Planning woes

For the West Midlands, and Birmingham in particular, a great deal hangs on the outcome of the Government’s deliberations on the planning gain supplement.

For the West Midlands in general, and Birmingham in particular because of its massive Eastside development project, a great deal hangs on the outcome of the Government’s deliberations on the introduction of planning gain supplement (PGS) in 15 months time.

Whatever the outcome of the current consultation process it is clear that some system of additional taxation will replace development land tax in 2009, probably with effect from 1 January.

It also seems certain there will be a surge of activity in the property market, as developers recognise that PGS in any form produces a premium value on sites that are consented between now and Christmas 2008, and a corresponding disadvantage for sites consented after that date.

The Government’s confidence in PGS as originally proposed is not what it was. Nevertheless, according to its Green Paper on Housing, the Department of Communities and Local Government feels PGS will be “a workable and effective instrument” and that the market in development land should shoulder a substantial additional tax burden.

The Green Paper invites consultees to focus on four alternative approaches and to respond by 15 October.

What the final choice will mean for ambitious regeneration schemes like Eastside – one of the biggest of its kind in Europe, and estimated to cost in the region of £6 billion – is not yet clear.

Birmingham City Council is promoting the principle that Eastside is worth investing in, but has not yet committed large sums to the necessary infrastructure, perhaps in the expectation that this work will be funded in part by the proceeds of PGS.

The one thing that is certain is that developers want an end to the uncertainty surrounding the future.

The alternatives are:

1. A lower rate Planning-gain Supplement – With a reduced scaling-back of s106 planning obligations. The Paper suggests this would provide greater certainty about local authority PGS. The rate of PGS could be lower because it would no longer need to replace the loss of S106 planning obligations. Developers may find this less objectionable, as it leaves them free to address local nimby-ist objections by providing local s106 advantages; a strategy that the PGS regime as originally proposed would have rendered almost impossible.

2. A Planning-gain Supplement limited to greenfield sites – A curious proposal given that the Government announced last winter that it had set its face against lower PGS rates for brownfield sites. As the Green Paper acknowledges however, the grant of permission on greenfield sites usually has a much greater effect on value than is the case with brownfield sites. EU State Aids approval would be required.

3. A charging mechanism based on an expanded system of planning obligations – The Green paper suggests that some or all of the policy restrictions in Circular 5/05 would be lifted to make it easier for local authorities to establish their own S106 tariffs to mitigate the impact of development and fund infrastructure, particularly transport. The tariffs would be set out in local development frameworks and other development plan documents, where evidence of the need for infrastructure would be used to justify the tariffs proposed. This raises the interesting spectre of authorities setting the tariff rates with a view either to stealing development from adjoining authorities by setting low tariffs or exporting development to adjoining areas by setting artificially high ones.

4. A statutory planning charge – Legislation would permit local authorities to require standard charges to be paid for required infrastructure, enabling them, it is suggested, to “capture planning gain more systematically”. These “average standard charges” would be based on the total costs of infrastructure required in their area. This might well be seen as a statutory version of the Milton Keynes model. Approaches C and D have clear advantages from the developer taxpayers’ point of view; not least because price negotiations with landowners become less complicated.

A cynical view suggests that the Government’s publication of four alternatives is simply spin to counter criticism of PGS by arguing how many alternatives versions were seriously considered. An optimist might legitimately expect that approaches C and D are serious candidates in the Government’s eyes and believe that, if something resembling them finds its way onto the statute book, all the lobbying will have been well worthwhile.

David Hayes is a partner at Clarke Willmott