Select Committee on Communities and Local Government Committee Minutes of Evidence


Examination of Witnesses (Questions 300-319)

YVETTE COOPER AND JOHN HEALEY

18 MAY 2006

  Q300  Chairman: Minister, we will probably have to let you go to your committee.

  John Healey: If there are any further questions, particularly to me, then I would be delighted to answer them and I am happy to do so now. Thank you very much.

  Q301  Chairman: I suspect there will be quite a few. Thank you very much. Minister, I am sorry to have kept you waiting. Can we go back to one of the points that we have explored slightly before. How important do you think it is that there is a visible link between the places where the funds are generated and where they are spent?

  Yvette Cooper: I think that is why we have said we think the majority needs to go back to those local authority areas, that there is very considerable advantage to people feeling that the resources that are raised, the planning gain that comes from having new developments, new houses in that area, are also used to benefit that local community. We do also know that within an individual local authority area there might be a greenfield site where there is a very high planning gain, for example, but only a limited infrastructure requirement, and very close by a brownfield site with some very difficult remediation costs or some infrastructure requirements. Therefore, we think local authorities should be able to have the flexibility to look at using gains from one site to have an impact on another and to use the infrastructure for another as well. It is because we think there is very considerable value in the sense of local communities themselves being able to share in the planning gain within that area, which is a result of growing the local community and providing additional houses or additional development, which is why we have said that we want the link to be very clearly to those local authority areas.

  Q302  Mr Olner: Being one of these elderly ones who can remember the Community Land Tax many, many years ago and it failed basically because of the exemptions that were given then. Have you any views on whether and what land should be exempt from the Planning-gain Supplement? In your own mind, do you see a differential between planning gain on land that is used for residential and land that is used for industrial or commercial?

  Yvette Cooper: We propose that it should apply to all kinds of land rather than simply to residential, partly because we thought it was important not to distort the market, not to have a distortion and an incentive to use land in one particular way rather than another. Therefore, that was the reason for applying a PGS approach across the board, but obviously that is something which we are consulting on. As part of the consultation we also raised the potential to have a different rate for greenfield and for brownfield sites. Again, that is something where we are looking at the consultation responses. The reason for this—which was something that Kate Barker had also considered—was if we want to continue to prioritise brownfield land, and given that we also know that there can be additional remediation costs and additional costs which need to be taken into account for brownfield land, therefore having differential rates might be a good way to promote the brownfields development further. Therefore, that was something we thought we should consult on. There have been a series of exemptions which have been proposed in some of the responses to the consultation. We have not proposed specific further exemptions because we thought the approach should be as simple and as broad-brush as possible, but obviously we will consider the responses to the consultation.

  Q303  Mr Betts: You mentioned previously, Minister, the estimates you have done and I was slightly surprised—I think I have got the figures right—that 1.2 billion has been negotiated in section 106 agreements but only £600 million has been spent as a result of them. Have you got any estimates, therefore, as to what the figures will be under a changed arrangement? For example, how much less will be the scale of such section 106 arrangements compared with what they currently are and how much more will be raised through PGS as a replacement or, indeed, as an additional revenue stream?

  Yvette Cooper: The figures I gave you, the 1.2 billion and the 600 million, were just for affordable housing. That was just the section 106s for affordable housing. Obviously we have said that affordable housing will continue to be in the revised section 106. This is for 2003-04 and obviously it will vary from year-to-year depending on development new build levels in that year. The total value of planning obligations was 1.9 billion in 2003-04, of which 1.1 billion was actually delivered. The 1.9 billion was what was agreed in planning applications and 1.1 billion was what was delivered through planning obligations. At this point we have not got a figure for what a revised section 106 would gather because that depends on a whole series of further estimates about exactly the way in which you draw up a revised restricted section 106 as well as a whole series of other estimates and assumptions about PGS as well. It is something that we are working on.

  Q304  Mr Betts: If you are going to retain section 106 for affordable housing then presumably one could assume that the affordable housing revenue in the future will be no less than it is now and, indeed, by encouraging those authorities which do not pursue it to pursue it in the future there will be an increase. Is that your intention?

  Yvette Cooper: I do not think that is an unreasonable assumption but, equally, what I cannot say at this stage is exactly what figures we will be working to because it is a work in progress.

  Q305  Mr Betts: It is rather peculiar, is it not, that we will be keeping section 106 in place for affordable housing when it looks as though the delivery of affordable housing is running at about 50% of what was agreed and the rest of section 106, therefore, comes to about 700,000 a year, of which 500,000 is delivered, so the delivery rate is actually higher on that element you are proposing to scrap.

  Yvette Cooper: I think this raises some very interesting further questions and this is why I am not able to give you definitive answers at this stage. We are in the process of looking a lot further at what the consequences might be for affordable housing delivery. You could make the argument that affordable housing should come out of this, affordable housing should all be done through PGS, you could take that approach, but the reason we did not was because we felt that affordable housing was so important we did not want to do anything where in transitional arrangements there might be any risks to affordable housing, but also in particular because of this idea that we do want developers to think of affordable housing as being part of the costs of their delivery, part of what they should be doing on those sites because they should be building mixed communities and in those mixed communities they should be including affordable housing. Rather than seeing affordable housing as something which is a bill they have to pay that is separate from them, that is not an obligation on them, that goes through and ends up with the authority, they should have some responsibility for delivering affording housing on their site and that should be inbuilt into the process. Those were the thoughts behind affordable housing. The tenor of your question is can we be confident about delivery levels and what is going to happen in terms of delivery of affordable housing. We are very conscious of that and our clear aim in this is to make sure that over time we are able to increase the delivery of affordable housing, so that is a fairly important question that is driving the additional work and research that we are doing.

  Q306  Lyn Brown: Given that affordable housing provides for difficult and lengthy section 106 negotiations, and you are retaining this in the scope of your planning applications, how do you think PGS will result in a faster and more efficient planning process?

  Yvette Cooper: It will take other things out. It will take some of the offsite issues out of the section 106 agreement. It might be possible to better smooth the process of agreeing affordable housing in section 106s as well and that might be something you could look at as part of this whole debate. We do raise the issue in the planning consultation and in the consultation on the planning gain supplement about whether we should have a more standardised approach to the provision of affordable housing as part of revised section 106 agreements. That is something we are looking at as part of this.

  Q307  Lyn Brown: We have had witnesses who have argued that PGS will make marginal projects more unviable and thwart your intention of increasing housing supply. Do you agree with that analysis? If you do not, what is your evidence base?

  Yvette Cooper: Kate Barker's interest in the Planning-gain Supplement from the beginning was that it was value sensitive. If you have a site on which there is not much gain through the planning system because of the marginality of the project, because of the costs, the remediation requirements, for example, for a brownfield site, the complexity of the site and so on, or because of what it was used for before, maybe it was already used for a whole series of commercial or retail developments or housing and residential developments, and maybe for all sorts of reasons there is hardly any gain through the planning system, under those circumstances as a result there will be hardly any Planning-gain Supplement paid. The benefit of the PGS approach is that the amount that is paid is proportionate to the value uplift as a result of the planning system. Given that the planning system itself imposes value on sites, it is because we have a value system that the values of a lot of sites are what they are and without the planning system the value would be completely different, and given that it is the planning system that creates a lot of that value it therefore seems appropriate that a proportionate share of that increase in value should be shared by the local communities as well.

  Q308  Mr Betts: Have you made any estimates as to how much revenue you think you could raise from the new system without causing land-banking and actually reducing that amount of development?

  Yvette Cooper: Work is being done at the moment to look at different revenue consequences and that sort of modelling, so that work is underway at the moment. Also, what you need to look at is what the impact is on development and so on. That work is underway and will inform the decisions that are taken.

  Q309  Mr Hands: I have two questions. First of all, all of your talk is about value uplift in the market but has any consideration been given to what would happen if property prices, land values, were in a downturn? In such a scenario the UK would almost certainly be in a recession, or about to enter a recession. If a lot of the infrastructure development that you have got proposed is dependent on Planning-gain Supplement to finance it and it suddenly dried up because there no longer was any value uplift, at precisely the same time as Britain would need infrastructure development to avert the costs of the recession do you not see that being a potential danger that Britain could effectively grind to a developmental halt at that time?

  Yvette Cooper: Obviously the first thing to say is we should all be grateful for those critical decisions, that I know you supported, to make the Bank of England independent and the greater stability that we have had in the property market as well as the market overall. The second thing to point out is that the planning gain is not based on long-term market increases in the value of land, it is based on the increase in value that takes place as a result of the planning system. So it is the comparison between the current use value under the current market conditions and the planning use value under the current market conditions. It is not like capital gains tax, for example. It is not based on what happens to a piece of property or a piece of land during the market. It is based on the difference that takes place as a result of a planning system. You can envisage ways in which market conditions might affect that but, nevertheless, it is the planning system that increases value at every point in the market whatever the market conditions might be, so therefore it would be less cyclical than you were initially suggesting.

  Q310  Mr Hands: Nevertheless, if you take a scenario like the early 1990s or the mid 1970s your planning gain would have been very, very small, minimal if anything, compared to the infrastructure needs or the desire to reflate the economy.

  Yvette Cooper: If you think about the difference in value between agricultural land and residential land—those are the most obvious extremes—where agricultural land at the moment in current use is something like £9,000 per hectare and residential use is currently around £2.4 million per hectare, that is a pretty massive gap. Whatever position you are in in the cycle you are still going to have a very significant gap between agricultural land value and residential land value. There are cyclical factors that always have to be taken into account in tax systems, are there not? There are cyclical factors that always have to be taken into account in the fiscal decisions that governments make. That is why we have the fiscal rules which are all about managing expenditure over the cycle. You always have to take those sorts of things into account. I think this is less cyclical than you are suggesting for exactly the reasons that I have suggested, but to the extent that any income is cyclical then those are the sorts of decisions that treasuries always take into account.

  Q311  Mr Hands: My understanding of this system would be that it probably could not be introduced before about the year 2008 and obviously at that time we are working on the assumption that we will be approaching a General Election. If another political party were to pledge to abolish the PGS system is there not a risk that you could bring all development to a halt for one or two years while land-banking went on because developers would figure they were better off waiting until the result of an election?

  Yvette Cooper: We said in the consultation that the earliest that we could introduce this would be 2008, not least because of the amount of work that we need to do in advance but also because of the issues around transition that need to be taken very seriously as well. I think it would be very unwise for an opposition party to pledge to reverse a PGS or to get rid of a PGS given that the opposition parties are now, at least in theory, committed to increasing the level of housing across the country and recognising that there is huge need for additional homes across the country. Frankly, the infrastructure for those homes has to be funded somehow and you will have to get the resources from somewhere.

  Q312  Lyn Brown: Given that PGS has the potential to create fairly good revenue streams for local authorities, do you think there is a risk that local authorities will favour developments that will produce a higher monetary yield rather than other developments that might be more important for sustainable communities, for instance things like sports facilities? How might you ensure this does not happen? Given that things like leisure and sports facilities are so important to sustainable communities, do you think they should be included in regional spatial development plans or local development plans?

  Yvette Cooper: To the extent that PGS becomes an incentive to take one decision rather than another, you could argue that section 106s would have the same effect. Ultimately, local authorities have to take responsible decisions in the interests of the whole community and they are democratically accountable for those decisions anyway, so they ought to be able to take account of there are much needed sports facilities and so on, and not end up rejecting applications for those on the wrong basis. To the extent that sports and recreation ought to be part of other planning systems and planning strategies, if I may I would like to think about that further and write to you.

  Q313  Lyn Brown: Can I take you a little bit further on that. Thank you for that answer. Sport England created a system whereby they came up with a figure of how many swimming pools per population were needed. Do you think that within the sustainable communities development programme, given the complexities of the section 106 and PGS, we might look at a system that took that methodology and applied it to other leisure and sporting facilities for communities so that a local authority has a yardstick against which to judge whether or not the decisions they were taking with regard to planning permissions and planning applications were, in fact, in the best interests of their communities?

  Yvette Cooper: I do not know the detail of the Sport England research, so what I will do is look at that before I write to you on the issue. We do build into the planning system obligations for green spaces and open spaces. I have been advised that the practice guidance that we are drawing up on section 106 supports the Sport England approach.

  Q314  Lyn Brown: Excellent.

  Yvette Cooper: A nice simple answer. I will write to you further about it. We do already have much more detailed planning guidance, however, about the issue of open space, sports playing fields and things like that. That is already strongly embedded in one of the main policy statements. The only other thing I would add is that with some of the investment for growth areas we are funding sports and leisure facilities as well.

  Lyn Brown: Fabulous. I will just say that sports and leisure includes culture as well.

  Q315  Alison Seabeck: I want to ask a question about the Community Infrastructure Fund. In Barker it talks about what is the entitlement at local level that goes into the Community Infrastructure Fund. Can you give us some reassurance that this will be additional money and there will not be a government sleight of hand where PGS goes in but actually the level of funding does not increase?

  Yvette Cooper: We only set up the Community Infrastructure Fund on a short-term basis. It is a £200 million short-term fund. We have not set out a long-term future for the Community Infrastructure Fund. What we have been clear about from the very beginning of this is this is about funding the additional homes that we need and increasing the number of homes from around 150,000 a year to 200,000 a year by 2016. That requires additional investment on top of what we are investing at the moment, on top of the funding that the Government is putting in and on top of the funding that section 106 is putting in. What we have been clear about is that the overall funding for infrastructure will need to increase. How much of that comes through PGS and how much of that comes through Communities Infrastructure is not something that we would be in a position to say at this stage. It will depend on how much you are able to raise through PGS and what alternatives there might be as well.

  Q316  Alison Seabeck: That is an interesting answer but in terms of the infrastructure who is going to arbitrate on this fund? Roads are required all round the country, are government departments going to be at war with each other? Will the CIF, or whoever, be at war with the Department for Transport over who pays for which bit of road? Is there any clarified thinking on how the non-local funding will be dealt with?

  Yvette Cooper: On the CIF that we have run so far, which is resources supplied by the Treasury, the £200 million, the decisions have been made by the former Office of the Deputy Prime Minister and our department with the Department for Transport. They have been made on the basis of really looking at which were the most important strategic pieces of infrastructure that were needed to support the additional homes. It was predominantly about the growth areas that have been identified and homes that were needed. There were broad criteria for making those decisions. Clearly you need to continue to do that. Potentially, however, there are other things you need to look at like what the role of the regional bodies might be taking a view about priorities. You ought to have far more of a sense of prioritisation at both the sub-regional and regional levels about where the most important needs for investment might be. We are having discussions on the Thames Gateway as part of the Thames Gateway Strategic Forum where all of the local authorities involved in the Thames Gateway, all of the UDCs and different agencies involved in the Thames Gateway, are coming together to try and have a much clearer sense of their priorities across the Gateway for the infrastructure rather than it simply being Government taking decisions on the basis of the bids that come in. To be honest, the more you can get that kind of local centred prioritisation, either a sub-regional or regional sense of prioritisation, you will be far more effective in terms of allocating funding.

  Q317  Mr Betts: If we bring the new system in, replacing the traditional section 106 with an amalgamated form of some kind, it is quite possible on some sites that the amount of planning gain captured for the public good will be different from what it would have been under the old system. In terms of how that would operate in practice, presumably any site with planning permission already given when the new system comes in would have to abide by whatever agreements had been reached on 106 and there would not be a Planning-gain Supplement. At some point if that land was not developed after three years the planning permission would lapse, as I understand it, and now it is not automatically renewable. Would it be the case that if the site was put up for planning permission again it would be subject to the new regime which had come in in the meantime?

  Yvette Cooper: A lot of this will depend on what transitional arrangements were put in place. The principle of any approach you would take is if the PGS applies at the point at which planning permission is granted then obviously previous planning permissions have been granted in advance of that regime and, therefore, would not be covered. In the situation you are describing of having to go through the process again, clearly it would depend on what transitional arrangements were in place. There is a whole series of things you have to work through with the transitional arrangements: how do you treat things where you have got options; how do you treat things where you have got hope value built into previous decisions to buy land. Kate Barker's analysis was that in the long-term the impact of the PGS would be passed on to the landowner because of the way in which the planning system works. What you need to do is to look in the transitional period exactly how that would work.

  Q318  Mr Betts: Could I come on to the point you were raising a minute ago. I think most people have sympathy with the idea of trying to keep things local or at least sub-regional so there is a relationship between the development and the resources raised. Clearly you can identify parts of the country where there is a mismatch between the potential to raise resources through planning gain, perhaps because of fairly low land values, and the need to build infrastructure. When they came to see us English Partnerships said that they saw a major role for them in helping and assisting in that sort of situation. Do you see that continuing and, if so, do you see the resources for English Partnerships to do that coming from the Planning-gain Supplement or from somewhere else?

  Yvette Cooper: I think it depends what you are talking about. If the argument is that there is some regional infrastructure needed that is important for regional economic development, for example, which would not come out of planning gain from housing then you might be looking at whether it is through English Partnerships or Regional Development Agencies or different sources of funding if you were making a different kind of argument as to why the infrastructure was needed. The only thing that it is possible to say at this stage is that we are looking at the Planning-gain Supplement alongside the cross-cutting spending review. As well as looking at what the different consequences might be of different kinds of approaches to a PGS and where the resources might be raised, we are also looking at where the infrastructure needs are. Broadly, the evidence is that the infrastructure needs, particularly for new homes, are in the areas where land values are highest because those are the areas where demand is greatest so broadly, even at this stage, it is possible to identify quite a strong correlation between infrastructure requirements and the needs in terms of the new homes for the future. We are doing a lot more detailed assessment of that and we are looking at that alongside the wider spending review decisions as well.

  Q319  Mr Betts: The concern then would be that, therefore, you have a demand led process whereby there is demand for new homes in the South so infrastructure follows. I am not saying some of that should not happen but just take the coalfields area of the Dearne Valley, spending more on infrastructure in terms of communication and links to the nearby job centres in Sheffield or Leeds might promote the desirability of those areas to build new homes in.

  Yvette Cooper: Which is why I think you are talking about other kinds of bodies there as well, things like the Regional Development Agencies. You are talking about regional development and a wider issue than simply about the needs for infrastructure for new homes.


 
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