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Planning-gain Supplement (Preparations) Bill

My Lords, the Bill raises two issues: whether the principle of the planning-gain supplement is desirable, and whether the Bill is a sensible first step in moving towards the introduction of such a supplement. On the first issue, we strongly support the principle that communities should capture some of the uplift in land value that arises from the granting of planning permission in order to finance local infrastructure and community development. The question is whether a planning-gain supplement is a sensible way of achieving that. We have serious doubts about whether it is, and so, it appears, does nearly every other body with expertise in this area. There have been powerful and persuasive criticisms of the Government’s plans by, among others, the CBI, the Institute of Directors, the British Property Federation, the Scottish Property Federation, the Royal Institution of Chartered Surveyors, the Royal Town Planning Institute, the Chartered Institute of Taxation, the Home Builders Federation and the City of London Corporation. None of them believes that the tax as envisaged will work effectively. In debates in another place, the honourable Member for Greenwich, who has great experience in this area, in my view holed the proposals below the waterline with a measured but devastating critique of them. I should like to know who with expertise in this area, outside your Lordships’ House and another place, believes that these are sensible and workable proposals. Who supports them? If there is such criticism of the proposals as they stand, what does that criticism amount to? The test set by the Government is that the proposals must be ““workable and effective””, but all the evidence from previous similar measures and from those who work in the property industry is that they fail that test. Perhaps I may mention some of the principal criticisms. First, there will be real problems in the valuation process, particularly for complex, multi-phase, multi-use developments. There will be considerable scope for dispute about what an appropriate valuation is, particularly on sites that require land remediation. In cases where new infrastructure is needed, there will also be legitimate and large scope for arguing about whether any uplift in value accrues from the granting of the planning consent or from the subsequent investment by the developer and about which element has created the additional value. In terms of the ability of the planning-gain supplement to produce the revenue, which everyone agrees is needed to support development, it is extremely telling that the City of London Corporation has said: "““It is doubtful that the revenue generated by [planning-gain supplement] would be sufficient to provide the same level of infrastructure achieved through funds obtained by the operation of the existing system””." So there are real problems relating to valuation. If these problems mean that there is a delay and the tax is successfully evaded, the revenue generated will be much less than expected and I believe that that will prove to be a fatal flaw in the plan; it simply will not be seen to deliver over a period. Secondly, problems arise from the start date and the very early point in the development process at which the payment has to be made, which will affect the market and the speed at which development comes forward. Again, I quote the City of London Corporation: "““Requiring PGS to be paid up front will increase costs and favour schemes which are pre-let, pre-sold or divisible into small units or phases. The City Corporation is concerned that this is likely to disadvantage large, speculative schemes which cannot be broken down into phases. These are essential to the City office market””," as are similar schemes to office markets in other major cities. A third issue relates to the fact that, to put it mildly, at this point there is clearly a lack of consensus on the proposals, and in those circumstances developers will not believe that they are going to be durable. That, in turn, will mean that developers hold back on development, whether it is housing or other forms of development, and the pace of development will be slow. We heard from the noble Lord, Lord Stewartby, other arguments as to why this measure might slow down development. It is ironic that one of the arguments for it given by the Government is that it will help economic regeneration and growth; in fact, it is likely to have the opposite effect. Our final major concern is the way in which the planning-gain supplement breaks the link between the local communities affected by the PGS and the developer, and it does so in two ways. First, it is planned that only 70 per cent of the supplement will go back to the local area. How the remainder is to be distributed is pretty unclear but, from the descriptions that we have heard so far, there seems to be no reason why, in England at least, it could not be allocated by the Treasury or by government regional offices for projects in the region in which the development is taking place which simply do not reflect local priorities. Secondly, in my view, the fact that there is an automatic payment to a national Exchequer rather than the local authority will mean that the scope and requirement for dialogue between the developer and the local authority about how much is contributed or necessary or how the money is spent will be greatly reduced. Both the developer and the local authority stand to lose by that. Negotiations over Section 106 agreements, when done properly, enhance both the quality of the development and the benefits to the local community. I understand that Section 106 agreements will remain in place but, with planning-gain supplement top-slicing much, if not all, of the revenue available, it is difficult to see what real value such agreements will have in the future. With all those criticisms, is the measure still worth putting in place? If there were no other way of getting a proportion of the uplift in value that accrues from development, it might at least be worth trying in a few pilot areas, but we think that there is a better way of achieving the same goal as that intended by the Government which is much more likely to be successful. It would have two principal components. First, one would make Section 106 work more effectively in more places. We know that the operation of Section 106 is very patchy and that a surprisingly large proportion of councils do not negotiate Section 106 agreements at all. That seems to me quite extraordinary. However, many do and, where they do, there is a great benefit to the local areas. It seems to me that we should build on the flexibility of Section 106. In an area with major house building on greenfield sites, such as Milton Keynes, it has been possible to operate a tariff system under Section 106 which the house builders, the local authority and the local community feel has been very effective. In the case of complex, multi-use developments, such as those currently under way or planned for the Greenwich peninsula, a whole raft of infrastructure and community facilities will be funded because of a well negotiated Section 106 process. We should be seeing how good practice in negotiating Section 106 agreements can be spread to authorities that are not very good at it. Frankly, I do not see why this should be so difficult. Perhaps, for example, the LGA should offer a new service to individual local authorities on how to do it, or perhaps commercial planning specialists should be appointed as a matter of course for all large developments. I am not sure what the best way of achieving success with Section 106 will be in every case but I am fairly certain that, with a bit of thought and effort, it could be done. Secondly, in order to provide a continuing income-stream to local communities from development, we support the concept of basing business property taxation on land values. In this way, the burden of providing local infrastructure, for example, can be borne in part by the ongoing benefit that property owners have from development. Another advantage would be that, because it is an income-stream, as the value of the land changed with the development and other developments in the area, you could capture ongoing uplift and not just that which had been valued at the point when the development commenced. In addition to those two points, we would end taper relief on capital gains and introduce VAT on new building. Those are other ways of capturing some of the uplift, and incidentally they would benefit the national rather than the local Exchequer. Taken together, in our view, these measures would achieve the goals of the planning-gain supplement but they would do so in a practical, effective and sustainable manner. As for the Bill itself, it leaves open all the key issues about how the supplement would operate and, indeed, the vital question of the rate at which it would be levied. The Government envisage that they will spend £52 million on IT and staff before any substantive Bill can be enacted. They claim that there are a number of precedents for that approach. While that is technically correct, will the Minister say whether in any of the previous cases the Government incurred substantial expenditure before the substantive measure was introduced, when they were not formally committed to going ahead with the substantive measure? As the Minister made clear, the Government are keeping their options open on whether the measure will happen. But they are happy to spend up to £50 million or more in the mean time. I think that that is profligate, not least because, if I were a betting man, I would wager that the Government ultimately will not introduce planning-gain supplement, and will have wasted tens of millions of pounds in the process. As this is a Money Bill, we will have no chance to pursue these points further—nor, despite what the Minister says, will the expertise in your Lordships’ House enable us to have a detailed debate on any substantive Bill which is introduced, because presumably it, too, will be a Money Bill. If that point is disputed, I am pleased to hear it and am sure that the Minister will reply to it in his winding up. Today is our day in court on the Bill. For the next phase at least, we will be spectators on the development of these proposals. I suspect that it will not be happy viewing.