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“The North East public have answered in an emphatic way. I am a democrat and I accept that...it was an overwhelming defeat for the proposal.”
Given that “overwhelming defeat”, those bodies no longer possess any moral or political authority with which to administer the concept, even if the House of Commons were to allow it.
Mr. Francois: I shall return the Financial Secretary’s compliment by giving way.
John Healey: Will the hon. Gentleman accept—if he does not, I would like him to point to a specific reference—that there is no proposal to give PGS-related funds directly to regional assemblies?
Mr. Francois: One of the problems that we face tonight is that the Government have been short on detail about how the process will operate. They have said that they will give the money back to the regions, but they have not been clear about how the money will be administered; we assume that it will be by regional assemblies. [ Interruption. ] They Government have not said differently.
Mr. Betts: You are making it up.
Mr. Francois: The Government have been making it up as they go along, which is why the proposal has been delayed so often and why there have been so many multiple consultation documents. The hon. Gentleman has not made a very strong point.
The third reason why we oppose the Bill—and the PGS, which it helps to facilitate—is the threat that it would pose to the creation of affordable housing. That point was largely overlooked in the partial regulatory impact assessment, which is mentioned in the explanatory notes, and was issued alongside the pre-Budget report of 2005. The Government have been understandably coy about explaining the level at which the PGS will bite. Page 3 of the Treasury technical consultation document states that the PGS will be levied at a “modest” rate across the United Kingdom. Unfortunately, it does not say quite how modest that rate will be, so it is difficult to calculate the exact effect at this stage. Nothing in the Bill or the explanatory notes answers that important question. Nevertheless, by working from first principles we can deduce at least some of the effects that the measures might have.
It is true that developers often make considerable profit margins, particularly on greenfield housing schemes where there are no significant land clearance costs, so up to a point the PGS could theoretically be absorbed within the developer’s profit margin. However, it is not always that simple. In many urban
areas, many of the most obvious brownfield sites are already, in effect, long gone. That means that developers may have to look at less easy sites such as old gasworks or factory sites, many of which have significant clearance costs, often for good reasons of health and safety, before construction work can begin.
Mr. Lancaster: Perhaps I can help my hon. Friend. Milton Keynes Partnerships—one of the unelected unaccountable quangos that he mentioned—anticipates that the cost would be £18,500 per dwelling.
Mr. Francois: My hon. Friend helps to amplify my point, in considerable detail, from his constituency experience.
A PGS levied at too high a rate, which might well be passed on to the eventual customers, may make the proposed development practically unviable, so that valuable opportunities to construct affordable housing would be lost, because the cost would be passed on. The National Housing Federation has argued that housing associations should be exempt from PGS because it would represent raiding public sector coffers for affordable housing. In its own words,
“In effect we will be taking money from one part of the public purse to pay another.”
John Healey: I am concerned in case the hon. Gentleman may mislead people into thinking that this will have a huge impact on housing costs. As he would expect, the Government have considered the economic impacts of any PGS, as did Kate Barker in her original review. Both have demonstrated that the cost of a PGS would be passed back in lower bids for land rather than higher house prices to the consumer. I hope that he will take the trouble to recognise that.
Mr. Francois: If the Minister really wants to reassure the House about exactly how the PGS will bite, he can end our uncertainty right now by telling us what rate the Government will levy.
John Healey: We have consistently made it clear that PGS will be set at a modest level. Decisions on the rate have not yet been taken, but when they are, it will be alongside consideration of some of the other issues that worry the hon. Gentleman, including whether there will be exemptions, and if so what their scope will be, and what revenues may come from any PGS. The difficult and balanced judgments required will be taken in the context of the responses that we receive to the consultations that we are encouraging people, including the hon. Gentleman, to respond to.
Mr. Francois: I come back to the original point. If the Minister cannot even tell us the rate at which the tax will be implemented, or even confirm that it will be proceeded with, given that it has now been watered down to a lead option, why on earth is the Bill before the House at all?
On affordable housing, the Charities Properties Association argued thus in the evidence that it provided to the Select Committee on Communities and Local Government:
“The CPA believes the PGS will have a seriously detrimental impact on the financial position of property-owning charities.
This includes both charities which have significant land holdings as part of their endowment...and charities which develop their own land in order to fulfil their charitable purposes, for example by providing affordable housing.”
The next reason for Conservative Members’ wariness is that we believe that history is very much on our side in this matter. The explanatory notes indicate that the Bill would come into effect immediately following Royal Assent, presumably some time in spring 2007. However, there have been at least five previous attempts to introduce a similar tax in the past. Socialist Governments, in particular, have tried to do so three times since the second world war.
Specifically, we have experienced the development charge, introduced by the Town and Country Planning Act 1947 and repealed in 1952; the betterment levy, in the Land Commission Act 1967, which lasted only three years before repeal in 1970; and the development land tax, which was introduced through the Development Land Tax Act 1976, only to be first reduced, and then repealed in 1985. In most cases, those initiatives failed because of the complexity of the concept, and especially the difficulty that developers and the tax authorities experienced in agreeing the increased land valuation that was to be taxed.
PricewaterhouseCoopers explained in a note to their clients on the planning gain supplement:
“It is...likely that the protracted valuation arguments of the Development Land Tax era will be a feature of the PGS.”
The Royal Institution of Chartered Surveyors also highlighted the issue in its memorandum to the Communities and Local Government Committee. It stated:
“The valuation of development sites comprises of making assumptions about different variables, six of which can have a big impact on the opinion of value. A change of around 5 per cent. in each of these variables can result in an overall change in the value of the site of over 25 per cent.”
Mr. Peter Bill, editor of Estates Gazette, summed up the PGS proposals more succinctly in a December 2006 editorial:
“Of course it won’t work; it didn’t work the five times it was tried in the past century and it won’t work now.”
I have criticised the Bill and the Government’s approach, and I shall now say something about our preferred approach. It is important to stress that Conservative Members support the concept that developers should make an adequate contribution to infrastructure in return for being allowed to build. Development such as extra housing can help provide relief to those in housing need but, conversely, it often imposes additional pressures on local communities. For example, it can put pressure on school places, medical infrastructure—especially given the crisis in the national health service—and transport infrastructure. It is important that developers make an adequate contribution to alleviating those pressures in return for being allowed to build so that they do not adversely affect existing residents’ quality of life. In principle, hon. Members of all parties broadly accept that.
However, we believe that other options are available for fulfilling that requirement. We are considering them all closely as part of our ongoing policy review and we hope to have more to say about those matters later this year. Suffice it to say for now that, whichever system we prefer to PGS—I stress that it will be another
system—it should be simple for local authorities and developers to understand, relatively easy to administer, as PGS evidently is not, and should not affect the construction of affordable housing.
David Wright: Will the hon. Gentleman give a commitment today that such a system would involve cross-local authority investment in infrastructure and, indeed, regional investment in infrastructure? For example, it is important to improve the motorway network through the west midlands so that Telford can perform more effectively in future. Does the hon. Gentleman envisage a PGS-style system that would enable us to invest in regional transport networks alongside local infrastructure?
Mr. Francois: Hon. Members of all parties accept that there are limitations to the current section 106 agreement process. In fairness, the Select Committee highlighted that in its detailed report. I suspect that our solution will not simply be confined to the existing section 106 process. We may therefore go a little further than that, but I am not in a position this evening to say more.
There is probably broad agreement in the House that developers should make a realistic contribution to infrastructure costs. The problem with the Government’s proposed solution, and the Bill to facilitate it, is that it is definitely not the best way to achieve the goal. Planning gain supplement represents a top-down, socialist solution, at a time when the Government pay lip service to localism but practise democratic centralism instead.
Mr. Betts: Does the hon. Gentleman accept that the Select Committee’s position was far more logical than his? We asked the Government to compare and contrast the costs and difficulties of introducing a planning gain supplement with those of enhancing, reforming and improving the section 106 process. The hon. Gentleman’s position appears to be to rule out PGS, without coming to a view on whether reforming and enhancing section 106 would be better and more practical.
Mr. Francois: The Government’s proposals do not rule out the section 106 process either. The hon. Gentleman should recall that their proposals are for two dollops rather than one, in that they would introduce the planning gain supplement on top of the section 106 process. The Government say that that would be scaled back in some way but, as with so much else concerning the Bill and the PGS concept, they have not been clear about the degree of scaling back. All we know in principle from what the Government have said is that at present developers have section 106 agreements, whereas in future they would have section 106 agreements plus the planning gain supplement.
Mr. Betts: Will the hon. Gentleman give way on that point?
Mr. Francois: No, I have already given way to the hon. Gentleman once. That is the position as outlined by the Government, and he does not need to do his Minister’s arguing for him.
The planning gain supplement would add complexity to our planning system and would not carry local communities with it. It would be administered, at least in part, by regional bodies to which the people being asked to accept development owe little or no allegiance. Planning gain supplement is a bad idea that has failed five times before and would be likely to fail again. We therefore oppose the Bill. I urge all those who agree with us to join us in the Lobby tonight.
4.36 pm
Mr. Nick Raynsford (Greenwich and Woolwich) (Lab): I declare my interest as an honorary fellow of the Royal Town Planning Institute, vice-president of the Town and Country Planning Association, a non-executive director of Hometrack and chairman of the National Centre for Excellence in Housing.
As my hon. Friend the Financial Secretary to the Treasury made clear in introducing the Bill, this is a paving measure that allows the Government—specifically, Her Majesty’s Revenue and Customs and the Department for Communities and Local Government—to undertake preparatory work on a potential planning gain supplement. I fully understand that this is not, therefore, an occasion for a full debate on the PGS proposals, not least because they have not yet been fully defined. However, it is not adequate to nod through the Bill on the basis that we shall, if the Government decide to proceed with the PGS, have a full opportunity to debate the pros and cons of the proposals in the substantive Bill. A great deal of work will have been undertaken by then that will both contribute to the architecture of the PGS proposal and provide the momentum to take it forward. Many of us can already hear the arguments being advanced—namely, that with all the expenditure of working the scheme out having been incurred, it would be wasteful to abandon or radically revise it at that later stage.
It is therefore right that we should attend today to exactly what a PGS scheme might achieve, how it might work and what impact it might have on development activity. We also need to consider how the PGS might affect the funding of any infrastructure, environmental and social works that are necessary to complement or mitigate development, and how that might compare with alternative mechanisms for achieving those goals.
I am a sceptic. I have serious doubts about the wisdom of what my right hon. and hon. Friends are embarking on and even greater doubts about the likelihood of PGS delivering the benefits that they describe. That is not because I disagree with the objective; on the contrary, I wholly favour effective mechanisms for capturing a proportion of the gain that accrues from the development process for the benefit of the wider community and to finance necessary infrastructure, social provision or environmental mitigation. However, we must recognise that that is easier said than done.
The history of post-war Britain is littered with the wrecks of abortive attempts to achieve that objective, first in the 1940s, then in the 1960s and again in the 1970s. On each occasion, the measure designed to
capture for the community some of the gain accruing from the development process was repealed after experiences that could not remotely be described as successful. Against such a background, one would at the very least urge extreme caution before venturing again into such territory. I am not sure whether my right hon. and hon. Friends have been complimented by their civil servants on their bravery in introducing the measure, but they will recognise the double-edged meaning implicit in that.
Why did the previous attempts not succeed? Essentially, there were three reasons. First, the legislation was of necessity complex, as were the processes for defining the uplift in value and hence the tax liability, which were therefore not difficult for sophisticated developers to evade. Secondly, the measures were seen as being anti-development, so developers’ natural instinct was to postpone schemes until the threat of the tax had passed. That was possible because, thirdly, the Opposition of the day had pledged to repeal such measures if they got back into power, and they did so in each case.
I am not suggesting that all those scenarios apply now; the last certainly does not. However, enough of them apply to sound alarm bells. The inherent complexity of the proposal means that evasion will not be an unattainable objective. On the contrary, most informed commentators suggest that, if PGS is implemented, a small army of consultants will emerge, advising developers and landowners on how best to minimise or avoid their liability. The view of the development industry is generally hostile to PGS, so there will be all sorts of incentives to structure schemes to minimise liability.
There are two key issues. First, as was implied by my hon. Friend the Financial Secretary in moving Second Reading, setting PGS relatively low will reduce the disincentive effect that undoubtedly applied to the earlier measures, in which a very high—indeed, penal—rate of taxation was involved. I fully understand that the Government have not reached their view on a figure, but I happily acknowledge that a PGS of, say, 20 per cent. would be less likely to deter development than a tax at 100 per cent. However, I am not sure that developers will decline to explore the scope to reduce or even eliminate their liability. There is huge scope for that, not just in the inherently complex nature of the scheme, but in the varied circumstances affecting the valuation of different sites.
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