14 September 2007
It seemed a good idea to some at the time but now support for a Planning Gain Supplement is waning. Tim Williams explains why, and suggests alternatives
Of the many announcements to be made in the upcoming Pre-Budget Report and Comprehensive Spending Review, few can be more keenly awaited by the widest range of audiences than what the prime minister will say on the Planning Gain Supplement.
In his July 11 statement ahead of the housing green paper, Gordon Brown tantalised his listeners about the future of the PGS, offering a window of opportunity until the PBR for alternative methods of capturing some of the value of development for the public sector.
The PGS a form of development tax triggered by the uplift in land value brought about by the planning process was proposed by Kate Barker in her 2004 review of housing supply. It was intended to replace the current planning gain powers in section 106 of the Town and Country Planning Act 1990. These allow local planning authorities to require contributions in kind or in cash from developers before granting planning permission. These 'planning obligations' can include a wide range of contributions, such as providing a proportion of affordable housing or a cash sum towards local transport infrastructure. But they are not a licence for local authorities to demand arbitrary sums, or to 'sell' planning permission. Exactly what section 106 agreements can require of developers is set out in the government circular 05/2005.
The housing green paper came up with four alternatives to the PGS: a lower-rate version, with some planning obligations retained; a version limited to greenfield sites; a charging mechanism based on an expanded system of planning obligations; and a statutory planning charge. This was very welcome, as many people had been convinced that our hitherto sure-footed PM was about to make the first howler of his short regime.
For the PGS is a turkey that just won't fly. And, if by some bizarre freak of nature, the bird did manage to get off the ground, it would have serious consequences for two objectives the government says it holds dear its ambitious house-building programme and local government's vitality and place-shaping capacity. The PGS would damage the former and kill off the latter.
In various forms, the idea has been attempted before but has always failed. This is because it is a tax and inevitably people are tempted to play games to avoid paying it. The game will focus on valuations, where, following planning approval, landowners, developers and agents will argue that what you thought was a highly desirable piece of residential land is actually a newt-infested, polluted, brownfield hellhole that no amount of remediation or investment can transform into a valuable asset. Using the dark arts of the average surveyor, you can do the strangest things with valuation. Is it not highly instructive that the Royal Institution of Chartered Surveyors, whose members would make a mint out of the PGS and know its merits and flaws inside out, is opposed to it? The supplement would simply not be collectable and because of this would almost certainly deliver a lot less than section 106.
Ah, section 106. It's ironic. All those developers who whinged about it to Kate Barker now say they love it and her recommendation to replace it with the PGS is seen as A Very Big Misunderstanding. I understand that Barker herself now thinks that the PGS might be an error. If so, it would be helpful if she would say this sometime soon, if not publicly, then at least privately to the Treasury, which is ploughing on regardless. However, whether the new chancellor takes the same view as some of his civil servants on this is a moot question.
The developers' whinge about section 106 was partly that getting agreement with local authorities takes too long and partly that some councils use the process to put them over a barrel. There is a rational basis to this critique and local authority lawyers can take absurd amounts of time to do the legals on the least significant of developments.
To solve this problem requires improvements to section 106 performance and the sharing of best practice. It does not need the introduction of an even more flawed alternative, one that, moreover, doesn't get you the one thing that is the rock on which all successful development is built the deal between the developer and the community on the infrastructure investment needed to mitigate the impact of development and otherwise make it acceptable in planning terms.
A nationally administered tax that returns only 70% of the income generated by a development back to the locality the PGS proposal will result in developer-turn-off and no community buy-in. For all the flaws of section 106, developers have some confidence that it delivers the deal, the buy-in and a well-established route to agreeing infrastructure provision. All commentators would wish for more certainty of infrastructure delivery from the existing routes and many believe that we need to tap more contributions from smaller developments not currently paying much, if anything, via section 106. But no-one canvassed by the Treasury/Department for Communities and Local Government in the formal consultation argued that the PGS was superior in these key regards. In fact, the opposite is true.
The coalition against the PGS is probably the largest ever assembled in the history of duff government policy development. Everyone involved in building anything, all local government bodies, even that hotbed of insurrection, the Audit Commission, is involved. The private sector opposes it because it fears infrastructure provision will become even less certain and local authorities, shorn of section 106 powers, will just increase their opposition to development.
Finally, the PGS is a brutal act of centralism that bucks the general trend towards localism. It will take the key place-making tool out of local government hands and give it to the Treasury. Nuff said.
With this weight of opinion against the PGS, it is hard to believe it will proceed. But rationalists were fooled over the home ownership packs and history can indeed repeat itself. How to win this one? Opponents need to marshal the arguments one more time, but should do so in a united front around a single alternative. They also need to accept that section 106 does need some reform and that not enough infrastructure investment is coming from it at the moment, particularly from small developments that actually have a cumulative impact on infrastructure.
A promising single alternative would be a standard charge or tariff regime linked to section 106 (see approach C in the box). Some 30 local authorities are already developing something like this on the basis of the 05/2005 circular. Look, ministers, to Chelmsford, to Milton Keynes, to Peterborough, to Tameside. Look to local government to find your innovative funding models and that really would be in the spirit of the local government white paper. There are sensible people at the centre waiting to open this door. Let's help them.
Tim Williams was a special adviser to David Miliband when he was communities and local government secretary. He is a director at Navigant Consulting
There has to be a better way
The housing green paper put forward four options in place of the Planning Gain Supplement.
Approach A: a lower-rate PGS, with more planning obligations retained These would continue to be based on the tests in the 05/2005 government circular, Planning obligations, which could be placed on a statutory basis. This would provide the certainty about local revenue streams that local authorities and developers have been asking for. Under this option, all PGS revenues would be returned to the region from which they were raised for investment in infrastructure.
Approach B: a PGS limited to greenfield sites On average, greenfield sites experience higher value uplift as a result of planning permission. Again, planning obligations would continue to be based on the circular. This alternative could require European Union approval.
Approach C: a charging mechanism based on an expanded system of planning obligationsThe government would remove some or all of the policy restrictions, making it easier for local authorities to set standard charges to mitigate the impact of development and fund infrastructure. Charges would be set out in development plan documents and be clearly linked to infrastructure need.
Approach D: a statutory planning charge Local authorities would set standard charges for infrastructure need, enabling them to capture planning gain more systematically. Charges would be based on the total costs of infrastructure in an area, useful in areas with a high proportion of small developments.
PFsep2007
