Memorandum by English Partnerships (EP)
(PGS 13)
1. INTRODUCTION
1.1 English Partnerships is the National
Regeneration Agency with an overall aim of achieving high quality,
well-designed, sustainable places for people to live, work and
enjoy. We do this by:
— Developing our portfolio of strategic
sites.
— Acting as the Government's specialist
advisor on brownfield land.
— Ensuring that surplus government
land is used to support wider Government objectives especially
the Sustainable Communities Plan.
— Helping to create communities where
people can afford to live and want to live.
— Supporting the urban renaissance
by improving the quality of our towns and cities.
1.2 How English Partnerships operate:
— We always work in partnership with
the public and private sector.
— We insist on the highest standards
of design, construction and environmental sustainability.
— We act as a catalyst for development,
involved at an early stage to prepare sites for development by
our public and private sector partners—eg land acquisition,
site assembly, land remediation, and masterplanning.
— We devise and encourage innovative
methods of dealing with difficult problems.
— We insist on early and active involvement
by the local community.
1.3 English Partnerships therefore has a
great deal of experience in working with the development industry
and strongly supports the principle of capturing an equitable
portion of the land value uplift, created by planning permission
and public sector investment, to support infrastructure provision
for wider community benefit. This is why EP has developed and
pioneered innovative solutions such as the tariff alongside the
Milton Keynes Partnership Committee and the brokering role in
West Bedford to deliver our and Government's objectives. These
models minimise the cost to the public sector whilst increasing
certainty and reducing risk for the private sector.
1.4 English Partnerships therefore welcomes
the consultation on Planning Gain Supplement and the opportunity
to respond on this key part of Government policy.
1.5 To inform its response, English Partnerships
has undertaken a number of case studies to illustrate the potential
impact of the PGS proposals. These case studies and examples do
not reflect the actual complexity found in the projects but represent
a look at the basic values and costs associated with the schemes
to illustrate the potential impact of PGS.
1.6 The structure of our response reflects
the Government's consultation document and is set out as follows:
— Key issues and conclusions.
— Allocating PGS revenues.
— Partial regulatory impact assessment.
Key issues and conclusions
Basics
(i) The consultation document lacks detail
in a number of important areas and English Partnerships' response
raises concerns about moving forward quickly with PGS while these
issues lack clarity.
(ii) Much depends on the rate at which PGS
is to be levied. Case study work shows that consequences vary
across different schemes.
(iii) Our calculations suggest that a low
rate of PGS could be accommodated. However, we suggest the Government
test the rate on real case studies rather than the general market
data used in the consultation.
(iv) EP believes that the use of Current
Use Value (CUV) and Planning Value (PV) to calculate PGS liability
would be confusing and complex in the early period. This is because
the first sites to be liable will have been purchased (or agreed
under option arrangements) at market values that reflect hope
values. Few sites in the market are purchased at CUV. We suggest
how the valuation approach could be clarified.
(v) PV should be assessed at the point of
start on site when the bulk of the attributable costs (including
S106) have been realised and the PV can be accurately assessed.
(vi) We recommend that payments should be
phased in relation to cashflows and disposals (as value is realised
by developments). The Milton Keynes Partnership Committee model—where
25% is paid upfront and 75% on completion—is recommended.
(vii) We argue that self-assessment and residual
valuation could be imprecise and open to challenge. Clear guidance
and the use of standard forms, methods, and documentation will
need to be provided as we offer to help with these.
Exemptions
( viii) EP recommends that option agreements
with an outline planning consent should be exempt.
(ix) All reserved matters applications granted
pursuant to the outline planning consent within tariff frameworks
agreed prior to the date of introduction of PGS should be exempt.
(x) EP recommends that tariffs can be retained
alongside PGS by exempting from PGS, areas which can agree to
a prospectus on the Milton Keynes model where the tariff will
raise at least as much and preferably more than PGS. Alternatively
is might be possible to allow for a tariff arrangement to continue
whilst still paying a reduced amount of PGS to cover the contribution
for strategic infrastructure—with the tariff adjusted accordingly.
(xi) We suggest that lower value sites may
exempt themselves from PGS. However, the costs required to bring
forward a brownfield site for development (eg remediation, etc)
should be classified as attributable costs to be set against the
PGS liability. This would reflect the actual costs of bringing
forward such sites for development. No brownfield (ie: Previously
Developed Land) exemption is required. CUV should be no lower
than zero.
(xii) EP recommends that developments attracting
a high standard under the proposed Code for Sustainable Homes
(eg: 5 Stars or equivalent) should attract a reduced rate of PGS
to encourage quality and environmental sustainability.
Funding
( xiii) The separation of issues to be covered
by scaled back S106 and PGS are generally sensible but detailed
guidance will be required to ensure any overlaps are removed.
Funding of certain infrastructure cannot be differentiated from
the site development and needs to be local and can often be expensive
(eg: schools). Further investigation on the potential impact,
both in terms of raising and distributing funding, of taking education
out of the scaled back S106 should be undertaken.
( xiv) We propose a thorough discussion of
the role PGS can play in supporting the Community Infrastructure
Fund (CIF), which EP can help the Government to develop based
on our experience with infrastructure projects such as West Bedford.
EP further recommends that it could develop and operate the modified
Community Infrastructure Fund (CIF) in support of the Sustainable
Communities Plan.
(xv) The local link between the development
and the funds for major infrastructure should not be entirely
broken. We therefore believe that funds to support infrastructure
through PGS ought to be hypothecated, and ring-fenced to the local
level to ensure they support the infrastructure identified as
necessary to support growth/regeneration. PGS should not be used
to substitute for existing sources of public sector investment
in infrastructure.
(xvi) The Government's crosscutting review
on infrastructure has a key role in establishing the priorities
for government's spending plans and should also inform how PGS
revenues will be distributed.
(xvii) Initial investment in infrastructure
will be required over the transitional period before PGS revenues
come on stream.
2. VALUATION
(CHAPTER 2)
Current Use Value and Planning Value
2.1 EP notes that the use of Planning Value
(PV) and Current Use Value (CUV) will require further detailed
consultation as outlined below.
2.2 The Government proposes that land value
uplift is to be calculated on the basis of the difference between
PV and CUV. It is important to recognise that Current Use Value
will frequently be significantly lower than the Market Value of
land, which takes account of hope value and other factors. In
the long run the impact of PGS should be absorbed by landowners
but there could be significant impacts in terms of land supply
in the time taken for markets to adjust.
2.3 Particular issues relate to sites which
are currently unused but which are zoned for development in the
local plan. Whilst CUV as defined in the consultation document
is zero (or agricultural value for greenfield sites), these sites
have a substantial Market Value reflecting the fact that it is
extremely likely that full planning permission will be granted.
2.4 The transitional position in respect
of sites already under legally binding option agreements to developers
in anticipation of a planning consent being granted in future
is unclear. Whilst option arrangements vary most would have been
entered into on the basis that the landowner would achieve a profit
margin on a land value significantly greater than its CUV. The
agreement between landowners and developers would allow for normal
s106 costs to be deducted and offset against the landowner's profit
margin. Our recommendations on transitional arrangements include
proposed arrangements for options which have already been entered
into (see section 3).
2.5 PGS should not be payable on the uplift
relating to the extinguishment of negative value. Where the redevelopment
of a brownfield site creates a negative land value, this is reflected
in the Planning Value. Government should state that the minimum
value of CUV for PGS calculations is zero, meaning that no PGS
is payable on costs incurred to bring Planning Value to zero.
Where the redevelopment of a brownfield site creates a surplus,
PGS should be payable on the uplift above zero. Where site reclamation
has taken place prior to planning permission, the cost of reclamation
should be an allowable cost in calculating the uplift, this is
particularly important for a site with a relatively high CUV,
eg currently used for storage.
Definitions
2.6 The Consultation recognises that clear
definitions of CUV and PV are essential and that further guidance
will be needed to ensure the requirements are clear and easily
understood.
2.7 In preparing our case studies we have
assumed that the calculation would be based on a residual valuation
(ie after development costs have been deducted). The Government
should clarify this in guidance. As such, we suggest that the
guidance should fully clarify the costs which can be taken into
account when calculating values. This could include:
— Whether reasonable developer's profit,
taking account of the specific project and associated risks.
— Cost of Section 106 contributions
towards Local Planning Gain.
— The cost of affordablity against
the development and the availability, or otherwise of housing
grant to subsidise affordable or rented sector housing.
— Fees, including planning fees (the
more complex a deal, the more prescriptive the brief the greater
the cost).
— The cost of reclamation, access and
site servicing.
— The impact of existing options on
land secured with landowners.
— Current tenancies and constraints
to development.
2.8 On the calculation of PV, the time difference
between planning permission and start on site can be substantial
where the value can change as a result of a variety of factors.
EP recommends that it is best to assess PV at the point of start
on site, when the actual attributable costs will be largely known
and an accurate valuation and assessment of the liability can
be made. This will also take account of any uplift or reduction
between the granting of planning permission and start on site.
2.9 Furthermore, on larger sites with phased
development, there is likely to be a change in value from the
first phase to the final phase. If full planning permission is
granted for the full site there might be substantial time lags
between the first phase and future phases being brought on stream.
There are two approaches to dealing with this—the whole
site may be valued and an equalisation equation carried out over
the site to ensure the phases are treated equally or there could
be an opportunity to revisit the Planning Value as each phase
is brought on stream.
2.10 The consultation notes that the start
on site point would become a statutory chargeable point and clarification
would be needed whether start on site would count as remediation
works or access improvement, for example (in some cases, EP has
sought planning permission to put in access/spine road infrastructure
and we would argue that this would result in nil uplift in PV
for the road and no PGS would be due. However, the surrounding
land would increase in value with the uplift triggered once it
received full planning permission), or whether it would reflect
a point further along after these costs have coalesced. EP recommends
that it is the latter which would be the proper point to identify
as a start on site, although the definition of this would need
to be clearly established.
2.11 CUV and PV assume unencumbered freehold
interest with vacant possession in the whole of the sites covered
by the planning permission. This is not always the case. For example
this would ignore existing tenancies and leases (which have an
existing income stream and could be reflected in CUV). Similarly
where a property has a particular value to an occupier (eg a specialist
factory), its book value will be in excess of its Current Use
Value. Both rental income streams and specialist value should
be taken into account when calculating the uplift, in order to
promote the re-use of brownfield sites.
Self Assessment
2.12 The proposed arrangements for valuation
and self-assessment will need to be clarified including the arrangements
for policing and appeal (if any). Without a robust system there
is scope for developers to minimise PGS and for disputes to arise
in respect of the developers' liabilities, in particular in relation
to assumptions underlying the CUV and PV valuations. Under self-assessment
there would be the potential for disputes to arise between the
developer and HMRC regarding the amount of the liability, leading
to delays in raising revenue. Standard forms and definitions of
terms would need to be very clear if self-assessment is to be
effective along with an open book approach to residual valuation.
Detailed guidance on the operation of such a system, clearly setting
out the roles and responsibilities of the various organisations
(HMRC, Local Authorities, the Valuation Office, the person issuing
the Development Start Notice, etc) will be vital to the operation
of the self assessment system. Planning Circular 05/05 is already
progressing this way with S106 and it is hoped that best practice
and lessons from that system can be transferred as well as from
the Stamp Duty Land Tax system which also uses self-assessment.
An appeals system might also be required.
3. PAYING PGS
(CHAPTER 3)
Level of PGS
3.1 It will be important that, as PGS is
developed, it does not act as a disincentive to growth. Landowners
may be reluctant to bring forward their development land if the
level at which PGS is set too high. Conversely, if the level at
which PGS is set is not high enough to match or exceed current
S106 arrangements including the MK tariff, there is a risk that
essential investment in strategic infrastructure will not be properly
funded causing uncertainty and delay. The case studies at annex
A demonstrate that the land value in some areas does have the
capacity to absorb modest rates of PGS but they also show the
variability of PGS take in comparison with the current S106 system
across a range of projects, locations and scenarios.
(i) On unviable brownfield sites, no PGS
will be payable.
(ii) On some of the most marginal sites,
because there is only a marginal uplift in land values there will
be an overall reduction in the PGS/S106 burden on a site. This
will increase its viability and/or reduce the need for public
sector gap funding. Little PGS revenue would be receivable but
the likelihood that development occurring that would not otherwise
take place would increase.
(iii) On more viable brownfield sites, PGS
would be payable but because of the reduction in S106 payments,
the combined S106 and PGS payment could be lower than current
S106 payments (based on PGS at 20% or below). This would again
assist brownfield development.
(iv) On greenfield sites, the rate at which
combined PGS and new S106 equals the level of S106 receivable
under the current regime varies but rates of between 7% and 22.5%
have been identified.
3.2 Four factors affect whether the payment
under PGS is greater than or less than the current S106 payment—the
PV, the change in S106, CUV and the PGS rate.
3.3 The biggest reason for the difference
between current S106 and the reduced scope S106 under PGS is the
removal of education from the eligible costs. In the case study
projects, education comprises between 45% and 80% of total S106
costs in the current situation.
Timing of payment
3.4 The upfront payment of the PGS will
have a potentially major impact on the cashflow of the project.
Clearly the cashflows of some projects are more sensitive than
others. The burden of a single upfront payment of PGS liability
could especially cause some problems for housebuilders who work
on tight cash flow predictions. Annex B looks at the impact of
this requirement on a development that is known to have a relatively
tight cashflow. In this example the requirement places the cashflow
into deficit for the first two years.
3.5 EP's experience—through MKPC,
in setting the tariff level for expansion areas in Milton Keynes
has sought to optimise the per unit contribution by allowing for
75% of the tariff to fall due on practical completion of phases
of the development. Annex B shows that in the example project
considered, this approach does not lead to a cashflow deficit
at any point.
3.6 The delayed payment reduces developers'
liabilities at the front end of the process, to provide a much
stronger inducement to delivery than may be the case under a "front-loaded"
payment trigger which occurs before any income from sales is received.
If the cost of borrowing to fund PGS is treated as a development
cost in the assessment of PV this could ultimately reduce the
amount received by the Treasury.
3.7 There is a risk that the PGS could encourage
"land banking" if market conditions soften or enter
a downturn, as developers will seek to defer PGS payment until
markets stabilise or improve. The proposals could lead to an increase
in unlinked planning consents so that developers are not hit by
a significant upfront payment on a large multi phase development.
With developers bringing forward development in smaller parcels
to minimise or phase PGS payments, it could work against government's
intention of comprehensive planned development including the co-ordination
of infrastructure and facilities within the Sustainable Communities
Plan growth areas.
Transitional Arrangements
3.8 A smooth transition will be essential
to the success of any model for PGS, given that the earliest possible
date for legislation is 2008, with implementation some time after
that.
General transitional issues
3.9 With regard to transitional arrangements
there is a need to consider the impact on sites where developers
have entered into option agreements with landowners as these may
limit the developers ability to pass on PGS to the landowners
through reduced land acquisition payments. EP recommends that
option agreements already in the system should be exempt. Renegotiation
between developers and landowners could cause lengthy delays in
delivery and in some cases landowners may choose not to sell.
Tariffs
3.10 The consultation does not provide much
detail on the subject of transitional arrangements and, given
Government is encouraging tariff arrangements to be set up in
the interim, urgent work on establishing clear and straightforward
transitional arrangements is vital to give developers the certainty
to commit to tariff systems and also to plan for the new arrangements.
EP has a number of proposals on which to base transitional arrangements.
3.11 Ministers are continuing to advocate
new tariff arrangements but they have not explained how they can
be reconciled with PGS. They could be seen as transitional arrangements,
but this diminishes the strong arguments in favour of tariffs
in the long term. This will leave large comprehensive development
sites negotiating S106 but uncertain as to whether these will
be overtaken by PGS which will become more acute as the implementation
of PGS nears. To avoid this situation impacting on delivery, clear
transitional arrangements are required as soon as possible. EP
therefore recommends that tariffs can be retained alongside PGS
by allowing areas which can agree to a prospectus on the Milton
Keynes model to be exempt from PGS providing that the income raised
will be at least equal to that which would be raised by PGS.
3.12 The tariff arrangements are seen by
developers as providing a high level of certainty regarding the
future funding streams from section 106 and provide confidence
with regard to how their contributions will be applied, at both
the local and strategic level. To sustain the pace of development
required in the growth areas these conditions will need to be
maintained.
3.13 There is a need for clarity on the
potential impact for Milton Keynes, where a tariff has already
been agreed and other areas developing tariffs (especially in
the growth areas). EP recommends the transitional arrangements
should ensure that those who have already agreed a tariff do not
have to pay again since this would result in the tariff having
to be renegotiated.
3.14 EP's view is that the overarching S106
agreement covering the tariff arrangement should be exempt from
PGS. All reserved matters applications granted pursuant to the
outline planning consent within the Tariff Framework should also
be exempt.
EP response to specific questions raised in the
consultation
Q3.1 Should payment of PGS occur at the commencement
of development or another point in the development process?
EP recommends that payments should be phased
in relation to cashflows and disposals, possibly using the MK
Tariff model where 25% is paid upfront and 75% on phase completion.
Other phasing examples are suggested in the valuation models as
proposed in Annex A.
Q3.2 Should the Development Start Notice be
submitted to the local authority or HMRC?
Although HMRC are the collecting agency, local
authority input will be needed as they will have the necessary
knowledge of the local situation. Although a priority will be
to make the Development Start Notice (DSN) procedure as un-bureaucratic
as possible, given it is based around the planning system, the
local authority should be informed first or at least simultaneously
with the HMRC as they will need to be notified to ensure compliance
with S106 triggers and planning conditions and on this basis should
be the one to issue the DSN. The Local Authority could also act
as an initial check on the PGS return although this would have
implications on timing. Clear performance standards would have
to be established to ensure that PGS returns are expedited in
an efficient manner.
Q3.3 How should the proposed approach to compliance
fit with larger, phased developments?
The monitoring of major development sites can
be a complex task especially with phased developments on major
projects. Phasing of developments is also likely to increase to
enable the developers to spread their PGS liability over a longer
time period. The possibility of resubmissions on phases, sites
and even plots when development might already be underway further
complicates the monitoring process and adds to a further burden
on the local authority.
Presumably any revised reserve matter applications
(if granted) would result in a revised PGS liability being calculated.
4. SCOPE (CHAPTER
4)
4.1 The consultation asks whether the PGS
rate be varied for regeneration/brownfield areas as it was for
stamp duty. Stamp duty exemptions had resulted in a deadweight
effect. Also, there have been problems regarding the agreeing
of definitions (regeneration areas, etc) for the application of
Derelict Land Tax, there would likely be similar problems in defining
the scope of PGS.
4.2 It should be noted that recent Government
figures state that over 70% of residential development is on brownfield
sites which would indicate that there has been enough value in
brownfield sites to continue to develop them. Where there would
be problems is with those brownfield sites with extensive abnormal
costs which would probably not be developed without public sector
intervention anyway. As stated in section 1, where there is a
negative PV and CUV is zero, PGS will not be payable. As recommended
above, Government should explicitly state costs incurred in bringing
a site up to a PV of zero should be exempt from PGS. In effect
this means that the minimum value of CUV will be zero for PGS
calculations.
4.3 If an exemption were to be considered,
stricter definitions to distinguish between different types of
brownfield land would be necessary. However, EP recommends that
the essential costs required to bring forward a brownfield site
for development (eg remediation, etc) should be classified as
attributable costs to be set against the PGS liability and we
would welcome the opportunity to discuss with ODPM and HMT how
this might operate. This would reflect the actual costs of bringing
forward such sites for development. No brownfield exemption is
recommended.
4.4 Furthermore under the current regime,
relatively substantial S106 charges are placed on even unviable
brownfield projects, adding to the gap and the need for substantial
public sector intervention. The scaled back S106 under the proposed
system would reduce the payments to be made by these sites, improving
their viability. It should be noted that a consequence of this
is that lower combined PGS and S106 payments will be made by these
sites, thereby reducing the contribution that they are able to
make to education, public transport, etc.
Thresholds
4.5 The consultation asks whether thresholds
of a certain scale should be set. This would complicate the system
but would probably be supported by small-scale developers and
small-scale exemptions could benefit small portfolio approaches
such as The Housing Partnership. There are many developments in
the urban area (infill, small sites) which only provide a small
number of houses and whose individual impact on wider infrastructure
would be minimal and would be covered by S106 (either in the current
or proposed scaled back regime) as the bulk of the impacts would
be site specific. However, the cumulative impact of a series of
small developments can have an impact on wider infrastructure
and if also seems fair that small high value developments showing
a large uplift pay a contribution and any establishment of thresholds
would require safeguards to be put in place to ensure that projects
cannot be fragmented to take advantage of these thresholds. On
balance, EP recommends that a threshold should not be set.
4.6 There is also a case to argue that an
exemption should be applicable to those bodies which deliver social
objectives (eg RSLs, certain Charities). However, given recent
changes, with RSLs becoming more private sector orientated and
delivering a wider range of housing including market sale there
might be an argument that this would distort the market and also
may be open to state aid issues. It is recommended that this issue
be explored further and that the possibility of exempting the
product should be explored—ie certain types of affordable
housing (social housing). However, affordable housing, would of
course, be already included in the scaled back S106 which is taken
account of in PGS calculations.
4.7 It is also recommended that housing
produced to a certain standard as set out in finalised Sustainable
Code for Homes (at the 5-star rating for example) should attract
a reduced rate from PGS to promote improved environmental performance
and standards. This would also help in promoting the Code within
the development industry and also assist with wider marketing
across the general public.
EP response to specific questions raised in the
consultation
Q4.1 To encourage regeneration, should a lower
rate of PGS be applied to brownfield land? What might be the drawbacks?
No exemption should be made for brownfield land
provided that it is clarified that CUV will be zero as a minimum
and that the essential costs required to bring forward a brownfield
site for development (eg remediation, etc) should be classified
as attributable costs to be set against the PGS liability. This
would therefore reflect the actual cost of bringing forward such
sites for development.
Q4.2 How should a PGS threshold for small-scale
development be set? What factors should be considered?
A threshold should not be established for small
developments for the reasons outlined in paragraph 4.5 above.
5. FINANCING
INFRASTRUCTURE THROUGH
THE PLANNING
SYSTEM (CHAPTER
5)
5.1 PGS proposes to take a number of areas
outside the scope of section 106 to increase certainty, reduce
delays and improve consistency between local authorities.
5.2 Areas taken outside the scope of section
106 would then be funded through PGS revenues. This appears to
be a sensible approach but there are concerns that this does break
the local link between the development and the funding paid by
the developer for the infrastructure to support that development.
This could lead to a lack of certainty about infrastructure provision
not being related to PGS payment. A good example of this the issue
that has been raised by the Highways Agency in Milton Keynes,
Ashford and elsewhere where existing motorway capacity cannot
support new development. As a result junction improvements are
required before sites can be developed. The developer therefore
wishes to see any payment it makes spent on that strategic infrastructure
and this transparency could be lost under this approach.
5.3 It is recommended that the PGS revenues
will need to be hypothecated and ring-fenced to whatever level
they are recycled to ensure that they support the infrastructure
identified to sustain growth/development rather than be recycled
back into the general "pot" where it might be used for
purposes other than supporting growth/development. PGS should
not be used to substitute for existing sources of public sector
investment in infrastructure.
Tariffs
5.4 The MKPC tariff utilises the current
section 106 planning obligations as a means for securing developer
contributions to the funding of infrastructure required to enable
the proposed development to proceed and ensure that essential
facilities are provided for the incoming residents without imposing
an unacceptable burden on local or central governments. Where
local authorities have clear Supplementary Planning Guidance and
other approved policies in place the system has been shown to
work well and is accepted by the development industry as a legitimate
means of raising capital to help fund the infrastructure and facilities
which support growth. This acceptance has been demonstrated in
the recent agreement of the Tariff in Milton Keynes where approximately
half of the £18,500 per unit contribution will help fund
strategic infrastructure whilst the remainder will be applied
to a range of local infrastructure in accordance with the Council's
approved SPG documents. The tariff funds will be managed by MKPC
(who have development control planning powers in the Expansion
Areas) and applied to funding projects within a Delivery Plan
agreed with the Council. Because the tariff operates through a
conventional Section 106 Agreement there are direct links between
the revenues raised and the application of the funds to infrastructure
needed at the local level.
5.5 In outline, such a tariff system could
have a wider application, where local authorities or groups of
local authorities agree a prospectus and business plan on the
pattern of MKPC which matches growth with a costed infrastructure
plan. The prospectus would have to assessed by an appropriate
body (EP with its experience relating to infrastructure provision
and planning could be one such body or the Planning Inspectorate
could be another) and a view given before approval would be granted
for a local authority to apply a tariff instead of PGS, demonstrating
that the tariff would collect at least as much as PGS. The approval
would be time-limited and subject to review on the same timetable
for the review of local development frameworks. The tariff could
also include some of the features in the MKPC tariff (eg indexation)
which allow it to be sensitive to market changes.
5.6 The tariff would need to include all
local authority infrastructure requirements, including affordable
housing and would be used to meet local infrastructure requirements
as identified and prioritised through the local development framework.
Alongside the tariff, work should continue in streamlining, clarifying
and scaling back section 106 as site specific section 106s would
still be required to meet site-specific impact mitigation.
5.7 Where an exemption is granted, a smaller
portion of PGS (covering the strategic portion of PGS) may still
be payable but further work would be needed on whether this would
represent an excessive additional burden on the development industry.
This would allow for greater targeting of and matching of funding
in the local areas but still allow a portion being made available
through a regional or central enabling fund for strategic infrastructure.
This provision of strategic infrastructure fund could also help
meet any re-distributional requirements to support strategic infrastructure
need in low-value areas.
5.8 This approach could also be piloted/targeted
in conjunction with the wider growth points agenda as outlined
in Government's response to the Barker Review.
Free land
5.9 Under the current system and with tariffs,
the treatment of free land is well understood but it is not clear
from the consultation how free land will be treated under PGS.
At the moment section 106 can require that land is made available
for community uses for free. As the scope of section 106 is to
be reduced under PGS, free land for education, community, housing
and infrastructure uses can no longer be required under PGS. Clearly
the planning approval will designate uses of land and in some
instances planning designation will be enough to reduce land value
to zero (possibly education) but in others (eg leisure), the land
will retain significant value. Further thought should be given
to the scope to continue to capture free land for community uses
under PGS.
EP response to specific questions raised in the
consultation
Q5.1 Does the development-site environment
approach proposed here represent an effective and transparent
means of reducing the scope of planning obligations?
The separation of issues to be covered by scaled
back section 106 and PGS is generally sensible but detailed guidance
will be required to ensure any overlaps are removed. There will
be concern that the local link between the development and the
funds for infrastructure will be broken, especially where it deals
with infrastructure taken out of the scaled back section 106 such
as education provision where this will be set locally and driven
by large scale developments. Funds to support infrastructure through
PGS will need to be hypothecated and ring-fenced to ensure they
support the infrastructure identified as necessary to support
growth.
Affordable housing can already extract a great
deal of value in some cases, especially if set high in Local Development
Frameworks. Levels of affordable housing need will have to be
clearly set by local authorities and again take account of need
and markets.
More widely, increased advice and guidance in
the vein of Planning Circular 05/05 and resources such as EP's
Advisory Team on Large Applications (ATLAS) can also help with
increased clarity, speed and transparency of the section 106 system.
Again, tariff models can assist in a more collaborative public-private
sector approach to assessing the level of growth and infrastructure
required to support it.
Q5.2 How should infrastructure no longer funded
through planning obligations be provided, including through the
use of PGS revenues?
The Government's cross-cutting review on infrastructure
has a key role here in establishing the priorities for government
spending plans and priorities and should also inform how PGS revenues
will be distributed.
Further investigation of investment vehicles
(such as English Cities Fund (ECF) and East Midlands Property
Investment Fund (EMPIF)) and other delivery bodies, as well as
the outline proposals regarding the use of PGS revenues as an
asset to borrow against should also form part of the cross-cutting
review.
The new system will have to be able to demonstrate
that it will collect at least as much, and preferably more, than
the current section 106 system so as to be able to fund what would
normally be met through section 106 and to also provide additional
funds for redistribution and also to support the "modified
CIF".
6. ALLOCATING
PGS REVENUES (CHAPTER
6)
6.1 The consultation is unclear about how
PGS revenue will be allocated, but it does promise a "modified
Community Infrastructure Fund" (CIF).
6.2 To achieve clarity regarding the allocation
of PGS revenues the following questions need to be addressed to
demonstrate how the PGS revenues will be allocated:
— what criteria will apply in determining
how revenues are apportioned between the local, regional and national
level;
— will this involve cross-departmental
working;
— what will be the mechanisms; and
— to what extent will national policies
for enabling growth in the growth areas or supporting regeneration
in areas of market failure be a factor in the decision making?
Timing
6.3 The development of the Milton Keynes
Prospectus has highlighted the issue that expenditure on both
local and strategic infrastructure is needed prior to payments
falling due. Strategic infrastructure, such as off-site highways
capacity can be required before development commences to open
up sites and in some instances to overcome Highways Agency objections.
Similarly to create sustainable communities, local infrastructure
such as schools and hospitals may be required before payment by
developers is due.
6.4 Neither the current system nor PGS would
allow for funding would allow for infrastructure to be provided
in advance or in support of development. One of the key elements
of the MK tariff and West Bedford is the "banker" role
being played by EP. CIF could play a similar role for the strategic
infrastructure but would again require an initial pump priming
from central government with the fund then being topped up through
PGS revenues. This would not solve the problem of providing the
initial investment for more local schemes unless similar regional
CIF type mechanisms are also established although this might be
spreading PGS resources thinly. In addition to these timing issues,
local authorities can use section 106 for the agreed purpose once
it receives it. Centrally collected and distributed PGS to LAs
on an annual or even relatively periodic basis will mean that
there will be an increase in the time lags with a resulting impact
on development. Again once sufficient PGS revenues are being received
then it would be possible to provide a more timely response or
advance from the a regional "CIF" pot referred to above
but there would still remain a problem until PGS revenues are
established. Initial investment in infrastructure will therefore
still be required over the transitional period before PGS revenues
come on stream.
Allocating PGS based on local infrastructure needs
6.5 All areas (especially those experiencing
growth) should develop a costed plan of their infrastructure requirements,
using the Milton Keynes Prospectus as a model. These should be
prepared in wide consultation with stakeholders—public and
private sector. The infrastructure requirement and priorities
will be established in the local development framework which could
provide one of the factors for allocation of PGS revenues along
with other requirements such as the amount of PGS raised in that
local authority. Through this a gap or a surplus could be identified
and decisions taken on that basis (with alternative funding sought
from other bodies if a gap and if the local authority has potentially
raised more than is required, the surplus could possibly be redistributed
into a regional pot). This approach may have resource implications
to local authorities initially but it should result in a better
articulation of the infrastructure requirements to support development
and a better position on which to seek additional funding.
6.6 Further guidance will be required to
demonstrate how the proposed allocation of funding at the local
level will work. For example, the MK tariff is raised and applied
locally, so the level of funding to support growth is clear. It
is unclear if PGS collected in the growth areas will be ring fenced
so that it can be applied directly within those areas via local
authorities or other local or regional delivery vehicles. A much
greater level of certainty will be required in relation to the
government's ability to ring fence the funding for growth in direct
proportion to the revenues raised for this mechanism to operate
effectively and be accepted as an alternative to the current S.106
tariff arrangement. Without this certainty it is possible that
developers who are supportive of the tariff mechanism may seek
to minimise their PGS liabilities, or find ways of avoiding the
payment through the valuation and self-assessment process.
National view on infrastructure requirements
6.7 Work undertaken locally to assess infrastructure
requirements should complement and feed into the cross-cutting
review of infrastructure as part of the 2007 Comprehensive Spending
Review. This will also form a key part of the identification and
agreement of infrastructure requirements and priorities and hence
decisions on the distribution of PGS revenues and the operation
of new programmes such as the modified CIF.
Allocating funding to local and strategic infrastructure
6.8 The initial guidance establishing the
role of CIF would need to clearly set out what it can and cannot
support. It may be valuable to draw on the Milton Keynes Prospectus
approach of separating clearly local infrastructure (eg education
and primary health) and strategic infrastructure (reservoirs,
universities, highways). Different allocation processes may be
appropriate for local and strategic infrastructure. It should
be noted that local authorities may introduce grampian conditions
until certain conditions (such as the provision of infrastructure)
are met which would result in no development and therefore no
payment of PGS.
Strategic infrastructure
6.9 A portion of CIF would have to be allocated
against national and regional strategic priorities as set out
in the RSS, possibly mirroring the mechanism established for distributing
Housing Corporation Approved Development Grant through Regional
Housing Board priorities, but it would also have to allow for
enough flexibility to allow investment decisions to be made where
it can make the most difference or where there are significant
barriers to growth and/or regeneration.
Local infrastructure
6.10 From the case studies it can be seen
that the education makes up at least 45% of the current section
106, with public transport the next most important. With these
items being taken out of the scaled back section 106, there is
a problem in that this breaks the link between the development
and the necessary education and health provision required as a
result of the development. Given the money will now be collected
centrally, there is uncertainty on how much will go back to the
relevant local authority and whether this will be sufficiently
hypothecated and ring-fenced to ensure the PGS revenues are spent
on the relevant and necessary infrastructure. Furthermore on those
sites where payments under PGS will be lower than under section
106, less revenue will be raised to support the education needs
of those developments. This will be particularly true in London
where affordable housing (which remains within section 106) policies
are such that development surpluses will be assessed for contribution
to the London target of 50% affordable housing before the uplift
can be calculated, which could potentially increase levels of
affordable housing whilst reducing the uplift available for PGS
to be calculated.
6.11 Central government could consider several
options in relation to such items including leaving some items,
possibly education, within section 106 and setting a lower level
of PGS on large development to fund strategic infrastructure or
provide some form of per dwelling contribution to education from
funds raised through PGS so that the allocation of funding through
CIF is targeted on strategic infrastructure only (transport, utilities,
strategic flood risk, etc).
Operation of CIF
6.12 Further thought also needs to be given
to ways of streamlining the bidding process to ensure PGS is returned
to the local level quickly to reduce the potential for delays
in infrastructure provision and therefore growth. It is also unclear
how government intends to forward fund infrastructure to facilitate
growth in advance of PGS contributions where such infrastructure
is necessary to facilitate development and therefore trigger PGS.
Existing CIF bidding would have to be broadened in scope to cover
a far wider range of infrastructure projects including health,
transport and any other essential items which might be required.
6.13 With regard to the modified CIF, EP
is proposing that it would be a suitable body to operate the national
element to support the provision of infrastructure of a national
strategic importance. The CIF would also need to be ring-fenced
within EP's programme so that additional calls cannot be made
on the core EP programme to meet any sudden/unforeseen changes
in a scheme.
6.14 There is also potential to look at
CIF as a fund which recycles PGS contributions targeted at pump
priming infrastructure to unlock sites and add value (which would
be partly captured through PGS), possibly used as an asset against
which additional finance could be borrowed to lever in additional
private sector investment and also be utilised as a re-distributional
tool to help support strategic infrastructure provision in low
value areas.
6.15 Obviously further and much more detailed
work would be needed on the above proposals and EP would be willing
to work with ODPM and Treasury colleagues in developing these
suggestions further. It is further proposed that the recently
convened Urban Finance Group could be tasked with taking this
forward as well as looking at how such a strategic infrastructure
fund could be used to attract additional private sector investment
to support growth and regeneration (for example how could it interact
with investment vehicles such as English Cities Fund and East
Midlands Property Investment Fund).
7. PARTIAL REGULATORY
IMPACT ASSESSMENT
7.1 The consultation paper states that there
will be some minor administrative costs to set up and run the
system for both the public and private sectors. The only other
specific public sector costs are potential loss in some revenues
or in-kind benefits that were received from the use of negotiated
agreements. No mention is given of the cost to major landholding
public agencies such as EP which could be significant through
the reduction in land values and EP's disposal proceeds (on which
EP is increasingly reliant to fund its programme). Although it
can be argued that there would be a corresponding reduction in
the price EP pays for land, EP is moving away from site acquisition
and assembly and into fuller facilitation and brokering role which
would mean that we would not always receive this benefit.
8. CONCLUSION
8.1 Planning Gain Supplement can be made
into an effective method of land value capture. There remain a
number of important issues to be resolved and English Partnerships
offers its assistance to developing proposals and in carrying
out additional research and analysis to support this work, in
particular:
— Assistance to help develop the PGS
proposals given EP's wide experience in planning, valuation and
development.
— Developing the proposed EP Community
Infrastructure Fund model.
— Developing the proposal to allow
areas to choose either a tariff-based system or PGS.
— Assistance with the cross-cutting
review of infrastructure as part of the 2007 Comprehensive Spending
Review. This will also form a key part of the identification and
agreement of infrastructure requirements and priorities and hence
decisions on the distribution of PGS revenues and the operation
of new programmes such as the modified CIF.
Annex A
LEVEL OF PGS
CASE STUDIES
These case studies illustrate graphically the
impact of moving from the current system of section 106 to PGS.
Charts are not to scale and numbers have been
rounded for ease of reference.
In all case studies levels of affordable housing
are assumed as constant between the existing and new system. The
impact of affordable housing in each case study is represented
through the Gross Development Value and is not shown as a section
106 cost.
CASE STUDY
1—NEGATIVE PLANNING
VALUE
Coalfield site in North East with planning permission
for 656 homes (of which 32 affordable). Site is currently unused.
CASE
STUDY 2—NEGATIVE
VALUE UNDER
CURRENT SYSTEM
Coalfield site in Yorkshire with planning permission
for 376 homes (of which 25% affordable). Site is currently unused.
CASE
STUDY 3—MARGINAL
DEVELOPMENT
A site in London Thames Gateway with planning
permission for 250 homes (of which 35% affordable). Site is currently
unused.
CASE
STUDY 4—VIABLE
BROWNFIELD SITE
Former hospital site, Essex. 420 home development
(25% affordable housing). No demand for health uses in this location,
so current use value is zero.
CASE STUDY
5—GREENFIELD DEVELOPMENT
1
Greenfield site, Milton Keynes, 720 homes (30%
affordable). Current use agricultural.
CASE
STUDY 6—GREENFIELD
DEVELOPMENT 2
Greenfield site, MKSM growth area. 2,250 homes
(30% affordable). Current use agricultural.
CASE STUDY
7—GREENFIELD DEVELOPMENT
3
Greenfield site, MKSM growth area. 1,000 homes
(30% affordable). Current use agricultural.
Annex B
TIMING OF PGS
Based on case study 7 (above)—a development
of 1,000 homes (of which 30% are affordable) and associated facilities
on a greenfield site in the Milton Keynes/South Midlands Growth
Area. Numbers in Annex A were rounded for ease of reference but
exact numbers are presented here. PGS of 20% has been assumed.
CASHFLOW "NO
PGS" (£'000)
|
Total
|
Year 1 |
Year 2
|
Year 3 |
Year 4
|
Year 5 |
Year 6
| Later
years |
Units built pa | 1,000
| 72 | 72 | 115
| 115 | 115 | 115
| 396 |
| Gross land value | 53,114
| 3,824 | 3,824 |
6,108 | 6,108 | 6,108
| 6,108 | 21,034
|
| | |
| | | |
| |
| Section 106 existing | |
| | | |
| | |
| Community hall | 579 |
| | 10 | 569 |
| | |
| Health | 20 |
| | 20 | |
| | |
| Play (on site) and open space | 1,361
| 38 | | 1,323
| | | |
|
| Education | 5,176 |
| | 2,588 | 2,588
| | | |
| Flood protection | 1,750 |
875 | 875 | |
| | | |
| Pedestrian and cycle | 45 |
5 | 5 | 5 | 5
| 5 | 5 | 15 |
| Ecology and landscape | 70 |
| 70 | |
| | | |
| Public transport | 1,716 |
11 | 27 | 58 | 74
| 91 | 781 | 674
|
| Road access | 78 |
| 78 | | |
| | |
| Management and maintenance | 112
| | | 14 |
14 | 14 | 14 | 56
|
| Total Section 106 | 10,907
| 929 | 1,055 |
4,018 | 3,250 | 110
| 800 | 745 |
| | |
| | | |
| |
| Net land value | 42,207
| 2,895 | 2,769 |
2,090 | 2,858 | 5,998
| 5,308 | 20,289
|
| |
| | | |
| | |
CASHFLOW "WITH
PGS" (£'000)
|
Total
|
Year 1 |
Year 2
|
Year 3 |
Year 4
|
Year 5 |
Year 6
| Later
years |
Gross land value | 53,114
| 3,824 | 3,824 |
6,108 | 6,108 | 6,108
| 6,108 | 21,034
|
| | |
| | | |
| |
| Section 106 "with PGS" |
| | | |
| | | |
| Play (on site) and open space | 1,361
| 38 | | 1,323
| | | |
|
| Flood protection | 1,750 |
875 | 875 | |
| | | |
| Pedestrian and cycle | 45 |
5 | 5 | 5 | 5
| 5 | 5 | 15 |
| Ecology and landscape | 70 |
| 70 | |
| | | |
| Road access | 78 |
| 78 | | |
| | |
| Management and maintenance | 112
| | | 14 |
14 | 14 | 14 | 56
|
| Section 106 "with PGS" |
3,416 | 918 | 1,028
| 1,342 | 19 |
19 | 19 | 71
|
| | |
| | | |
| |
| PGS | 9,893 |
9,893 | |
| | | |
|
| | |
| | | |
| |
| Net land value | 39,805
| ¸6,987 | 2,796
| 4,766 | 6,089 |
6,089 | 6,089 | 20,963
|
| Cumulative | | ¸6,987
| ¸4,191 | 575 | 6,664
| 12,753 | 18,842 | 39,805
|
| |
| | | |
| | |
CASHFLOW WITH
PGS, 25% AT START
ON SITE,
75% AT COMPLETION
OF PHASES
(£'000)
|
Total
|
Year 1 |
Year 2
|
Year 3 |
Year 4
|
Year 5 |
Year 6
| Later
years |
Gross land value | 53,114
| 3,824 | 3,824 |
6,108 | 6,108 | 6,108
| 6,108 | 21,034
|
Section 106 "with PGS"
| | | |
| | | |
|
| Play (on site) and open space | 1,361
| 38 | | 1,323
| | | |
|
| Flood protection | 1,750 |
875 | 875 | |
| | | |
| Pedestrian and cycle | 45 |
5 | 5 | 5 | 5
| 5 | 5 | 15 |
| Ecology and landscape | 70 |
| 70 | |
| | | |
| Road access | 78 |
| 78 | | |
| | |
| Management and maintenance | 112
| | | 14 |
14 | 14 | 14 | 56
|
| Section 106 "with PGS" |
3,416 | 918 | 1,028
| 1,342 | 19 |
19 | 19 | 71
|
| PGS phased | 9,893
| 2,473 | | 1,484
| | 1,484 | 1,484
| 2,968 |
| | |
| | | |
| |
| Net land value | 39,805 | 433
| 2,796 | 3,282 | 6,089
| 4,605 | 4,605 | 17,995
|
| Cumulative | | 433
| 3,229 | 6,511 | 12,600
| 17,205 | 21,810 | 39,805
|
| |
| | | |
| | |
| 
