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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
20 Feb 2007 : Column 202
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 Government’s route—the first was the lack of consensus, and the second was the draining away of local authority—but 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 developer—the risk-adjusted return, which obviously has to be considered—there 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
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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.

6.31 pm

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 Treasury’s 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
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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 houses—for example, my first house cost less than £5,000, which is an unimaginably small sum for a three-bedroom house—and 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 already—Ashford and Reigate and Banstead—so 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
20 Feb 2007 : Column 205
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.

In the lead-up to the introduction of PGS, I hope, in special pleading as a Milton Keynes MP, that the Treasury will consider transitional arrangements—

It being one hour after the commencement of proceedings, Mr Deputy Speaker put forthwith the Question already proposed from the Chair, pursuant to Order [this day].


The House divided: Ayes 275, Noes 198.
Division No. 051]
[6.40 pm



AYES


Abbott, Ms Diane
Ainger, Nick
Ainsworth, rh Mr. Bob
Alexander, rh Mr. Douglas
Anderson, Janet
Armstrong, rh Hilary
Atkins, Charlotte
Austin, Mr. Ian
Austin, John
Bailey, Mr. Adrian
Banks, Gordon
Barlow, Ms Celia
Barron, rh Mr. Kevin
Battle, rh John
Begg, Miss Anne
Bell, Sir Stuart
Benton, Mr. Joe
Berry, Roger
Blackman, Liz
Blackman-Woods, Dr. Roberta
Blears, rh Hazel
Blizzard, Mr. Bob
Blunkett, rh Mr. David
Borrow, Mr. David S.
Bradshaw, Mr. Ben
Brennan, Kevin
Brown, Lyn
Brown, rh Mr. Nicholas
Brown, Mr. Russell
Browne, rh Des
Bryant, Chris
Burden, Richard
Burgon, Colin
Burnham, Andy
Butler, Ms Dawn
Byers, rh Mr. Stephen
Byrne, Mr. Liam
Caborn, rh Mr. Richard
Cairns, David
Campbell, Mr. Alan
Campbell, Mr. Ronnie
Caton, Mr. Martin
Challen, Colin
Chapman, Ben
Chaytor, Mr. David
Clapham, Mr. Michael
Clark, Ms Katy
Clark, Paul
Clarke, rh Mr. Tom
Clelland, Mr. David
Clwyd, rh Ann
Coffey, Ann
Cohen, Harry
Connarty, Michael
Cooper, Rosie
Cooper, Yvette
Corbyn, Jeremy
Cousins, Jim
Crausby, Mr. David
Creagh, Mary
Cruddas, Jon
Cryer, Mrs. Ann
Cummings, John
Cunningham, Mr. Jim
Cunningham, Tony
David, Mr. Wayne
Davies, Mr. Dai
Dean, Mrs. Janet
Denham, rh Mr. John
Dhanda, Mr. Parmjit
Dismore, Mr. Andrew
Dobbin, Jim
Dobson, rh Frank
Donohoe, Mr. Brian H.
Doran, Mr. Frank
Dowd, Jim
Dunwoody, Mrs. Gwyneth
Eagle, Angela
Efford, Clive
Ellman, Mrs. Louise
Engel, Natascha
Ennis, Jeff
Etherington, Bill
Farrelly, Paul
Field, rh Mr. Frank
Fisher, Mark
Fitzpatrick, Jim
Flello, Mr. Robert
Flint, Caroline
Flynn, Paul
Follett, Barbara
Foster, Mr. Michael (Worcester)
Foster, Michael Jabez (Hastings and Rye)
Francis, Dr. Hywel
Gapes, Mike
Gardiner, Barry
George, rh Mr. Bruce
Gerrard, Mr. Neil
Gibson, Dr. Ian
Gilroy, Linda

Godsiff, Mr. Roger
Goodman, Helen
Griffith, Nia
Griffiths, Nigel
Grogan, Mr. John
Gwynne, Andrew
Hall, Mr. Mike
Hall, Patrick
Hamilton, Mr. David
Hamilton, Mr. Fabian
Harman, rh Ms Harriet
Harris, Mr. Tom
Havard, Mr. Dai
Healey, John
Henderson, Mr. Doug
Hendrick, Mr. Mark
Hepburn, Mr. Stephen
Heppell, Mr. John
Hesford, Stephen
Hewitt, rh Ms Patricia
Hill, rh Keith
Hillier, Meg
Hodge, rh Margaret
Hodgson, Mrs. Sharon
Hoon, rh Mr. Geoffrey
Hopkins, Kelvin
Howarth, rh Mr. George
Howells, Dr. Kim
Hoyle, Mr. Lindsay
Hughes, rh Beverley
Humble, Mrs. Joan
Iddon, Dr. Brian
Illsley, Mr. Eric
Ingram, rh Mr. Adam
Irranca-Davies, Huw
Jackson, Glenda
James, Mrs. Siân C.
Jenkins, Mr. Brian
Johnson, rh Alan
Johnson, Ms Diana R.
Jones, Helen
Jones, Mr. Kevan
Jowell, rh Tessa
Joyce, Mr. Eric
Keen, Alan
Keen, Ann
Kelly, rh Ruth
Kemp, Mr. Fraser
Kennedy, rh Jane
Khabra, Mr. Piara S.
Khan, Mr. Sadiq
Kidney, Mr. David
Kumar, Dr. Ashok
Ladyman, Dr. Stephen
Lammy, Mr. David
Laxton, Mr. Bob
Lazarowicz, Mark
Levitt, Tom
Lewis, Mr. Ivan
Linton, Martin
Lloyd, Tony
Love, Mr. Andrew
Lucas, Ian
Mackinlay, Andrew
Mactaggart, Fiona
Mallaber, Judy
Mann, John
Marris, Rob
Marsden, Mr. Gordon
Marshall, Mr. David
Martlew, Mr. Eric
McAvoy, rh Mr. Thomas
McCafferty, Chris
McCarthy, Kerry
McCartney, rh Mr. Ian
McDonagh, Siobhain
McFall, rh John
McGuire, Mrs. Anne
McIsaac, Shona
McKechin, Ann
McKenna, Rosemary
Meacher, rh Mr. Michael
Meale, Mr. Alan
Merron, Gillian
Michael, rh Alun
Milburn, rh Mr. Alan
Miliband, Edward
Miller, Andrew
Mitchell, Mr. Austin
Moffat, Anne
Moffatt, Laura
Mole, Chris
Morgan, Julie
Morley, rh Mr. Elliot
Mudie, Mr. George
Mullin, Mr. Chris
Munn, Meg
Murphy, Mr. Denis
Murphy, Mr. Jim
Naysmith, Dr. Doug
Norris, Dan
O'Brien, Mr. Mike
O'Hara, Mr. Edward
Osborne, Sandra
Palmer, Dr. Nick
Plaskitt, Mr. James
Pope, Mr. Greg
Pound, Stephen
Prentice, Bridget
Prentice, Mr. Gordon
Primarolo, rh Dawn
Prosser, Gwyn
Purchase, Mr. Ken
Rammell, Bill
Reed, Mr. Andy
Reed, Mr. Jamie
Riordan, Mrs. Linda
Roy, Mr. Frank
Ruddock, Joan
Russell, Christine
Ryan, Joan
Salter, Martin
Sarwar, Mr. Mohammad
Seabeck, Alison
Shaw, Jonathan
Sheerman, Mr. Barry
Sheridan, Jim
Simpson, Alan
Singh, Mr. Marsha
Skinner, Mr. Dennis
Slaughter, Mr. Andrew
Smith, rh Mr. Andrew
Smith, Angela E. (Basildon)
Snelgrove, Anne
Soulsby, Sir Peter
Southworth, Helen
Spellar, rh Mr. John
Starkey, Dr. Phyllis
Stewart, Ian
Stoate, Dr. Howard
Strang, rh Dr. Gavin
Straw, rh Mr. Jack
Stringer, Graham
Stuart, Ms Gisela

Sutcliffe, Mr. Gerry
Tami, Mark
Taylor, Ms Dari
Taylor, Dr. Richard
Thomas, Mr. Gareth
Timms, rh Mr. Stephen
Tipping, Paddy
Todd, Mr. Mark
Touhig, rh Mr. Don
Trickett, Jon
Truswell, Mr. Paul
Turner, Dr. Desmond
Twigg, Derek
Ussher, Kitty
Vaz, rh Keith
Vis, Dr. Rudi
Waltho, Lynda
Ward, Claire
Watson, Mr. Tom
Whitehead, Dr. Alan
Williams, rh Mr. Alan
Williams, Mrs. Betty
Winnick, Mr. David
Winterton, rh Ms Rosie
Wood, Mike
Woolas, Mr. Phil
Wright, Mr. Anthony
Wright, David
Wright, Mr. Iain
Wright, Dr. Tony
Wyatt, Derek
Tellers for the Ayes:

Mr. Ian Cawsey and
Mr. Dave Watts
NOES


Afriyie, Adam
Ainsworth, Mr. Peter
Amess, Mr. David
Arbuthnot, rh Mr. James
Atkinson, Mr. Peter
Bacon, Mr. Richard
Baker, Norman
Baldry, Tony
Barrett, John
Beith, rh Mr. Alan
Bellingham, Mr. Henry
Benyon, Mr. Richard
Bercow, John
Binley, Mr. Brian
Blunt, Mr. Crispin
Bone, Mr. Peter
Boswell, Mr. Tim
Brady, Mr. Graham
Brazier, Mr. Julian
Breed, Mr. Colin
Brokenshire, James
Brooke, Annette
Browne, Mr. Jeremy
Browning, Angela
Bruce, rh Malcolm
Burns, Mr. Simon
Burrowes, Mr. David
Burstow, Mr. Paul
Burt, Alistair
Burt, Lorely
Butterfill, Sir John
Cable, Dr. Vincent
Campbell, rh Sir Menzies
Carmichael, Mr. Alistair
Carswell, Mr. Douglas
Chope, Mr. Christopher
Clappison, Mr. James
Clark, Greg
Clarke, rh Mr. Kenneth
Clifton-Brown, Mr. Geoffrey
Cormack, Sir Patrick
Cox, Mr. Geoffrey
Crabb, Mr. Stephen
Davey, Mr. Edward
Davies, David T.C. (Monmouth)
Davies, Philip
Davies, Mr. Quentin
Davis, rh David (Haltemprice and Howden)
Djanogly, Mr. Jonathan
Dorrell, rh Mr. Stephen
Dorries, Mrs. Nadine
Duddridge, James
Duncan, Alan
Duncan Smith, rh Mr. Iain
Dunne, Mr. Philip
Ellwood, Mr. Tobias
Evans, Mr. Nigel
Fabricant, Michael
Farron, Tim
Featherstone, Lynne
Field, Mr. Mark
Fox, Dr. Liam
Francois, Mr. Mark
Fraser, Mr. Christopher
Gale, Mr. Roger
Garnier, Mr. Edward
Gauke, Mr. David
Gibb, Mr. Nick
Gidley, Sandra
Gillan, Mrs. Cheryl
Goldsworthy, Julia
Goodman, Mr. Paul
Gove, Michael
Gray, Mr. James
Green, Damian
Greening, Justine
Greenway, Mr. John
Grieve, Mr. Dominic
Gummer, rh Mr. John
Hague, rh Mr. William
Hammond, Mr. Philip
Hands, Mr. Greg
Harris, Dr. Evan
Harvey, Nick

Hayes, Mr. John
Heald, Mr. Oliver
Heath, Mr. David
Heathcoat-Amory, rh Mr. David
Hemming, John
Herbert, Nick
Hoban, Mr. Mark
Hogg, rh Mr. Douglas
Hollobone, Mr. Philip
Holmes, Paul
Horam, Mr. John
Hosie, Stewart
Howard, rh Mr. Michael
Howarth, Mr. Gerald
Hughes, Simon
Huhne, Chris
Hunt, Mr. Jeremy
Hunter, Mark
Hurd, Mr. Nick
Jackson, Mr. Stewart
Jenkin, Mr. Bernard
Johnson, Mr. Boris
Jones, Mr. David
Kawczynski, Daniel
Keetch, Mr. Paul
Kirkbride, Miss Julie
Knight, rh Mr. Greg
Lait, Mrs. Jacqui
Lansley, Mr. Andrew
Leech, Mr. John
Letwin, rh Mr. Oliver
Lidington, Mr. David
Loughton, Tim
Luff, Peter
Maclean, rh David
MacNeil, Mr. Angus
Main, Anne
Malins, Mr. Humfrey
Maples, Mr. John
Mates, rh Mr. Michael
May, rh Mrs. Theresa
McIntosh, Miss Anne
McLoughlin, rh Mr. Patrick
Mercer, Patrick
Miller, Mrs. Maria
Mitchell, Mr. Andrew
Moore, Mr. Michael
Moss, Mr. Malcolm
Mulholland, Greg
Mundell, David
Murrison, Dr. Andrew
Neill, Robert
Newmark, Mr. Brooks
O'Brien, Mr. Stephen
Öpik, Lembit
Ottaway, Richard
Pelling, Mr. Andrew
Penning, Mike
Penrose, John
Pickles, Mr. Eric
Price, Adam
Prisk, Mr. Mark
Pritchard, Mark
Randall, Mr. John
Redwood, rh Mr. John
Robathan, Mr. Andrew
Robertson, Angus
Rosindell, Andrew
Ruffley, Mr. David
Sanders, Mr. Adrian
Scott, Mr. Lee
Shapps, Grant
Shepherd, Mr. Richard
Simpson, Mr. Keith
Smith, Sir Robert
Soames, Mr. Nicholas
Spelman, Mrs. Caroline
Spicer, Sir Michael
Spink, Bob
Spring, Mr. Richard
Stanley, rh Sir John
Streeter, Mr. Gary
Stuart, Mr. Graham
Stunell, Andrew
Swayne, Mr. Desmond
Swire, Mr. Hugo
Syms, Mr. Robert
Tapsell, Sir Peter
Taylor, Mr. Ian
Teather, Sarah
Thurso, John
Tyrie, Mr. Andrew
Vara, Mr. Shailesh
Villiers, Mrs. Theresa
Walker, Mr. Charles
Wallace, Mr. Ben
Walter, Mr. Robert
Watkinson, Angela
Weir, Mr. Mike
Whittingdale, Mr. John
Wiggin, Bill
Willetts, Mr. David
Williams, Hywel
Williams, Mark
Williams, Stephen
Willis, Mr. Phil
Willott, Jenny
Wilshire, Mr. David
Wilson, Mr. Rob
Winterton, Ann
Winterton, Sir Nicholas
Wishart, Pete
Wright, Jeremy
Young, rh Sir George
Tellers for the Noes:

Mr. David Evennett and
Mr. Mark Lancaster
Question accordingly agreed to.
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20 Feb 2007 : Column 208

20 Feb 2007 : Column 209

Income Tax Bill

As amended in the Joint Committee; considered.

Motion made, and Question put forthwith, pursuant to Standing Order No.60 (Tax law rewrite bills), That the Committee of the whole House be discharged from considering the Bill.— [Liz Blackman.]

Question agreed to.

Order for Third Reading read.


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