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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1024-ii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

OFFICE OF THE DEPUTY PRIME MINISTER:

HOUSING, PLANNING, LOCAL GOVERNMENT AND THE REGIONS COMMITTEE

 

 

Planning Gain Supplement

 

 

Monday 8 May 2006

MR JOHN CALCUTT, MR TREVOR BEATTIE and MR DENNIS HORNE

MS BRIGID SIMMONDS

Evidence heard in Public Questions 121 - 207

 

 

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Oral Evidence

Taken before the Office of the Deputy Prime Minister:

Housing, Planning, Local Government and the Regions Committee

on Monday 8 May 2006

Members present

Mr Clive Betts

John Cummings

Mr Bill Olner

John Pugh

 

In the absence of the Chairman, Mr Betts was called to the Chair

________________

Memorandum submitted by English Partnerships

 

Examination of Witnesses

 

Witnesses: Mr John Calcutt, Chief Executive, Mr Trevor Beattie, Corporate Strategy Director and Mr Dennis Horne, Chief Operating Officer, English Partnerships, gave evidence.

Q121 Mr Betts: Welcome to the Committee for our session on planning gain supplement. Can I first of all give the apologies of the Chairman of the Committee, Dr Phyllis Starkey MP, who unfortunately has a visit in her constituency today at which she has to be present. With that I will first of all ask if you would, for the sake of our records, identify yourselves.

Mr Calcutt: Good afternoon, gentlemen. My name is John Calcutt and I am the Chief Executive of English Partnerships, I will add by way of a rider of four-days standing. I have my colleagues here, Dennis Horne and Trevor Beattie who I will ask to respond I think to the majority of your questions.

Q122 Mr Betts: I hope that was not a plea for easy questions - the fact you have been there for only four days. We accept that you will pass to your colleagues, that is only appropriate. Could we begin by dealing with the issue of the West Bedford scheme and also eventually the Milton Keynes scheme as well. You referred to your role in brokering the West Bedford scheme to deliver yours and the Government's objectives. Could you explain how the model works and the role that you played in developing it?

Mr Horne: In simple terms, there is a situation in Bedford where 2,250 homes have been granted outline consent but subject to funding of a by-pass road that was beyond the abilities of fragmented land ownership, so English Partnerships was asked by the Government Office if we would look into how we could assist the situation. We worked with ODPM, the Department for Transport as well as the land owners, to broker a funding arrangement whereby we would forward-fund the road but subject to a share of land value capture over and above the section 106 obligations of the land owners. So in simple terms, we were acting as a banker in some respects who is investing in the road contract but then taking a share of land values at a later date.

Q123 Mr Betts: So is it a collective form of 106 in a way?

Mr Horne: It is over and above the 106 obligations which are placed on the land owners. They are obviously funding the normal requirements but because the road spreads over a number of different land interests it was not possible for them to fund the infrastructure, it had to bridge various areas and the local river there on I think two occasions, and there would have been disproportionate impacts on different land owners. This issue had actually held up development for over ten years.

Q124 Mr Betts: Do you think that sort of approach could be replicated for similar schemes or even for different schemes of a significant size in other parts of the country?

Mr Horne: I think it is possible depending on the individual circumstances. I would add that although English Partnerships were involved, we would not necessarily say there is a single solution which is applicable without looking at the individual circumstances. The principle of looking at forward-funding infrastructure to unlock difficult planning areas and permissions is something we could carry forward in other areas.

Q125 Mr Betts: If we had planning gain supplement, would you not simply be able to collect the planning gain supplement from all the different land owners, put it into a pot and do what you have done?

Mr Horne: There is a timing issue in that the planning permissions could not come forward until, in this case, the funding solution had been found for the road. That was the impasse. There may have been other niceties to the discussions but the reality was that the planning permissions could not be unlocked until the road was funded, the land owners were unable to have viable schemes with funding the road upfront, and it needed a public sector injection to meet the initial costs to make it come forward. The planning gain supplement would come after, as they went to start on site, but it would not provide the road necessarily, although the exact mechanics of planning gain supplement have not been worked out through the consultation document and it may be possible through some of the monies which go into central government that monies could be set aside either through the Communities Infrastructure Fund or other sources to enable those types of strategic transport works to come forward in advance of development.

Q126 Mr Betts: Moving on to the Milton Keynes tariff system which we had some evidence on previously, is this scheme preferable to planning gain supplement? Are you suggesting a tariff scheme should run parallel to planning gain supplement? Is Milton Keynes not really a unique situation which means that approach probably is not applicable to many other parts of the country?

Mr Horne: The tariff situation, as you will be aware, is based on looking at the infrastructure, both local and strategic, that is required to support a fairly defined number of houses in terms of their growth and employment opportunities. In Milton Keynes we know in terms of designated areas for growth, 33,000 houses have to come forward by 2016 and from the areas which are going in you can plot the infrastructure that is required, look at the total costs and available sources and then work back to a tariff which can be applied against individual housing units and employment, so we end up with a calculation which says we need £18,500 per house and something like £250,000 per hectare on employment to fund all the infrastructure necessary to support the growth of Milton Keynes. There are three issues which I think are fundamental to make the tariff work. One is the co-operation of the land owners. We are somewhat fortunate in the Milton Keynes situation that over 90 per cent of the land acquired is in the ownership of five owners. The co-operation of land owners is important. Second, you need a co-ordinated planning approach because it has to be based in planning allocations which are coming forward. Third, similar to the West Bedford scheme, you need the ability to forward-fund infrastructure, so that in terms of the role English Partnerships is playing we are still forward-funding elements of infrastructure in co-operation with the highways authority and the Highways Agency to support growth and then receiving payments back from developers as consents are granted and development takes place.

Q127 Mr Betts: You indicated there is a backward working out of how much we need to invest in infrastructure, divide it by how many houses, and that is the amount per property, but when Milton Keynes came to speak to us they said they had not got enough money for infrastructure and an additional residue of funding was needed. Does that suggest that the tariff was not set at a high enough level?

Mr Horne: The thing with the tariff is that it has to be set at an amount which enables development to come forward and does not set an artificial barrier to development, and it has to be done, as I said before, in co-operation with the land owners. It is cemented through an over-arching section 106 arrangement, and that has to be defensible. That is why the calculations are done to show that it is a defensible sum. Under the Milton Keynes model, some 100 per cent of strategic infrastructure is funded and 75 per cent of all the local infrastructure needs are funded. The Council therefore on a bill of £1.6 billion has to find some £40-50 million to make up the 25 per cent in local infrastructure, but they already receive substantial amounts in terms of capital allocations from DfES for education and through other government funding streams. So in terms of the calculations we made, we believe it was a fair and equitable funding arrangement which enabled existing funding sources to continue but also for development to not be adversely affected. Just to make a final point in closing on this, I think it is really important whether it is a tariff arrangement or a PGS arrangement that it does not substitute for existing government funding streams, and that is the way the MK tariff has been calculated. Milton Keynes Council's point is that they have no certainty in the long-term government funding streams which have been anticipated under the MK tariff.

Q128 Mr Olner: On the West Bedford one, are we talking about land which was zoned for residential use or green belt land or agricultural land, where there is a massive uplift in the value of the land? Or are we just talking about land which was zoned residential where planning permission has been granted?

Mr Horne: It is land which is zoned for residential. There is a substantial uplift. I have to stress that there are very complicated arrangements in terms of both the road that is going through and also the requirements the local authority have placed on the developers through section 106 arrangements. The issue here is very much that to meet the obligations under section 106, which involved meeting all of the costs of affordable housing without housing corporation grant, and building of the schools and so forth in advance of development, they could not viably bring forward the cost of the road as well. As I say, there has been an impasse there for some ten years.

Q129 Mr Olner: Milton Keynes have given us evidence, as Mr Betts alluded to, and were fairly sceptical as to whether the scheme they had got for the tariff would work anywhere else. Milton Keynes is a new town compared to many areas of the UK, have they got a unique position with the housing corporation and the fact they were a new town?

Mr Horne: I would not say they have a unique position; not entirely. The position is where you have a comprehensive area for development, you can plan out exactly across that area what is required to support growth and the different funding sources and infrastructure requirements to make it happen sustainably. I would have thought there are examples in other places where that could happen in terms of new towns, as you have alluded to them, without naming places but within the growth areas.

Q130 Mr Olner: Could you make a stab at one?

Mr Horne: It is invidious to do that but Harlow is within the growth area where it may work in terms of the growth to the north of Harlow. But the point I wanted to make is that you have to have a willing land owner who wants to enter into these arrangements, and if you have a fragmented approach where you have umpteen land owners it is going to be very difficult to construct a tariff arrangement in that situation. At Milton Keynes we were very fortunate that you could get the five major land owners who hold over 95 per cent of the land allocated for the expansion of the town into this arrangement and then, because it is based very much on local and strategic needs, you could enforce that against other planning applications as they come forward.

Q131 Mr Olner: You did say, Mr Horne, that there are varied interests in the provision of infrastructure to increase areas of residential housing. There is the local one, there is the regional one, there is a national one. Given that this tax is going to go firstly to the Treasury, how do you see that being redistributed to all of the players ie local, regional and national?

Mr Beattie: English Partnerships' contention of course is that there would be scope under PGS to run a tariff alongside the PGS mechanism. Where local authorities and groups of local authorities can get together, where the conditions which Dennis has mentioned would be satisfied, where the right relationship exists between the uplift to be captured on the site and the cost of the infrastructure, there is scope to get together to produce a tariff. In our consultation response, we have suggested in that situation the top slice, the 20 per cent Communities Infrastructure Fund, should still be chargeable but otherwise the area should be exempt from planning gain supplement so it should not go up to the Treasury in the first place.

Q132 Mr Olner: But most of us who have been representing coalfield communities for many years know about the problems we had with additionality with the money we had from Europe to boost the infrastructure. It would be very easy, would it not, for national government to keep to itself some of that planning gain supplement instead of feeding into the infrastructure they would normally fund?

Mr Beattie: That is why our contention right at the front of our consultation response is that this should be seen as additional, and what is raised should be additional to and there should be no take from central government.

Q133 Mr Olner: What would you do about the geographical problems of some people being able to raise more planning gain supplement but have a harder fist to fight for a better section 106 than others? How would you smooth out within the planning gain supplement the differences between the North East and the North West, and the South East and South West?

Mr Beattie: Planning gain supplement generates more value where there is a higher value uplift to be achieved, but that is already the case in the coalfield areas where English Partnerships spends disproportionately more, where values are low and there is very little value to be unlocked. We already do that in support of section 106. We will continue to do that in support of planning gain supplement. That is one of the merits of a national agency like English Partnerships.

Q134 John Pugh: You favour a mixed economy - section 106 agreements, planning gain supplements and tariff based systems. It could be argued that is slightly confusing for the developers, they do not have predictability, they do not have clarity, they do not know what they are going to be hit by. Is that a fair surmise and does it matter anyway?

Mr Beattie: Certainty for developers is the key to this. Whatever system of planning gain supplement comes out, it should be based around giving a clear, transparent and certain system for developers. It is our contention that you can implement PGS to provide such certainty, although a lot of the details are not in here yet, but that the tariff is a very simple arrangement of developers using enlightened self-interest effectively to get together to define what they need and get the resources for what they need; a very clear prospectus. It is perfectly possible to achieve the same through PGS but the consultation as it stands at present has not sketched that out.

Q135 John Pugh: What would be the consequences of a degree of uncertainty?

Mr Beattie: They would be a possible reduction in the amount of land coming forward for development.

Q136 John Pugh: You argue for greater research to be done on the impact of removing education from section 106 agreements. Why do you do that?

Mr Beattie: Our response included seven case studies and when we ran them we found that education accounted for the vast majority, between 45 and 80 per cent, of the section 106 which English Partnerships would no longer be paying under the new system. A lot of what we currently do centres around the provision of new primary schools - for example the new school at Greenwich, the new school at Northampton - because we find you need the school to attract the high quality development, you cannot wait for the development to come along and provide the school later. It determines most people's choice of community and where they want to live. So we think that education funding is very central to this. If you included education funding within the site-specific section 106, you would in effect be acknowledging the way people treat and relate to their local primary school; it is a local, site-specific facility servicing that community.

Q137 John Cummings: In your memorandum you include a number of case studies which show that the impact of the introduction of PGS would vary greatly depending on the rate at which it is set. How adequate can any assessment of the impact of PGS be without the knowledge of the rate at which it is to be set?

Mr Beattie: We had to take a series of assumptions and our case studies are based on assumed rates of PGS of 20 per cent. We have made a number of other assumptions as well just to work it through, but we worked it through on a consistent basis. What I would say about those case studies is that they are real sites, they are seven real sites, and what they show is on unviable brownfield sites, as we know, no PGS is payable, on some of the most marginal sites, because there is only a marginal uplift in land values, there would be an overall reduction in the PGS/section 106 burden under the new system. In other words, part of my answer to the coalfield site issue is actually the amount of take from them will reduce increasing their viability.

Q138 John Cummings: So you are quite confident in the studies you have carried out?

Mr Beattie: We are confident in the studies we carried out on the basis of the assumptions which we have taken where the information did not exist in the consultation document. We have made assumptions.

Q139 John Cummings: If the Government were to proceed with its proposals for PGS, at what level do you think the rate should be set? What do you consider to be a modest amount?

Mr Beattie: It is not for us to speculate on what a modest amount is, it is for ministers to set the rate.

Q140 John Cummings: But you argue that a modest rate of PGS can be absorbed in some areas. What would be a modest rate for my area in the North East, do you think?

Mr Beattie: It is not for us to take a view on that. We have run it through at a rate of 20 per cent and the figures are there in our consultation response.

Q141 Mr Betts: You are the experts in development, are you not? You know what works and what does not work, so I think we have an interest in knowing what your view is of the rate.

Mr Beattie: We think at 20 per cent it works. Can I give an example of why I think at 20 per cent it works which I know reasonably well? One of our examples is a greenfield site where at 20 per cent the take from PGS and section 106 under the new system is greater than the existing section 106 take. If you run at a rate of 15 per cent, interestingly the old and the new system takes are exactly the same. That is for a greenfield site needing substantial infrastructure. That suggests to me that for that sort of site, that is roughly the right area.

Q142 John Cummings: I am trying to tease a bit more out of you here. Is the rate of PGS which could be absorbed before PGS becomes a disincentive to investment consistent across the country or does it vary with different types of development and different locations?

Mr Beattie: It varies very dramatically. On page 8 of our consultation document we show that the PGS rate at which PGS and new section 106 would equate to the old 106 for greenfield sites actually varies between 7 per cent and 22.5 per cent. So it is very variable site to site.

Q143 John Cummings: You have mentioned the PGS rate set at 20 per cent, is this a cash equivalent of developers' contributions to infrastructure provision, or would it actually be less under PGS than it is at present?

Mr Beattie: That depends on the site, it depends on the section 106 obligations already on the site. As I was explaining, on some sites the new system under our figures shows you will be paying less, on some it shows you will be paying more.

Q144 John Cummings: Why do you argue that only a low rate of PGS can be accommodated?

Mr Beattie: Because the new system will apply comprehensively to development across the piece. It is equitable in that respect in that it applies to development across the piece, whereas currently only about 40 per cent of development is subject to section 106 obligations.

Q145 Mr Betts: Is there a case for a variable rate?

Mr Beattie: I do not think so, no. We were talking about clarity and certainty and a complex range of different rates would obstruct that clarity and certainty. We have, however, suggested there might be a case for a discount of the rate for five-star environmental developments, actually linking up fiscal policy and environmental policy. We think there is a great opportunity to do that here. But a framework of different rates - no.

Q146 Mr Olner: It is okay having planning gain supplement if that raises more revenue for infrastructure than 106 does, but if you are going to have a rigid 106 system and it is argued the reason for bringing in planning gain supplement is that some authorities are better at negotiating 106 agreements than others, there is going to be some disparity. How do we bridge that? Mr Horne is nodding so he knows what I am saying.

Mr Horne: It is obvious if you apply a constant rate across the country, it will have different impacts in different areas. English Partnerships are not saying it will not. What we are saying is that if you are bringing in planning gain supplement, you need to do it in a way which gives absolute clarity to the developers. We are sub-dividing, as it were, the section 106 negotiations because certain elements are staying under section 106 and others are going under planning gain supplement. From a development point of view, that is a benefit if they gain certainty through that and there is a value to that certainty. When we look at the consistency argument, it is important we have a consistent rate.

Mr Calcutt: To add slightly on that, I think you substitute the characteristics of the site for the planning skills and abilities of the local authority which is doing the negotiations. In other words, obviously you are going to lose the input of what I would call key negotiators, but on the other hand you are going to more equitably distribute the tax insofar as its impact, as I understand it, is going to be those intrinsically difficult sites with low inherent land values which are automatically going to have a lesser tax payment than those which are intrinsically more valuable in areas where you need less infrastructure. That seems to me to be a level of equity that is wholly desirable rather than, as it were, key negotiating powers bringing about an anomaly.

Q147 Mr Olner: But in shire counties the major planning authority is the district, and it is usually the district which does the negotiation on 106. How widely is that going to be spread in the future? As I said before, you have local infrastructure to provide, the local authority ones, you have regional, the shire county ones, and then you have national ones. At the moment you have one clear negotiator for the section 106 stuff. It seems to me that this issue is going to be clouded in the future in providing infrastructure because it does not only rest with one set of people.

Mr Beattie: There will continue to be one clear negotiator for the site-specific element of section 106, but for the national infrastructure there will be the Communities Infrastructure Fund.

Q148 Mr Olner: So it is essential that as well as planning gain supplement there is also section 106 agreement as well?

Mr Beattie: Under this new system, site-specific infrastructure will continue to be negotiated in the same way but for a narrower range of facilities.

Q149 John Pugh: I think we are reaching a view that you accept there is going to be a degree of diversity, although we are not in a position to be able to say how much diversity and what degree of clarity we are going to have here, but taken in the round you also seem to be saying that the new system will generate more money by increased land values for the public good than the previous section 106 agreements by themselves. That is fairly common ground, is it not?

Mr Beattie: Yes.

Q150 John Pugh: Do you think it is going to be significantly more to the extent there will be a real substantial uplift in the amount of money available for strategic infrastructure?

Mr Calcutt: Can I start and then let my colleagues come in? I think it depends how you are drafting the tax. We have seen previous attempts to tax windfall gains and they have run into enormous efficiency problems insofar as the cost of administration and all the rest, and things get locked up in litigation for years, and the practical take is poor. I think there are two sides to whether you achieve it. Does it in principle, if the model is just dropped out and everybody paid their due amount? The numbers equation is, as I understand it, that it would raise significantly more revenue. On the other hand, if in fact practically the way the tax is administered results in it being bogged down with every chartered surveying company and legal firm inside the country and offshore, then clearly as a matter of practice you are not going to get the revenue take you want. So the devil is in the drafting of detail which enables this thing to be what I would call efficiently administered.

Q151 John Pugh: So when the regulation and legislation come forward, there is a need for real scrutiny?

Mr Calcutt: As a former lawyer, I would say this is going to be a parliamentary draftsman's either nightmare or paradise, I know not which. Certainly the devil is in the detail here.

Q152 John Pugh: If the planning gain supplement raises less than section 106 does at present, does that mean in fact the tax rate is too low or that the purpose of the introduction of PGS itself is frustrated?

Mr Calcutt: I am going to push my luck here and say to you that the dilemma is that if you set the tax rate too high then clearly the incentives people have for going down the route that I have described in terms of trying to avoid paying this thing with schemes or just withholding it in the hope that it will change in the future, which is a common one, and again go up on a curve, and so part of the cleverness of this, I think, is first the drafting but also setting rates at a point at which perhaps people's incentive for avoidance is not going to be as high as it otherwise might have been.

Q153 John Pugh: So the Government, like a good parasite, should not kill off its host?

Mr Beattie: One or two of the proposals in our consultation paper were designed exactly to hit this point. We argue that the payment should be phased; it should not all be up front at the point of starting on site but, as happens as present in Milton Keynes, it should be 25 per cent up front and 75 per cent on completion so you can give an incentive through the operation of the system for developers to come forward with sites.

Q154 John Pugh: How long do you think it is going to take the land markets to adjust to the new regime?

Mr Beattie: One of our submissions is that the transitional arrangements for this are going to be absolutely crucial. I do not think it will take the markets terribly long to adjust. I think the short term impact will in many cases be a reduction in the value of sites because the PGS will in effect be taken off the site value. That might work in favour of those of us trying to bring forward major strategic developments but there is going to be a period of transition, it is going to be very important to protect the tariff arrangements in that transition and markets will certainly swing around before they stabilise under the new system.

Q155 John Pugh: In arguing for greater simplicity and clarity, as you have, do you think there should be a scheme that allows a very few exemptions rather than a lot of well argued, cogent exemptions?

Mr Beattie: Yes. I do not see the need for exemptions. If you have a site with very little or no value you will pay no tax. On brownfield sites, as we have shown in our case studies, where there is very little uplift, there will be little planning gain supplement to pay, and by and large on serious brownfield sites there is less tax under the new system than under the old system. It is to some extent a self-regulating tax: the more uplift, the more tax.

Q156 John Cummings: What is the merit of exempting sites with option agreements from PGS liability?

Mr Calcutt: As a former developer perhaps I am qualified to answer on this one.

Q157 John Cummings: I thought you said you were a lawyer.

Mr Calcutt: I was the company solicitor and subsequently I became chief executive of a major house builder, and so I do both, I am afraid. I think that "option" is a generic term for those parcels of land that have been secured on fixed terms that we are holding at the moment, so it will cover conditional contracts, options, uplifts and the like. The only point there is that lots of developers and house builders have entered into agreements that provide for a specific sum to be paid on the grant of planning permission and in the event that a tax is then levied on that those contracts will probably plunge the developments themselves into deficit or sub-normal profits which again will have one of two effects. You will either have people carrying out the very sorts of avoidance tricks they can get away with or, much more probably, simply sitting on land, not bringing it forward for development, causing housing supply to move sharply downwards, trying to wait out the consequences of a bad contract. I think it would have very undesirable effects and would damage the house building industry. Whether that is a good or a bad thing I do not know.

Q158 Mr Betts: Would there not be a case then for saying that if sites with option agreements on them are going to be exempt that exemption only applies for a period of time to encourage the development of those sites because once the time runs out there is not going to be the exemption?

Mr Calcutt: That does sound as though it would have quite a lot of merit in it. The only thing I would say is that quite a lot of options and conditional contracts take land now ten years before it comes forward and it is then promoted through the planning system and therefore we are talking about very long timescales here. I think the sort of thing that you are talking about might well be able to be achieved by other means.

Mr Beattie: Linking the planning system to it.

Q159 Mr Betts: You might like to reflect on that and let us have a note about it because I understand it is a technical issue. Perhaps you would like to give us a note after the meeting on your further thoughts on that. Let us come back to the point we were discussing before about your general commitment to hypothecating planning gain supplement going to the local authority where the development is taking place. I heard what you said about English Partnerships being the knight in shining armour that goes into places like the coalfields and assists where there is not the money for infrastructure development around, but is there not a danger that if we concentrate all or the vast majority of the resources from planning gain supplement in those areas with high land values we are simply going to add to the overheating in those areas?

Mr Beattie: We are also going to provide more resource in order to tackle the consequences in terms of strategic infrastructure of that overheating. You will be generating more resources where you need more strategic infrastructure. You have to have a body like English Partnerships in existence to deal with areas like the coalfields, but this generates resource where it is needed.

Q160 Mr Betts: We are quite convinced that we have sufficient, say, in the south east to provide all the sewage and the water and the transport infrastructure that is needed?

Mr Beattie: The Treasury has said that the Community Infrastructure Fund will be an additional sum and on their figures that is 20 per cent of the total planning gain supplement, albeit a substantial amount of additional resource, to deal with strategic infrastructures.

Q161 Mr Betts: You do say that there might be an element of redistribution, that essentially most of it should go to the local planning authority.

Mr Beattie: Yes.

Q162 Mr Betts: Have you got an idea of the proportion? Have you got a figure in mind?

Mr Beattie: The consultation document talks about 80 per cent going back to the local area and 20 per cent for the Community Infrastructure Fund, and that certainly seems to be about the right level from where we are coming from.

Q163 Mr Betts: If we are then going to hypothecate and ring-fence most of the money is there any case for keeping existing tariff systems?

Mr Horne: Obviously we are a little while away from the planning gain supplement coming into force and therefore it is a mechanism that promotes and accelerates development at this point in time. The point was previously made about transitional arrangements and I think it needs to be looked at very carefully through the transitional arrangements for PGS because nobody will enter into tariff arrangements unless they get some sort of conditions regarding how planning gain supplement will impact on the tariff arrangements. For instance, in Milton Keynes the tariff arrangements are entered into by the landowners but only on the basis that they do not get doubly taxed through planning gain supplement, so if planning gain supplement comes in in a number of years' time to the extent that that duplicates the arrangements under the tariff there will have to be some system of refund to them. The sooner the transitional arrangements are clear the more confidence people will have to continue entering into tariff arrangements to accelerate developments in the meantime.

Mr Calcutt: The point that I think we are making is no more than, when circumstances permit and enlightened self-interest bring the public and private sectors together to try and cut a deal to bring development forward or do things more efficiently by agreement, then it would be a shame if that opportunity were no longer available and there was some mechanism for saying, okay, you have struck a good deal here, maybe more than you might get under the tariff for an accelerated programme or some such economic bargain, and in those circumstances should you be precluded from doing so? That is, I guess, the only logic that you can apply.

Mr Beattie: That is why our consultation response says that tariffs should only be allowed to run alongside PGS where they would raise at least as much as PGS.

Q164 John Cummings: You appear to be wary of the extent to which self-assessment is likely to work. Do you not think it is a valuable way of reducing bureaucracy or do you believe it is just a recipe for tax avoidance?

Mr Beattie: We are wary because we think that the detail and the information is not in the consultation document. There was a pledge to consult further on self-assessment. A lot more detail is necessary. Self-assessment as it stands is a perfectly good mechanism for doing this; indeed, you would probably need an army of inspectors to do it any other way, but the information simply does not exist on self-assessment. There will be a natural check and balance in the system, ensuring that developers will want to put a proper assessment down of their PGS liability because they will not want to be hit subsequently with any uncertainty over the land or the development and so we think that self-assessment can work very well but the information just is not there and a lot more guidance is needed.

Q165 John Cummings: What mechanism for assessment would you prefer?

Mr Beattie: I think we have said that self-assessment would work very well but we need more guidance on it. I do not think it could work with a central inspectorate assessing it.

Q166 John Cummings: So you are quite happy with self-assessment?

Mr Beattie: We need more details on it. The principle of self-assessment is fine.

Q167 John Cummings: Do you have any alternatives in mind?

Mr Calcutt: No. I think that any alternative would be a bureaucratic nightmare, so I think what you need to have is self-assessment backed up with the very clearest guidelines on how those assessments are carried out and some fairly interesting penalties should that system be abused. That is the best you can do.

Q168 John Cummings: What appeals system would you envisage?

Mr Calcutt: I would go along the line that, where applications were made, in the circumstances where people made valuations or views that had no reasonable basis in reality then I would be expecting very significant penalties for clear, dishonest behaviour to be imposed, like multiples of the tax.

Mr Beattie: The evaluation of this will take a view on all these matters, and they will be running the system and checking self-assessments.

Q169 John Pugh: Is the Community Infrastructure Fund, together with regional funds, an essential ingredient for the PGS proposals to work effectively?

Mr Beattie: Yes, we think it is fundamental to PGS working because PGS pivots on the distinction between site-specific infrastructure and the broader strategic infrastructure which the Community Infrastructure Fund will make available. One of the fundamental pieces of logic behind here is, as I have said before, the additional resource it will free up for that essential strategic infrastructure.

Q170 John Pugh: You cannot think of any other mechanisms that might be used to overcome the gap between the point at which investment is required and the PGS revenue flows?

Mr Beattie: You are talking about phasing and timing?

Q171 John Pugh: Yes. Were it not there, what other mechanisms are perceivable?

Mr Beattie: Plenty of other mechanisms are conceivable. It would be perfectly practicable to use the existing section 106 procedure to create a Community Infrastructure Fund. There are plenty of other ways of doing it but the good thing about this is that it is built into the structure of PGS and the Treasury have said it will be additional.

Q172 John Pugh: With regard to the national element of the Community Infrastructure Fund who do you think should be administering that? Would English Partnerships seek a role?

Mr Beattie: We could certainly be one candidate, yes. It will need a body with a more than just a local or regional overview in order to distribute that money fairly and take a view on major cross-regional infrastructure.

Q173 John Pugh: So you would not mind dispensing capital or helping to distribute that?

Mr Beattie: Certainly we would be one candidate for that role.

Mr Calcutt: Obviously, it can be used in an integrated manner to the extent that one can have infrastructure pump-priming viable regeneration, and we can bring those together. I think we would have something to offer in that particular circumstance.

Q174 Mr Betts: You have looked into certain exemptions to PGS and you have talked about the Code for Sustainable Homes and that the land on which homes that met that might be exempt from PGS. Again, it is another exemption into the system. Is it reasonable for developers which, for example, install grey water recycling to say that they are exempt from PGS when surely the demands those developments place on the infrastructure are not actually much different?

Mr Beattie: Can I just talk you through what we propose? We do not propose a complete exemption. We propose a reduced rate. We do not propose that such developments - and for the sake of consistency let us call them five-star developments - should be exempt from the Community Infrastructure Fund because they make just as big a draw on strategic infrastructure, but it does seem to us self-evident that developments that have a very high level of environmental sustainability, that use less water, that are more energy efficient, should be encouraged and they will by definition make less demand on local services than inefficient forms of development. Therefore we think this is a great opportunity to tie up environmental and fiscal policies and provide incentives for high quality development that we need particularly in the growth areas, for the reasons you have given.

Q175 Mr Betts: So would a calculation have to be done in some way to ensure that the reduction on demand on local infrastructure that came from having these environmentally friendly homes was no different from the reduction in the planning gain supplement?

Mr Beattie: No. We would create a whole industry if we allowed some kind of proportionality. We are proposing quite a simple reduction for homes that meet a five-star rating under the proposed code. It would be a set reduction.

Q176 Mr Betts: How much would it be?

Mr Beattie: We have not made proposal. It would be a discount. We would need to model that and it is one of the areas we have said we are going to do further work on.

Q177 Mr Betts: Do you really think that the current Draft Code for Sustainable Homes is sufficient to merit a reduction or do you think it ought to go further?

Mr Beattie: I am talking about very high quality developments, whether they are EcoHomes excellent. However they are measured, we are talking about high quality developments.

Mr Calcutt: We would have a single standard. For the purposes of the proposition one would stay with the only game in town at the moment, which is EcoHomes. We would just say that if this was EcoHomes excellent, or excellent plus as the hurdle rate rises, then against that single top standard there would be a discount for those that were able to achieve it and whatever elements it would have to contain in its new and expanded form.

Q178 Mr Betts: In terms of housing and non-housing, if this discount were offered for certain housing schemes do you think there is a danger that that might skew the market in favour of housing development or would you consider offering some discount to eco-friendly non-housing schemes?

Mr Beattie: It should relate to commercial as well, but we are trying to skew the market in favour of high quality environmentally friendly development.

Q179 Mr Betts: Does that mean you would have to have therefore a set standard for eco-friendly commercial development as well?

Mr Calcutt: There is one. The same system in principle applies to both . The Building Research Establishment has EcoHomes for domestic and something called BREAM for commercial, so all the standards are there and all the measuring equipment is available to do that.

Mr Betts: We probably will have one or two more questions to follow up on in writing to you on technical points as well the one we asked you to come back on about option agreements. Thank you very much indeed for giving your evidence.


Memorandum submitted by Business in Sport and Leisure Limited

Examination of Witness

 

Witness: Ms Brigid Simmonds, Chief Executive, Business in Sport and Leisure Limited, gave evidence.

Q180 Mr Betts: Welcome and thank you for attending our session. Can I begin, as I did before, by giving apologies for Dr Phyllis Starkey, Chair of the committee, who is in her constituency on important business this afternoon. Would you for the sake of our record like to introduce yourself?

Ms Simmonds: Thank you, Chair. My name is Brigid Simmonds. I am the Chief Executive of Business in Sport and Leisure, which is an umbrella organisation for sport, leisure and hospitality companies. I would also like to give evidence on behalf of the Tourism Alliance of which I am Chairman, which is 46 different trade associations, very much the voice of tourism, and I am also Chairman of the CCPR, which is 270 voluntary bodies and governing bodies of sport.

Q181 Mr Betts: You wear a number of hats. If we restrict PGS in any way on commercial-type developments is that not going to skew the market? If PGS is charged, say, on housing developments would that not be more fair?

Ms Simmonds: Our concern is the opposite, particularly if you are going to give the PGS to local authorities to distribute, that local authorities are only going to be interested in receiving planning applications from those types of development which produce high value and that is everything other than sport and leisure. There is not a value in sport and leisure types of development. They struggle to pay the site costs you would spend on retail, commercial or offices, and that is our main concern, that you would be further restricting a market that already suffers from the fact that very few local authorities think about it when they are putting together local development frameworks and regional spatial strategies.

Q182 John Cummings: Why do you believe that PGS is inherently more complicated for commercial sites than for residential sites?

Ms Simmonds: I do not think it is inherently more complicated, although I have various reservations about how the scheme would work. Our concerns are mainly to do with the fact that you have to recognise where that value lies. Most of the things that I represent are things that should be provided for the community anyway. BISL has given evidence twice to ODPM when they have been considering their planning guidance on housing. Both times they failed to put into that guidance the requirement for the sorts of facilities in leisure or in sport which are needed by people if they are going to have new housing development. You need a community pub, you need a sports centre, and whilst section 106 agreements have worked in some places very well they have been patchy. You need those types of development and there needs to be leadership from the top to ensure that happens.

Q183 John Cummings: If a distinction has to be made between residential and non-residential development for PGS assessment, how should the Government deal with mixed-use sites?

Ms Simmonds: Kate Barker only recommended that this planning gain supplement applied to housing, so I think that is the starting point, and I think it is obvious that there is a planning gain uplift when you develop a housing site. That planning gain uplift is not so obvious when you come to leisure or some other forms of commercial development. We would prefer to stick with the section 106 agreements which we already have. If I could give you some examples, particularly where it has worked well for sports, in Catterick on a £196,000 project for new pitches for drainage for sports pitches section 106 contributed £38,000. In Sandy Town, that place on the A1 that you come to in Bedfordshire, again for drainage and changing rooms, the total project cost £800,000 and £250,000 came from section 106 agreements. We believe that we would be better off keeping the section 106 agreements. The alternative, if you keep planning gain, is that you have a system specifically for sports-based projects where part of that distribution is mandatorily providing sports facilities.

Q184 John Cummings: Do you have any suggestions or ideas for how the Government should deal with mixed-use sites?

Ms Simmonds: If the planning gain supplement only worked for housing and it was a mixed-use site then obviously it would not apply to other forms of development within it. I agree with the previous witnesses that if you have a phased development you should only be paying your planning gain supplement as the various phases continue. A further complication is how you value those sites. A lot of sites are bought with hope value in mind. Are they going to have the planning gain supplement based on the value they bought it for or the actual value which is assessed by somebody when they come to develop the site? The alternative for us is that either you only apply planning gain supplement to housing or you apply it to the rest of the schemes but have something that specifically encourages sport and leisure development.

Q185 John Pugh: You argue, and we had some difficulty in following the point here, that leisure developments do not generate the same revenue as retail and housing developments and "cannot afford to pay high prices for site development", but is that kind of disparity not taken into account in the way the PGS is calculated in the first place? In other words, if the land uplift is greater then so is the PGS liability. I do not see how it makes any difference.

Ms Simmonds: It only makes the difference because the sorts of development we are talking about you want to encourage and if PGS acts as a disincentive then there will not be any encouragement for those facilities to be provided in the first place.

Q186 John Pugh: But why would it act as a disincentive?

Ms Simmonds: Because it does not provide the value and therefore the local authority is not going to get the sort of value that it wants in order to do the rest of its infrastructure developments.

Q187 John Pugh: I see; so it is going to alter the behaviour of local authorities in terms of what they will allow to be developed or not?

Ms Simmonds: Yes.

Q188 John Pugh: Why particularly should they do that, because after all local authorities have a lot of interest in providing leisure facilities for their communities because they are the voters, they are the constituents, they are the people who turn out at elections and so on, whereas housing is often for people who are not currently part of that community?

Ms Simmonds: One reason is that there is no evidence at the moment that local authorities do provide, particularly at planning officer level or in local development frameworks, planning guidance which is specific to leisure developments. In fact, I mention in my evidence that I hope later this month ODPM will be publishing their good practice guide -----

Q189 John Pugh: That in a sense is a separate point. Under the current section 106 agreements local authorities make far more from giving the go-ahead to a supermarket or a housing development than they will for allowing leisure development. I do not see why PGS would change that in any way because local authorities at the moment get more money out of allowing those sorts of developments and yet do go ahead in allowing, presumably, a fair number of leisure and community developments as well.

Ms Simmonds: They do, but in our view they do not provide enough. Many pubs provide CCTV for town centres all over the place under section 106 agreements. I think the scheme has been given more certainty over the last few years. There have been two reviews of section 106 agreements. I think the scheme works very well, so why do we need to introduce a further scheme which can only be seen as a tax on development?

Q190 John Pugh: But if your thinking is correct and local authorities have an opportunity to acquire funds which possibly they cannot at the moment, would not the average local authority, looking at local authority expenditure currently on leisure, which is by their own acknowledgement fairly low, want precisely those sorts of funds to put back into community provision and leisure facilities, not necessarily private facilities but nonetheless good public leisure facilities?

Ms Simmonds: The South West Regional Sports Board three years ago put out a policy that they would only fund certain local authorities if they put section 106 agreement funding into sport. I telephoned them this morning and they agreed that it has had almost no effect at all on the local authority. Some local authorities are very good. maybe the top 30 per cent, but an awful lot of local authorities do not see it as a priority, and I think particularly where we have a situation such as now where it is a government objective to increase participation in healthy activity by one per cent a year, and in fact it is even a target for both the Departments of Health and Education, there is a concern about how sport and leisure fit into it. If you look at page 27 of the consultation draft it actually suggests that leisure facilities will be outside the remit of planning gain supplement and if that were the case maybe we would not need to have this conversation. What is perhaps stark in this is that there is no mention of sport at all one way or the other. It may be that there was a consideration that it was included within leisure facilities but otherwise if you have no exemption to this you are going to be in many cases taxing things that are funded by the National Lottery, that are funded out of the public purse, and then you are going to put a tax on them to develop it further.

Q191 John Pugh: Is a fair way of summing up what you are saying that there are some authorities who are authorities who are virtuous, who give priority to leisure, use section 106 agreements and planning gain if they get it for the right causes, in order to provide community and leisure facilities, and there are other local authorities who are profiteering, if you like, and will try to get what gain they can wherever they can and will give priority to retail and housing? Given that point, are you saying that the new regime will accentuate or encourage the bad authorities to be worse, if I can put it like that, and the virtuous authorities to cease to be so virtuous?

Ms Simmonds: Yes, absolutely.

Q192 Mr Betts: Sport England apparently have argued that the public sector and not-for-profit organisations might well be exempt from planning gain supplement but you seem to be going an awful lot further and arguing for some quite significant businesses. My understanding is that your organisation represents businesses with around £40 billion of capital. Is that not special pleading?

Ms Simmonds: Can I differentiate between some leisure facilities, like hotels, for example, which probably would be included within your planning gain supplement and the other end of the scale, dare I say it, with health and fitness facilities particularly with sport, which are very much needed. It is my belief that we should not be taxing people who are providing what I would call and like to define as active leisure facilities. If you were going for an exemption you would exempt all facilities which are providing active leisure, whether they be private sector, voluntary sector or, indeed, community amateur sports clubs, so they would not have to pay this planning gain supplement. It is hugely difficult and we are already seeing some of our members developing abroad because they find it so difficult to get planning permission in this country. There are various complications in the way that particularly ODPM sees health and fitness which exacerbates that problem within PPS6. This is not a sector that is often thought about either nationally in terms of planning - I am talking specifically here about planning - or, indeed, locally by the local planning officer. In a sense, we are arguing for some better guidance there which we are about to have, certainly on the leisure and hospitality side, because ODPM recognises the problem.

Q193 Mr Betts: The exemption level could still apply to some quite profitable large companies.

Ms Simmonds: If you did an exemption for active leisure, the other way you would do it is you would define it just for community amateur sports clubs which, as you know, are defined, there are just over 4,000 of them at the moment and the Government is keen for more clubs to become community amateur sports clubs. You could define it as not-for-profit organisations and that would run across the cultural sphere. You could define it as anyone who is in receipt of a National Lottery grant because the rules around that on not-for-profit could be exempted from this scheme. I do have a concern that you do have people who own facilities which have no economic use but want to bring them back into economic use. If they keep that ownership should they pay a planning gain supplement? Yes, there will be an uplift, maybe a small uplift, and therefore the tax will be small, but it may mean those types of developments never come forward in the future. If I can give you the example of the Docklands in Portsmouth where they have a whole series of buildings which are unusable: if the Docklands Trust wanted to bring it back into economic use, would they find the planning gain supplement as a real barrier to that type of development going forward? There are lots of non-profit making organisations who would have the same problem.

Q194 John Cummings: What other mechanisms, other than exemption from PGS, could be used to encourage local authorities to identify sites for leisure development? Why is exemption from PGS your preferred method?

Ms Simmonds: I think the exemption from PGS may not necessarily be the preferred method if you then had some funds coming out of the other end for actually funding those sorts of things which would not naturally get funded otherwise. I do believe that maybe it is time for some good practice national guidance from ODPM to encourage local authorities to put together sites particularly for sport. I do think that it is important where we have housing developments and we have section 106, and I think there is a danger they may disappear over a period of time for sporting developments, that that mechanism is somehow kept. If I could give you another example of the Harrods Repository which was developed in West London: this part of the section 106 improved dramatically the towpath that runs along from Putney to Hammersmith and is very well used for recreational use. Our concern is if section 106 is only concerned with things that are actually around the site and if the local authority does not identify that scheme as something they want to put the supplement towards then it will lose out. I think local authorities would be more interested in putting together funding for something that was infrastructure based but not perhaps as good for its local community.

Q195 John Cummings: Is your organisation contacted on a regular basis by respective government departments to seek your advice on such matters?

Ms Simmonds: Yes, it certainly is by ODPM. We have tried very hard, particularly through the Tourism Alliance where we wrote to every authority that was putting together a Regional Spatial Strategy and asked them to contact us and, in fact, we had absolutely no response at all. In the past Whitbread have tried to talk to every local authority where they wanted to develop sites for their David Lloyd leisure centres. It is very difficult for national organisations or, indeed, individual companies to fit in and make contributions to Local Development Frameworks.

Q196 John Cummings: Would including community sports facilities in Local Development Frameworks adequately mitigate against the risk of local authorities no longer prioritising such developments?

Ms Simmonds: Local Development Frameworks are quite different from local plans and they are not as site specific as they used to be, they are much more about general policies. The whole idea was that the system would become more flexible and it would also be faster. In many ways we lost the ability for local authorities in their Local Development Frameworks to give that sort of advice and to be very site specific.

Q197 John Cummings: Are you saying it does mitigate or it does not mitigate?

Ms Simmonds: I think some guidance could make it easier but I do not see any evidence from the way the system is evolving at the moment that it would.

Q198 John Cummings: Would an inability to provide community sporting facilities under section 106 arrangements jeopardise planning permissions for other developments?

Ms Simmonds: Specifically, since this is very much about housing, if you are going to put in new houses for people to live they must have adequate sport and leisure developments to go with them otherwise you are not providing for the fabric of people's lives and you are just encouraging people to spend all their leisure time at home, which is neither good for them nor for our economy.

John Cummings: Thank you.

Q199 Mr Betts: If you consider the planning gain supplement, surely local politicians are still going to be under pressure when they grant planning permission for developments to use the planning gain supplement money they receive for exactly the purpose, ie providing community sports facilities, that they would have used section 106?

Ms Simmonds: It is not our view, or our experience of section 106, that that is the case. There are too many local authorities who never think along those sorts of lines at all. There is an urgent need for more cycleways and more walkways within local authorities. As an Olympic legacy we should be thinking along those lines throughout the country now. There is no evidence that many local authorities do think along those lines. Many of them think of things which may be hugely necessary for the infrastructure in that particular area and also possibly that do not cost as much to maintain, because there is a maintenance and revenue issue here as well.

Q200 John Pugh: If I was a director of leisure in a local authority and I was looking at the local authority getting section 106 agreement, planning gain supplement and so on, I would be seeing that as an opportunity to invest further in leisure facilities within the community, for which wherever you go there is a demand. The only people who I think would be troubled by the prospect of a planning gain supplement would be big commercial leisure parks who are looking at the possibility of an additional commercial cost which would reduce their profit margins. Could I ask you how many of your members operate in the not-for-profit sector?

Ms Simmonds: We have all the major operators of local authority sports facilities which are operated by the private sector. If you look at local authority facilities, they are either operated by a trust or provided in-house or by the private sector. All those who operate in the private sector are members, as are most of the large sport health and fitness clubs.

Q201 John Pugh: You can see that they might react differently to the prospect?

Ms Simmonds: Yes, I can. One of the concerns I would express is there are now very few directors of leisure within local authorities, many have amalgamated them and they have gone into bigger departments and that expertise is fast disappearing. I will give you the example of Cambridge Parkside where the director of leisure put out a brief for the development of a new swimming pool, which eventually was built but first time around the planning department said, "There is no chance you are going to get planning permission to build this on that site". That does happen. There is not that co-ordination internally within local authorities between planners, who are very hard-pressed to do the job they want to do anyway, in terms of planning expertise and development planning expertise. That co-ordination does not exist.

Q202 John Pugh: In terms of your fears, have you factored in that some obligations under section 106 will disappear as other possibilities for charging appear on the horizon?

Ms Simmonds: Yes.

Q203 John Pugh: Have you factored that in?

Ms Simmonds: We have. That was my example of the Harrods Repository and the towpath. Would improvements to a towpath used by hundreds of thousands of people be the sort of thing that planning gain supplement money would be used for? I think there is a great danger that it would not and yet the developers of that housing site would equally say, "That is not immediately necessary to the success of this site in infrastructure terms, therefore we are not providing the funding".

Q204 John Pugh: Assuming that the new regime is inevitable, what level of planning gain supplement could be sustained by organisations in your sector, or does it vary depending upon the organisation?

Ms Simmonds: I think it varies. As you rightly say, the commercial end of the market may be able to sustain a planning gain supplement. It is the not-for-profit end particularly within the membership of the CCPR that I would be very concerned about. Sports clubs which are meant to be making that link and keeping people healthy and fit over a period of years is the area where we would concerned.

Q205 John Pugh: Your general perception is that the burden will be greater across the industry, as it were?

Ms Simmonds: No. I think my general perception is the concern that you are not going to be funding the sorts of sports and leisure facilities to make people active in the future. I would still maintain that even if they are provided by the private sector, which of course then has no revenue impact on the public purse, they still deserve special ----

Q206 John Pugh: You are not saying you expect the burden to grow, you are saying the nature of the new system will encourage local authorities to do different things?

Ms Simmonds: Yes.

Q207 Mr Betts: Just for clarification: you have given evidence on behalf of BSL but could you say this afternoon whether you also represent the views of Tourism UK and CCPR?

Ms Simmonds: They cover both the Tourism Alliance and CCPR. Yes, I have taken into account all of those views and they have all made submissions to this inquiry.

Mr Betts: Thank you very much for that.