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A TAXING TIME

PLANNING

As the Treasury's move on planning gathers pace with Kate Barker's imminent report on possible reform of the system 1, so consultation on her Planning Gain Supplement (PGS) has closed with much gnashing of teeth.

Barker proposed a PGS in her review of housing supply.

The consultation suggests:

a self-assessed tax on the uplift in land value consequent on the grant of planning permission, payable upon the start of development;

simplifying planning obligations to deal only with matters directly related to the proposed development - and affordable housing;

a possibly reduced rate of tax in regeneration areas, a small-scale threshold to apply and householder improvements to be exempted; and tax to be recycled to fund strategic infrastructure at both regional and local levels.

In April's Planning in London 2 Barker wrote: 'In my view the value the planning system places on undeveloped land is too high. In addition, the incentives faced by many players - local authorities; existing homeowners; the development industry - [are] such that they add up to encouraging undersupply, at the expense of the firsttime buyer.'

While there is an urgent need to cut back on planning obligation agreements, Barker was on to something in suggesting that PGS receipts should pay for local infrastructure and community benefits. This could persuade planning committees to permit more development and help offset the generally conservative pressure from existing residents.

Ironically the Treasury seems to have translated this intention into a centralised tax with a vague suggestion that some of it would be recycled to the local and regional level.

The common complaint, especially for Housing Growth Areas such as Ashford, is the apparent lack of finance for infrastructure needed to support such development. The initial hostility of developers to a 'roof tax' as a means of dealing with this has, with the emergence of the threat of a land tax, changed to loud enthusiasm.

Paradoxically, the consultation response representing the growth areas says that PGS 'would make delivery harder'. Martin Bacon, director of delivery vehicle Ashford's Future, says: 'Growth areas should be exempt from PGS. Its possible introduction is making it harder to agree a roof tariff deal with developers.

It might work in average rural constituencies but it would be a fibloody messfl in the growth areas.'

Local authorities are also concerned PGS would reduce their ability to negotiate local community benefits.

The consultation has ushed out many legitimate concerns and demonstrates the difficulty of using tax as an incentive. In reality it could end up operating to redistribute resources from areas in need of infrastructure with strong development pressure to areas where the market is calling for subsidy. The costs of managing valuation and collection would reduce resources, and the new tax would also diminish current taxable profits made by land sellers and developers, reducing the gains anticipated by the Treasury.

A solution might be to let local authorities collect a simple, locally determined, roof tax, keep more of the council tax on new development and deal with loopholes such as offshore developers, whose profits are not properly taxed.

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