Memorandum by the Town and Country Planning
Association (TCPA) (PGS 31)
INTRODUCTION
The Town and Country Planning Association (TCPA)
welcomes the opportunity to give evidence to the select committee
on the proposal for a planning gain supplement. The TCPA puts
social justice and the environment at the heart of the debate
about planning policy, housing and energy supply. We inspire government,
industry and campaigners to take a fresh perspective on major
issues including climate change and regeneration. Its key objectives
are to:
1. Secure a decent home for everyone, in
a good human-scale environment combining the best features of
town and country.
2. Empower people and communities to influence
decisions that affect them.
3. Improve the planning system in accordance
with the principles of sustainable development.
The TCPA campaigns for improvements to the places
in which we live and strives for the best in the new communities
of the future.
GENERAL REMARKS
The TCPA welcomes the call for evidence from
the select committee into the Government's proposal to introduce
a planning gain supplement (PGS). It has long supported the principle
of a tax on the uplift in land value created by the grant of planning
permission (betterment) and is therefore particularly pleased
that the consultation paper on PGS acknowledges the principle
that "a portion of the wealth created by the planning system
should be released for the benefit of the wider community"
(Ministerial Foreword).
Previous attempts to capture land value have
been reversed by incoming Governments. More enduring and successful
applications of this principle over the hundred years or so of
its advocacy by the TCPA have, however, included some very notable
economic success stories. The capturing of value through land
acquisition in the original garden cities and at Milton Keynes
are two good examples. In addition the 1980s saw the successful
operation of Development Land Tax (on which the PGS proposals
make an improvement) in its latter form, until it was phased out
in favour of Capital Gains Tax in 1986. (The Barker Review of
Housing Supply adequately explains why CGT is an undesirable alternative.)
Finally the operation of section 106 agreements today is highly
successful in yielding an estimated £2.5 billion annual contribution
to public investment made mainly by local authorities.
The argument of principle for a tax or charge
like PGS is strengthened by the urgent need to find additional
public resources for investment in the infrastructure and social
and community facilities needed to enable essential development
to proceed, particularly new housing and in the Growth Areas.
PGS has the potential to be an effective and equitable way of
raising a significant amount of additional revenue for these purposes.
Section 106 agreements currently achieve some
of the aims proposed for PGS but we believe that PGS offers considerable
advantages. It would, as a tax levied on all qualifying development
at a set rate, be more predictable and transparent. It would assist
developers by reducing the complexity and length of negotiations
over individual developments. It would capture betterment not
captured by S106, eg from smaller developments, developments with
little or no adverse impacts or where local authorities lack the
resources or skills needed to secure planning gain. It seems unlikely
that the Section 106 system, however, modified, could capture
as much betterment as efficiently as a system including PGS.
However we recognise that Section 106 agreements
are a system with which local authorities and developers are increasingly
familiar and that they can deliver important contributions towards
the infrastructure, social and environmental costs associated
with development. It is, moreover, a flexible system that tailors
developers' contributions to the needs of particular developments
and localities. It will be essential therefore that the combination
of PGS and the reduced system of Section 106 agreements which
is proposed delivers significantly greater benefits than the present
system. And these benefits must be delivered at the right time
and in the right places and be visible to local communities.
TCPA POSITION
The TCPA strongly supports the principle underlying
PGS. It has, however, a number of concerns about the details of
the proposed scheme, which are explained below, and it asks the
Government to ensure that they are satisfactorily resolved in
the final proposals.
1. PGS plus a scaled down Section 106 system
must raise significantly more revenue (or benefits in kind) than
the current Section 106 system but not to the extent of causing
the withholding of land or jeopardising necessary development.
2. The revenue from PGS must be retained
and used for the benefit of the area where it was raised. (This
may include contributing to the cost of infrastructure or facilities
which also benefit a wider area.)
3. The present level of contributions to
affordable housing through Section 106 must not be reduced by
the advent of PGS and ways of increasing support under the new
system should be sought.
4. The allocation of PGS revenue should
be sufficiently local, flexible and speedy to ensure that the
infrastructure and other facilities needed in connection with
specific new developments are provided when and where required,
as happens under many current site specific Section 106 agreements.
5. In view of the scale of development planned
for the years immediately ahead, it will be essential to put in
place interim arrangements for financing infrastructure and other
facilities in the period before PGS is fully on stream.
6. The proposals in the consultation paper
should not preclude the use of other mechanism to capture additional
betterment in appropriate cases.
THE FACTORS
WHICH SHOULD
BE TAKEN
INTO ACCOUNT
IN DETERMINING
THE RATE
OF THE
SUPPLEMENT AND
THE LEVEL
AT WHICH
IT SHOULD
BE SET
The TCPA agrees that PGS should not be set so
high that it leads landowners to withhold land. Setting it at
a moderate rate is also likely to reduce the risk of the levy
becoming a political issue. Were it to become so landowners might
withhold in the hope that it would be repealed by a future government.
In our view the rate of PGS must be sufficient
to make good the loss from cutting back the scope Section 106,
cover its administrative costs and yield a substantial addition
to the resources available for investment in infrastructure and
other facilities. However, recommending what an appropriate rate
might be is difficult in the absence of any reliable estimate
of the yield from the current Section 106 system or, more relevantly,
from the proposed reduced system of Section 106 agreements. We
understand that the results of research into the current yield
are due to published soon and would expect to offer a view on
the appropriate rate of PGS then.
We are not convinced that there is a compelling
case for having a lower rate of PGS for certain categories of
development land, eg all brownfield sites or land in designated
regeneration areas. We agree that PGS should apply to all use
classes and any threshold for its application should be low, eg
development of a single house and a correspondingly low value
of commercial or industrial development. Differential rates of
PGS, thresholds and exemptions, by reducing the yield of PGS,
would reduce its cost-effectiveness and the amount of extra resources
available for facilitating development, and should be avoided.
Our reasons are set out in the annex.
HOW THE
REVENUE FROM
THE SUPPLEMENT
SHOULD BE
DISTRIBUTED AND
APPROPRIATE USES
We are encouraged by the strong undertakings
in the consultation paper that the "significant majority"
of funds would be recycled locally for investment and that the
"overwhelming majority" of funds will be recycled within
the region where they arise. We welcome, too, the assurance that
local authorities would receive a share of PGS revenue "at
least broadly equal [to] estimates of the amounts [they] are currently
able to extract from Section 106 agreements" and that they
will be free to spend these as they wish.
The TCPA has insisted in its responses to previous
consultations about Section 106 that any new arrangements must
retain the close link between the places where the funds are generated
and where there are spent. Visible linkage is essential in order
to secure public acceptance of new development; it is also important
to the political sustainability of PGS that the revenue does not
disappear into the Exchequer but is seen to be used for additional
investment related to development.
An objection to this local linkage is that areas
with high land values will benefit from PGS much more than less
economically buoyant areas. Whilst we think there is a case for
some modest redistribution of PGS revenue within regions and favour
the allocation system proposed in the consultation paper which
would distribute the revenue locally according to an assessment
of infrastructure needs rather than in direct proportion to where
it was raised, we do not think that redistribution should be one
of the main aims of PGS. Generally there is likely to be a fair
degree of match between the amount of new development occurring
in an area, land values (and hence PGS yield), and the need for
investment in infrastructure and social facilities. Much of the
PGS will be generated where it is most needed, including in those
parts of the less prosperous regions where new development is
occurring. Areas of low growth and development may not get a lot
out of PGS, but other, specific mechanism exist for tackling their
problems.
We think it is important that the assurances
which have been offered about local linkage are given concrete
form in the scheme which is implemented. None of the revenue from
PGS should be used centrally, except possibly to defray the direct
costs of collection, and the legislation should specify that it
must be used locally. We agree "local" should include
investment in infrastructure and services which are of benefit
to a wider area—a sub-region or whole region—such
as major roads, hospitals, flood prevention measures and sewage
treatment plants.
An important objective of PGS should be that
all local authorities are better off under it than they would
have been with the current Section 106 system. (The consultation
paper promises only that local government overall will
receive more revenue.) This requirement must be built into the
detailed arrangements for distributing PGS revenue.
The chances of PGS being used locally might
well be improved if local authorities played a part in its administration
alongside HM Revenue and Customs, as the consultation suggests.
However, it is desirable that the envisaged role in enforcement
is not allocated to planning staff, both because they are already
severely overstretched and because there would be potential conflict
of interest with their statutory planning duties.
Account will need to be taken of the special
circumstances relating to rural exceptions sites for housing.
Under this policy sites in small villages which would not normally
receive planning consent for residential development are allowed
to be used for social housing on condition that Section 106 agreements
are entered into to ensure that they are retained in social housing
sector in perpetuity. By this means sites are available for social
housing at well below the cost of open market housing land. If
this policy is to be able operate after the introduction of PGS
residential development, the calculation of liability for PGS
must take account of the restricted nature of the planning consents
and the much lower planning value which results.
HOW THE
SUPPLEMENT SHOULD
REFLECT SUBSEQUENT
USES SUCH
AS SOCIAL
HOUSING
The TCPA agrees that value of contributions
to the provision of affordable housing under current Section 106
arrangements must be safeguarded. If, as proposed, these contributions
continue to be raised via site specific Section 106 agreements
it will be important to ensure that the rate of PGS is not set
so high that landowners/developers are unwilling to contribute
at current levels to affordable housing.
Consideration should be given to the option
of collecting additional contributions to affordable housing via
a higher rate of PGS rather than solely through Section 106 agreements.
The intention would not be to obtain larger contributions to affordable
housing from those developments which already contribute but to
spread the net more widely, thus raising more revenue in total,
and to simplify the process. Section 106 contributions for housing
will continue to be important particularly on larger sites where
they often take the form of land, which simplifies land acquisition
and helps to achieve mixed communities.
WHETHER AND,
IF SO,
HOW THE
PLANNING GAIN
SUPPLEMENT SHOULD
BE USED
TO ENCOURAGE
DEVELOPMENT OF
BROWNFIELD SITES
The Government has other mechanisms for encouraging
the development of brownfield sites and is having a high degree
of success in doing so. Similarly it has a range of well funded
programmes for promoting regeneration, which are also achieving
a good deal of success.
Many brownfield sites are financially attractive
to develop; and where the return is lower the value uplift from
development will be smaller resulting in a smaller PGS liability.
Brownfield development usually gives rise to
requirements for new infrastructure and facilities and it is equitable
that it should make a financial contribution towards the costs.
However other brownfield sites, particularly
those that are contaminated, remain uneconomic to develop at all
without the injection of public funds to make them `development
ready'. If a proportion of PGS revenue is to be available for
national spending priorities then it would be appropriate for
Government to invest further in the clean up of contaminated sites
alongside the introduction of a PGS.
THE POTENTIAL
IMPACT OF
THE SUPPLEMENT
ON S106 ARRANGEMENTS
NEGOTIATED THROUGH
THE PLANNING
SYSTEM
Concern has been expressed quite widely that
PGS will reduce the linkage between provision of infrastructure
and services and site development which Section 106 agreements
provide. The worry is that PGS revenues will not be available
in the right places at the right times and that development will
therefore be slowed up or even prevented. This is because PGS
will have been levied automatically by a bureaucracy outside the
development process and funds fed into a central pot and re-allocated
through a potentially quite complex system.
This danger can only be avoided if the administrative
arrangements for collecting and distributing PGS are decentralised,
flexible and efficient; and this means inter alia that they are
properly resourced. These arrangements need to be meshed in with
arrangements for determining local investment priorities and planning
and delivering the investment in step with development. Undertakings
by Government about what percentage of PGS revenue would need
to be returned to the local authority where it was generated are
urgently required.
TRANSITIONAL ARRANGEMENTS
There is an urgent need for additional investment
in infrastructure and other facilities associated with development.
Without this the Government's aim of increasing the supply of
new housing to 200,000 units a year will be jeopardised. However,
the consultation paper says that PGS will not be introduced before
2008, and its full revenue yield is not likely to be achieved
until several years after this.
The Government must find ways of increasing
the resources available for infrastructure during this interim
period. There are several options for doing this. The recently
announced cross cutting review to ensure that departmental resources
are targeted to support future housing growth should result quickly
in re-prioritisation of the relevant Government programmes to
this end. Second, the Government should support the use of strategic
Section 106 agreements to help fund important developments, for
example on the lines of the Milton Keynes " infrastructure
tariff" and encourage local authorities to seek rather higher
contributions from developers than hitherto where the uplift in
land values seems to justify this. Third, once PGS has been enacted
and the details are clear local authorities (and possibly other
providers of public facilities and services) should be able to
borrow against expected future PGS revenue. Specifically infrastructure
schemes on which major housing developments depend must be progressed
as and when any PGS is brought in.
COMPLEMENTARY MECHANISMS
The proposed combination of PGS and a scaled
down Section 106 agreements should be capable of capturing considerably
more betterment than at present. As emphasised above, it will
be important that the combined impact of the two mechanisms does
not cause withholding of land or a slowing up of development.
Nevertheless we believe that there will sometimes be circumstances
in which it would be possible to use other mechanisms as well
to capture a further share of betterment for the community.
Such action is most likely to be justified where
the uplift in land values is expected to be very large, eg the
building of a new community on predominantly agricultural land,
the redevelopment of a long vacant city centre site or where the
public sector is shouldering substantial risk (such as in difficult
regeneration projects or where major infrastructure investment
is needed). Mechanisms which can be used in such cases include
the advance acquisition of land by public authorities, not-for-profit
development trust or public/private partnerships so that more
of the value uplift resulting from the planned development and
future growth of values accrue to the community. There is a case
for exempting public bodies and charities from liability for PGS.
CONCLUSION
The TCPA strongly supports the principle underlying
PGS and believes this proposal for a PGS should be considered
further and could, if the above concerns and considerations are
addressed, provide a successful means of securing for the community
a share of the increased land values which are brought about by
the activities of society and funding sustainable new communities.
The purpose of a PGS to fund infrastructure and through this to
assist the Government in meeting its housing delivery targets
should remain central.
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