Examination of Witnesses (Questions 280-299)
YVETTE COOPER
AND JOHN
HEALEY
18 MAY 2006
Q280 Chair: Are you intending for
there to be further rounds of consultation as you refine the PGS
system, assuming you go ahead with it?
John Healey: We would confirm
that, if we decide to go ahead, in any announcement by the end
of the year. My own view is that we would have to, and want to,
ensure that there is further consultation. At this point, I cannot
say to the Committee whether that will appropriately be on the
basis of draft legislation, proposed draft legislation or on the
basis of further policy documents, but the principle that we would
need, and would want, further consultation and views, including
the opportunity for this Committee to have a further look if you
chose, I think would be an essential part of any decision we might
take to pursue a Planning-gain Supplement.
Q281 Mr Hands: Specifically there
are a couple of points on that. First of all, how exactly would
we envisage the mechanism for changing the rates of Planning-gain
Supplement? Would it be something which would probably be looked
to be potentially changed each year in the Budget or would it
be more flexible than that in, say, a fast-moving property market,
let us say, a situation like the early 1990s where values are
moving around quite rapidly and you may need to bring down the
Planning-gain Supplement rate quite abruptly? How do you see the
mechanism is likely to work on that?
John Healey: Well, you are tempting
me to speculate and to move into an area which is quite well down
the track. In principle and in practice, the Treasury, in this
Government as in every Government, has kept every rate of every
tax and the operation of every tax under review each year, so,
to that extent, in principle we keep a very close eye on the way
that it works. Secondly, this is not potentially a type of levy
which I think one would compare, say, to excise duties which have,
by tradition, been a form of tax which Chancellors have made decisions
on an annual basis and for which a degree of inflation increase
is often required, as in other taxes, to maintain their real value.
This, in a sense, would not be a levy of that nature, so I would
expect, particularly in the way that we would want it to work,
that we would introduce it and want to ensure a degree of stability
and certainty because of its potential impact in some long-term
planning business investment decisions and markets, so I would
not see it, if one likes, with that first general caveat that
I suggested as the sort of thing that would lend itself to certainly
annual change or of course any uprating.
Q282 Mr Hands: What about the scope
for introducing a degree of independence in this? Have you looked
at what other influences there are on, say, the housing market?
Obviously one of the biggest influences in the past has been the
Government setting of interest rates and the view was taken, correctly
in my view, in 1997 to make that an independent decision-making
process. What about the merits of making Planning-gain Supplement
a degree of independent, outside decision-making there?
John Healey: First of all, I welcome
your endorsement of the Chancellor's decision to set up the Bank
of England in that independent role. I think it has been an important
part of the success and stability of the British economy over
the last decade. I think I would answer it in this way: that,
whenever we are considering questions of tax design or tax rates,
we go out of our way to try and make sure that we get the views
of experts, those affected who can contribute points of view which
help us with the assessment that we need to take. In the end,
however, it falls to the Treasury, and this is in part the nature
of government, I think, that we, as politicians, ultimately elected
and therefore accountable to a wider electorate and the public,
have to make decisions which often balance a number of competing
interests. In any tax decisions, the Treasury and the Chancellor
have to weigh up a range of factors, a range of pressures and
often quite competing interests. Now, in those circumstances,
it is theoretically possible to franchise out that responsibility.
It is not something that I would necessarily advocate and in the
end I think it is part and parcel of the responsibility of government
to make sure that we do the analysis, we gain the evidence, we
give those affected or with an expert view the chance to contribute,
but in the end somebody has to take those decisions and be accountable
for their impact and their effect. That is properly a role, in
my view, of elected politicians forming an elected government.
Q283 Mr Hands: Just more generally
on PGS receipts, is it your intention to retain any proportion
of PGS receipts for central government?
John Healey: What we said in the
consultation, and amplified in the Budget, is that we essentially
see this as a local measure, in part to ensure that local areas
benefit and have the revenues required to build up the infrastructure
where there is growth in their local communities, so we have said
that a significant majority of the revenues will be devoted to
the local authority area in which the PGS is raised. Clearly,
if the principal purpose, as we have made clear again, is to support
infrastructure development in order to support growth, then there
is infrastructure that sometimes crosses local authority boundaries
and may be of wider regional or sub-regional significance, so
we have said that there may be a minority of the PGS revenues
that could be applied at a regional level and that is the undertaking
we have given.
Q284 Mr Hands: What about the costs
of raising the PGS in the first place? Surely something would
have to be offset against that and the central government costs
of raising it?
John Healey: If we get the design
of any PGS right, and I think we have been quite clear in looking
at potential designs that we are looking for something, again,
I suppose, learning some of the lessons of predecessor policies,
that is essentially based on self-assessment, and developers and
businesses are used to self-assessment, and which draws on the
expertise we have already in the Valuation Office Agency who undertake
55-60,000 property valuations each year, and, if we set this up
in a way which is simple, then the costs of administration, enforcement
and compliance should be relatively modest.
Q285 Mr Hands: Will there be a clearly
identifiable cash trail in all of this? Let us say, a certain
amount is raised from a particular local authority in Planning-gain
Supplement over a particular year, will that figure be available
versus what is given back to that authority in terms of resulting
central government monies to fund infrastructure? In other words,
will people be able to say, "Our authority's put in £100
million and got back only £80 million"?
John Healey: I think it is an
important point, if I may say so, Mr Hands. It is a detail we
have not made a decision on yet, but, if you take one step back
to the principle that we set out here which is to say that one
of our criticisms and concerns about section 106 is that it often
is not transparent, it is not clear to local people what they
have got from developments that may be taking place, then, if
this is to function not just as a potential source of additional
revenue that can be devoted to local infrastructure development,
but also as something that local communities can see benefiting
them directly, then clearly I think it means that we will have
to find a way, although, as I say, we have not taken decisions
on that sort of detail yet. We would have to find a way, I think,
of making sure that it operated transparently so that it was obvious
to those in any local authority area what the gains were from
any potential developments that were given the go-ahead under
the planning regime by their local planning authority.
Q286 Mr Hands: What scope do you
see for there being a redistributive element in all of this, in
being able to take back any supplement and move it towards more
less advantaged and deprived areas?
John Healey: Well, there is an
element of more flexibility for such redistribution, if that is
the decision locally, than there is currently with section 106
which basically is site-specific. There is, for instance, the
potential flexibility for a local authority area to be able to
pool funds from PGS raised through their area to devote to particular
necessary infrastructure they felt was important in their area,
and they could choose to do that with their proportion of the
significant majority of the PGS revenues that would flow. There
is potential also for using a portion of the PGS revenues on a
regional basis where there are important infrastructure developments
that may help unlock further growth potential, but, above all,
I think the important thing here is that it is principally a local
measure and, secondly, that it is something we have been very
clear that is devoted to the development of infrastructure that
is necessary to support the growth of housing and local communities.
Q287 Mr Hands: I have two very quick
questions on section 106. You said in the consultation document
that you are expecting more money to go to local government overall
through PGS than through section 106. Would that be every local
authority or will some be more likely to benefit than others?
Yvette Cooper: I would apologise,
first of all, Chair, for the fact that you have only just received
the research on section 106 today and we should have probably
sent it to you in time for you to grill us on it, but it does
raise some interesting issues which I think will help us to be
able to answer that over the long term. I think you would expect
most areas to be seeing something of an increase overall in the
resources that they would get because, if you look at the section
106 research that we have sent you, what it shows is that on a
very large number of sites there are no section 106 agreements
at all. For example, even though the proportion of sites with
section 106 agreements has increased since 1997, 60% of residential
developments of more than 10 homes still do not include section
106 agreements, 90% of smaller residential developments do not
include section 106 agreements and some of the calculations we
have done on the basis of this would estimate that, out of around
140,000 homes built in 2003-04, over 95,000 were built on sites
without section 106 agreements. Therefore, there are a considerable
number of sites on which planning gain takes place, so there are
planning gains, but at the moment there are no section 106 agreements,
so that evidence, I think, would strongly suggest that there is
a tax base out there within every local authority, whether it
is planning gain that is taking place, which is not tapped into
by the current system.
John Healey: The short answer
to your question is that you cannot say that in the short term
every local authority will gain from this because the current
situation, as Yvette Cooper has said, is extremely patchy, but
overall there will be net additional revenues available and hypothecated
to infrastructure development at the local and regional level.
Finally, and importantly, we have made clear that any PGS revenues
to local government and local authority areas will be in addition
to, and separate from, the local authority settlements.
Q288 Mr Hands: Just on transparency,
you mentioned that you thought that PGS would be more transparent
than section 106 agreements, but there is little that can be more
transparent than section 106 agreements: the development is granted,
planning permission is given and, in return, up pops the local
park, the local school, the local transport development, et cetera,
and everybody says, "Thank you" to Chelsea Village or
whoever it was who provided that particular new facility. What
can be more transparent than that?
John Healey: I am not sure whether
you have had a particularly excellent council up until very recently
in Hammersmith and Fulham which does not operate like elsewhere,
but generally a very common criticism that all of us, as local
Members, come across is that there is not, for local people, often
a very great clarity about how section 106 operates. It depends
very much on how skilled the local authority planning department
often is at negotiating those and it is a common criticism actually
from all quarters or certainly a common perception that section
106 can often serve as a form of somehow buying and selling planning
permissions which is terribly opaque, and I think one of the advantages
of the planning gain system would be that it would be clearer
and it could be more transparent.
Q289 Mr Betts: Section 106 is still
going to be allowed for affordable housing on housing sites. Does
that mean that the contributions towards affordable housing under
the new system will remain the same as they are now or are you
going to encourage or allow for an extra element from PGS revenue
to fund affordable housing as well as the 106 contributions?
Yvette Cooper: We are doing some
further work on the interaction between scaled-back section 106,
which is what we would envisage, and a potential PGS and, in particular,
looking at what the impact would be on affordable housing. At
the moment the research that we sent you suggests that the value
of planning obligations that were agreed for affordable housing
in 2003-04 was £1.2 billion and the amount that was actually
delivered in that year was £600 million, and there is a series
of possible reasons, but no certainty as to why there is such
a gap between those two figures. What we want to do, I think,
is to look further at what the interaction might be. What we are
clear about is that we need to keep on delivering affordable housing
and actually we need to be able to increase the affordable housing
that we deliver. We think there may be a lot of potential in many
areas to deliver more affordable housing and, for example, we
have just responded to the Affordable Rural Housing Commission's
report looking at the issue of the amount of affordable housing
that comes through planning obligations in rural areas, and there
is some significant evidence to suggest that we could get rather
more affordable housing out of planning obligations, out of section
106 agreements effectively, within rural areas compared to what
is coming through the system at the moment. We are clear that
we want to increase the delivery of affordable housing, however,
what we want to look further at, and we are doing some further
work on at the moment, is exactly what the interaction would be
between a section 106 approach and the PGS approach. We made the
decision to keep affordable housing within the section 106 approach
because in practice you really want it to be considered as an
onsite delivery. If you are going to deliver mixed communities,
you want affordable housing to be built into the developer's attitude
and conception of the site from the very beginning. That was why
we thought it would be more appropriate to deliver affordable
housing through the section 106 route rather than taking it out
of section 106 and putting it into PGS instead.
Q290 Mr Betts: I am interested in
the interaction because presumably it depends on whether the section
106 is negotiated and the planning gain is then somehow levied
on the residual value which remains, or whether, in fact, you
have a Planning-gain Supplement and then you negotiate what you
can out of the 106, the Planning-gain Supplement having already
been paid.
Yvette Cooper: Section 106 would
take place first.
Q291 Mr Betts: It is a residual element?
Yvette Cooper: Yes, but the Planning
Use Value would be calculated after the section 106 agreement
had taken place.
Q292 Mr Betts: Presumably there is
going to be a great incentive for most authorities to try and
maximise their section 106 which is going to come to them rather
than leave anything left for planning gain which might go somewhere
else, or at least a percentage of it, in the process?
Yvette Cooper: We did register
that point as part of the consultation document and that there
might be a need to look further at the approach to affordable
housing taken by local authorities, so you had some consistency
and you did not end up with perverse incentives causing problems.
Bear in mind, if you have a very transparent approach to the PGS,
local authorities will also know what their infrastructure requirements
are in their area and also what the consequences will be for PGS
and the consequent resources they are likely to get from PGS for
infrastructure as well. Local authorities will have to take a
series of judgments about this. I cannot give you a conclusive
answer at this stage because it is exactly one of the areas which
we are looking at. I do recognise the point you are making and
it is exactly why we are doing more research into it.
Q293 Mr Betts: Is one of the intentions
of the whole approach, as I understand it, to try and simplify
arrangements? Would it not have been easier to try and improve
the operation of 106 by indicating your methods of good practice
to those authorities that are already going to operate them, say
at least on housing sites, and not have a complicated dual arrangement
on those sites in the future?
Yvette Cooper: You could take
that approach. We have looked at that and that is why I think
the research we have sent to you is quite interesting on this.
What it does show is even where you have got the residential developments
of more than 10 homes, you have still got only 60% of those having
section 106 agreements in place. We have a large number of homes
that are delivered on very small sites where there are very rarely
any section 106 agreements that are to take place. Ninety per
cent of them do not have section 106 agreements in place. To apply
section 106 agreements to all of those sites would be adding an
additional process of negotiation into a very large number of
sites, where we think the idea of a Planning-gain Supplement,
which is something that is very simple, to such a wide number
of sites would be the simplest way of being able to capture planning
gain on what are a very large number of very small sites, but
each of which will have some significant planning gain in them
and, therefore, could be captured through a Planning-gain Supplement
much more easily and much more smoothly than having a huge expansion
of section 106 agreements. The other factor about section 106
agreements is that there are a whole series of conditions currently
attached to section 106 agreements. They are about negotiations,
about the site needs and so on, so clearly you would need to substantially
change the section 106 agreement process if you were to do that.
I think the conclusion that we came to, the reason we decided
to consult on the PGS, was because it was really felt that having
an approach that provided some clarity for developers, and some
clarity for local authorities, which could be smooth and simple
would be better than a huge number of individually negotiated
deals on a very large number of relatively small sites.
John Healey: We are consulting
on the proposal for a Planning-gain Supplement following the recommendations
which Kate Barker set out. In her report—and I know you
studied that very carefully, Mr Betts—she looked at the
other possible mechanisms. She looked at VAT on greenfield sites,
at section 106 and at capital gains tax as well, and in the end
came to the conclusion that she thought the concept of the Planning-gain
Supplement was likely to be the fairest and most efficient way
of capturing what she called the unearned gains from selling land
for development.
Q294 Mr Betts: We had the Home Builders'
Federation in front of us the other day. We probably take it as
a given, as I am sure you do, Minister, that most potential taxpayers
would rather pay less tax than more, so you take their submission
probably with at least regard to that as an issue. They were saying
a couple of things to us. Firstly, there were major difficulties
with section 106, they felt it was inconsistent and complex. They
were saying, "We are still going to have the inconsistencies
and complexities because we are still going to have the 106".
They welcomed the principle of Planning-gain Supplement because
they could see, of itself, it might be simpler, but then went
on to say that they thought the whole issue of the way valuations
would be done on the Current Use Value and Planning Value was
virtually impossible to work, in their view. They thought the
clauses were unworkable and would delay house building and make
it more difficult to get planning permissions through. They had
not got any alternatives because they recognise that they have
not got a scheme which works either. Are you concerned about that
evidence we received?
John Healey: I have not looked
at their evidence, but on the specific point about unworkability,
it is the case that developers already obtain valuations on the
land that they are using, and they do that as part of their normal
business planning and investment and they do it as part of their
procedures. I have explained also how in government we are involved
with businesses of all types, including developers, in regularly
checking valuations of property and land as part of other tax
regimes. I will certainly take a look at their evidence, but without
being clear from you what their particular objections are and
why they do not think it is workable, then it is quite difficult
to answer that question. We will certainly take a look at it.
Q295 Mr Betts: One of the issues
they did raise with us was about the complexities of arrangements
that are done between owners of land and developers, particularly
options, whereby you could end up taxing the costs of getting
the land fit for development as part of those arrangements. They
were arguing very strongly about the need for transition arrangements
which would allow for a period of time when those options perhaps
would not be taxed at PGS. Then they went on to point out that
some of those options on land could take from 15 to 20 years to
come to the point where they were ready for development and get
planning permission. Is that not a real problem?
John Healey: First of all, we
are looking at the role of options in the current land and development
market, secondly, we are considering, as we indicated in the consultation,
the question of transition arrangements, and, thirdly, what we
want to ensure we do not do with any potential Planning-gain Supplement
is introduce a system which discourages the sort of remediation
and land preparation which has to take place on some sites before
you can get to the point where they become viable for development.
Q296 Mr Betts: You are going to look
at a transitional period, and you are going to consult on that?
John Healey: We are looking at
the whole area of whether or not, and in what circumstances, transitional
arrangements might be appropriate. As I said at the start, this
is work in progress, there is a huge amount of ground we have
still got to cover and we aim to do much of this in order to be
able to make further announcements by the end of the year.
Q297 Alison Seabeck: I have been
listening to your comments on VAT and PGS. Originally I think
you were in favour of a national single figure for the PGS. Kate
Barker's rationale rather preferred the potential for regional
variations. Are you softening on that view in light of the responses
to the consultation?
John Healey: We asked in the consultation
whether there was a case for an exemption or a reduced rate for
brownfield sites. We do have quite an important starting point,
which is to try and make this as simple and as comprehensive as
possible. It is likely to be an advantage to developers, to local
communities and their authorities, and to us in trying to administer
this. The whole question of the detailed design of this is what
we are working through now as we work through the 800-odd responses
that we had in the consultation. We are doing so also in further
detailed work with many of the bodies that have got expertise
to help us with this.
Q298 Alison Seabeck: Is your evidence
suggesting that PGS could levy more than the potential £1.3
billion that VAT might levy?
John Healey: We have said from
the outset that our intention is to see any PGS as producing net
additional revenue over what currently is delivered by section
106 in order that we can then contribute to the additional infrastructure
costs which are required to support the growth; that is a purpose
behind the proposal and very clearly so. Chair, can I caution
the Committee not simply to be looking at PGS in isolation, there
is clearly a potential Planning-gain Supplement for us and it
is being considered also in the context of the package of commitments
we gave at the Pre-Budget Report and, also, in particular, alongside
work we are doing in the cross-cutting review as part of our preparations
for the Comprehensive Spending Review. If the Committee would
find that helpful, I would welcome the opportunity to give the
Committee a note on that cross-cutter because I think it helps
set the context for the Planning-gain Supplement and probably
will help keep this proposal in perspective and be of more general
interest to your work.
Q299 Chair: I think that would be
extremely helpful, Mr Healey. I am conscious of the time, but
just before you go there is one more issue which would be useful
to have your view on. It is the extent to which the Treasury is
prepared to forward-fund some of the infrastructure costs, then
recovering the costs afterwards, either regionally or locally,
through the Planning-gain Supplement. Obviously the Milton Keynes
tariff is an example of this where there is forward-funding. Can
you give us an indication of the extent to which the Treasury
might be considering such forward-funding?
John Healey: Of course, it was
the Treasury that gave English Partnerships the go-ahead to forward-fund
in Milton Keynes, which indicates to you that we recognise this
is an important part of local authorities and local areas being
able to see the development infrastructure they need to support
the growth. In a sense, it picks up the point I just made about
the cross-cutter and the broader issue because the solution is
not necessarily only to be found within the potential for a Planning-gain
Supplement system. However, within a Planning-gain Supplement
there is clearly—and we touched on this a moment ago with
Mr Hands—some flexibility within a local authority area
for pooling PGS revenues, for being able to use those to forward-fund
infrastructure in areas which may not be related to the specific
sites that PGS has been raised on. Secondly, there is a potential
that we are looking at further and it may be of interest to the
Committee. If PGS provide a revenue stream for local areas and
local authorities, then clearly there is the capacity to look
at using those as part of the prudential borrowing regime. Clearly
that might be a mechanism for raising some of the capital that
might be required for the forward-funding of infrastructure needs.
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