Examination of Witnesses (Questions 208-219)
MR STEWART
BASELEY, MR
JOHN STEWART
AND MR
JOHN SLAUGHTER
16 MAY 2006
Q208 Chair: Can I welcome you to this
afternoon's session and ask you to introduce yourselves from the
right? When we get into questions I will leave it entirely up
to the three of you to decide which one of you responds to individual
questions.
Mr Slaughter: I am John Slaughter,
the Director of External Affairs for the Home Builders' Federation.
Mr Baseley: I am Stewart Baseley,
Chairman of the Home Builders' Federation.
Mr Stewart: John Stewart, Director
of Economic Affairs for the Home Builders' Federation.
Q209 Chair: Can I start by asking whether
you would agree that the Planning Gain Supplement proposals are
inherently fair in that every developer would pay the same proportion
of land value uplift and that it would do away with the lottery
of section 106 negotiations?
Mr Baseley: Perhaps I could answer
that by saying that we do inherently agree that if we are going
to increase the supply of new homes in the country, which is the
Government's fairly ambitious agenda, we have to have an adequate
infrastructure to enable those homes to go ahead. It is impossible
for us to contemplate increasing house building rates from 150-200,000
homes a year without putting in place a properly thought through
infrastructure that will adequately service the needs of the people
who will live in those homes. The question you ask as to whether
PGS is potentially fairer than the existing section 106 agreements
is actually quite a difficult one to give you a completely straight
"Yes" or "No" answer to. One of the problems
that we have with the whole concept of PGS is whether or not raising
revenue to provide infrastructure in a one-size-fits-all approach
actually is possible. The reason that I say that is because development
sites come in all shapes and sizes across the land with a variety
of different issues that are attached to them. Greenfield sites,
of which there are very few these days—as you know nearly
70% of all construction that takes place in England is on brownfield
land—typically speaking are much easier to figure out how
to realise development gain from than some brownfield sites. I
guess one of our fundamental concerns is that, as a house builder
until just six months ago, so having recently come into this area
of life, I know that my experiences were that actually a lot of
brownfield sites are very complex, require a high degree of risk
taking by the companies that are going to develop them and often,
frankly, do not throw up a huge increase in value over their current
use value, which can be quite high depending upon what that use
is. One of the fundamental concerns we therefore have about this
tax is the rate at which it gets potentially set. Our concern
would be that if the rate is too high, and we can talk about that
in a lot more detail perhaps, the reality is will the tax enable
or help to facilitate an increase in the supply of land with planning
permission to meet the Government's relatively ambitious house-building
targets or is it likely to actually lead to a frustration, a reduction
if you will, in the supply of land coming forth. Our own conclusions,
as a result of the consultation exercise and the deliberations
we went through before we submitted our views back in February,
is that it is likely to lead to less land coming through rather
than more and, therefore, will not actually assist the Government's
housing programme.
Q210 Chair: Are you making the point
that, unless certain changes are made to the detail of the Planning
Gain Supplement, it would have those effects or that inherently
it would have those effects?
Mr Baseley: I do not think we
know enough about the detail to be able to answer that question
honestly either. What we do know is that the current system, the
section 106 agreement system which we have had in place for many
years, fundamentally is not necessarily a bad system. What has
happened over the last several years is that section 106 agreements
and the use to which they were put to extract planning gain and
development gain from development sites has extended, and the
time attached to negotiating section 106 agreements has extended
quite substantially. I repeat, I do not think that the section
106 system is necessarily a bad system. It can and does deliver
Planning Gain Supplement for developments across the country at
the moment. The problem with it is that, as I say, it has extended
beyond its original remit.
Q211 Sir Paul Beresford: Along the
same line, this tax is going to be collected nationally and redistributed.
If you look at the Government's past performance and habits of
redistribution, even the Audit Commission have been a bit concerned
about this and the way in which they have taken capital receipts
from some councils and distributed them elsewhere, do you have
concerns that this sort of thing is not going to happen with this
tax?
Mr Baseley: Yes, we do. Not because
we have any particular reason to suppose that what the Government
says will not happen, but just because at the moment one of the
advantages of the section 106 system is that it is negotiated
locally, it is negotiated between the developer and the local
people through their representatives, be they officers or councillors
in a particular district, and the people, of course, can touch
and feel in a very real way the benefits that development might
bring to their particular locality. I think we all know that building
homes is not that popular amongst certain sections of the population,
and there are concerns particularly in the south, about the rate
and scale of home building that is being proposed. At the moment
it is possible for local residents to identify real and tangible
benefits that come from section 106 agreements and contributions
that developers make. Clearly one of the concerns we have through
the introduction of PGS is that the money, as we understand it,
is going to be remitted to the Treasury. The Treasury is going
to despatch the majority of it, but we are not quite sure what
"the majority of it" actually means, whether that is
51% or 91%, back into the community. We do not know whether that
will be back into the local community, back into the regional
community or whether, ultimately, cross-subsidisation could occur
as certain areas help other areas of the country.
Q212 Chair: Can we explore that point
a bit more later on. Do you think that one effect of the Planning
Gain Supplement might be to improve local planning authorities'
understanding of "development economics", and would
that be helpful?
Mr Baseley: I think it would always
be helpful for local authorities or, indeed, anybody to understand
better development economics. I cannot really see an instant answer—my
colleagues may have a view on this—whether it is PGS, a
tariff system or section 106 agreements that is necessarily going
to help local authorities to understand the issues any clearer.
Mr Slaughter: I think it could
possibly do in principle, in the sense that, if a system like
Planning Gain Supplement was linked to transparency of information
about what infrastructure requirements were and how those related
to development, then there may be a case that that could assist
with understanding development economics, but I do not think that
area has been looked at in any depth so far. It could be an advantage,
but I think it is one that probably will be a longer term advantage
rather than an immediate one.
Q213 John Pugh: Seventy per cent
of output is currently on brownfield sites, so an appreciable
amount of development there. Does that not by itself indicate
that there is plenty of profit in developing brownfield sites
and that some of your conditions about its capacity to absorb
PGS payments are a little overstressed?
Mr Baseley: I would not pretend
for one moment there is not a profit to be made out of developing
brownfield sites or greenfield sites or, in fact, other house
building or development generally in the UK. It would be a foolish
man who sat here and tried to persuade you otherwise. The real
question is to what extent the land owner is going to be encouraged
or discouraged to bring forward brownfield land, bearing in mind
that, as a result of the intensification of brownfield land development
over the last 10 years, an awful lot of what you might call the
simpler brownfield sites have now been built out and quite a few
of the more complex ones, by definition, have been left further
behind. I think what I foresee, and, indeed, I am already seeing
in some parts of the country, is land owners very concerned about
this potential tax, very concerned about the rate at which it
could be struck and actually questioning in their own minds whether
or not the whole exercise—getting planning permission on
a piece of land can be very timely and very expensive, involving
lots of consultants and experts that are required to facilitate
the development—is actually worthwhile. I think it is a
major concern that we have that it is creating uncertainty in
the market. Of course the impact of that, potentially, is that
already we are beginning to see certain land vendors sitting on
their hands and not bringing their land forward whilst this process
that we are now all involved in unfolds.
Mr Slaughter: I was going to add
perhaps two other remarks. First, I think it is worth bearing
in mind that the proposal the Government has put forward is to
increase the overall amount of revenue coming from land uplift.
We are talking about a qualitatively different situation in principle
to what has existed up to now; so any consideration of the impact
on brownfield needs to look at that. The second issue I think
that we want to raise in discussing this area is that there is
a problem with the volume of land coming through the planning
system, it is actually tending to go down rather than increase,
and the essential requirement here is that we find a mechanism
that will enable the flow of land through the planning system
to increase because without that we are not going to be able to
meet the housing supply objectives that we share with the Government.
I think on both counts one has to be very cautious about saying
that there is a significant additional capacity for brownfield
development to absorb additional taxation.
Mr Stewart: Chairman, could I
add a comment to that? I think the key variable is the land value
that is left there to be taxed, not the profit margin of the development,
and that is where our concerns lie. You are quite right; development
on brownfield land is profitable, as it is on Greenfield, in many
cases. The issue is how much land value is there that can be taxed.
Q214 John Pugh: Is it quite hard
to generalise about brownfield now. Brownfield can be anything
from a back garden to a heavily contaminated site. Is that part
of the problem, the fact that "brownfield site" is too
global a term?
Mr Baseley: Sure, because back
garden developments, frankly, are not terribly different to greenfield
developments in lots of cases. They do not have nasty, horrible
substances under the ground from factories that existed 150 years
ago that have to be removed in a very safe manner, for obvious
reasons.
Q215 John Pugh: Do you need recognition
of that factor in how Planning Gain Supplement is pitched, whether
or not it is a brownfield or a greenfield site we are talking
about, the fact that sites themselves are intrinsically quite
variable even though they have the same headline description?
Mr Baseley: That is one of the
difficulties we had when we were producing our submission in deciding
whether or not a one-size-fits-all approach was possible.
Q216 John Pugh: Do you have any other
concerns about the operation of the Planning Gain Supplement on
brownfield sites apart from the issue of definition and financial
viability?
Mr Stewart: When you say "definition"
you mean valuation.
Q217 John Pugh: Yes.
Mr Stewart: That is a very complex
area. I am not a valuer, but when you talk to valuers and when
you talk to the developers who do it day-to-day, it is an extremely
complex area. One of the requirements that the Treasury had in
mind when it drafted the tax was that it would be simple, and
one suspects that when they were drafting it they had a picture
in their mind of a greenfield site.
Q218 John Pugh: Is there anything
you could suggest that would make it simpler and less complex?
Mr Stewart: If you were to adopt
a valuation approach, you are going to need a very clear set of
rules which are agreed by both the industry and the valuation
office, or HMRC, whoever is going to levy the tax, because without
an agreed set of rules you can see all sorts of problems, disputes,
delays and delays is what we do not want because that will mean
a sidestep coming on. The point you made a moment ago about brownfield
sites varying is very valid—greenfield and brownfield—across
the whole spectrum of sites. Some brownfield sites have a negative
land owner and to actually make them develop there is a cost in
getting them to that point, right through to some greenfield sites.
The Milton Keynes example is an obvious one.
Q219 John Pugh: With some sites you
are actually adding value by building on them?
Mr Stewart: Indeed, and even greenfield,
there is a whole spectrum from a completely unencumbered extension
of a settlement where very little infrastructure is required through
to our Milton Keynes example, where there are enormous infrastructure
costs involved; so it is very difficult to generalise.
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