10 November 2006
Government proposals to raise money through a planning gain tax on developers have been given a cautious welcome by MPs.
But the tax will have to be properly tested to ensure that it is simple to administer and has the support of house-builders as well as local authorities, according to the Commons' communities and local government select committee.
The proposed Planning Gain Supplement would tax profits made on land after planning permission has been granted, and a 20% rate has previously been suggested. The MPs say further research is needed before the rate is set.
The committee adds that most PGS revenue should go to the local areas affected by the developments. 'A clear funding formula should be used to determine precisely how much revenue is returned to each local authority,' says its report, published on November 7.
The PGS would give authorities more opportunity to plan strategically and reduce the incentive to permit development purely for planning gain.
The report rules out councils borrowing in advance of receipts and says the government must be willing to forward-fund new infrastructure. Surpluses should go to development-related schemes and not to general government spending.
MPs stress that the PGS is not a single solution and that other options, including the reform of section 106 powers under which developers provide affordable housing, should not be ruled out.
They reject calls for exemptions and discounts as this would reduce clarity. 'Previous attempts to tax windfall gains have foundered on the costs of administration or been locked in litigation for years,' the report concludes.
The National Housing Federation said it was disappointed that the committee had not backed its demand that social landlords should be exempt from the PGS, saying money would simply be moved from one part of the public purse to another.
Stewart Baseley, executive chair of the Home Builders' Federation, agreed that a full cost-benefit analysis was required. 'The industry has significant concerns that the complexity of the levy may not help bring more land forward for development, nor speed up the planning process,' he said.
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