Memorandum by National Grid Property Holdings
Ltd (PGS 20)
1. INTRODUCTION
AND BACKGROUND
TO NATIONAL
GRID PROPERTY'S
RESPONSE TO
THE PLANNING-GAIN
SUPPLEMENT
1.1 Set out below is our consultation response
to the House of Commons, ODPM Committee Inquiry; by way of background,
you should note that National Grid plc is a group of companies
which owns, operates and develops a substantial part of the national
gas and electricity transportation systems. National Grid Property
Holdings Ltd., as part of the National Grid group, manages the
Group's extensive estate portfolio. Its main activities are the
reclamation and disposal of formerly operational gas and electricity
sites and the provision of property services to Group companies,
to meet their occupational requirements. In its property management
and disposal role, the Company (known as National Grid Property)
becomes significantly involved in all aspects of the planning
system.
1.2 Throughout Great Britain, we have a
number of proposals which are at varying stages in the planning
and development process, with some for operational land where
future re-use has yet to be considered, or is beginning to be
appraised, and others for sites where planning permission has
been applied for. Hence the Planning-gain Supplement (PGS) proposals
are of considerable relevance and importance to the Company's
land and property interests.
1.3 This memorandum addresses each of the
issues raised by the Committee in turn. The National Grid Property
response to the HM Treasury, HM Revenue and Customs and ODPM consultation
document has been included as an appendix to this memorandum,
as it acknowledges issues beyond but directly related to those
specifically raised by the Committee. As such, we have not reiterated
our fundamental concerns regarding the "workability"
of calculating the PGS, particularly in terms of the valuations
and self-assessment processes proposed. These concerns are raised
within the attached response to the consultation paper.
2. NATIONAL GRID
PROPERTY'S
OVERALL COMMENTS
ON THE
PLANNING-GAIN
SUPPLEMENT PROPOSALS
Key Points:
— The design and implementation of
PGS is critical to its success but the history of attempts to
tax the development value of land demonstrates that any system
which is complex in itself or which adds to the complexity of
the existing tax regime is likely to be inefficient and therefore
unsuccessful. PGS is complex, likely to be inefficient, raise
insufficient monies and therefore we conclude will be unsuccessful.
— The absence of almost any detail
in the consultation document makes it difficult to answer in any
more detail the Committee's questions on PGS. Yet the "workability"
of PGS is a key determinant in assessing the merits of this proposal.
If the system does not work adequately, then the cost of collecting
the tax will be too high and neither Local Authorities nor the
Treasury will benefit.
— Overall, National Grid Property's
view is that amendments to the existing section 106 arrangements
should be made, to relate to introducing standardised planning
obligation payments comprehensively and making the "Necessity
Test" for obligations statutory.
— In fact, it is the Company's opinion
that the PGS runs counter to so many of the Government's stated
objectives for land use planning, including increasing housing
supply, promoting regeneration and diversification, speeding up
delivery and ensuring that the system is efficient, consistent
and transparent. The consequences of introducing PGS therefore
will be very different to the Government's intentions for it to
fund infrastructure and create sustainable communities. It will
discourage and slow the rate of future development.
— PGS should therefore not apply to
brownfield sites, in particular those that involve additional
costs to facilitate development, such as remediation. If it is
considered that PGS is applicable to such sites, then a lower
PGS rate should be applied. PGS guidance should make clear that
additional site costs, such as the remediation of contaminated
land, should be taken into account in sites' valuations.
— The Company are also concerned that
PGS would remove the existing link between development proposals
and community benefits, infrastructure improvements and mitigation
measures. Furthermore, PGS would not provide any certainty that
these benefits could be implemented, particularly within a necessary
timescale and this could have the effect of holding back development.
3. THE FACTORS
WHICH SHOULD
BE TAKEN
INTO ACCOUNT
IN DETERMINING
THE RATE
OF THE
SUPPLEMENT AND
THE LEVEL
AT WHICH
IT SHOULD
BE SET
3.1 The Company does not consider that there
is a level at which PGS could be set which would be acceptable.
It is not just the rate, it is the additional administration and
the complexities of the process that would affect business. These
complexities include self-assessment.
3.2 The rate is of paramount importance;
previous attempts to tax development land value separately have
not been successful and it appears that there is insufficient
acknowledgement of the reasons for past failings. It is important
the mistakes of the past are properly acknowledged, including
that of the selected rates variously applied.
3.3 It is suggested in para 1.9 of the HM
Treasury, HM Revenue and Customs and ODPM consultation document,
that PGS would be at a "modest rate" but the level is
not currently stated. Once introduced, and whatever the initial
percentage rate, the fear and risk of future increases in the
rate of tax could initially bring forward more land for development,
which would assist the Government in meeting its expectations
(subject to no change in Government control) but then any increase
in the rate of PGS could slow the rate of development land release.
This slow down would be more likely to occur, if two systems were
operated simultaneously and as proposed, ie PGS and section 106
(albeit "scaled back"). If both were to require increased
contributions independently over time, this may well lead to an
excessive burden on the development industry which may not only
slow the rate of development but also render some development
economically unviable.
3.4 Any rate of levy on development using
PGS is likely to have an adverse impact on bringing land forward
for development not only, but particularly, in lower value areas
and on contaminated brownfield sites, where even a modest levy
could render a scheme uneconomic, compared to developments in
higher value areas and on other sites. To underline this point,
it should be noted that ODPM recently announced (at the end of
January, 2006) that the proportion of housebuilding on brownfield
land had reached a record level of 72%, compared with the target
of 60%; the continued success of the Government's prioritisation
of brownfield land development for housing could be considerably
undermined if PGS is introduced, especially but not only where
the rate is too high.
3.5 Exemption, or at least a lower rate
of PGS for brownfield developments, would greatly help in promoting
the Government's policy for prioritising such sites for re-use
but could produce distortions in the market. This issue is addressed
further under section 4 of this memorandum, with the comment that
if the Government does not accept that brownfield developments
should be exempt from/subject to a lower rate of PGS, then contaminated
brownfield sites should be subject to an exemption from PGS, or
at least to a much reduced rate.
3.6 National Grid Property accepts that
PGS should also be applied to non-residential developments, as
well as housing, as currently proposed. However, the Company considers
that certain development should be exempt, such as development
by utility providers for statutory purposes. Development of this
nature is largely for the provision of strategic public infrastructure,
which has no impact on or generates no demand for other public
infrastructure, such as roads, schools, healthcare facilities
and so forth. As a matter of principle, it is wrong that PGS should
apply to the development of public infrastructure, the very thing
that it is supposed to support.
4. HOW THE
SUPPLEMENT SHOULD
REFLECT SUBSEQUENT
USES SUCH
AS SOCIAL
HOUSING
4.1 The fact that PGS is proposed to be
levied on all types of development and the increasing trend towards
more mixed use, sustainable development is likely to mean that
the strategic and other infrastructure that it is intended to
fund will also and should benefit other forms of development.
4.2 Government policy for affordable housing
is set out in PPG3 and in the emerging PPS3, with its provision
on specific sites to be dealt with in section 106s. It is our
view that funding obtained through PGS should be used primarily
for the purpose of infrastructure provision to ensure that the
impacts of any specific development proposal locally are fully
mitigated against. Affordable housing provision on-site will generate
similar infrastructure needs to any other form of residential
development and while it might be appropriate to better enable
affordable housing by eg applying lower rate of PGS, this would
no doubt require other proposed elements of a development to cross-subsidise
its infrastructure requirement. This would be an unacceptable
addition to the section 106 requirement to provide affordable
housing in the first place.
4.3 Throughout the PGS Consultation document,
there is an underlying assumption that PGS will assist in increasing
the delivery and supply of development and in particular, housing
(including affordable housing) within the United Kingdom. However,
history shows the imposition of such a tax on landowners could
well have the effect of reducing land availability and pushing
up demand. This would result in increased property prices, whilst
reducing further the supply. In addition, the planning application
determination process will be prolonged by additional negotiations
with LPAs, caused by them seeking to maximise section 106 benefits
for their own Authority area, in spite of and in addition to PGS.
This would be another unacceptable consequence of PGS.
4.4 Thus, the impact of PGS upon housing,
especially social housing, needs to be adequately addressed so
as not to undermine supply. We therefore consider it entirely
incorrect for the Government to suggest that without PGS it will
be difficult to address housing supply issues (as suggested in
the assessment of costs and benefits of the three options examined
in the Consultation's Partial Regulatory Impact Assessment (RIA)—ie
"do nothing", introduction of an "optional planning
charge", or PGS). The RIA concludes that PGS will not affect
the supply of land for development because of it being part of
a "package of reforms" to increase the supply of land
brought forward for development and affordable housing (para A.22).
The revenue from PGS should not be used to support housing growth,
nor to cross-subsidise the infrastructure needs generated by section
106 affordable housing provision. It should instead only be used
more generally, to fund the specific infrastructure needs associated
with development of all kinds, and to mitigate directly any relevant
impacts.
5. WHETHER AND,
IF SO,
HOW THE
PLANNING GAIN
SUPPLEMENT SHOULD
BE USED
TO ENCOURAGE
DEVELOPMENT OF
BROWNFIELD SITES
5.1 We have already explained how a high
rate of PGS could significantly reduce the viability of development
and disincentivise the development of brownfield land in particular.
This is especially so where remediation costs are high; we therefore
consider that any PGS applied to brownfield land developments
has to ensure that the Government's agenda to encourage development
on brownfield land is not undermined.
5.2 Of more significance in this debate
however should be how the development of contaminated brownfield
sites can be prioritised, to meet the Government's regeneration
objectives. Developers are normally reluctant to start speculative
schemes in doubtful market conditions; they would be especially
so if there was a substantial sum to be paid in tax by way of
PGS. Because of other risk factors, this is most likely to affect
the schemes which are more marginally viable in the first place.
These schemes will most often be those on redundant brownfield,
contaminated sites ie commonly those of National Grid Property.
5.3 Many of National Grid Property's development
sites are likely to have a negative Planning Value due to the
level of contamination and cost of remediation works required.
In such circumstances, the basis of any PGS assessment would have
to reflect the negative "Uplift" when assessing the
PGS. In these circumstances the PGS payment should be nil.
5.4 The PGS proposals are already having
a clearly observable effect on the Company and throughout the
development industry. Landowners such as ourselves, and developers,
are reviewing all of their landholdings and development projects,
to assess whether planning permissions should be sought, prior
to 2008, so as to avoid PGS. A huge increase in the number of
applications, to be determined by LPAs with limited resources,
could then overload the planning system. It is also then likely
in the short to medium term, that once PGS is introduced, it will
result in many landowners retaining their sites and refusing to
bring forward the land for development or to submit planning applications.
This is, and will be, particularly the case with brownfield land,
often held as part of wider portfolios where there might already
be a reasonably high current land value and the imposition of
PGS on re-development would lead to deliberate delay in bringing
such sites forward for redevelopment. In these circumstances the
value of the land with the benefit of planning permission for
redevelopment would have to be significantly higher than currently
to justify the development risk. Therefore brownfield site landowners
will be encouraged to retain existing, but inefficient uses of
sites.
5.5 It is also possible that smaller developers
may be discouraged from proceeding with development and as a result
of PGS and they, may sell their sites to larger developers in
a better position to meet onerous PGS costs. It is commonly acknowledged
that large developers "land bank", with a view to proceeding
with development in favourable market conditions. Larger developers
often have considerable reserves of land, which, will not be brought
forward for development. In the case of housing, this reaction
by smaller developers to PGS could have the effect of further
hampering housing supply.
5.6 Overall, we therefore consider that
PGS is unlikely to be usable as a tool to encourage the development
of brownfield land.
6. THE POTENTIAL
IMPACT OF
THE SUPPLEMENT
ON SECTION
106 ARRANGEMENTS NEGOTIATED
THROUGH THE
PLANNING SYSTEM
6.1 Even with PGS, s106 obligations will
still be needed and as a result, PGS is unlikely to speed up the
planning process.
6.2 Moreover, the legal status of s106 obligations
provides the developer with control over the timing, delivery
and specific nature of the infrastructure required. Furthermore,
an inspector at appeal who cannot be certain that mitigation will
occur (because it is in the control of a third party funded by
PGS) may not be able to grant permission for a proposal. The third
party might not deliver the necessary mitigation because it has
other spending priorities for PGS revenues. Once again, PGS will
therefore hinder future development, rather than encourage it.
6.3 It is necessary to mitigate against
the impact of development. The Environmental Impact Assessment
(EIA) process is a mechanism which seeks to ensure that proposals
are only permitted if adequate mitigation measures can be taken.
It will not always be possible to ensure this due to the abovementioned
third party constraints. The delivery of such measures are no
longer in the developers control and they cannot be guaranteed
by the LPA as they are in the current section 106 process. This
could lead to proposals being refused which once again will have
the effect of further constraining development.
6.4 It is therefore the preference of National
Grid Property to retain the system of recently-reformed planning
obligations (as explained in ODPM Circular 05/2005) but with some
elements of guidance to become statutory, and with expanded and
detailed advice on the use of section 106 "standardised planning
obligations payments" ie a tariff or charge set, collected
and spent locally (with a proportion allocated and spent sub-regionally
or regionally, where necessary)—based on the Milton Keynes
"model" which has very recently received Treasury approval
(in January of this year). This funding mechanism would be more
acceptable to us, as it would:
— provide certainty at the outset,
in terms of development plan policy and supplementary planning
documents setting out requirements, to ensure that as landowners/developers,
we can understand the level of payment required in relation to
the scale and type of development proposed;
— ensure that the funding provided
by a site's development would be put to meeting related, local
infrastructure needs, and sub-regional and regional infrastructure
needs where "necessary" for the development to go ahead
(using "pooling"); and
— be flexible and transparent, in terms
of being part of development plan policy and the section 106 negotiations
at the local level.
6.5 In the Company's view, current section
106 arrangements are an appropriate locally-based approach to
funding infrastructure in a site's locality and wholly preferable
to PGS or any other tax alternative, or PGS plus revised section
106 arrangements. PGS could not provide the infrastructure required
at the right time by individual developments and with section
106 not providing such mitigation, necessary infrastructure will
not be implemented. As part of section 106, planning charges are
a viable option which should be considered, instead of introducing
PGS as a new system which would take time to bed down and which
also has many fundamental questions concerning its workability.
6.6 National Grid Property would welcome
a more comprehensive statutory basis for section 106 obligations,
as this would lead to a consistency in the approach of different
local planning authorities which currently does not exist; particularly
in relation to affordable housing. Following the introduction
of PGS, a statutory approach to section 106 would be essential,
firstly to ensure that planning authorities do not seek to impose
a wider range of section 106 requirements, and secondly, to ensure
that they cannot seek to duplicate PGS provisions for social infrastructure.
6.7 The intended scope of section 106 in
the Government's consultation is not however appropriate. The
proposal to include off-site landscaping and off-site environmental
improvements in the revised scope of section 106 obligations would
be inconsistent with the objectives of scaling back the nature
of such contributions to those directly relating to the site.
Also, most if not all of the items included in Table 5.2 in the
Consultation document would be capable of being dealt with/provided
for by conditions.
7. HOW THE
REVENUE FROM
THE SUPPLEMENT
SHOULD BE
DISTRIBUTED AND
APPROPRIATE USES
7.1 The current PGS proposals include a
commitment to ring-fence a proportion of the revenues to contribute
towards local infrastructure but it depends very much at which
level (eg county, district, sub-region, region or national) the
funding is used as to whether key strategic infrastructure to
serve a development is provided at the right time and in the right
location. Not knowing who will be responsible for administering
all parts of the PGS procedure is unhelpful in this context. No
information is given regarding how the utilisation of revenues
by LPAs might be controlled.
7.2 Also, what is not clear from the consultation
document is how the allocations of PGS revenue at the local level
would be used. For example would development plan documents define
elements requiring funding? If this is the case, then this is
the same approach as a planning tariff or optional planning charge.
There is still therefore an element of "the shopping list
approach" to funding infrastructure, with developers having
no say in how their funds, paid as PGS, are used.
7.3 The Company, like the rest of the development
industry, is sceptical of whether in light of slowed economic
growth in recent years, PGS set at any rate could provide a sufficiently
large funding stream, regardless of how revenue is to be distributed.
We are most concerned that the intention is that PGS will become
a substitute for public funding, being one of the outcomes of
the Government's current Comprehensive Spending Review. The revenue
from PGS should supplement infrastructure investment and not be
a substitute for public sector investment. It is vital that, should
there be a more marked market slowdown, infrastructure investment
is not curtailed due to it being dependent on private sector funding
via PGS. The absence of adequate funding for infrastructure would
then only further disincentivise development and lengthen the
time before economic recovery could take place.
7.4 Infrastructure costs are often site
specific and some locations require greater infrastructure investment
than others. There is little evidence suggesting a relationship
between the value of infrastructure investment required to mitigate
against the impact of development and the uplift value upon receipt
of planning permission. This being the case, the PGS seems an
unjustified means of using the uplift in land value to raise revenue
to fund infrastructure investment. This is especially so if a
high proportion of this revenue is returned to the Treasury for
national redistribution. There is also a case to be made for "minor"
projects having a cumulative impact upon the environment, which
may in some cases then require greater infrastructure investment
than a single major scheme might.
7.5 National Grid Property agrees with the
principle of focusing a "significant majority" of the
revenue at the local level. This is very important in our view.
We are very aware of the impacts (positive and negative) that
our developments can have on the local community. Currently, payments
under section 106 obligations for off-site works contribute directly
to the mitigation of the impact of our development sites on the
local community and its environment. Such contributions therefore
have a positive and beneficial effect on the views of the local
community, and the local planning authority, towards the development.
If adequate PGS revenue were not redirected to the immediate locality
of the development, this would be likely to hinder future development,
rather than encourage it. This is particularly the case with National
Grid Property's most contaminated and redundant sites, where if
a local planning authority is not to benefit substantially from
their re-use, there will be little incentive for them to grant
planning permission. Such difficulties in obtaining planning permission
will mean PGS will not be payable and while such sites might be
disposed of, their re-use will not occur.
7.6 Funding infrastructure projects which
are not specific to the locale is also unlikely to be beneficial
to those liable to pay PGS. The obvious disadvantage for developers
is if their PGS is used for improvements in other parts of a local
authority area, thus development in one location subsidised other
areas.
7.7 Thus using PGS revenue (or any other
form of national taxation) to fund infrastructure provision is
likely to break the direct link between the developer's contributions
and the development funding them. This link must not be broken
ie there must be a clear and tangible relationship between the
development and its impact. The infrastructure the financial contribution
is spent on to ameliorate this impact is of prime importance.
The development industry is fearful that finances raised by PGS
as a national tax will not be applied to infrastructure needed
by the proposed development and may even "disappear".
Alternatively it may be sub-divided to the extent that they can
make little difference to the funding of local infrastructure—at
present, section 106 obligation contributions are used in general
to fund infrastructure etc. in the immediate environs of the site.
7.8 There is also a concern that despite
making PGS payments, there are inadequate measures in place to
ensure that LPAs can deliver the necessary infrastructure and
site mitigation measures. Thus, development may be hampered whilst
waiting for the necessary infrastructure investment where, as
a result of PGS, the developer would no longer have control both
the quality and timing of delivery.
7.9 It is not clear from the Consultation
Paper what proportion of the receipts of PGS the LPAs will receive
and whether they would be at liberty to spend it as they saw fit,
eg for improved administration. It must be clear in any PGS system
that revenues are ring-fenced. A further disadvantage for developers
is if their PGS is used for improvements in other parts of the
Borough. Thus development in one location subsidises others.
7.10 There is also a fundamental development
industry concern over the distribution of funding, the type of
infrastructure to be funded and whether such a process is capable
of serving individual schemes. Whilst PGS is intended for such
works, without formal legal agreements which the section 106 process
affords, developers will have no guarantee of the provision of
infrastructure, and its timing, which might be vital for the viability
of their particular development. By way of contrast, the Milton
Keynes Partnership section 106 tariff scheme makes provision for
"payments in kind", which allows developers some direct
control over the provision of certain categories of infrastructure.
National Grid Property supports this approach. This key advantage
of section 106 agreements appears to have been largely overlooked
by the PGS proposal.
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