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Planning-gain Supplement (Preparations) Bill

My Lords, I declare an interest as a member of a local authority and of a planning committee. I am moving myself slightly out of my normal role on the Department for Communities and Local Government, on which I hope we will have the matter to discuss further on, if it comes about. I thank the Minster for his introduction to the Bill. As he and others have said, the Bill has been certified as a Money Bill within the meaning of the Parliament Acts 1911 and 1949. As the noble Lord, Lord Newby said, this therefore will be the only stage, apart from a formal Third Reading, when we will have an opportunity to consider it. As that is the case, I wish to put forward the significant concerns we have, some of which caused my honourable friends in the other place to oppose the Bill throughout all stages of its progress. Before looking at the issues in detail, I would like to set out that we on these Benches accept that developers should make an adequate contribution to infrastructure costs in return for receiving permission to develop land, but we do not believe that the planning-gain supplement is the way to achieve this, especially as it is in addition to the existing Section 106 arrangements. As my noble friend Lord Stewartby, pointed out, the windfall element is understood in planning and development, but it is imperative that whatever is introduced does not impede the supply of development land. As the Minister has explained, this short, three-clause Bill will enable Her Majesty’s Revenue and Customs and the Secretary of State for the Department for Communities and Local Government to incur preliminary expenditure to set up the business processes needed for the planning-gain supplement's introduction—now delayed to, I think, 2009. As the noble Lord, Lord Newby, pointed out, this Bill is somewhat previous since the Government cannot give any information, nor even one of those best guesstimates with which we are becoming all too familiar, on what sort of costs are likely to be incurred. Perhaps the Minister could enlighten us. Indeed, the Government have not actually yet committed themselves to implementing the planning-gain supplement; they have only indicated that it is currently a ““lead option””—a phrase which the other place argued is actually the culmination of a watering-down of the Government’s commitment, in the face of wide hostility to the proposals. If this lead option is dropped, then what? At what stage is it expected that expenditure on the systems will start to be incurred? Is it the intention that that should be dependent on a full—rather than a partial, because that has already taken place—regulatory impact assessment, which has not yet been carried out? Or will expenditure be incurred before this is completed? This Bill could effectively allow taxpayers’ cash to turn to waste, I am afraid one might say, again. The Bill has no limit on how much can be spent. Indeed, the Opposition suggested amendments to deal with this in the other place in Committee. The Explanatory Notes are very vague on costs, hinting that they could exceed £50 million—but by how much? Another £50 million? £2 million? £4 million? If we compare this figure with the closest precedent—the 1998 Tax Credits (Initial Expenditure) Act—which led to the much-troubled tax credit system, Her Majesty’s Government are effectively suggesting that the planning-gain supplement is likely to cost twice that required to set up a system that supports some £16 billion a year of public resources. Not only is the Minister asking for a blank cheque for something that might never happen, but there is huge concern that if this system is implemented it will be complicated and bureaucratic. Also, the Government have an appalling record with IT systems, most of which have either a history of long and troubled implementation or large cost over-runs, so we can have no confidence that support for this measure today will be anything more than a fig-leaf to justify unassessed expenditure. I am sure that I do not have to remind your Lordships’ House that the Chartered Institute of Taxation is very unimpressed with these proposals, stating that, "““not even a well thought out consultation document can save a bad idea and we think that the law of unintended consequences will apply, with the result that the proposals will not deliver the Government's policy objectives””." During Second Reading in the other place, the Minster suggested that this was only a paving Bill, and that it did not say anything about, "““the policy, nature or indeed operation of a planning gain supplement””.—[Official Report, Commons, 15/1/07; col. 561.]" The Minister said again that the opportunity would arise to discuss those areas if the Government decided to introduce legislation, and that they should not form a significant part of the debate on the Bill. I disagree. If Parliament is being asked to provide a blank cheque we must consider the proposals that that blank cheque will potentially be funding. The planning-gain supplement is yet another example of a Labour stealth tax—this time on development and affordable housing rather than a genuine attempt to finance infrastructure in development areas. The Confederation of British Industry goes as far as to suggest that it is a, "““threat to the competitiveness of UK business and the long-term health of the UK economy””." The current proposals are that the planning-gain supplement is to be centrally collected and then redistributed according to government fiat or, as currently described and as the Minister said, on a basis of 70 per cent being returned to the relevant local authority area, unlike the current working of Section 106, under which everything goes back to the local council, as the noble Lord, Lord Newby, said. Thirty per cent of the tax in England is intended to be regionally administered by the undemocratic and unrepresentative regional bodies—we go back to these—presumably the regional planning bodies. On what it does not say, but one might ask the Minister on whose plans that portion will be spent. Will it be the Government's, the regions’, or the local authorities’ within the region? Who will decide the priorities of that 30 per cent? It is well known that people tend to be pro-building projects as long as they are not in their own backyard. If we are to change this attitude we must persuade people that they will see genuine visible benefits coming back to them from development in their area. A regionally administered system does little to provide reassurance; there is nothing to stop money being redirected towards another corner of the region, remote from the original community. The Government have also failed to address fundamental questions about cross-border implementation and working of the tax, a hotly debated issue in the other place. On top of this, the National Housing Federation has pointed out that the planning-gain supplement is likely to hinder, rather than help, the creation of affordable housing: "““By charging PGS on affordable housing, the Treasury will simply be pushing money around the public funding system … If PGS is levied on housing associations, a proportion of Housing Corporation grant for social housing will effectively be paid back to the Treasury via PGS, and fewer homes will be provided. Moving funds from one part of the public purse to another is not efficient””." The noble Lord, Lord Newby, found a number of people opposed to this whole process. He quoted the CBI, and I add the British Chambers Of Commerce and the Local Government Association. All have reservations about the proposals, and a consortiumof companies involved in property development commissioned research which concluded that PGS was unlikely to deliver the increased funding for investment in infrastructure, was likely to reduce the supply of smaller development sites, and would be likely to change the way some sites are developed as developers seek to minimise their PGS liabilities. The noble Lord, Lord Newby, mentioned the Corporation of London, so he and I have obviously both been well briefed by it. It has raised concerns about the PGS’s effect on brownfield sites. The City corporation fears significant adverse consequences from the imposition of the tax on complex urban environments such as the City, particularly that the ““before and after”” approach to site valuation could result in a move back to outline consents and the freezing of property development, with consequences for the stock of world-class business premises. As with other commentators, the City is also concerned about the point at which development will be deemed to have started for the purpose of the tax to be clarified, as well as whether small-scale refurbishments will be excluded. I do not know whether this is in the Minister’s brief; I raise it and, if he knows the answer, perhaps he will give it to me. In common with the many other bodies sceptical about the value of PGS over the current Section 106, the corporation points out that it relies on these funds to finance many facets of the City environment, and that it is doubtful that the revenue generated by PGS would be sufficient to provide the same level of infrastructure achieved through funds obtained by the operation of the current Section 106 system. Did the Minster see the article in the Daily Telegraph on Saturday, reporting that development contracts are now containing a ““walk away”” clause to be implemented if the tax becomes law, because of the large developers’ concerns that it will add millions of pounds to the cost of public infrastructure projects, including the Olympics? These are all questions about the tax itself, and I am sure that the Minister will try to suggest that they are not relevant to today’s debate—but they are. There is no point in our addressing the value of setting up the infrastructure to support the tax if the tax itself is suspect in its ability to do better than the one it is superseding—or, more correctly, adding to. If we step back from the detail of the PSG, the overarching question is whether it will work or not. Five previous incarnations of development tax have been tried. They have foundered on each occasion, principally over how to agree on the valuation to be taxed, an issue that the Government have failed to address and is now raised again. I remind your Lordships that, in practical terms, we must not forget the Government’s record on new information technology systems, which have been notoriously difficult to deliver on time and on budget. We recognise that the Section 106 system is not perfect, that it is not implemented uniformly across the country—as the noble Lord, Lord Newby, has said—and that there are questions about transparency and appropriate use of the money raised. But it is widely accepted by local authorities and developers as a useful way of ensuring that benefits are achieved by the local community from developments within their borders. It may require limited reform, but it does not need to be superseded or top-sliced, or to be substituted or subordinated to a new stealth tax. I hope that I have given noble Lords a clear flavour of the range and depth of opposition to the Government’s proposals on this issue. I guide them towards the debates in the Commons, should they wish to delve more into the topics. I hope that the Minister will note the concerns raised by all speakers so far, and undertake not to implement the terms of the Bill before and unless a decision is taken, after full parliamentary consideration, on the principle of the tax itself.