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Planning-gain Supplement (Preparations) Bill

That sounds a plausible example of what I was trying to say and I thank the hon. Gentleman for that intervention. Valuation is one issue and the other is the impact on development, and the right hon. Member for Greenwich and Woolwich explained clearly the possible problems. It is straightforward if we are talking about greenfield development, but if it is brownfield development, with unpredictable and complex costs relating to contaminated sites, it becomes much more difficult. The other area that no one has so far mentioned, in which the impact becomes unpredictable and difficult, relates to the improvement of property rather than the redevelopment of the land. A case could arise in which extensive internal improvements of a big office block or a factory could take place without incurring planning gain supplement because they are internal, but external cladding, which would require planning approval, would be subject to the planning gain supplement. Or a developer who wished to install a new, big lift development to comply with the disability discrimination provisions might also be subject to planning gain supplement. There are many complex areas in which development might be deterred or distorted by the working of the supplement. The third problem area, which has also not yet been mentioned, is what I call the spill-over problem. Often, the main gains from development do not accrue to the developer, but to the neighbours. That is most obviously the case in big projects such as the Jubilee line or the creation of a new town. Everybody in the vicinity benefits from the rise in the value of land, but it is only the developer who is taxed. That is also a problem with section 106, but it is an underlying problem with taxing development rather than land that that anomaly continues. Fourthly, we have the problem of double taxation. As I have already said, developers are taxed capital gains tax on appreciating capital values, as well as section 106. The Government are clearly aware of the problem and are talking about allowing the new planning gain supplement to be used as a tax offset for those other taxes, which potentially creates enormous complexity and undermines the whole pursuit of yield. The sheer difficulty of trying to administer separate systems of taxation alongside each other is formidable. In conclusion, I shall talk about alternatives. The Financial Secretary rightly challenged the Opposition parties, asking what we would do. I would do several things. As the right hon. Member for Greenwich and Woolwich said, we know now that it is possible—based on the experiences of Milton Keynes, west Berkshire and the City of London—to introduce tariff-based systems that are transparent and satisfy both the local authorities and the developers. It is striking that the development industry has expressed its confidence in tariff-based systems, which is a big step forward. Secondly, I would reform capital gains tax, dealing especially with some of the reliefs. I notice that the chairman or chief executive of British Land recently announced in the property press that he had been able to achieve a gain of some £18 million as a result of taper relief and holding on to his property assets for substantial periods of time. That is the kind of relief that the Government should consider if they intend to reform taxation in that area. Thirdly, I would look further into value added tax. My party has long argued that we need to equalise VAT between home improvements and new residences. If that were to happen, the VAT on new development would capture some of the development gain, while reducing VAT on home improvements would enhance the incentive to increase the housing stock of older property, where much of the potential for increasing supply exists. Finally, we would want to look further into the whole principle of taxing land values. It is a difficult area and the right hon. Member for Skipton and Ripon (Mr. Curry) has already intervened to point out some of the obvious political problems, but it is worth quoting one or two of the leading authorities in the field. John Muellbauer, for example, who is widely used as a consultant by the Government, a few days ago commented:"““I think a planning gains supplement is a pretty dumb idea: it’s been tried five times and each time it failed… A land tax, levied in proportion to the total value of the land, would be much more practical, and more likely to tame Britain’s boom-bust housing market””." In the Financial Times, Martin Wolf recently said:"““Land taxation is the natural, efficient and just way to finance the capital cost of infrastructure.””" Clearly, there is considerable academic and practical support for the proposal. I fully acknowledge the difficulties, many of them political, but at the very least it is worth exploring through borough-wide experiments and research. Since this is a paving Bill and is designed to advance knowledge rather than implement taxation, it is a disappointment—to say the least—that the Government have not been willing to encompass within it the wider issues of the taxation of land.