Independent research highlights complexity of land levy debate

Serious questions surround the effectiveness of the Government's proposals for a 'Planning-gain Supplement (PGS)', according to new independently conducted research released today (Tuesday 19 September).

The research - undertaken by leading property consultancy Knight Frank LLP for an alliance of business and property groups - shows that the PGS, as envisaged by the Government, may not deliver the levels of funding sought for new local infrastructure and could render some smaller developments unviable.

The work was commissioned by a consortium comprising the British Property Federation (BPF), Confederation of British Industry (CBI), Home Builders Federation (HBF) and Royal Institution of Chartered Surveyors (RICS). The research has been sent to the Treasury, recommending further detailed research be urgently conducted.

The introduction of PGS - a levy designed to capture 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. 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.

Today's research, comprising a comparative analysis of 18 case studies, investigated the likely returns of implementing PGS at rates of 10%, 20% and 30% of the uplift in value due to the grant of planning permission. The study considered residential, mixed-use and commercial developments, examining the likely effects of PGS if implemented on the basis of the Treasury's earlier consultation document. The research found 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.
  • PGS is likely to reduce the supply of smaller development sites as it would render some of these financially unviable.
  • Under the proposed system, the large-scale developments analysed in the study are likely to contribute significantly less planning gain value than under the current system. These developments however generate the largest community infrastructure requirements.
  • There is great concern that the community infrastructure required for these large scale developments, which under PGS would be supplied by local authorities or other government agencies, would not be adequately funded or provided in time to serve new developments.
  • Under PGS, the levy liability of the developer is sensitive to the calculation of a project's planning value, creating considerable scope for debate and interpretation over individual valuations. This potentially adds a further level of complexity and delay to the planning system, when taken together with the ongoing need to settle scaled back section 106 agreements with local authorities.
  • PGS seems likely to change the way some sites are developed as developers seek to minimise their PGS liabilities.
  • The current system allows for discretion on the part of local planning authorities to let land owner-developers cross subsidise development in certain situations. For example developments which seek to conserve heritage assets and development by charities or in regeneration areas may frequently be treated benignly. As PGS is not discretionary, it would be levied on such developments, which could affect their viability.

Jeremy Edge, head of planning, Knight Frank LLP, said:

"The results of our research raise a number of important questions which need to be answered before there can be sufficient public confidence in the proposals for Planning-gain Supplement, compared with the existing system of planning gain. There is currently no certainty that PGS will meet the government's objectives."

Michael Roberts, director of business environment, CBI, said:

"The more these proposals are examined, the more pitfalls become exposed. Planning-gain Supplement could hinder development of all kinds, including commercial and industrial expansion, and could have a real impact on the attractiveness of the UK as a place to do business. It could make smaller developments less viable, whilst leaving bigger developments without the community infrastructure they need."

Liz Peace, chief executive of the BPF, said:

"This research is a useful contribution to the debate. It identifies that PGS will be complex to implement, could cause prolonged delays in the development process and, for large developments, will raise less than current section106 payments. We strongly urge the Government to engage constructively with the industry to look at alternatives that raise funding for infrastructure without increasing bureaucratic burdens or deterring developments."

Stewart Baseley, executive chairman of the Home Builders Federation, said:

"HBF fully accepts that, to achieve a step-change in housing supply, adequate infrastructure needs to be provided. However, this research shows that the PGS is complex and may not raise sufficient money. More thinking, consultation and research is required. The HBF stands ready to work with the Government to find a workable route forward."

Brian Berry, head of policy, RICS, said:

"The research clearly demonstrates that PGS fails to achieve the Government's stated objective to raise additional money for infrastructure. The mechanics are flawed and need to be reworked."

Knight Frank, 19.09.2006

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