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Mr. John Redwood (Wokingham) (Con): The Minister will save himself some time, and taxpayers some money, if he reads the history of two previous Labour Governments who introduced taxes on developments. That dried up the supply of development land and achieved the opposite of what he wishes to achieve. Why does he not just save us some money?

John Healey: In fact, three arguably similar measures have been introduced in the past. I have been keen to make sure that we draw the lessons from experience. We have made it clear from the outset that any planning gain supplement introduced by this Government would be set at a modest level and that it would generate additional revenue to support specifically the infrastructure required to support developments. It is for those purposes that we are considering whether to introduce a planning gain supplement.

Mr. David Curry (Skipton and Ripon) (Con): Early in his speech, the Minister said:

He has just now been conditional again. Should we conclude that the Government have not yet decided whether it would be right to introduce a planning gain supplement? If so, what are the outstanding questions that are preventing them from coming to a firm conclusion?

John Healey: The right hon. Gentleman might not have studied the pre-Budget report of 6 December, in which we made it clear that a planning gain supplement is currently a lead option and that we had not yet made a final decision. We also published three public consultation documents. I suggest that the right hon. Gentleman look at them, because the responses we receive to them—the consultation on which closes on 28 February—will form a part of any final decision that the Government then take.

Dr. Phyllis Starkey (Milton Keynes, South-West) (Lab): May I correct something that the Minister said? There have, in fact, been four previous attempts to establish such a tax by earlier Governments, and a major reason for their failure was that they levied the tax at a rate of between 52 per cent. and 110 per cent. I hope that the Government learn the lesson that any tax must be pitched at a reasonable level, instead of the earlier extortionate levels that were the major reason previous attempts failed.

John Healey: My hon. Friend chairs the Communities and Local Government Committee and is something of an expert in this field; she chaired a very important Select Committee report into the area, and I recognise the point she makes. From the outset in 2004, when the Government confirmed that we would consider the possibility of a planning gain supplement, we have made it clear that it would be set not at the punitive levels that some have argued were set in the past and were part of the problem, but at a modest level that would generate additional investment for the infrastructure needed to support housing or business developments, and at a level that would preserve
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incentives to bring forward land for such developments. Judgments on that balance will be part of any final decision, and then any final design of a planning gain supplement—which is, of course, nothing to do with the Bill.

Mr. Mark Lancaster (North-East Milton Keynes) (Con): Let me take the Minister back to the answer that he gave to my hon. Friend the Member for North-West Norfolk (Mr. Bellingham). The view he expressed was echoed by the Minister for Housing and Planning in a written answer to me last year. She said:

In a separate written answer, I was told that between 2006 and 2008, £494 million will be raised in, and removed from, Milton Keynes by English Partnerships, with just £200 million being put back in the same period. That is the recycling of just 40 per cent. Is that what the Minister refers to as “significant”?

John Healey: Perhaps the hon. Gentleman should also study in some detail the pre-Budget report. We have said that at least 70 per cent. of any revenue raised in a local authority area through a planning gain supplement would be recycled to that local authority area, and that the remainder would then be available to regions for developing the strategic infrastructure necessary to support developments. The Government have made an unprecedented commitment to making available revenues raised from any planning gain supplement specifically for infrastructure to support such development.

Several hon. Members rose—

John Healey: I give way now to the hon. Member for Newbury (Mr. Benyon).

Mr. Richard Benyon (Newbury) (Con): I am grateful to the Minister for giving way. Is he aware of schemes run by local authorities to get developers’ contributions to pay for local infrastructure? If so, will he look at the one introduced by West Berkshire council? It raised £8.5 million last year, all of which will be spent locally; indeed, the amount is assessed locally and it is an entirely local scheme. Why do the Government not trust local authorities to run their own schemes and, if necessary, extend best practice across the country in that respect?

John Healey: I am indeed aware of the various schemes, planning obligations and alternatives to a planning gain supplement that many have proposed. However, the flaw with many of them is that their application, and the capacity of local authorities to apply them, is variable. The hon. Gentleman may be interested to know that only 7 per cent. of planning permissions granted in 2003-04 attracted any sort of planning obligation and, therefore, financial or other gain for local authorities and their communities as a result of that process. In principle, the planning
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gain supplement gives us scope for applying a much greater benefit to a much wider range of planning permissions.

Mr. Mark Francois (Rayleigh) (Con): I am grateful to the Minister for his courtesy in giving way. As we understand it from the associated consultation documents, which have at least in part fleshed out the Government’s concept of the planning gain supplement, in Scotland and Wales the devolved Administrations would decide how the money was to be recycled locally. However, the Government have said that, in England, at least a part of that money would go back to “the regions”. Does that mean that it will go back to the region in which the development in question was taking place, or could it go to some other region? In other words, could a development take place in the south-east, but the regional component be recycled to the north-east? Which is it?

John Healey: The sole point of any planning gain supplement would be to raise additional revenue available for infrastructure to support development. I said that at least 70 per cent. would go to the local authority area. Any remainder would not come to central Government, but would go to the region in question to support infrastructure, and I would expect that principally to be the region within which the local authority area was sited. [Interruption.] Well, some Opposition Members present will represent constituencies in local authority areas that border other regions, and it may well be that the infrastructure needed to support a particular development will require investment in a region in which the given local authority area does not happen to reside.

Mr. Nick Raynsford (Greenwich and Woolwich) (Lab): I am grateful to my hon. Friend for giving way. He rightly highlighted local authorities’ variable implementation of section 106, but will he recognise that under the Government’s proposals, a continued—albeit reduced—role will still be there for section 106? Does he also agree that a key priority must be to ensure a greater spread of expertise among local authorities, to make sure that all come up to the standards of the best in delivering and negotiating section 106 agreements?

John Healey: My right hon. Friend is right, and he did more than many Ministers to try to ensure that the capacity of local authorities to discharge their functions and to plan strategically through the planning process was brought up to scratch. He is right: in relation to a modest level of planning gain supplement, we propose to scale back the planning obligations and the scope for section 106. It is essential that even though such scope, and the process for section 106 permissions, would be simpler and more concentrated, more local authority planning departments have the capacity to negotiate and deliver them effectively.

Sir Patrick Cormack (South Staffordshire) (Con): I am impressed by the Financial Secretary’s courtesy and mastery of his brief, but I am also a little perplexed. He has informed the House that the Government have not finally made up their mind—and that is proper, because the consultation period will not end until 28 February—so why are we considering the Bill today?

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John Healey: My prepared remarks deal with that point, because it is a central point and a fair question. However, I have not managed to make as much progress with my speech as I had planned by this point. I will address that point, if the hon. Gentleman will bear with me, and if he feels that I do not answer his pertinent question, I hope that he will intervene again.

John Bercow (Buckingham) (Con): Given that Aylesbury Vale is a designated expansion area, which will be home to a significant increase in new housing over the next 20 years, I can tell the Financial Secretary that my constituents will expect to be not the principal or the primary beneficiaries of the proceeds of a tax on development, but the exclusive beneficiaries. He will not be a popular figure in my constituency if he fails to satisfy that legitimate expectation.

John Healey: Being a popular figure in the hon. Gentleman’s constituency is not one of my objectives for this Bill, but I am concerned to ensure that we achieve the increase in investment that is required for infrastructure generally in the fairest and simplest possible way.

Mr. Andrew Love (Edmonton) (Lab/Co-op): The House will welcome the comprehensive consultation arrangements that were undertaken before the Bill was introduced. Surely the important feature is that, with the increasing level of activity countrywide, the problem of infrastructure development becomes crucial. Is not the Bill primarily meant to improve this country’s infrastructure?

John Healey: It is indeed. It is not only the level of investment available to support the infrastructure required that is important, but the timing of the investment and the delivery of the infrastructure, be it roads, other transport links, sewerage, schools, hospitals or other services. That is one of the reasons the comprehensive spending review and much of the work that we are doing in preparation include the specific aim of deciding what we need to increase to support the greater level of housing supply.

Bob Spink (Castle Point) (Con): Will any future planning gain supplement take account of extraordinary planning and development costs, such as are imposed by the Environment Agency on developments within the flood plain in the south-east of England?

John Healey: Although we have made it clear that any planning gain supplement would apply to residential and non-residential development, we are still considering whether there should be thresholds for small scale non-residential development. We are also still considering the application of any planning gain supplement—alongside a revised planning obligation system—to major infrastructure projects, public sector works, minerals and waste consents and any of the non-Town and Country Planning Act permissions. Those are the sorts of permissions about which the hon. Gentleman is rightly concerned.

Harry Cohen (Leyton and Wanstead) (Lab): Will the Government ensure that arrangements are in place so that constituents affected by the initial planning
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applications are consulted about the means and nature of planning gain? Is the Minister aware of the Sheffield Hallam university report, which showed that much of the section 106 gain was not collected? Will he ensure that the gains from any system that we put in place here are collected and used for infrastructure in accordance with the proper purpose?

John Healey: The principle and potential of the PGS meets both my hon. Friend’s concerns. First, it is likely to be simpler and more transparent, so local residents will be much clearer about the gain to their local areas from the consent given to any planning development. At present, the operation of section 106 is unclear and inconsistent. Certainly for residents of local authority areas, it is almost always unclear what deal the local authorities that negotiate these agreements have been able to strike.

Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): One of the preparations that will have to be undertaken is consideration of the Bill’s impact on the devolved Administrations. It appears that the intention is for funds raised through the planning gain supplement to be allocated directly to the devolved Administrations. Does my hon. Friend agree that the principle that funds raised are designed primarily for local infrastructure, which the Government appear to accept for England, should apply to the devolved Administrations? It would not be popular, to put it mildly, if a planning gain supplement raised in my area were allocated to a well deserving cause in, shall we say, the Shetlands or Western Isles.

John Healey: I recognise my hon. Friend’s concern. Given the devolved functions of the Scottish Executive, the use of any PGS funds in Scotland would ultimately be for the devolved Administration to determine. However, we are looking at and may propose a planning gain supplement specifically to recognise the windfall gain in land values that often comes with planning permission, and to generate the funds required to help support and fund the development of infrastructure. I can confirm that all planning gain supplement revenues that were generated in Scotland would be returned in full to Scotland for the Executive to make such decisions. The PGS would apply across the UK, but planning itself is clearly a devolved function.

Anne Main (St. Albans) (Con): Recommendation 37 of the Select Committee’s report reveals that at least 70 per cent. responded that planning gain supplement revenues had come back, but it refers to the local authority area. Will the Minister clarify whether it is the local authority area that is granted planning permission, which might mean it applying at district level, or is it another area?

John Healey: I do not think that we could have been clearer: it is the local authority area in which the planning permission has been granted and the development is likely to take place.

Mr. Mark Prisk (Hertford and Stortford) (Con): On a slightly different note, I know that the Government, in preparing the Bill, cited the possibility of small-scale
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residential developments being excluded from the charge, but is the Minister prepared to consider a similar exclusion for small-scale commercial developments—in other words, to help smaller businesses? Frankly, it is just as much a matter of concern to those enterprises as it is to home owners.

John Healey: I think that the hon. Gentleman might have misheard me. If he checks the record, he will find that I said that we are currently considering whether a threshold for small-scale non-residential developments may be warranted, which is the hon. Gentleman’s concern. In fact, home improvements would not be covered by a planning gain supplement, but smaller scale residential developments, which often may not be captured by planning obligations and section 106 agreements at present, would be covered by the PGS. That is one of the principal points in favour of the potential planning gain supplement: its potential application may be much wider than the current obligations allow.

Mr. Clive Betts (Sheffield, Attercliffe) (Lab): I am sure that my Friend will not be surprised to learn that, when the Select Committee took evidence, quite a lot of it related to individuals and organisations seeking exclusions and exemptions for particular types of development, whether due to their nature, permanence or scale, or the business activity involved. Does he agree that the more exemptions and exclusions that are allowed, the more complicated the tax becomes and—this is something that might interest the Opposition—the more market distortions there will be, favouring particular types of development over others, simply because of the implications of the tax?

John Healey: My hon. Friend has great expertise in this area, not just from his membership of the Communities and Local Government Committee, but from his experience as a leader of a major local authority before he joined the House. He is right and the Select Committee is right in its assessment. He will know that, when the Government were able to respond to the Select Committee report last month, we recognised the point that it made on that issue.

One thing that has struck me about this territory is that, although there may be differing views on precisely how to do things—what instruments and policy to use—there is general agreement on a number of important points. There is general agreement that it is right and important that we have a policy, planning and fiscal framework that, in a strong economy, meets the need for more business development and more housing.

There is also general agreement that it is right and reasonable to extract some of the windfall gain in the value of land that has been granted planning permission. Some of those windfall gains are considerable. Alongside the pre-Budget report in 2005, we published an assessment of the increase in the value per hectare of land in general agricultural use when planning permission was gained. When planning permission is granted in England for land for housing development, there can be an average uplift of
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250 times. That is not through any investment from the owner of that land, but just because they happen to own it. It is public policy—in other words, the application of a planning consent—that is the source of that significant rise. The typical uplift is similar, although lower, for industrial and warehousing use. The increase in land value can be about 70 times, on average. For general business use, it might be 80 times.

Mr. Prisk: Without wishing to appear a pedant, I want to clarify the basis on which those valuations are made. The Minister has referred to the uplift in values. I entirely agree that the uplift is substantial in many instances, but can he tell me the basis on which the Government make those assessments? Are they based on an open-market valuation or are they done on a discounted cash-flow basis?

John Healey: I know that the hon. Gentleman follows these things well. If he looks at the Valuation Office Agency’s market report, he will find not just the figures that I set out, which date from 2005, but more up-to-date ones, and a summary of the way in which the agency goes about that.

There are two further areas of important agreement in this territory. There is agreement—it is quite widespread and I hope that it applies in the House—that it is right and essential to see more investment in the infrastructure to support new developments. Finally, there is agreement that it is right and fair to expect both the private and the public sectors to contribute to the cost of such infrastructure.

Anne Main: Further to the point made by my hon. Friend the Member for Hertford and Stortford (Mr. Prisk) about valuations, has the Minister given thought to change-of-use valuations and how those would be assessed?

John Healey: We have indeed. That is one of the areas on which we expect further observations in the consultations that are out for general comment. One of the consultation documents deals with the question of how valuation is assessed. The hon. Lady might like to take a close look at that document.

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