09 December 2005
All local authorities must share the spoils of the proposed Planning Gain Supplement or the gap between areas of economic success and deprivation will widen, Gordon Brown is being warned.
The note of caution was sounded after the chancellor delivered his Pre-Budget Report to a rumbustious House of Commons on December 5, which had as its centrepiece a wide-ranging package of measures to meet rising housing demand and increase the supply of affordable homes.
Brown's ambitious plans to increase the number of new homes built from 150,000 annually to 200,000 by 2016 will also require substantial investment in local infrastructure development. He intends to fund that by levying a PGS tax to capture some of the profits generated when land is given planning permission.
But the Royal Town Planning Institute has said there must be a mechanism to ensure that areas suffering housing market failure also benefit from infrastructure investment funded by PGS. If they do not, it warns, their problems will be exacerbated as other areas gain from development activity.
The Treasury has already indicated that 'a proportion' of the PGS proceeds will be used to fund regional infrastructure projects such as transport networks, but 'the significant majority' of the money will be spent at the local level.
It has launched a consultation on PGS and is proposing that the money is either kept by the authority where it is raised, or collected centrally and then redistributed using a formula.
RTPI head of policy Chris Scrafton told Public Finance that some form of redistribution must be built into the PGS to ensure its purpose is achieved. 'There is a certain justice to the idea that if you build in a certain area the money should go back in there,' he said. 'But a balance must be struck so that areas of demand are not prioritised over areas of need.'
The Treasury will also be conducting a cross-cutting review of local infrastructure development as part of the 2007 Comprehensive Spending Review.
Scrafton called for a national development framework to be drawn up, and overseen by an 'infrastructure czar', to ensure that there is a 'clear overall perspective' on the programme.
The Local Government Association backed the principle of the PGS, but would not be drawn on which of the Treasury's options it preferred.
But in its pre-PBR lobbying, the body said the money should 'stay local' rather than being distributed by Whitehall, indicating that it likely to come down in favour of each council keeping what it has generated.
Economist Kate Barker, whose 2004 review of housing supply for the Treasury underpinned the strategy published this week, told PF she was 'pretty happy' with the chancellor's plans.
She admitted that she would have liked faster implementation of the government's plans – much of which will follow CSR 2007 – but she endorsed the decision to consult widely before introducing changes.
Barker also indicated that she thought Brown should set the PGS rate at a generous level. No proportion has yet been given. 'It should be set as high as possible,' she said, 'as long as it is not going to have a negative effect on housing and detract from development.'
Brown told Parliament that the housing reforms, which also include speeding up the planning regime and encouraging more shared equity ownership, would tackle the 'economic challenge' the issue presented.
'Our aim is to build not just homes but communities,' he said. The PGS would 'give local authorities a fair share of planning gains to invest locally'.
Unison general secretary Dave Prentis backed the chancellor's decision. 'Supplements will allow local authorities to tap into the profits made by property developers to make sure that where new homes are built, we will also get the new schools, libraries and roads and public transport needed.'
Elsewhere in his speech, the chancellor was forced to halve his economic growth forecast for this year from the 3%–3.5% outlined in the March Budget to just 1.75%, a move that had been widely anticipated by economic forecasters. He also had to increase public borrowing for the same period from the predicted £32bn to £37bn.
Business leaders' group the Institute of Directors criticised the chancellor for failing to make necessary cuts to public spending.
Miles Templeman, IoD director general, said: 'GDP growth has been revised down in the short term but it appears to have been revised up thereafter.
'Once again, if the growth does not materialise, taxes will have to rise unless the chancellor takes an axe to public spending. The chancellor can't guarantee economic growth but he can cut public spending in order to keep the public finances under control.'
By contrast, Trades Union Congress general secretary Brendan Barber praised the chancellor's stewardship of the economy. 'He has used that [economic] strength to announce a welcome range of positive initiatives for pensioners, young families, young people and industry,' he added.
PFdec2005
