Memorandum by the Royal Town Planning
Institute (RTPI) (PGS 35)
INTRODUCTION
1. The Royal Town Planning Institute (RTPI)
is the professional body for planners. It has over 19,000 members
working in every aspect and sector of planning. The RTPI's members
are at the forefront of securing agreements under section 106
and of striving for the achievement of sustainable development.
The RTPI is a learned and a learning body and, as seen below,
has had a long involvement in the whole question of betterment.
More recently, it has put forward suggestions in 2000 for a tariff-based
approach to address some of the problems of the current system.
2. The RTPI fully supports the concept of,
and need for, using the changes in the value of land in order
to provide the infrastructure to support the creation of mixed
and sustainable communities and to achieve sustainable development.
Over 65 years ago, a Town Planning Institute Committee on Compensation
and Betterment concluded that "we are satisfied that essential
planning and, particularly, re-planning cannot be carried out
effectively under the existing legislation regarding compensation
and betterment". As the White Paper on "The Land Commission"
[Cmnd 2771, September 1965] pointed out, "there is no novelty
in proposals to secure for the community at least a share in the
values it has itself created. An Act of 1427 sought to recover
increases in the value of property attributable to public expenditure
on works for sea defence . . .".
3. It is one of the key shortcomings of
the current planning system that, despite a number of attempts,
no satisfactory system of capturing value has been implemented.
The RTPI, therefore, very much welcomes the fact the current Government
is keen to devise an acceptable, workable and effective system
to achieve this. All the comments we make below should be read
within the context of a clear acceptance of the principle of using
land or development value to support sustainable development.
4. Additionally, these comments should not
be taken as indicating a belief that the current system of Section
106 agreements is fully effective either in raising the necessary
funding in all cases or in delivering effective and transparent
decision making and certainty. However, there is evidence that
this system is starting to work more effectively at a time when
the Government intends to scale back its operation.
THE RTPI'S
POSITION
5. Whilst the RTPI wholeheartedly accepts
the principle behind the proposals for Planning Gain Supplement
(PGS), we do not believe that the approach set out will achieve
the objectives for PGS as set out in 1.14 of the consultation
paper. There are seven main reasons for this:
— It is not certain that significant
additional revenue will accrue.
— The proposed PGS scheme appears to
break the link between the infrastructure1 needs of a community
that are generated by a new development and the provision of that
infrastructure before the development commences.
— It is not clear how money derived
from PGS will be distributed in practice—not least in relation
to devolved administrations—nor, consequently, how transparent
PGS will be.
— There is the danger that those communities
most in need of infrastructure investment, particularly those
with failing markets, will lose out to those with development
pressure—with a consequent "overheating" of the
local economy for the latter areas.
— The proposed scheme appears to have
been written with a green field development model in mind. This
makes it less relevant given that, for example, 67% of housing
is built on brown field sites.
— The retention of affordable housing
within s1062 as opposed to within PGS, albeit understandable,
may have adverse effects on the achievement of this key aspect
of Government policy.
— There are a number of more detailed
criticisms related to the methodology set out for valuation, which
may lead to uncertainly, delay and a failure to deliver. In this
context, it needs to be borne in mind that previous attempts at
capturing and returning the uplift in value3 failed not only because
of political differences between administrations but because of
their complexity and difficulty in delivering the objectives of
those schemes.
Each of these issues will be dealt with in turn,
below.
Notes:
1 In the context of this paper, "infrastructure"
is taken to relate to such aspects of sustainable communities
as health, education, social services, recreation, environmental
protection, community facilities and affordable housing as well
as physical infrastructure such as transport, drainage, utilities
and flood defence.
2 "s106" is used here to denote
planning obligations agreements in order to follow the usage in
the consultation document. It is recognised that other legislation
applies in devolved administrations and the difficulties posed
by a consultation that relates a UK tax solely to an English system
are covered in this response.
3 The Town and Country Planning Act 1947;
the Land Commission Act, 1967; the Community Land Act, 1975; and
the Development Land Tax Act, 1976.
ADDITIONAL REVENUE
6. One of the main rationales for introducing
a PGS is that it will lead to an increase in funding for necessary
infrastructure. The RTPI fully supports this aim. However, in
practice, it is not certain that such revenue will accrue at levels
that will make the introduction of this tax cost effective. There
are a number of reasons for this, some of which are covered in
the points below. These include the fact that on brown field development
there may well not be an uplift in value when remediation is taken
into account. Secondly, one element which contributes a significant
proportion of existing s106 related expenditure—affordable
housing—is not included within the PGS regime. This fact
appears to preclude affordable housing from benefiting from any
additional funding raised through PGS—in effect the contribution
that development can make to affordable housing will remain the
same as it currently does under the s106 regime.
7. Additionally, developers will rightly
take a pessimistic view of the value of land following a planning
permission when the longer term prospect for property markets
is uncertain. They may well be able to demonstrate little or no
uplift in value for a development. Fourth, PGS payments may be
treated as an allowable business expense for tax purposes—thus
potentially offsetting the yield from other taxes. In addition,
s106 payments will be taken into account in determining the final
value for PGS and, therefore, the amount of "new" resources
entering the system need to be offset by those already gained
through the existing system. Finally, there must be a tension
between the desire to set a rate of tax that will bring in additional
funding and one that is low enough not to deter development and
not to encourage developers to land bank to a greater extent than
now happens.
THE LINK
BETWEEN INFRASTRUCTURE
AND PAYMENT
8. In seeking to limit the operation of
s106 to a "development-site environment" approach, there
is the danger that elements of infrastructure required to both
make a development financially viable and, importantly, to enable
it to contribute to the creation of sustainable communities will
not be delivered for that particular development.
9. The Section 106 system that operates
currently can be seen, basically, as a contract between a developer
and a local planning authority (LPA) with the authority agreeing
to deliver certain elements of infrastructure, to which the developer
has contributed, within a certain time. Many authorities will
return the developer's contribution if that contract is not fulfilled.
It is hard to determine from the details in the consultation paper
how such a direct relationship between payment and delivery will
exist under PGS.
10. Some elements which contribute to the
creation of sustainable communities, such as education and health
provision, will be provided by PGS rather than s106. Without a
clear means of identifying how PGS revenue will be returned directly
to fund those elements, it will be impossible for a contract for
delivery to exist between a developer and an LPA. It will also
make it very difficult for an LPA to require that all or part
of a scheme is not started until certain elements of infrastructure
are in place. It will be doubly difficult in some cases as the
financial payment is not made until the development starts.
11. This lack of direct link between the
developer and the provision of infrastructure will also make it
much harder for a development to be acceptable in terms of an
Environmental Impact Assessment. Currently, developers can mitigate
or obviate adverse impacts by providing or funding ameliorating
actions or developments, such as provision for public transport.
Unless there is a more direct link between payment and delivery
then it will not be possible to demonstrate conclusively that
impacts identified in the assessment will be addressed.
THE DISTRIBUTION
OF PGS REVENUES
12. There are four main issues relating
to the distribution of revenues back to local areas, The first—the
relationship between PGS payment and the infrastructure required
for a particular site, has been covered above. The second relates
to the geographical distribution, the third relates to the distribution
in respect of a "shopping basket" of infrastructural
needs and the fourth relates to timeliness.
13. On geographical distribution, the consultation
paper states that a "significant majority" of revenues
will be returned to the local level and an "overwhelming
majority" will be recycled within the region. This somewhat
confusing statement is further compounded by a more recent statement
by the Minister for Local Government and Communities that "the
majority of funds will be spent at the local level, with the rest
to be spent in the sub-region". The re-distributive mechanism
is at the heart of making a workable infrastructure funding system
and it is regrettable that the consultation document is uncertain
on this.
14. The consultation paper is silent on
an extremely important aspect of geographical distribution—that
relating to the devolved administrations. As the tax is payable
to HMRC, it is a national tax. There is no indication of the role
(if any) of devolved governments in influencing, or playing an
active role in, the re-distribution of this national tax. This
omission is compounded when planning agreements are considered.
This is a devolved responsibility and, for example, the Welsh
Assembly Government is currently considering reviewing the operation
of s106 in Wales. The situation could arise where a national tax
regime is predicated on changes to legislation (5.15 in the consultation
paper) which may not apply in devolved areas.
15. Equally important, is the way in which
the distribution of revenue will relate to the requirements of
local and regional areas in terms of infrastructure. The consultation
paper is silent on this although it is understood that recipients
could include health trusts and others as well as local government.
There is the need for local authorities working in partnership
with utility and infrastructure providers and adjoining and regional
authorities, to draw up investment plans for the infrastructure
needs of their areas. Many already do so through local planning
and regional planning processes but the possible introduction
of a PGS will require that this is put on a more substantive footing.
There is a strong case to be made for local, regional and national
spatial investment plans to be drawn up as documents which form
the basis of bids for PGS funding. This gives added weight to
the RTPI's long standing calls for a spatial development framework
for the United Kingdom—indeed it is hard to see how PGS
could operate effectively without this.
16. The final element in relation to distribution
is timeliness. It is recognised that the taking of the revenue
at the point at which development is started is necessary in terms
of the cash flow of a development. However, this means that the
funding for necessary infrastructure is not available in advance
of the development for which it is required. It may be assumed
that local authorities and others will establish infrastructure
funds which may draw in other sources of funding—such as
the Community Infrastructure Fund. However, in terms of the funding
of a flow of infrastructure projects, the timing of revenue collection
will mean that the element of such a fund which is derived from
any additional PGS derived money will always be in debt to itself
and will require pump priming funding from elsewhere.
17. An added complication arises when developments
are necessarily phased but where the infrastructure need relates
to the overall completion of the development rather than simply
to the first phase. In this case, there will be no certainty that
subsequent phases will provide the levels of revenue required
but it would be inequitable for the "pathfinder" development
to have to provide a significant proportion of overall funding
requirements.
EFFECTS IN
DIFFERENT MARKET
AND GEOGRAPHICAL
SITUATIONS
18. PGS is promulgated as a national tax
but is one that will impact in very different ways in different
geographical and market situations. It is clearly built on a model
of development on a greenfield site in an area with growth pressures
and it is relevant that the table of uplift in values (paragraph
1.10) shows uplift from mixed agricultural land. Currently, in
England, only 33% of housing development follows that model. The
reality in many other cases is one where a site without permission
(or even with permission) will have a negative value taking into
account the need for remediation or where the uplift in value
is low as the Planning Value itself will be low. The consultation
document does not make it clear how PGS will benefit local areas
in such situations.
19. In such cases, the role of infrastructure
investment will be to stimulate markets rather than service them
or to help to turn existing communities into sustainable ones.
If, however, there is little revenue accruing through PGS because
of no, or limited, uplift in value, then those areas that can
be in most need of infrastructure will not receive funding for
it through PGS. Rather, PGS may be seen as adding fuel to potentially
overheated local economies through continued investment in such
areas. This tax can, therefore, be seen as being potentially regressive.
20. In order to counter this, there does
need to be some element of the revenue diverted for strategic
infrastructure investment in areas which would benefit from it.
This may be done through "top slicing" PGS or through
taking PGS revenues into account in determining the regional allocations
of national spending. Otherwise, PGS could be a deterrent to the
regeneration of run-down and deprived areas.
21. The Government is considering having
different rates of taxation on greenfield and on brownfield sites.
It is worth looking at the extension of this differential rate
approach to different uses in order to encourage a range of uses
which would contribute to sustainable communities by reducing
tax rates on those that may be desirable in planning terms but
less attractive in commercial terms. This may include types of
use, such as individually owned shops as opposed to chains, which
planning does not currently have the ability to control.
22. Additionally, it is clear (see PPS1)
that one of the purposes of planning is to create high quality
development. It is not certain how PGS will affect those developers
who wish to invest in a greater quality of development in ways
that may not necessarily be reflected in the final monetary value
of the scheme.
AFFORDABLE HOUSING
23. The logic behind keeping affordable
within the s106 arrangements is recognised—both that the
provision of affordable housing needs to be related directly to
a site if mixed communities are to be achieved and that payment
will most often be in the form of land or stock rather than a
payment. However, the exclusion from affordable housing from PGS
could have two detrimental effects. First, it is not stated in
the consultation document whether some of the revenue from PGS
will be used to support affordable housing in addition to the
resources gained through s106, by for example including the Housing
Corporation as a recipient of revenue or through returning to
the equivalent of Local Authority Social Housing Grant. If this
is not to be the case, then the opportunity to support the delivery
of a key Government agenda will be lost.
24. Secondly, s106 agreements for affordable
housing are only meant to relate to residential developments above
a threshold. PGS is to apply to all types of development with
a very low threshold set. There is a strong case for requiring
commercial development to contribute to the development of the
types of housing that many workers will need in order to staff
that particular development.
25. Taking both these concerns, it is necessary
for re-consideration to be given to the relationship between PGS
and affordable housing—even if a key funding route remains
s106 agreements—so that the development of affordable housing
can benefit from the PGS regime.
DETAILED ASPECTS
26. It is not necessary to go into detail
on some of the more specific aspects of the proposals in the consultation
paper as we consider that the case against the scheme suggested
has been made above. However, while we welcome the fact that the
Supplement would be payable by all types of development and that
the threshold for payment is to be set as low as possible, we
have concerns over other detailed aspects including the difficulty
in assessing a value before permission—particularly on green
field sites—and in separating out those elements of the
uplift that can be attributed to a specific permission being given.
27. The greatest uplift in value may occur
at outline planning permission stage but the paper is not clear
at which point in the permission process the value is assessed.
This fact, combined with the point at which the tax is collected,
still allows for a market in land to take place without permission
being implemented. There are also concerns—already expressed
in broad terms above—about where the line should be drawn
between "development-site environment" infrastructure
and that falling under PGS. For example, flood defence is listed
as being within the new scope of s106 rather than as suitable
for funding by PGS.
ALTERNATIVE APPROACHES
28. Given our strong support for the principle
behind these proposals, the RTPI is very keen to work with HM
Treasury, the ODPM and HMRC to develop proposals that will overcome
the concerns about the current proposals set out above. One clear
basis for further thinking is a tariff-based approach and we set
out further thinking on this below. However, it is also worth
considering both extensions to existing mechanisms, including
s106 and Capital Gains Tax and more fundamental suggestions including
examples from abroad such as Tax Incremental Financing and the
Irish Republic's system of Development Contribution Schemes which
is embodied in their Planning and Development Act 2000. The RTPI
would be pleased to prepare further evidence on alternative approaches
and includes an example of one approach at the end of this section.
A Tariff Based Approach
29. The RTPI fails to understand why a tariff-based
approach was not included as part of the proposed approach—or
even one of the options—in the Consultation Paper. Whilst
the consultation paper states reasons for rejecting this option,
we do not consider these to be robust.
30. Five years ago the RTPI issued a policy
paper on Planning Gains and Obligations [December 2000—http://www.rtpi.org.uk/resources/policy-statements/2000/dec/pol20001202.pdf]
which stated that: "the Institute proposes a new look at
policy, which rejects antipathy to formulae but rather directs
itself toward the development of a tariff or scale based approach
where a balanced and well-planned development can be secured best
by developer contributions to infrastructure."
31. The RTPI statement went on to specify
that, "the foundation of a scale, or tariff based, approach
should be the development plan. This should: set out the basic
policy for the approach and should clearly incorporate the tariff
expected and, wherever practical, set out on a spatial basis the
"area by area" requirements for the provision or renewal
of infrastructure in new developments, including redevelopment
of previously developed areas."
32. Given this, the RTPI very much welcomes
the approaches being taken in Milton Keynes, Peterborough and
other areas in adopting a tariff-based approach. We recognise
that that the situation in such growth areas—with significant
pressure for, and acceptance of, growth, an analysis of the infrastructure
needs created by development and an ability to deliver housing
in significant trenches—is not replicated in many other
areas. However, there are elements of such an approach, including
the certainty that it brings to the development process and the
transparent nature of both payment and infrastructure requirement,
that need to be incorporated into any further proposals to capture
value uplift.
Land taxation
33. A more far reaching approach could stem
from a recognition that there is a fundamental difference between
land values and uplifts in value created by the grant of planning
permission. In the planning Acts the definition of land includes
buildings but in the law of economics it does not. Classic economic
theory states that land is simply the natural resource upon which
all human activity depends. In economic terms buildings and development
are capital.
34. Economic principles state that if the
cost of producing goods (eg development) and services is increased
then supply will be reduced. Thus if the cost of the charge is
applied to development, as is proposed through the PGS, it will
have the effect of reducing the supply of new development. In
contrast to this, if the charge is applied to land (in its economic
sense and not its planning sense) it will not have the same adverse
effect. This is because land has no cost of production—it
simply exists as the natural resource. In addition it is also
fixed in supply indicating that a charge on land cannot reduce
the supply.
35. To improve the situation, in this model,
it would be necessary to split the value of property (and proposed
development) into their separate land (the natural resource) and
capital (building) elements and amend the existing property taxes—the
business rates and council tax—so that the charge is moved
away from the building element of property value to the land element.
CONCLUSION
36. The RTPI strongly supports the Government
in the actions that it has taken to try to find a mechanism through
which some of the increment in value created through the planning
system is used to fund the infrastructure necessary for sustainable
communities and development. For all the reasons given above,
however, we feel that the proposed scheme for achieving this will
not have the desired effects and could, in some circumstances,
work against their achievement. We urge the Government to work
closely with all those involved in the creation of sustainable
development to devise another system that is acceptable and effective
and which meets the Government's own objectives. The RTPI is very
keen to be part of the process that leads to the identification
of such a system.
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