Budget report hints at demise of planning gain tax

Gerrard Winstanley office at evnuk.org.uk
Wed Dec 6 17:29:10 GMT 2006

Property: Planning gain supplement postponed
Published: 16:34 Wednesday 06 December 2006 	
By Lorna Bourke, Money Columnist	

Proposed legislation designed to tax planning gains may not now be 

A report from property consultants, Knight Frank in September of this 
year pointed out that the proposed planning gain supplement, as 
envisaged by the government, may not deliver the levels of funding the 
government wants for new local infrastructure and could render some 
smaller developments unviable.

The chancellor indicated in his pre-Budget speech that he might be 
prepared to think again saying that, 'the government will move forward 
with the implementation of PGS if, after further consultation, it 
continues to be deemed workable and effective.'

Jeremy Edge, head of planning, at Knight Frank, said: 'The cautious 
decision to move ahead with the planning gain supplement, if after 
further consultation it is deemed to be workable and effective, is a 
courageous step.'

`Previous attempts to capture development value through such 
mechanisms have failed. There is a serious risk that landowners will 
withhold land from the market in the anticipation that in the future a 
different administration would repeal the levy in the future. The 
three new consultation papers released today will inevitably re-kindle 
the concerns expressed so vehemently last year,' said Edge.

He added: 'If planning gain supplement is to be implemented, we are 
advised that this would not now be before 2009. The effect is likely 
to result in a reduction in the volume of land coming forward for 
development, which would be contrary to the objectives of the Barker 
Review of the Land Use Planning System, Final Report.'

The time lag between legislation being proposed and subsequently 
implemented would effectively freeze vast number of schemes as 
developers would be unwilling to go ahead until they were sure of the 
tax consequences.

The introduction of PGS – a levy designed to tax part of the increase 
in land value that comes from planning permission being granted for a 
development – would be accompanied by a significant scaling back of 
section 106 agreements, Knight Frank argues.

Edge said there are a number of `light touch' initiatives using the 
current planning gain arrangements under s106 of the Town & Country 
Planning Act 1990, 'which are capable of capturing value on a 
transparent basis and demand further investigation,' he said.

Under these current arrangements, developers negotiate individually 
with local authorities to supply benefits such as affordable housing 
and infrastructure in deals worth millions of pounds every year. By 
contrast PGS, as proposed, would be collected nationally at a flat 
rate and then returned to the local authority.

Knight Frank's research concludes that PGS levied at the rates used in 
the research seems unlikely to deliver the increased funding for 
investment in infrastructure to support housing growth.

National Housing Federation: Response to Barker report 

Tuesday, 05 Dec 2006 16:33 
Responding to the Barker Review of Land Use Planning, published today, 
David Orr, chief executive, National Housing Federation, said: 

"The planning system needs to be faster and more responsive. With the 
country in the grip of an acute shortage of affordable housing, the 
planning system has a vital role in increasing the supply of new 
housing and ensuring that new developments have the physical and 
social infrastructure to turn them into lasting, prosperous 

"As Kate Barker noted in her Review of Housing Supply, the shortage of 
affordable housing is particularly severe. The Federation believes 
that affordable housing developments should be prioritised by the 
planning system. We believe that 210,000 houses need to be built over 
the next three years for our housing timebomb to be defused. This can 
only happen if the planning system is reformed. 

Housing associations who build homes for the public benefit should be 
exempt from the proposed Planning Gain Supplement and there should be 
no reduction in the number of affordable homes built as part of 
section 106 agreements with private developers."

Committee asks for alternatives to planning gain

Published: 10 November 2006

The Department for Communities and Local Government select committee 
has expressed doubts about the government's proposals for the 
introduction of a planning gain supplement. 

In a report published this week the committee said that although the 
plans offered `potential benefits' the supplement should be just one 
of a number of options considered for increasing the funding of 

`We urge the government to consider a range of means to secure a 
portion of landvalue ulift which results from the granting of planning 
permission,' the report said. 

`Such consideration should include comparative cost benefit analyses 
of PGS and scaled-back section 106 agreements on the one hand and, on 
the other, a fully effective utilisation by local authorities of 
section 106 powers, including possible reforms and enhancements,' it 

Stewart Baseley, executive chair of the Home Builders' Federation, 
supported the committee's call for the government to further 
investigate the benefits of the PGS. 

A spokesperson for the DCLG said that the income generated from land 
value when planning permission was secured could be massive. `That is 
why we have consulted on PGS to help capture a modest portion of this 
uplift to fund additional investment in infrastructure.' 

Meanwhile, parliamentary figures have revealed that 16,954 affordable 
homes were built in England as a result of section 106 agreements in 
2004/05, half of the 33,871 new homes built. Only 22 per cent of the 
2,220 new homes in the north west were affordable homes built as a 
result of section 106 agreements – the lowest ratio of all the 
regions. The largest proportion were built in the east of England 
where 67 per cent of the 3,818 homes built were provided through 
section 106.

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