Memorandum by the Royal Institute of British
Architects (RIBA) (PGS 11)
1. INTRODUCTION
1.1 The Royal Institute of British Architects
welcomes this opportunity to comment on the Government's proposals
for a Planning Gain Supplement (PGS).
1.2 The RIBA is one of the most influential
architectural institutions in the world, and has been promoting
architecture and architects since being awarded its Royal Charter
in 1837. The 30,000-strong professional institute is committed
to serving the public interest through good design. It also represents
85% of registered architects in the UK through its regional structure
as well as a significant number of international members. Our
mission statement is simple—to advance architecture by demonstrating
benefit to society and promoting excellence in the profession.
1.3 The RIBA greatly welcomes the Committee's
inquiry and considers it an extremely timely and useful contribution
to the current debate on the Government's proposals. We would
be very happy to provide oral evidence to the Committee if the
Committee feels that would be useful.
2. SUMMARY
— While the PGS concept initially seems
fair, we cannot support the Government's proposals as currently
presented.
— Without an indication of what the
PGS might be, PGS may result in a block on development.
— PGS could threaten the quality of
housing design.
— PGS liability should be calculated
from the beginning of construction work and alternatives to the
proposed Development Stop Notice should be considered.
— Proposals for a lower PGS rate on
brownfield development are welcome.
— PGS should not be allowed to threaten
the encouragement of mixed use development.
— More detail is needed about the anticipated
split between retained planning obligations and PGS.
— More detail is also needed about
the Government's proposals for distributing and allocating PGS
revenue. Investment in infrastructure needs to be timely and PGS
should not plug gaps in investment from existing taxation.
3. THE CONCEPT
3.1 The concept of PGS—that a portion
of the land value uplift arising from the planning process should
be used to finance local and regional infrastructure, and to support
sustainable communities, is at first glance entirely sound. The
corresponding scaling-back of planning obligations to matters
relevant to the environment of the development site and local
housing is certainly a proposal that many built environment professionals
would be happy to support as s.106 agreements have become greatly
discredited.
3.2 However, a refusal by Government to
indicate its preferred level of PGS to be levied on sites, taken
together with an unhappy history of efforts by previous governments
to capture land value uplift through taxation, leaves us unable
to support the Government's proposals as currently presented.
Like many others, we are fearful that PGS could result in a block
on development. Without further work by the Government to clarify
its proposals, we would prefer to see the continuation of the
current s106 system, despite its flaws. We would deplore the introduction
of two flawed systems.
4. VALUING PLANNING
GAIN
4.1 The consultation document states that
the base for calculating PGS would be the "planning gain"—the
difference between the land value with full planning permission
and the value of the land in its current permitted use. The charge
would then be calculated by applying the PGS rate to the difference
between the two values.
4.2 A fundamental problem with the Government's
proposals is a failure to indicate what the PGS might be beyond
a statement that PGS would capture "a modest portion".
Such a reference is a clear indication that the Government is
anxious to avoid a repetition of previous failed attempts to introduce
similar land taxes. But without a clearer indication of what the
rate might be, or an impact assessment of different rates, it
is conceivable that landowners may well be dissuaded rather than
encouraged to bring sites for housing development forward with
a consequent impact on the Government's objective of increasing
housing supply. The threat that many developers would not release
land in the hope that PGS was repealed by the Government or a
different administration is real.
4.3 From a design point of view it is crucial
to determine whether the PGS "simplification" will be
seen as an added "burden" to development. Under the
current s106 system, high land costs and expensive planning obligations
remain a critical factor to the delivery of quality housing. There
is a danger that a new system would still make the development
of sites too costly in the eyes of developers and hence affect
the design quality of the final product. This would harm the Government's
objective in draft Planning Policy Statement 3 (Housing) of creating
sustainable, inclusive, mixed communities in all areas which are
attractive, safe and designed and built to a high quality.
4.4 Another possible unintended consequence,
if the PGS rate is in fact modest, is that sites would
be brought forward for planning permission to a position of increased
land value but then taken up by a separate development organisation.
This would, however, sever the continuity of a design team, which
is of paramount importance in delivering high quality residential
developments.
5. PAYING PGS
5.1 The Government proposes that while the
grant of full planning permission is the right event to measure
the land value uplift created by the planning process, payment
of PGS should not be required until development commences.
5.2 The commencement of development, as
defined by s56 of the Town and Country Planning Act 1990, is the
carrying out of operations, at the time when those operations
are begun, or the time when a new change of use is instituted,
whichever is the earlier. This could cause major problems for
those developers operating on low margins. The commencement of
development could mean demolition of existing buildings on a site—which
in many cases takes place long before the completion of a building
or the generation of any profits from the development. In those
cases a large PGS liability at the beginning of a project could
severely affect its viability. There is a risk that PGS could
cause many developers severe financial hardship and perhaps force
them to abandon projects.
5.3 We would therefore suggest that, in
order to mitigate any such unintended consequences, liability
should be calculated from the beginning of construction work on
site.
5.4 We feel that the ultimate penalty of
a "Development Stop Notice" in the event of PGS non-compliance
could also blight neighbourhoods with abandoned, unfinished developments—doing
nothing to tackle housing under-supply. The Government should
consider alternative means of securing compliance after development
has been completed.
6. SCOPE
6.1 Kate Barker's Interim Report examined
the VAT rates between all forms of housing construction. She recognised
that the current system, whereby new housing is zero-rated while
other housing construction work is subject to VAT at 17.5%, creates
a disincentive for developers to undertake more brownfield development
at the expense of greenfield. She concluded, however, that applying
VAT to new housing would have no material impact on house prices
and would not represent the best method of capturing land value
uplift. She recommended that Government may want to consider the
operation of a lower rate of PGS for housing development on brownfield
land.
6.2 We are pleased that the Government has
said it would consider introducing a lower rate of PGS for brownfield
sites. There remains, however, a need for a more detailed economic
"tool kit" to help developers and local planning authorities
understand the complexities of undertaking brownfield regeneration
and therefore enable the negotiation of sensible levels of planning
obligations and/or PGS in order to prevent development becoming
stifled.
6.3 Again we must warn of unintended consequences.
If a lower level of PGS were to be levied on brownfield sites
yet local authorities are anticipating greater revenue for local
projects from PGS, there may be a scenario where local authorities
will endeavour to bring greenfield sites forward where possible
to maximise infrastructure investment, thus doing little to discourage
unnecessary development on greenfield land.
6.4 Ultimately, however, the Government's
suggestion that PGS may be levied at a lower rate for brownfield
development amounts to an admission of failure to address the
VAT anomaly. The recent decision by the EU Council of Ministers
to extend the 6th VAT Directive perpetuates that anomaly and we
remain convinced that the Government must do all it can to address
the issue through further negotiation with its EU partners. Equalising
VAT to the lower rate on all forms of construction would encourage
regeneration, discourage unnecessary sprawl and protect the historic
environment.
6.5 While the consultation document states
that it would be unfair to levy PGS on home improvements, it is
unclear about the impact of the ODPM's Householder Development
Consents Review. This would, if implemented along the lines of
the Department's existing thinking, expand the remit of the General
Permitted Development Order to remove many small developments—around
50% of all development—from planning control. We would like
to know whether, and if so how, HM Treasury has factored this
into its proposals.
6.6 It is worth noting that the proposals
for PGS focus solely on housing while purporting to be in the
context of a sustainable communities policy that encourages mixed
use development. It is important that all aspects of development
are dealt with on the same basis (if necessary at potentially
different rates) so that PGS does not discourage investment in
housing and encourage instead an imbalance of light industrial
development, or alternatively makes commercial activity less attractive
to planners in an area simply because it will generate less PGS
than using the equivalent land for a monoculture of housing.
7. FINANCING
INFRASTRUCTURE THROUGH
THE PLANNING
SYSTEM
7.1 The Government has stated that, should
PGS be introduced, s106 agreements should be scaled back. Any
reduction in negotiation costs and timescales for both developers
and local authorities appears to be a positive step forward. Planning
obligations have become largely discredited owing to s106 "creep"
and the complexity—not to mention the unpredictability—of
negotiations between developers and local planning authorities
with consequent delays to development. Any commitment to simplifying
s106 with the specific intention of targeting the necessary local,
regional and national infrastructure should be encouraged as part
of the aspiration to deliver sustainable residential neighbourhoods.
7.2 Our concern arises from the lack of
detail in the consultation document about the anticipated split
between retained planning obligations (such as affordable housing)
and PGS. We are fearful of further complexity adding to what is
already a bureaucratic maze.
7.3 While it is difficult to be precise
in the absence of a clear picture of how PGS and planning obligations
would operate alongside each other, we would argue that contributions
already made, or liable to be made, under s106 should be taken
into account where relevant when assessing PGS liability. Developers
will be right to be wary of any attempt to squeeze additional
revenue from their resources. There is certainly a case to be
made for the difference between existing s106 obligations and
any future combination of s106 and PGS to be zero. If not, the
same unintended consequences of a PGS rate that is too high—unreleased
land or stalled development—would follow.
7.4 We welcome the statement in the consultation
document that the ODPM should issue guidance, or new legislation,
to scale back s106 in the event of PGS being adopted. We would
welcome that latter. Creating statutory limits to planning obligations
would prevent future "creep"—the extension of
obligations on developers in a way which has led to the current
system losing much of its credibility. The RIBA would be very
happy to assist the Government in mapping any new system of planning
obligations.
8. ALLOCATING
PGS REVENUES
8.1 The Government states that, as an essentially
local measure, a significant majority of PGS revenues will be
recycled directly to the local level for local priorities. We
would welcome greater explanation of the Government's proposals
here as the administration of PGS fund at local and national level
remains unclear. It is uncertain which bodies would be responsible
for infrastructure investment where the document states that "a
significant proportion would be used to deliver strategic, regional
as well as local infrastructure".
8.2 The Government says that PGS revenues
will ensure growth is supported by infrastructure in a timely
and predictable way. There may, however, be significant time-lags
between infrastructure investment and the collection of PGS revenues.
In those cases, Government should commit to bridging any such
gaps in order to allow infrastructure investment—upon which
many developments depend for their marketability—to proceed.
8.3 As part of its response to the Barker
Review, the Government announced a cross-cutting review in the
run-up to the 2007 Comprehensive Spending Review to ensure that
Departmental resources across Government are targeted appropriately
to provide the national, regional and local infrastructure necessary
to support future housing and population growth. That by itself
is to be welcomed. But observers will be watchful of any efforts
to use PGS to plug gaps in investment that should be funded by
HM Treasury through the Comprehensive Spending Review from existing
tax sources.
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