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News Release from: Chartered Institute of Building [CIOB] | Subject: Planning gain supplement land tax
Edited by the Buildingtalk Editorial
Team on 03 February 2006
Planning gain supplement land tax
Planning gain supplement 'fair and efficient' land tax but developers have their doubts.
The Government believes that the planning gain supplement as proposed in Kate Barker's final report on Housing Supply is a fair, efficient and transparent levy and represents a principled approach to funding the infrastructure But the Newzeye conference on "the coming land tax" showed that the landowners and developers whose resources and expertise are central to the desired expansion of housing supply do not share this confidence
This article was originally published on Buildingtalk on 12 Mar 2004 at 8.00am (UK)
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As a representative of the Country Land and Business Association put it, would you back a horse that had failed to run the same course on at least four attempts? He was referring of course to several attempts in the 20th century to introduce taxation on land values, the 1909 Bill which sought to collect 20 per cent of the development uplift, blocked in the House of Lords; the Attlee Government's 1947 bid to appropriate 100 per cent of the betterment value; two attempts by the Wilson administration, one in 1967 to take 40 per cent of betterment through the Land Commission, and a second attempt in 1975 at 80 per cent.
All failed: in the end (1986) Nigel Lawson as Mrs.
Thatcher's Chancellor of the Exchequer scrapped the lot.
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But that government brought in the principle of Section 106 planning obligations by which local authorities have been able to raise growing amounts of money to support the infrastructure.
Now, as Kate Barker recommended, the Government is proposing to scale back Section 106 contributions.
Mark Fine, senior policy adviser in the Treasury's property tax team explained that the idea now is to reduce the scope of Section 106 agreements to 'direct impact mitigation'.
When the new regime comes into operation, local authorities will not be allowed to extract by this means development gain any greater than is required to fund a number of prescribed activities such as on-site roads, flood defences, landscaping and street lighting.
Essential services like public transport, schools and health facilities which have proved important for the creation of sustainable communities will be funded by 'other revenues', including the product of the planning gain supplement.
Direct share for local authorities.
In compensation for the reduction of Section 106 income, the idea is that the local authorities should receive a direct share of the development gain generated by PGS in their area.
The official line, in which the developers do not put much trust, is that the overwhelming proportion of this revenue will be made available for local authorities to spend as they think fit.
The consultative document puts the situation in more restrained language: "This share should at least broadly equal estimates of the amount local authorities are currently able to extract from Section 106 agreements." That will be the method of financing the infrastructure through the planning system if the latest proposals come into force in two or three years' time.
Much depends on whether the planning gain supplement succeeds in raising sufficient revenue to offset the loss of Section 106 contributions.
Since the developers do not believe that it will, from their point of view the outlook for infrastructure funding is not very bright.
Nor of course is the outlook for land release if landowners as previously withhold land from the market and wait for the system to be abandoned as a failure.
If that happens the slowdown in housing supply must impact on the government's ambitions for building new homes at the rate of 200,000 a year.
In the interim, the Government will be encouraging local planning authorities to implement new measures in advance of PGS introduction, especially the use of standard charge approaches to planning obligations under Section 106.
The notion of an optional planning charge has been dropped.
The consultative document cites as an example the payment system developed by English Partnerships at Milton Keynes.
The contribution that developers are now expected to make amounts to around £18.50 per dwelling, plus land for social infrastructure and affordable housing.
Despite what the Government regards as these beneficial changes to the current arrangements, it believes that scaling back along the lines recommended by Kate Barker will speed up and improve the efficiency of the planning obligations system and enable it to operative effectively alongside PGS.
This again is a matter of doubt among developers and their advisers who have been studying the implications of the latest proposals for the past few weeks (the consultation closes at the end of February).
Scale of the uplift.
The Government is of course aware of the failure of previous attempts to capture part of the uplift in land value when planning permission allows a change of use.
The consultation paper itself gives an indication of the scale of the uplift when it quotes the value of agricultural land at around £9,200 per hectare compared with £2.5 million for greenfield land with planning permission for housing.
At the rate of 20 per cent recovery, the level most widely anticipated in the industry, such a transaction would in theory yield a gain of some £500,000 per hectare, producing around £5 million on a 10 hectare development site.
But then the question arises, from where is the developer to obtain the £5 million at the commencement of the operation? And what would be the effect of discounting this charge against the price of land? The Government's intention as presented by Mark Fine was that this kind of yield would finance additional investment in local and strategic infrastructure to support housing growth, whilst preserving incentives to develop.
That again is not the view of the housing development industry, quite the opposite in fact.
The views of H.M.Treasury, H.M.Revenue and Customs and the Office of the Deputy Prime Minister are summarised as follows: PGS is a means to an end - necessary to help fund the Barker package to build more and better quality homes.
It will be used to finance vital infrastructure and support growing communities, and will accompany improvements to the planning obligations system to speed up the process.
In the light of the discussions at the 'Land Tax' conference, it can only be said that the development and property-owning community faces this prospect with deep misgivings.
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