Memorandum by the Quarry Products Association
(QPA) (PGS 04)
1. INTRODUCTION
1.1 Quarry Products Association (QPA) is
the principal Trade Association representing the UK aggregates
and quarrying industry and with about 150 members plus associates.
Our members produce over 90% of aggregates quarried—sand
and gravel and crushed rock. They also produce and supply agricultural
and industrial lime, silica sand and marine dredged sand and gravel,
secondary and recycled aggregates, slag, ready mixed concrete
and asphalt products for roads. Therefore, they have a direct
and relevant interest in all aspects of operation of the minerals
planning system as planning permissions underpin their principal
capital assets. In short the watchwords are "no planning,
no business". The consultation paper on the planning gain
supplement (PGS) has been extensively discussed within our membership
and I have been asked to submit the following Memorandum on their
behalf.
1.2 The essence of QPA's response is that
mineral working is entirely different to other forms of built
development because minerals can only be produced from where they
lie and should not therefore be included in these proposals which
are almost entirely designed to finance infrastructure to support
housing growth. Although there is an uplift in land values when
planning permission is granted for mineral extraction, this is
far less than the figures shown in Table 1.1 of the consultation
paper for other forms of development. Equally important the financial
yield from the mineral extraction is spread over the life of the
working, perhaps up to 20 or more years and, moreover, as the
mineral is extracted the value of the land declines, maybe back
to agricultural value. Apart from the Committee's final question
in relation to use of Section 106 obligations, QPA's response
is not directly relevant to the main question. We do believe,
that it is essential for the Committee to hear from the non-housing
sector in this respect. These issues are explored more fully in
the detailed response, set out below:
2. DETAILED RESPONSE
2.1 In paragraph 1.14 of the consultation
paper the first bullet point makes clear that the principal objective
of the proposals is "to finance additional investment in
the local and strategic infrastructure necessary to support housing
growth . . ." This confirms QPA's view that the whole consultation
package has been designed, as suggested in the Barker Report to
tax residential development in order to finance additional infrastructure
for housing. The taxing of mineral extraction in particular should
not have been included in these proposals. Emphasising this view,
the "Foreword" is almost entirely about housing.
"MINERALS ARE
DIFFERENT"
2.2 As mentioned, the essence of our response
is based on the clear fact that minerals are different to all
other forms of development for the following reasons:
— Minerals are unlike any other forms
of development because they can only be worked where they are
found.
— Mineral working is a temporary form
of development, unlike built development.
— Minerals workings are always restored
to beneficial after uses reflecting the wishes of the local community.
— The value of the land at the point
of permitted use value is far, far less than that of housing land,
perhaps for sand and gravel up to £50,000/ha.
— The financial yield from a mineral
permission will be realised over perhaps a 20 year period and
thus a tax payable in full at the point of start would be inequitable.
— As the mineral is worked, the value
of the asset reduces perhaps back to below original, agricultural
value. There is, in the end, no uplift in land value.
— Once a mineral working starts there
may be numbers of further permissions for added value plant etc.
Would all these be separately taxed?
— Most modern mineral permissions are
worked on a leasehold/royalty basis with the land reverting to
the freeholder on completion. Future permissions are even more
likely to be worked on a leasehold basis.
— Mineral workings are largely a rural
activity which make minimal impact on the need to upgrade local
infrastructure apart from some improvements to local roads. Where
such impacts have to be the subject of cash contributions from
the mineral operator, these are normally handled effectively through
the mechanism of Section 106 obligations which already provide
for the wider environmental controls in respect of minerals, such
as extended after care, lorry routeing etc.
2.3 These issues are explained, where necessary,
more fully below:
(a) Temporary Development
— Mineral workings are temporary permissions
with an end date based on use of land and are not operational
developments. In some cases permissions granted for say 10 years
are renewed at the end of the period as not all the mineral has
been worked. How would PGS work on renewal of permissions?
(b) Value of Land and Financial Yields
— Aggregate minerals are a very low value
product, perhaps £3-£8.00/tonne at the gate. The value
of the permitted value of land for mineral working is perhaps,
in the case of sand and gravel, up to £50,000ha, far less
than that for housing. The industry operates to very low profit
margins and is thus ill-suited to bear the costs of yet more taxation,
as it already pays landfill tax, aggregates levy, monitoring enforcement
fees. No other developments carry this tax burden. To then impose
a further tax to be paid in full on the date of start when the
financial yield is phased over the say a 10-20 year life of a
working would be inequitable. To load such a financial burden
onto a low profit industry which supplies the basic raw material
to the construction industry, including housing would be unwise,
to say the least.
— As the mineral extraction proceeds after
an initial uplift in value at the grant of permission, unlike
other forms of development, the value of the land declines so
that at the end of the process the value could be at or even below
the original Current Use Value. This raises the question that
if minerals were, nevertheless, subject to PGS, equity would suggest
that some form of rebate should be payable as the land value declines.
Alternatively, should the permitted use value fully reflect the
issue of the wasting asset either specifically or in the form
of a much lower tax threshold for minerals?
— Another reason why minerals are different
is that most mineral permissions are leasehold, worked on a royalty
basis with cash yields to the lessor and the operator phased over
the life of the workings. There is generally, no up-front land
transaction and imposition of a tax on the development start would
thus be inequitable.
In the case of a freehold quarry, there is no
land transaction as such around the time of the permission. The
operator will simply receive his income/tonne over the life of
the quarry. In the more common case of a leasehold quarry, again
there is no basic total lump sum transaction with the freeholder
at the outset—the freeholders' income will be derived on
a royalty basis/tonne extracted along with usually, a basic rental
income. So in both cases it would be inequitable for the tax to
be levied on a lump sum at the outset basis. Minerals land transactions
and valuation is far more complex than those for housing land.
Quite often the terms of the lease and royalty are varied during
the life of the working.
(e) Infrastructure Impacts
Mineral working is a rural activity and makes
minimal impact on the need to improve local infrastructure. It
does not create additional demand for schools, shops, recreational
and other community facilities. Its only impact on infrastructure
is likely to be its use of local roads, something currently sourced
either by Section 106 obligations or Highways Agreements.
Where mineral workings do, nevertheless need
to contribute to local infrastructure, this has always been a
relatively modest activity reflecting the low price of the material
and the low demands on infrastructure, for the Section 106 obligation
system is entirely appropriate. The prime use of Section 106 obligations
in respect of mineral workings has always been to provide additional
environmental safeguards beyond those possible from use of planning
conditions. Such add-ons have included, off-site lorry routing,
extended after care periods, additional environmental safeguards
etc. Cash/kind contributions have always formed a very small part
of the use of Section 106's for minerals. This important planning
tool must remain available for the minerals industry and in view
of the powerful case for taking minerals out of the PGS system,
should continue to be the vehicle for any cash/kind contributions
agreed locally as necessary.
Minerals workings therefore differ in many ways
from all other forms of development and in our view should not
have been included in a proposed form of taxation designed entirely
to provide for the necessary infrastructure resulting from new
housing. Minerals should either be removed in total from the proposals
or at the very least, "zero rated". Where minerals are
required to contribute to local infrastructure, this would best
be achieved by the traditional and well proven route of Section
106 obligations.
3. GENERAL
3.1 In our discussions with Treasury officials
it was emphasised that the rationale of the PGS proposals was
two fold:
(i) To encourage the new planning system
to deliver planning permissions more efficiently.
(ii) To provide more cash for local infrastructure.
3.2 In our expert view, neither will be
assisted by these proposals. The planning system under the 2004
Act is far more complex and slower than the previous system. Our
statistics show permissions for minerals, taking long and longer
year by year. Adding another set of hurdles to overcome—valuation,
start notices, stop notices and tax disincentives can only further
delay a system already under resourced and creaking. If greater
cash is required for infrastructure, this should be achieved by
tax incentives rather than tax penalties. In this respect, it
is fair to say that the present new, strengthened Section 106
system is far better geared to provide for local infrastructure
from those cases which demand it—Taxing all developments
would be an unnecessarily heavy instrument to achieve this, particularly
with the likely further impact on an already overstrained planning
system.
3.3 The proposals in respect of a "Development
Stop Notice" are totally unacceptable. At present the planning
system has a very sophisticated enforcement system based on enforcement
notices, stop notices and temporary stop notices. All these procedures
contain rights of appeal and the payment of compensation if procedures
are used incorrectly. A development stop notice system must contain
the same safeguards as the planning enforcement system. It does,
additionally, seem to be a rather draconian way of collecting
a bad debt!
4. CONCLUSIONS
4.1 QPA thus firmly believes that minerals
should be exempted from these proposals on the basis that they
were clearly devised to deal with housing and on the basis that
minerals are a unique form of development.
4.2 QPA is very concerned that the proposals
for PGS will impact overly on the minerals industry despite that
not being the original intent.
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