and others are going under planning
gain supplement. From a development point of view, that is a benefit
if they gain certainty through that and there is a value to that
certainty. When we look at the consistency argument, it is important
we have a consistent rate.
Mr Calcutt: To add slightly on
that, I think you substitute the characteristics of the site for
the planning skills and abilities of the local authority which
is doing the negotiations. In other words, obviously you are going
to lose the input of what I would call key negotiators, but on
the other hand you are going to more equitably distribute the
tax insofar as its impact, as I understand it, is going to be
those intrinsically difficult sites with low inherent land values
which are automatically going to have a lesser tax payment than
those which are intrinsically more valuable in areas where you
need less infrastructure. That seems to me to be a level of equity
that is wholly desirable rather than, as it were, key negotiating
powers bringing about an anomaly.
Q147 Mr Olner: But in shire counties
the major planning authority is the district, and it is usually
the district which does the negotiation on 106. How widely is
that going to be spread in the future? As I said before, you have
local infrastructure to provide, the local authority ones, you
have regional, the shire county ones, and then you have national
ones. At the moment you have one clear negotiator for the section
106 stuff. It seems to me that this issue is going to be clouded
in the future in providing infrastructure because it does not
only rest with one set of people.
Mr Beattie: There will continue
to be one clear negotiator for the site-specific element of section
106, but for the national infrastructure there will be the Communities
Infrastructure Fund.
Q148 Mr Olner: So it is essential
that as well as planning gain supplement there is also section
106 agreement as well?
Mr Beattie: Under this new system,
site-specific infrastructure will continue to be negotiated in
the same way but for a narrower range of facilities.
Q149 John Pugh: I think we are reaching
a view that you accept there is going to be a degree of diversity,
although we are not in a position to be able to say how much diversity
and what degree of clarity we are going to have here, but taken
in the round you also seem to be saying that the new system will
generate more money by increased land values for the public good
than the previous section 106 agreements by themselves. That is
fairly common ground, is it not?
Mr Beattie: Yes.
Q150 John Pugh: Do you think it is
going to be significantly more to the extent there will be a real
substantial uplift in the amount of money available for strategic
infrastructure?
Mr Calcutt: Can I start and then
let my colleagues come in? I think it depends how you are drafting
the tax. We have seen previous attempts to tax windfall gains
and they have run into enormous efficiency problems insofar as
the cost of administration and all the rest, and things get locked
up in litigation for years, and the actual take is poor. I think
there are two sides to whether you achieve it. Does it in principle,
yield more and everybody paid their due amount? The numbers equation
is, as I understand it, that it would raise significantly more
revenue. On the other hand, if in fact practically the way the
tax is administered results in it being bogged down with every
chartered surveying company and legal firm inside the country
and offshore, then clearly as a matter of practice you are not
going to get the revenue take you want. So the devil is in the
drafting of detail which enables this thing to be what I would
call efficiently administered.
Q151 John Pugh: So when the regulation
and legislation come forward, there is a need for real scrutiny?
Mr Calcutt: As a former lawyer,
I would say this is going to be a parliamentary draftsman's either
nightmare or paradise, I know not which. Certainly the devil is
in the detail here.
Q152 John Pugh: If the planning gain
supplement raises less than section 106 does at present, does
that mean in fact the tax rate is too low or that the purpose
of the introduction of PGS itself is frustrated?
Mr Calcutt: I am going to push
my luck here and say to you that the dilemma is that if you set
the tax rate too high then clearly the incentives people have
for going down the route that I have described in terms of trying
to avoid paying this thing with schemes or just withholding it
in the hope that it will change in the future, which is a common
one, and again go up on a curve, and so part of the cleverness
of this, I think, is first the drafting but also setting rates
at a point at which perhaps people's incentive for avoidance is
not going to be as high as it otherwise might have been.
Q153 John Pugh: So the Government,
like a good parasite, should not kill off its host?
Mr Beattie: One or two of the
proposals in our consultation paper were designed exactly to hit
this point. We argue that the payment should be phased; it should
not all be up front at the point of starting on site but, as happens
as present in Milton Keynes, it should be 25% up front and 75%
on completion so you can give an incentive through the operation
of the system for developers to come forward with sites.
Q154 John Pugh: How long do you think
it is going to take the land markets to adjust to the new regime?
Mr Beattie: One of our submissions
is that the transitional arrangements for this are going to be
absolutely crucial. I do not think it will take the markets terribly
long to adjust. I think the short term impact will in many cases
be a reduction in the value of sites because the PGS will in effect
be taken off the site value. That might work in favour of those
of us trying to bring forward major strategic developments but
there is going to be a period of transition, it is going to be
very important to protect the tariff arrangements in that transition
and markets will certainly swing around before they stabilise
under the new system.
Q155 John Pugh: In arguing for greater
simplicity and clarity, as you have, do you think there should
be a scheme that allows a very few exemptions rather than a lot
of well argued, cogent exemptions?
Mr Beattie: Yes. I do not see
the need for exemptions. If you have a site with very little or
no value you will pay no tax. On brownfield sites, as we have
shown in our case studies, where there is very little uplift,
there will be little planning gain supplement to pay, and by and
large on serious brownfield sites there is less tax under the
new system than under the old system. It is to some extent a self-regulating
tax: the more uplift, the more tax.
Q156 John Cummings: What is the merit
of exempting sites with option agreements from PGS liability?
Mr Calcutt: As a former developer
perhaps I am qualified to answer on this one.
Q157 John Cummings: I thought you
said you were a lawyer.
Mr Calcutt: I was the company
solicitor and subsequently I became chief executive of a major
house builder, and so I do both, I am afraid. I think that "option"
is a generic term for those parcels of land that have been secured
on fixed terms that we are holding at the moment, so it will cover
conditional contracts, options, uplifts and the like. The only
point there is that lots of developers and house builders have
entered into agreements that provide for a specific sum to be
paid on the grant of planning permission and in the event that
a tax is then levied on that those contracts will probably plunge
the developments themselves into deficit or sub-normal profits
which again will have one of two effects. You will either have
people carrying out the very sorts of avoidance tricks they can
get away with or, much more probably, simply sitting on land,
not bringing it forward for development, causing housing supply
to move sharply downwards, trying to wait out the consequences
of a bad contract. I think it would have very undesirable effects
and would damage the house building industry. Whether that is
a good or a bad thing I do not know.
Q158 Mr Betts: Would there not be
a case then for saying that if sites with option agreements on
them are going to be exempt that exemption only applies for a
period of time to encourage the development of those sites because
once the time runs out there is not going to be the exemption?
Mr Calcutt: That does sound as
though it would have quite a lot of merit in it. The only thing
I would say is that quite a lot of options and conditional contracts
take land now 10 years before it comes forward and it is then
promoted through the planning system and therefore we are talking
about very long timescales here. I think the sort of thing that
you are talking about might well be able to be achieved by other
means.
Mr Beattie: Linking the planning
system to it.
Q159 Mr Betts: You might like to
reflect on that and let us have a note about it because I understand
it is a technical issue. Perhaps you would like to give us a note
after the meeting on your further thoughts on that. Let us come
back to the point we were discussing before about your general
commitment to hypothecating planning gain supplement going to
the local authority where the development is taking place. I heard
what you said about English Partnerships being the knight in shining
armour that goes into places like the coalfields and assists where
there is not the money for infrastructure development around,
but is there not a danger that if we concentrate all or the vast
majority of the resources from planning gain supplement in those
areas with high land values we are simply going to add to the
overheating in those areas?
Mr Beattie: We are also going
to provide more resource in order to tackle the consequences in
terms of strategic infrastructure of that overheating. You will
be generating more resources where you need more strategic infrastructure.
You have to have a body like English Partnerships in existence
to deal with areas like the coalfields, but this generates resource
where it is needed.
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