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“Land taxation is the natural, efficient and just way to finance the capital cost of infrastructure.”
Clearly, there is considerable academic and practical support for the proposal. I fully acknowledge the difficulties, many of them political, but at the very least it is worth exploring through borough-wide experiments and research. Since this is a paving Bill and is designed to advance knowledge rather than implement taxation, it is a disappointment—to say the least—that the Government have not been willing to encompass within it the wider issues of the taxation of land.
5.6 pm
Mr. Clive Betts (Sheffield, Attercliffe) (Lab):
It is important to recognise that the Government have introduced this paving Bill, which provides a good opportunity to talk through some of the issues before final decisions are reached. The Minister mentioned the report of the Select Committee—I am pleased to be a member—which went into the Government’s proposals in some detail, analysed the issues and highlighted some areas of concern where we believed more work needed to be done. I was very pleased indeed when I read the Government’s response to our
report, as virtually every item featured the word “agree” or “accept” or otherwise pointed out that more work was necessary along the lines suggested by the Select Committee.
The Select Committee did not inquire into alternative systems, but we made a request before the Government eventually reached a view about the way forward and decided whether a planning gain supplement was necessary. We said:
“Such consideration should include comparative cost-benefit analyses of PGS and scaled-back Section 106 arrangements on the one hand and, on the other, a fully effective utilisation by local authorities of Section 106 powers, including possible reforms and enhancements.”
We were informing the Government that, as a Select Committee, we had not come down on one side or the other and that before they reached an absolute view on whether to proceed with PGS—the Minister said today that such a view has not yet been reached—they should conduct a comparative analysis.
I see the hon. Member for Rayleigh (Mr. Francois) nodding his head, but that is rather strange, as he has adopted precisely the opposite position, saying that the Opposition will rule out planning gain supplement before the detailed comparative analysis has been done and before he sees the Government’s work on it. He told the House that the Opposition were not in a position to propose alternative policies. Presumably, that means that he has not done all his working out and that the Opposition have not reached a final view on the subject, so how can he rule out PGS when he has not yet established whether an alternative, enhanced and reformed section 106 provision is practical and workable?
We are debating what is practical and workable. It seems that there is general agreement across the House that, because we do not have a free market in land and because land value is enhanced when public authorities give planning permission for development, an element of increased value is the result of a public authority decision, so it should be returned to the public purse in some way. What we are arguing about now is the mechanism by which that should happen.
The section 106 system clearly does not work perfectly. It works on some occasions, in some ways, in some local authorities. I asked parliamentary questions and received a lot of information about how section 106 arrangements are dealt with in different authorities across the country, how many affordable homes are being built, and what other revenue has been raised by the authorities. The reality is that the position is extremely patchy. We could look at trying to improve the way in which local authorities use section 106. Even with the Government’s proposals on the PGS, there will be a residual section 106 issue in relation to affordable housing, so we ought to look at that issue in any case.
There is a problem with section 106. It was initially designed to look at the immediate consequences of a development in terms of infrastructure needs specifically related to it and adjacent to it. It does not deal very well with the provision of wider infrastructure needs in an area and it certainly does not deal very well with cases in which those needs cross local authority boundaries and regional boundaries. There are some real problems there. From the answers
of Opposition Front Benchers, it seems that they have not yet reached a view about how they will deal with that problem if they do not go ahead with the PGS. We have to address that problem—it is a practical issue—because if we do not we will stop infrastructure development occurring, which will itself prevent major development from occurring in the future.
I accept that the PGS, as a concept, is much simpler. In essence, as a tax at a flat-rate on increases in value because of planning permission, it should be relatively easy to understand, accept and implement. However, the Select Committee inquiry recognised that there are significant and major complications still to be addressed by the Government in working through how the tax might be implemented in practice. We received many objections, some of which have been referred to in today’s debate, from a number of organisations. They expressed concerns about the practicality of the tax. However, the interesting thing is that, when we pushed most of those witnesses in oral evidence in the Committee, although they had concerns about the PGS and how it might work, they had not got any obvious alternatives. There are difficulties.
The Milton Keynes tariff has been raised as a possible way forward. It is a relatively simple approach to take. It cannot be avoided, which has an awful lot of merit. However, when pushed, all the witnesses who gave evidence to the Select Committee said that the Milton Keynes tariff worked in Milton Keynes and any other similar area, but most areas are not similar to Milton Keynes. The approach is relatively easy to apply to large-scale housing developments in one local authority. Most areas and most developments are not like that. When the Government legislate, they should be careful that they do not exclude approaches such as the Milton Keynes tariff, because they clearly work in certain areas, but that does not mean to say that such approaches can be applied to other areas.
In looking at the way forward, the Opposition seem to imply that somehow it might be a bad thing if any system gave more financial incentives to local authorities to give planning permission for development. That would not be a bad thing at all. One of the problems with our planning system—I have an awful lot of time for the system and the people who operate it on the ground; we often knock it unreasonably—is that local authorities often have incentives not to give planning permission. They incur all the costs and often do not see many benefits. If we can start to look at changing our taxation system so that it gives more financial benefits to local authorities—at least to offset the costs of new developments, whether they be residential or non-residential—that will be an important and appropriate step forward. Listening to what the Opposition say about centralisation, I think that it would also be an appropriate step if, at the same time, we decentralised the business rate and gave that back to local authorities as another incentive for giving planning permission at a local level.
It is important that we look at any new scheme that is developed and try to ensure that it increases the revenue that comes to the public purse, particularly when that money is used to fund infrastructure that is necessary for the development to take place in the first place. Equally, it is important that, in an attempt to
gather money for the public purse, the rate is not set so high that it discourages development in the first place. That is an interesting balance that the Government will have to think about when they come forward with any approach, whether it be setting the rate of the PGS or any new ideas for section 106. Whatever scheme we have, an important requirement will be for a majority of the funds to come back to the local authority area in which the planning permission is given. It must also have an element that can be used to fund infrastructure that is necessary for development on a sub-regional and regional basis. The existing system does not do that well.
I should say to the Government that there is a problem with almost all the proposals, because we will often need to put in place the infrastructure that we want to fund before a development can happen, yet the money will come from that development only at a certain point down the line. That would apply to the PGS, because it would be calculated when planning permission was given, but collected only when the development took place, although the infrastructure that would be necessary to make the development happen would have to be funded first. The Government will have to address that because it is a fundamental problem of any system.
The Select Committee report rejected the idea of Government being allowed to borrow against future streams of PGS funding. I think that we might have got that wrong because the Government might want to think about making that part of any new system that brings money forward from the value of a development—that value given by the planning permission. Whatever scheme we use, we could allow local authorities to anticipate the revenue to fund the infrastructure that is needed in the first place.
An alternative would, of course, be for the Government to create an advance fund from which local authorities could draw to fund the infrastructure. Local authorities could then pay back into that with either the PGS money or enhanced section 106 contributions when they arrive. One or other of those mechanisms, or any such mechanism, is absolutely necessary because none of the proposals made so far gets round that problem. I would be interested to hear the Minister’s comments on that.
We will also have to consider mechanisms to ensure that we can pull together contributions from several schemes when they occur in different local authority areas—and sometimes in different regions. As my hon. Friend the Financial Secretary said, parts of some local authorities are close to regional boundaries—my city of Sheffield is right next to the east midlands region—and developments can cross regions. The way in which mechanisms can pull contributions from various developments when they are needed to fund combined infrastructure is also important.
The Government have a lot of work to do. The Select Committee’s report mentioned several aspects of the practicalities of PGS that remain to be resolved: the definitions and calculations of current use value and planning value; the problem of option agreements; the issue of phased and deferred payments; the problems of exemptions, although we asked for fewer exemptions because that would mean fewer complications; and the way in which we deal with transitional arrangements
from the existing scheme to any new scheme. All those issues need addressing. It is right that Ministers are talking about the process, but it is equally right that they have not committed themselves to a final outcome, because all the details will be important to the success of that final outcome.
Ministers are leaving an element of the section 106 mechanism in their proposals for PGS: the funding of affordable housing. It is essential that we recognise the importance of section 106 as the main funder of affordable housing in many parts of the country. It is not always used by local authorities as well or to the extent that it should be, but it still vital. Even if PGS is introduced, we ought to be enhancing local authorities’ understanding and use of section 106 for affordable housing.
It is equally important that we do not build any perverse incentives into a PGS scheme that encourage local authorities to reduce the amount of section 106 money that is gained for affordable housing to enhance the amount of PGS that is received. If a certain amount of a scheme’s section 106 money was extracted for affordable housing, the amount of PGS that was collected would be reduced. We must be careful about the interaction between those two elements in the final scheme.
There is a great deal of agreement that it is right in principle that when planning permission given by a public authority increases the value of a piece of land, the public purse should share in that increase in value, especially so that infrastructure developments that are needed as a consequence of that development can be funded. Many complications will need to be resolved whatever scheme we opt for, be it PGS with residual section 106 measures, enhanced section 106 or any other of the proposals that have been mentioned today.
I come back to the essential issue of the need to ensure that many of the large-scale developments occur. We have to find ways of ensuring that the up-front funding necessary for infrastructure is found, particularly if money from taxation or contributions from section 106, or whatever scheme is in place, reach the public purse only at a later stage. We must find a way of making sure that the public sector horse is funded first, so that it can drag along the private sector cart. It is not merely on behalf of local authorities that I raise that point; many developers who gave evidence to the Select Committee would articulate those concerns, too. It is important that whatever scheme we eventually come up with, we find ways of ensuring that the infrastructure necessary for development is funded in advance, even if the funding arising from the development is accessed later, when the development actually takes place. I will be interested to hear what Ministers say about the issue, because it is crucial to making sure that we have the development that is necessary to ensuring that our economies and communities move forward.
5.20 pm
Mr. David Curry (Skipton and Ripon) (Con):
I am pleased that the Financial Secretary to the Treasury has just come back to the Chamber, because I was about to
say that Ministers in this Government fall into one of two tendencies: the hysterical tendency or the rational tendency. He is one of the few who fall into the latter category. He could almost sell me a used car; I say almost for reasons that I shall explain.
I felt a slight sense of surrealism while I listened to the speeches. The Government gave us what my grandmother would have called “A lick and a promise,” the lick being the Bill, and the promise being what might eventually follow it. My hon. Friends the Members for Wycombe (Mr. Goodman), and for Rayleigh (Mr. Francois), who are on the Opposition Front Bench, gave us a promise without the lick. The Liberal Democrats gave us an effusion of licking and promises, including proposals for a tariff-based system, reform of capital gains tax, changes in VAT and a serious exploration of the land value tax. Despite my teasing of the hon. Member for Twickenham (Dr. Cable), there are substantial reasons for such an exploration, and what he proposes has been tried in the United States. However, the purpose of such a scheme would be to push people into development. In a sense, it would solve one of the other problems that Barker identified, which is people’s reluctance to bring land forward for development. However, if one considers the rate of house price increases since Barker published her report, one wonders to what extent her remedies are relevant, and to what extent they would equalise the rhythm of price rises in Britain and the continent—and that, after all, was why the report was commissioned.
I cannot help but think that the Committee stage will have a surreal feeling to it. I cannot for the life of me think what we will discover in Committee that we have not discovered on Second Reading. I see from the motion on the Order Paper that, characteristically for the Government, the Committee is due to sit for only a brief moment, but I suspect that even that is over-generous, in light of what we are likely to discover, especially when I hear from the Minister that he is already exploring the IT to make the system work. I am a member of the Select Committee on Public Accounts, and therefore live on a diet of failed IT systems, and I hope that the Minister will not choose the consultants who gave us the Rural Payments Agency, or some of the other consultants used in the past, to set up the system. I cannot help but feel—I have a political twinge—that ultimately the project might not happen at all, and that things may turn out to be even more surreal than we thought.
Mr. Paul Goodman (Wycombe) (Con): Without getting into the business of licks and promises, is my right hon. Friend aware of any precedent for a paving Bill being introduced in advance of a Bill that might not be introduced and is out to formal consultation?
Mr. Curry:
I cannot answer that with certainty, but I would be surprised if there were major precedents. Serious questions about the timetable arise. I think that the Minister said that the consultation period finishes at the end of February. One would normally expect such a measure to be included in a Budget, but unless the Government have already made up their mind, it will not be in the March Budget. That means that we are looking at a 2008 Budget, which means that we are
looking at implementation pretty much dot on the next general election. That is another reason why I have a twinge that the project might not happen at all.
Turning to the substance of the issue, there is consensus that we need to build more houses. I pay tribute to the shadow Chancellor, my hon. Friend the Member for Tatton (Mr. Osborne), and the shadow housing Minister, my hon. Friend the Member for Surrey Heath (Michael Gove), who have recognised that. That may be unpalatable, and I accept that people do not want their neighbourhoods and communities to be, in their view, deluged. However, we must build houses where people want to live—there is no escape from that. I do not particularly like the Stalinist approach that the Deputy Prime Minister adopted in his previous incarnation, and the more that the Department tells us how much can be built in the Thames Gateway the more I wonder how long that approach will last. However, there is evidently a need for housing.
We must acknowledge that populations need infrastructural support. My party has made much of the fact that the Government want to proceed with development, but are thwarted in that aim, because the infrastructure is not in place to transport people to work or to provide the schools, hospitals and roads that are needed for functioning communities. Funding for that infrastructure has not been forthcoming under existing financial arrangements, so there is a bar to development and one cannot imagine any foreseeable changes to the rules. The comprehensive spending review will soon be announced, and the decline in the increase of public expenditure will be the salient political reality of the remainder of this Parliament.
Where do we look for the cash? I followed closely the speech of the right hon. Member for Greenwich and Woolwich (Mr. Raynsford). It is a pleasure to speak in the same debate as him and, once again, to our mutual embarrassment, we find ourselves in substantial agreement. The Kate Barker proposal is not new—it has been endlessly circulated and repeated—so we must ask what would make it work, whether we need a new tax, how well it would marry with other taxes, whether we could do better by building on existing mechanisms, whether the industry will have good reason to work with the proposal, and whether it would yield useful sums. The answer to all those questions is at best open and, at worst, there is a predisposition to a negative response.
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