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The right hon. Gentleman was right to acknowledge, as I do, that the system is patchy. I was struck by the comments of the Minister, who made the good point that many councils do not use section 106 at all. Clearly, there are many smaller developments for which use of section 106 may not be appropriate, but the Minister quite correctly asked why some councils do not pursue that route even for large projects. It is a good question, and I am not entirely sure what the answer is. I suspect that, in some cases, there is not very much development uplift. There may not be the same
pressures, and in many industrial parts of Britain, the land is contaminated and does not have a great deal of value to developers. It may well be that many councils are just not working with the system properly and have not got used to it. That gives us all the more reason to do a lot more to spread good practice, even if we do not proceed with the scheme. We should develop pilot schemes, whether they involve tariffs or take other forms, to make the existing system work much better.
I have given two compelling arguments for not taking the Governments routethe first was the lack of consensus, and the second was the draining away of local authoritybut there are others, too. The third point is that the scheme is unnecessary. There is, of course, a strong philosophical argument for obtaining planning gain for the community. Clearly, if there is an uplift through planning approval, and if that uplift is considerably in excess of the opportunity cost for the developerthe risk-adjusted return, which obviously has to be consideredthere will be a gain to which the community might reasonably want access. However, discussions on that point have largely ignored the fact that there is already a mechanism to ensure such access: as well as the section 106 agreement, there is capital gains tax.
As a result of the planning gain supplement, many developers will pay under section 106, and then pay up to 40 per cent. capital gains tax, and then pay the planning gain supplement, too. We are not told the planning gain supplement rate, but it is an open secret that it is 30 per cent. Section 106 plus 40 per cent. plus 30 per cent. would be quite a high rate of tax. Of course, the Government say that in practice they would not apply full capital gains tax, but would instead give a tax offset, and that in turn would reduce the revenue. The question of whether the measure is necessary, even in revenue terms, has to be posed.
Fourthly, there are basic issues of complexity. If the Government proceed with a substantive Bill, we will find out whether they would impose de minimis limits of some kind on small developments. That would greatly reduce the bureaucracy involved, but some things are inherently complex, and that includes big development projects. They often involve pieces of land with different owners, obtained at different times. Calculating the planning uplift for a big development is inherently a difficult and complicated process.
Planning itself is complicated. I have never heard a proper answer to the case that I cited on Second Reading. The external cladding of a building, for example, may well require planning permission. Does the valuation have to be calculated for tax purposes? There is enormous administrative complexity associated with the planning process that could well make it prohibitive.
The final point, which has been made by the right hon. Member for Greenwich and Woolwich and others, is that PGS might create disincentives to development. There are, however, cases where the impact may be positive. The right hon. Member for Wokingham (Mr. Redwood) came up with a slightly perverse example, which was nevertheless valid. Some developers may be panicked into developing because they feel the planning gain supplement coming. There will be other cases of developers who have planning permission, have paid the tax and may therefore be
discouraged from keeping the land in a land bank. They have already paid the levy, so why not develop it? There may be positive incentive effects, but it is much more likely that developers will be discouraged from making planning applications. Experience suggests that that is overwhelmingly the case.
Given that there are so many reservations about the fundamental principle, which are widely shared by practitioners in local government and across the House, it seems extremely unwise and unnecessary to proceed with the paving Bill.
Dr. Starkey: As the House knows, the Communities and Local Government Committee carried out an investigation on the planning gain supplement. I remind Members that it is an all-party Committee, and the view of the Committee was that there were some potential benefits to the planning gain supplement, but that whether those benefits were realised would depend on the detail of the PGS.
Evidence was given to the Select Committee by a wide variety of organisations, many of which had also responded directly to the Treasurys own consultation, on what they perceived to be the likely effects of the tax. Obviously, because that consultation was carried out without any of the details of the tax having been decided on or made clear, in their responses to the consultations many organisations looked at the worst possible case, so they were responding not to a PGS that might be levied at, for example, 20 per cent. or 30 per cent., but to the possibility that it might be levied at 110 per cent., like one of its predecessors. Not surprisingly, at 110 per cent. it was a disaster.
One of the Opposition Members pooh-poohed the argument about the rate. Income tax levied at 30 per cent. or 40 per cent. is reasonable. Income tax levied at 99 per cent. clearly would be unreasonable. The rate is therefore relevant to whether a tax is reasonable and operable. It is perfectly reasonable to point out that in all the predecessors to the planning gain supplement, the rate has varied from 52 per cent. to 110 per cent. As I said, at that rather extortionate level, it is not surprising that the tax did not work, but it cannot be logically argued from that that a more reasonable tax would not work.
There are merits to the PGS, but the issue is the detail. I welcome the fact that the Treasury responded to the Select Committee report by not rushing straight from the first consultation into firm proposals, but has launched three other consultations on further technical detail. Personally, I think it might be necessary to hold a further consultation once the Treasury has decided on some of the details of PGS. It is an extremely complicated tax, were it to be introduced, and it is important that the Treasury get the detail right and that external stakeholders be given the opportunity to respond at every stage in the process of implementation of the tax. The more some details are firmed up, the clearer and easier it will be for those organisations to respond on the remaining detail.
It is important that we constantly restate the context in which the tax is proposed, which is the failure to build enough houses to meet household growth, particularly but not exclusively in the south-east and in
London. Those of us who represent areas in the south-east and in London know well the consequences of that shortage of housing at all levels, including affordable houses, for the lives of our constituents, particularly for the younger generation.
That shortage of housing has the potential to set up an unhelpful intergenerational conflict between those of us who are fortunate enough to have bought housesfor example, my first house cost less than £5,000, which is an unimaginably small sum for a three-bedroom houseand those of the same generation as my own children who, even though their earnings in real terms are comparable to what my husband and I earned at the time that we bought our first house, are nowhere near being able to afford a comparable house. That is a generality across the south-east and London. Those of us who have been fortunate need to understand the consequences if younger people coming up cannot afford to buy their own house, even if both partners are in reasonably well paid employment.
It is important that we consider ways of funding the infrastructure, because everybody, developers included, is clear that it is not enough to build housing; the infrastructure must be provided in a timely way to support that housing. Clearly, therefore, the infrastructure needs to be funded. The Committee was not wholly convinced that better use could not be made of section 106 powers. Many local authorities use section 106 very effectively, but there are unfortunately many others that do not.
The Milton Keynes infrastructure tariff is a particularly imaginative use of section 106 powers, aided by the fact that the Treasury, through English Partnerships, is forward-funding it, which is a crucial part of making it a success. However, as I explained in an earlier intervention, I do not think the infrastructure tariff is generally applicable, though it is being taken up by a couple of other local authorities alreadyAshford and Reigate and Bansteadso it is applicable in some cases.
Section 106 has not delivered well across the piece. I cite again the example of Kent county council, an authority which, in its evidence to us in one of our other inquiries, made great play of the undeveloped land in Kent that had planning permission but was not being developed. When the witnesses were pressed, it became clear that the land was not being developed because of a lack of funding for the infrastructure that would unlock those sites. Given that Kent county council presumably wishes those sites to be developed, as it has granted planning permission and as Kent has a dire shortage of housing, and given that Kent county council is, on the whole, a fairly well run authority, if it were able to use existing section 106 powers to unlock the funding for the infrastructure that would unlock those sites, I assume it would do so. That in itself demonstrates that there are problems with relying on section 106 if we are to fund the infrastructure properly to provide for the housing that is needed.
The Committee asked the Treasury to carry out a cost-benefit analysis of PGS with a scaled-down section 106, as compared with the effective use of section 106, and I hope the Treasury will still do that. That needs to be backed up by a realistic assessment of how effectively good practice on section 106 can be
spread across the whole country and a recognition that local authorities of all three political parties are clearly not effectively using section 106 powers at present. We need to consider why they are not doing so, rather than believing that by waving a magic wand we could ensure that all those authorities used section 106 properly in the future.
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