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In pursuing the goals that I have set out, the Government have considered the matter and accepted Kate Barker’s recommendation that a modest levy on windfall gains in the value of land going through the planning process would be a fair and effective way not only of helping to finance additional investment that is needed in infrastructure, but of sharing the benefits of development growth with local communities. Just as Kate Barker did, the Government have considered a range of alternatives. We will continue to do so, but at this point the PGS is our lead option. That is because a workable and effective planning gain supplement would have more potential to generate much needed investment throughout the UK than its main alternatives, such as an optional planning charge or a tariff scheme; because the PGS would be proportionate to the land value uplift of a site, and thus fairer for developers and landowners; because the PGS would be more transparent and consistently applied than the existing system of developer contributions; and because the PGS would provide local communities,
which would receive at least 70 per cent. of the revenue derived from their areas, with the scope to plan and pool resources strategically to fund infrastructure in support of growth.
Mr. Lancaster: Clearly, when we talk about the building of new towns and cities, such as Milton Keynes, we think about new house building. However, Milton Keynes has old communities in it, such as Wolverton, which is a very old town. Will the Minister clarify whether the money will also be available for the regeneration of older parts of cities, such as Wolverton, or are such places destined to be the poor relations under the supplement?
John Healey: The hon. Gentleman would probably agree that such decisions are ultimately best and most appropriately taken by the local authority responsible for an area. The purpose of the planning gain supplement is to try to establish a fairer way of generating more revenue to support infrastructure developments required for housing and business development and the sort of things that we need to be able to provide better in a modern and strong economy.
Dr. Vincent Cable (Twickenham) (LD): The Minister has helpfully crystallised what could otherwise have been an academic and abstract debate by suggesting that 70 per cent. of the revenue would come to local authorities. Will he be equally helpful by suggesting the broad order of magnitude of the levy itself? Is it true, as has been widely reported, that the Treasury is thinking of a figure of 20 per cent.?
John Healey: Having tried to be helpful to hon. Members in as precise terms as possible, I regret that I must make it clear that the Government have not yet taken that decision. If we decide to go ahead with the planning gain supplement, it will be set at a modest level that will generate extra funds but not hold back or discourage the release of land for development. It would be set at a level that would help us to avoid some of the problems that have been created in what some have seen as predecessor experiments in the field. I hope that the hon. Gentleman accepts that the steps that we have taken over the past two years—the considered analysis of, and discussion and consultation on, not only the principle of a planning gain supplement but its details—demonstrate that the Treasury is leading a prudent policy making process. We are taking such steps in our consideration of any possible rate.
It is that same careful approach that leads me to introduce this short Bill. If, after the present round of consultation, we make the judgment that the planning gain supplement continues to be a workable and effective way of capturing the windfall uplift in land value and helping to finance the infrastructure to support development, we will proceed towards introduction. However, this measure is simply a paving Bill that authorises the three parties to incur preparatory expenditure, although the burden of building the administrative systems and, ultimately, of managing the planning gain supplement would fall on Her Majesty’s Revenue and Customs.
HMRC’s expenditure prior to introduction would include spending on new information technology for the PGS, as well as on the adaptation of its existing systems. The expenditure would also go towards designing the necessary business systems to administer the levy and putting in place appropriately skilled staff to manage it, and it would equip the Valuation Office Agency and the Valuation and Lands Agency in Northern Ireland with the necessary facilities to help to administer the PGS, including staffing, training, accommodation and IT equipment.
Clearly, those administrative functions would have to be based on further substantive legislation, and they would have to be properly tested and put in place prior to the implementation of the planning gain supplement, which we have said will not take place before 2009. Expenditure incurred by the Secretary of State prior to introduction could include spending on adaptation of Government IT, such as that used to monitor the planning system, which I understand is known as the planning portal and is administered by the Department for Communities and Local Government.
John Healey: I will finish my point, if I may, and then I will come to the question that the hon. Gentleman asked earlier.
Let me make clear why three parties, and only three parties, are named in the Bill. Preparations for the implementation of the policy will not require any administrative functions to be carried out by the devolved authorities in Scotland and Wales, although as I have made clear a planning gain supplement would of course apply throughout the United Kingdom if it were introduced.
The final decision on whether to introduce the planning gain supplement awaits the completion of the current round of consultation. The Bill is needed in advance of that decision, so that if an affirmative decision is taken later this year, the Government can start immediately to build the IT and administrative systems to support the planning gain supplement. I think that the hon. Member for South Staffordshire (Sir Patrick Cormack) would accept that for such a system it is imperative that we get the IT absolutely right, and to do so HMRC and its IT partners require sufficient lead time to build and test the systems properly. By introducing the Bill now, I am seeking to avoid a situation in which a decision to progress with the planning gain supplement is taken this year, but the authority to start designing and building the necessary systems is not in place. The hon. Gentleman, who is an expert in parliamentary matters, will have recognised immediately that if we introduced the Bill later in the year, and parliamentary business fell in a particular way, the parliamentary calendar might not allow the timely enactment of the measure. Delays, of course, would reduce the time available for designing, building and testing the necessary information technology.
Sir Patrick Cormack:
The Financial Secretary is speaking with great charm, and he is beguiling and almost converting me, but although I am an advocate of pre-legislative scrutiny, he has not yet made me an
advocate of pre-legislative legislation; he has to make the case for that. I would like to know what the cost implications are, too.
John Healey: Let me take the hon. Gentleman’s points in order. Those hon. Members who have, so far, indicated that they are interested in the debate take a close interest in the subject, but it is fair to say that the House has taken a close interest in Government IT schemes in the past. A constant and key recommendation is that the Government should build in adequate time for a system to be built and tested prior to its implementation. The introduction of the Bill at this point is informed by such recommendations, which Committees and the House have consistently made to the Government.
On the hon. Gentleman’s question about costs, the early estimate of the cost of designing and building the administrative and IT systems needed for PGS prior to its introduction is approximately £40 million. If the Government go ahead with the planning gain system, and therefore with the further legislation that will be required, I will provide the House with updated estimates of the costs.
Sir Patrick Cormack: If the IT system cannot be used, can it be given to the Home Office?
John Healey: I have broad-ranging responsibilities at the Treasury, but I am glad to say that Home Office IT is not one of them.
Mr. Love: I thank my hon. Friend for giving way once again. He has commented on the shortcomings and variability of section 106 planning obligations, but does he have any proposals about the future of section 106, should he decide to introduce a planning gain supplement?
John Healey: I have indeed, and the Government have set out their proposals in various publications. Essentially, section 106 obligations would be scaled back to the physical site of the development, and would continue to include affordable housing—a subject in which my hon. Friend takes a close interest.
Anne Main: The Minister has been generous in accepting interventions. Will valuations through the IT system be open to challenge if people disagree with them? Will they be able to see from outside what has been logged on the IT system? Who will have access to that information?
John Healey: I referred earlier to a consultation document, which the hon. Lady may wish to study. She may wish to examine, too, the consultation document that looks in detail at the way in which parties may pay the planning gain supplement. Our proposal is based on self-assessment. Challenges to an assessment of the planning gain supplement will be made not by those who incur the liability and are responsible for producing the initial assessment, but by Her Majesty’s Revenue and Customs. It is likely to make such challenges only if the assessments with which it is supplied are unreasonable.
Mr. Lancaster: I am grateful to the Minister, who has been generous in accepting interventions. He will appreciate that, as there is so little detail in the Bill, it is important for my community to obtain clarification. Quite simply, does he envisage that there will be any problem in using the planning gain supplement to help to regenerate communities in growth areas?
John Healey: The planning gain supplement, if we introduce it, is designed to support infrastructure. Clearly, the role of infrastructure is to support not just specific developments but the regeneration of an area. The hon. Gentleman says that it is important to clarify the details, but this is a one-page Bill with three clauses, one of which specifies the short title. It is a paving Bill, and there will be ample opportunity, if the Government decide to proceed with the measure, to debate and scrutinise the proposals. If we decide not to go ahead with the planning gain supplement, further expenditure directly authorised by the legislation will not be made.
The rationale for the paving measure is to ensure that sound management is in place and that we can deliver the underlying policy on time and on budget if we choose to proceed in that direction. The House would rightly be hard on us if at a later stage there were difficulties in implementation because we had not begun the planning and preparations early enough. On that basis, I commend the Bill to the House.
4.13 pm
Mr. Mark Francois (Rayleigh) (Con): I am pleased to respond on behalf of Her Majesty’s Opposition. The measure is, in effect, a paving Bill, although the Minister said that it supports a lead option. It consists of just three clauses, but it is nevertheless important, as it permits preliminary expenditure related to the proposed introduction of the Chancellor’s planning gain supplement—PGS—in 2009. According to the section headed “Financial Effects of the Bill” in the explanatory notes, which have been prepared by the Treasury, expenditure under the Bill could exceed £50 million. That sum represents the combined cost of project staff in Her Majesty’s Revenue and Customs, the Valuation Office Agency and its Northern Ireland equivalent, and of new information technology systems which, as the Minister partly admitted, are often notoriously difficult to introduce on time and on budget.
The Conservatives oppose the Bill, as it permits public expenditure in preparation for an impost with which we do not agree, and my intention is to set out for the House as clearly as I can the reasons behind our opposition. I am happy to be debating these matters with the Financial Secretary, whom I commend for his usual courtesy in giving way so often. We had anticipated the possibility of debating the Bill with his colleague, the Economic Secretary—but even if the Economic Secretary is not present in person, I sense that he is here in spirit. I therefore look forward to debating these matters with the Minister for Housing and Planning instead.
There are several reasons why we oppose the planning gain supplement, and the Bill, which commits appreciable sums of public money in order to facilitate it, even before the Government have taken a firm decision to go ahead, poses problems for us. The first is
that the planning gain supplement is designed to be centrally collected and then redistributed according to Government fiat. Under the Treasury’s concept, which is referenced in the explanatory notes and fleshed out at least a little further in the associated consultation documents, of which there have been several, the PGS will be redistributed from the centre, with an element going to the regional bodies and the remainder supposedly being given back to the local authority that permitted the development. The Minister gave us an indicative figure of 70 per cent. this afternoon.
However, the Bill provides no guarantee that that will be the case. It is certainly not written into the Bill. Moreover, the Select Committee on Communities and Local Government, which examined the issue in detail in November 2006, pointed out in its report the prospect of a funding formula of some kind being used to determine how much revenue should be returned to each local authority. The Government’s record of collecting centrally and redistributing locally in recent years leaves much to be desired, to put it mildly. All those who witnessed the effect of the changes several years ago in another funding formula, the key local government one, from standard spending assessment to formula spending share—from SSA to FSS, as it is known—saw how the formula was altered in order to benefit predominantly urban authorities in the midlands and the north of England.
Even if the Government were minded initially to redirect all of what one might call the local authority component straight back to the authority in question, many of us on the Opposition Benches wonder how long it would be before the measure incorporated some element of top-slicing, floors and ceilings, resource equalisation or some similar formula or criteria, so that Ministers could begin to interfere with the straight passporting of the money back to the authority that had been asked to accept the development in question. Experience of the Government to date suggests that that would be the case, and we are understandably sceptical as a result.
David Wright (Telford) (Lab): Will the hon. Gentleman give way?
Mr. Francois: In a moment. I shall finish the point. Overall, the Bill looks more and more like yet another Labour stealth tax, this time on development and affordable housing, rather than a genuine attempt to finance infrastructure in development areas. I gladly give way to a Back Bencher who supports stealth taxation.
David Wright: I have heard the hon. Gentleman on a number of occasions rightly argue for increased infrastructure investment, particularly around the London area. He clearly opposes the Bill. How, then, would he fund that infrastructure investment in his constituency and along the Thames corridor?
Mr. Francois: I thank the hon. Gentleman for that intervention. Our argument is that it is right for developers to make an appropriate contribution to infrastructure—I shall go on to say a little about that—but we believe that the process outlined in the Bill is not the right way to bring that about.
Our second reservation is based on the fact that a significant element of the proposed planning gain supplement to be facilitated by the Bill will be regionally administered. In the real world, if we want to persuade communities to accept further development, we must carry people with us. That means persuading them that they will see genuine visible benefits coming back to them from agreeing to further building in their area. A system administered on a regional basis does little to provide reassurance that that will happen. For instance, a community in Kent could be asked to accept 1,000 additional houses in return for taxation that flows into the Treasury and is regionally redirected towards a bus shelter scheme in Buckinghamshire, remote from the original community that was asked to accept the development. Indeed, under questioning this afternoon, the Financial Secretary has admitted that that regional component of the PGS might even not go back to the original region. The Government have been keen to hide the point that it might be sent to another region, but the House of Commons has exposed that point in debate.
As the regions currently have few meaningful tax-raising powers, the PGS is partially a device to raise money that they can then spend. It is also likely to make them pro-development, even in areas that do not warrant it, in order to receive their share of the prospective PGS revenue in return. As the Chartered Institute of Taxation has pointed out:
“We think that the law of unintended consequences will apply, with the result that the proposals will not deliver the Government’s policy objectives without a major element of compulsion being applied to local planning authorities to allow developments that they do not wish to allow.”
Mr. Raynsford: A moment ago, the hon. Gentleman argued that the Government proposals would allow resources to be distributed to regions other than the ones in which the levy was raised. In his opening speech, the Financial Secretary suggested that there would be circumstances in which, because of proximity to the area where the levy was applied and the need for investment in an adjoining area in a different region, there might be a strong case for allocating some of the funds across regional boundaries. How would the hon. Gentleman’s party deal with that particular need, because under the existing arrangements funds can be applied only to the area in which they are raised?
Mr. Francois: I thank the right hon. Gentleman for his intervention. It seems to me that the Financial Secretary gave the House an excuse rather than a guarantee, but we were looking for something closer to the latter than the former. I hope that the right hon. Gentleman will contribute later in the debate, because I note that he opposes the concept. This month he said this to the Estates Gazette about the PGS:
“This incredibly bureaucratic scheme will cause endless arguments. It will create a new army of experts in depreciating the value of land.”
He is on the record as being against the PGS, and I hope that we will hear him spell out his reasons in more detail in a few minutes’ time, if he is lucky enough to catch your eye, Mr. Speaker.
Crucially, the decisions on where to spend PGS revenue will be taken by unelected and unrepresentative regional bodies, which are often centred many miles
away from the communities in question and are not elected by the people concerned. After the Government’s overwhelming defeat in the referendum on whether to establish regional government in the north-east—by, incidentally, a margin of 78 per cent. to 22 per cent.—the Deputy Prime Minister, no less, conceded this to the press:
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