RESEARCH PAPER 07/13 The Planning-gain 14 FEBRUARY 2007 Supplement

(Preparations) Bill Committee Stage Report

This is a report on the Committee Stage of the Planning-gain Supplement (Preparations) Bill produced in response to a recommendation of the Modernisation Committee in its report on The Legislative Process (HC 1097, 2005-6).

This is a pilot Committee Stage Report and we would welcome all feedback on its content and format. This should be sent to [email protected] to the Director of Research Services, Rob Clements (X3622).

The Planning-gain Supplement (Preparations) Bill would provide authorisation for expenditure to prepare for Planning-gain Supplement, which would be a tax on the increase in land values resulting from the grant of planning permission.

Christopher Barclay

SCIENCE AND ENVIRONMENT

HOUSE OF COMMONS LIBRARY

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ISSN 1368-8456

Summary of the Bill

The Bill would allow the Government to spend money preparing for the introduction of Planning-gain Supplement (PGS). The decision whether to go ahead with PGS will be announced in spring 2007. PGS would be a tax on the increase in land value resulting from a grant of planning permission.

The proposal follows a report for the Government by Kate Barker. She considered that the existing means for gaining benefit for the community from the grant of planning permission, the so-called section 106 agreement, was an inadequate means to finance necessary infrastructure. The proposal was supported by a Select Committee, provided the rate was low and most of the money returned to the local community. However, the proposal has been criticised by many in the development industry.

To complement PGS, section 106 agreements would be scaled back but would include the provision of affordable housing. Almost one half of affordable housing currently provided is financed in part by section 106 agreements.

The term ‘paving Bill’ is generally used to describe this type of legislation: that is, a Bill to provide a department with the authority to spend money in a preparatory fashion, before legislation is presented to implement a new function or service. There have been a number of occasions in recent years where this procedure has been used. One criticism that has been made of paving Bills is that they provide for expenditure on an initiative, prior to Parliament approving the measure itself.

CONTENTS

A. Introduction 7

B. Second Reading Debate 8

C. Ministerial Reply to points raised by Joan Walley 9

D. Committee Debate 10

1. Clause 1: Preparatory expenditure 10 2. Clause 2: Extent 12 3. New Clause 1: Report on computer systems 13 4. New Clause 2: Expiration of Act 13 Appendix – Membership of the Public Bill Committee 14

RESEARCH PAPER 07/13

A. Introduction

The Modernisation Select Committee reported in 2006 on The Legislative Process.1 The report recommended certain changes to Standing Committees to become Public Bill Committees, including the introduction of evidence taking sessions. In addition, the Committee recommended;

90. Research by a Library Working Group on legislation briefings found evidence of some demand for updated briefings on bills, and noted that material produced for second readings could quickly become out of date. What is required is a straightforward, dispassionate account of the committee stage, describing:

a) the main ways in which the bill was amended (though it should not be necessary to identify every last minor, technical or drafting change);

b) any significant areas of debate which did not lead to the bill being amended, for example, on groups of backbench or opposition amendments that were withdrawn or negatived or on clause stand part;

c) the parts of the bill which were not debated, with an indication of whether this was due to the effects of the programme order or whether the issues raised were adequately covered by debates on other parts of the bill; and

d) any areas where the Minster gave an undertaking to reconsider or to bring forward more amendments at report stage or in the Lords.

The House of Commons Library produces a Research Paper on each bill before the second reading debate, and is already planning to produce follow-up briefing papers on selected bills, such as those which have been heavily amended. We believe that a report of the committee stage could best be undertaken by them. We recommend that the Library produce a report of the standing committee stage of most Government bills, and those private Members' bills which have a reasonable prospect of being passed, in time to inform debate at the report stage.

This paper is one of the first attempts to implement the recommendations of the Modernisation Committee. We are particularly interested in receiving comments so that we can develop this new product in a way that is as much use to Members and their staff as possible.

Land often increases sharply in value as a result of being granted planning permission. Ever since the planning system was started in 1948 many people have argued that some or all of that increase in value should go to the state. Kate Barker recommended the introduction of a new planning gain supplement (PGS) to complement the informal current system, section 106 agreements. In the December 2006 Pre-Budget Report the Government announced that it would move forward with the implementation of PGS if, after further consultation, it continues to be deemed workable and effective. To this end

1 Modernisation of the House of Commons Committee, The Legislative Process, 7 September 2006 HC 1097, 2005-6

7 RESEARCH PAPER 07/13 it would “shortly introduce a preparations bill to Parliament providing HM Revenue & Customs with the authority to build the systems necessary to administer PGS, if enacted.”

The Planning-gain Supplement (Preparations) Bill 2006-07 was introduced in the Commons on 12 December 2006 and was debated on second reading on 15 January 2007. The Committee stage took place on 30 January 2007. The Members of the Committee are listed in the Appendix. The Bill was reported without amendment. There was a Library research paper on the Bill,2 and details of its progress are available on a Bill Gateway.3

PGS would apply across the UK, but because it is essentially a local measure, all PGS revenues generated in the Devolved Administrations would be returned to the country in which they were generated.

B. Second Reading Debate4

John Healey, the Financial Secretary, said that the sole point of PGS would be to raise additional revenue available for infrastructure to support development, at least 70% of which would go to the local authority area. There was no proposal to give PGS-related money to regional assemblies. The Government had not yet decided the rate to set if it went ahead. It would be set at a modest rate that would generate extra funds but not discourage the release of land for development. Mark Francois said that the Conservatives opposed the Bill, since they disagreed with PGS. There was no guarantee that 70% of the revenue would actually return to the local area. PGS would pose a threat to the creation of affordable housing.

Nick Raynsford favoured taking the development gain for the wider community but doubted whether PGS would work. The increase in land value did not necessarily come when planning permission was granted, but sometimes derived from infrastructure like the Jubilee Line extension. Past development taxes had failed because developers saw no benefit in making the contribution. They would try to avoid PGS but section 106 agreements offered benefits to both sides. Other methods, including the Milton Keynes roof tax, might succeed because developers were generally willing to enter into such agreements.

Vincent Cable considered PGS a seriously bad idea, partly because it was potentially centralising and partly because of a disincentive effect. The better option was taxation of land values not development betterment. Section 106 agreements were imperfect but they were purely local and able to be reformed. More detail of PGS was needed.

Clive Betts accepted the simplicity of PGS but many details needed to be worked out. The Milton Keynes tariff worked well, but would not work in most areas. Section 106 agreements would remain important for financing affordable housing. David Curry also

2 Library Research Paper 07/04 http://www.parliament.uk/parliamentary_publications_and_archives/research_papers/research_papers_2 007.cfm 3 http://hcl1.hclibrary.parliament.uk/parliament/bills/gateways.asp?session=2006-07&billid=139 4 HC Deb 15 January 2007 cc561-623

8 RESEARCH PAPER 07/13 doubted whether the Milton Keynes experience, based on one landlord, could be extrapolated generally. Land value taxation, however, would mean that a widow who had lived in a house all her life might be pushed into redevelopment in order to pay a tax bill.

Bob Blizzard illustrated the limitations of section 106 agreements by the case of Lowestoft, where a new bridge was desperately needed but could not be financed in that way. He supported PGS as a potential way forward. Anne Main argued from experience as chair of a planning committee that section 106 agreements could be made to work. Developers paid their contributions willingly. PGS would be very complex in cases where proposals were returned by the planning committee on an incremental basis, to be improved by the developer. Another problem was the speculative purchase of land and its sale on “hope value” when the grant of planning permission appeared more likely.

Joan Walley did not think that either PGS or section 106 agreements would provide enough money for infrastructure in a housing renewal area like North Staffordshire. Philip Dunne expressed concern about the running costs of PGS. 70% of PGS receipts would be spent locally, but that posed the question of who would decide about the remaining 30%. Planning authorities would have an incentive to maximise a section 106 agreement because they would keep all the receipts, rather than 70% as would be the case with PGS. Brian Binley said that the money raised from PGS would be completely inadequate to meet the cost of the infrastructure required by Northampton to support the 50% increase in population.

Paul Goodman said that the planning system problems would not be solved by a centrally collected tax that might be top sliced by the Treasury and would be top sliced by the region before money returned to local authorities. Yvette Cooper, Minister of State (Housing and Planning), said that PGS was a devolutionary approach returning at least 70% of the receipts to local authorities who would have more flexibility to take local decisions. PGS would apply to a much wider range of sites than section 106 agreements. The homes needed by the next generation could not be provided without additional infrastructure funding.

C. Ministerial Reply to points raised by Joan Walley

Yvette Cooper sent a letter in reply to Joan Walley’s points. She noted that those replying to the Government consultation on PGS had stated that a lower rate of PGS on brownfield land would not encourage regeneration. Lower values of brownfield sites would already be reflected in PGS valuations.

However, the Government is examining whether other instruments could create better incentives for regeneration and intends to review certain tax incentives for the development of brownfield land. Furthermore, the PGS consultation paper “valuing planning gain” also considers how the costs of remediation, often associated with brownfield sites, are dealt with in the proposed valuations methodologies for PGS.

I also share your concern that investment in infrastructure is needed to support housing growth. You suggested that it is important that wider infrastructure funding is aligned to PGS revenues as well as aligning infrastructure funding from

9 RESEARCH PAPER 07/13

across national departments. In the context of the policy review of housing infrastructure the Government is looking at ways of ensuring certainty for developers regarding the infrastructure to be delivered by local authorities and others…

You raised the issue that proposals for changes to planning obligations and PGS should not distinguish between pathfinder areas and growth areas and should not be a centralised tax. I can confirm that the proposals for changes to planning obligations will be applied equally to all English regions, not just the growth areas and south east of England…5

D. Committee Debate

1. Clause 1: Preparatory expenditure

Mark Francois moved amendment No.1 to limit expenditure on preparation for the tax to £25 million. The Bill should place limits on the amount that could be spent on a measure opposed by so many organizations, and which the Government was not committed to introducing. He noted the Treasury’s estimate that expenditure of around £50 million might be required but wondered why the estimates were so high.

Vincent Cable supported the amendment, suggesting that a much tighter constraint might be justified.

John Healey said that the Government has two aims. First, it wanted to be satisfied that PGS would work and that if a decision to proceed were taken, the proposal would be well thought out and detailed. Second, if a decision were taken to proceed with PGS, the infrastructure, needed to administer it, would be ready to allow introduction in 2009. The amendment would place a limit of £25 million on preparatory expenditure but the early estimate of designing and building the administrative and IT systems was approximately £40 million. If the Government decided to go ahead, there would be extra costs. Well before that point, a substantive programme Bill authorizing the levying and administration of PGS would have been debated and passed by both Houses.6

The amendment was withdrawn

Vincent Cable moved amendment No.6 to require that PGS revenues would accrue to the local planning authority.

This amendment was taken with amendment No 10 and new clause 3. The effect would be that no expenditure could be incurred until the Secretary of State had designated one or more local planning authorities for conducting pilot studies. The results of those studies would have to be taken into account in formulating proposals for the imposition of PGS.

5 Letter from Yvette Cooper to Joan Walley, 28 January 2007 6 PBC Deb 30 January 2007 cc7-14

10 RESEARCH PAPER 07/13

He said that the amendments were designed to address two fundamental flaws in the Bill: first, lack of commitment to local funding; second, the complexity of PGS. PGS would only make the planning system work quicker and better with buy-in and support from local communities. Councils were at last getting benefit for the community from section 106 agreements. The Government’s arguments were contradictory. Local councils would only be able to derive more revenue from PGS than they currently do from section 106 agreements if the tax on development were significantly higher, because 30% of the revenue would go to the Government. In those circumstances, less land would be brought forward for development.

He asked why the section 106 system was being unpicked just when local authorities were working well with it and why the Government was to take a 30% cut of PGS revenue. Pilot studies were needed because of the extremely complex system, with potentially 300,000 developments a year needing to be assessed in terms of pre- planning and post-planning values.

Anne Main pointed to the complexity whereby planning permissions were often enhanced, sold on and added to. Michael Connarty pointed to a weakness of section 106 agreements in that very different amounts were paid on similar developments in neighbouring local authorities. Mark Francois wanted to know more about the selection of areas for pilot studies and about the time the studies would take.

John Healey said that the Government promise to recycle at least 70% of PGS revenues to local authorities was an unprecedented commitment to funding local infrastructure. If all the money went to local planning authorities, that would preclude PGS from funding wider, more strategic projects. Examples included flood defences and the dualling of a road involving several planning authorities. PGS revenue could not be estimated until the rate and exceptions were known.

It would be hard to have pilot experiments because substantive legislation would be required. Another problem was that they would mean similar developments in different areas paying different amounts of tax.

Vincent Cable did not understand how the value for section 106 agreements plus affordable housing obligations plus PGS could be squeezed out of development.7

The amendment was withdrawn.

Mark Francois moved amendment No. 2 to the effect that no expenditure should be incurred before the Chancellor published the 2007 Financial Statement and Budget Report. This was taken with amendment No.3 to the effect that no expenditure could be incurred before a full regulatory impact assessment of the likely effect on business.

Amendment no.2 would delay expenditure until the Government had decided whether to go ahead with PGS. The Treasury appeared to be backing away from PGS because of the hostile reception. The Government regulatory impact assessment (RIA) was partial,

7 PBC Deb 30 January 2007 cc13-23

11 RESEARCH PAPER 07/13 excluding an assessment of the impact on small firms and providing little detail on controversial points.

John Healey said that the amendment was unnecessary. If a decision were taken not to proceed with PGS, no further expenditure would be incurred. The Government would publish a full RIA for PGS, if it decided to proceed with it.

The amendment was withdrawn.8

Mark Francois argued that clause 1 should not stand part of the Bill. PGS would not help local communities; a significant element would be administered by unelected regional assemblies; it was likely to hinder the creation of affordable housing; it would be highly complex to administer. He opposed the key enabling provision of the Bill because the Government was asking Parliament to sanction considerable public expenditure for a tax that they had not yet decided to introduce. Anne Main echoed these concerns. The Select Committee Report had shown that there would be no exemptions from PGS.9 The clause was too open-ended to stand part of the Bill.

John Healey said that paving Bills were used sparingly, to ensure the regularity and propriety of Government expenditure, where advance work is necessary. That was the case with this Bill.10

Clause 1 was approved by 8 votes to 6.

2. Clause 2: Extent

Simon Burns asked why, if the Bill applied to Scotland, the Secretary of State for Scotland was not one of the Ministers presenting it to Parliament. Mark Francois noted opposition to PGS from the Scottish Executive and asked how it would apply in Scotland. He asked what would be the constitutional position if Parliament voted to introduce PGS in the UK, but the Scottish Executive remained firmly against it.

Michael Connarty said that the use of section 75 agreements in Scotland (the equivalent of s.106 agreements in England) had been increasing. If PGS revenue in Scotland were returned to local authorities, it would not be specified for particular infrastructure needs. He was further concerned that the Westminster Government and the Scottish Executive might each take a share of PGS revenue, leaving less than 70% for local authorities.

John Healey said that PGS would be UK-wide. This Bill had not specified Scotland because preparatory expenditure needing new powers would not be incurred by the Scottish Executive. Section 75 was a devolved matter and would remain so. PGS revenues would go to the devolved Administrations who would have the discretion to

8 PBC Deb 30 January 2007 cc23-30 9 DCLG Committee, Planning Gain Supplement, 7 November 2006, HC 1024, 2005-6 10 PBC Deb 30 January 2007 c37

12 RESEARCH PAPER 07/13 deploy those revenues to support infrastructure and growth in whatever way they chose. The question about Scottish status would be one for the substantive Bill.11

3. New Clause 1: Report on computer systems

Mark Francois moved a clause to the effect that anyone incurring expenditure authorized by the Bill on a computer system had to report on progress every six months to the Public Accounts Committee. He pointed to acute delays and overspending in other Government IT projects.

Colin Breed doubted whether the taxpayer had ever been asked to fund so little of substance for so much money with so poor a chance of a positive outcome.

John Healey said that the clause was unnecessary because the development of the IT system would be subject to the normal intense scrutiny provided by the usual Government and Parliamentary procedures.

The proposed new clause was withdrawn

4. New Clause 2: Expiration of Act

Mark Francois moved a clause to the effect that the Act would cease to have effect on 1 May 2008 unless the Treasury had announced its intention to impose PGS. Given that the Treasury had been discussing the possibility of introducing PGS for three years, it seemed reasonable to set a date for an end to the decision process.

John Healey was sympathetic to the concerns but a case could not be made for the clause. PGS could not be introduced before 2009. If a decision were taken to go ahead, it would have to be taken in good time.

The proposed new clause was withdrawn

The Bill was reported without amendment

11 PBC Deb 30 January 2007 cc37-44

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Appendix – Membership of the Public Bill Committee

Below are listed the Members of the Planning-gain Supplement (Preparations) Bill Committee

CHAIRMAN: MR JIMMY HOOD CLERKS: DR WESTON, MR SANDALL

17 MEMBERS

Austin, Mr Ian (Dudley North) (Labour) Breed, Mr Colin (South East Cornwall) (Liberal Democrat) Brennan, Kevin (Cardiff West) (Labour) Burns, Mr Simon (West Chelmsford) (Conservative) Cable, Dr Vincent (Twickenham) (Liberal Democrat) Connarty, Michael (Linlithgow and East Falkirk) (Labour) Dorries, Mrs Nadine (Mid Bedfordshire) (Conservative) Francois, Mr Mark (Rayleigh) (Conservative) Hands, Mr Greg (Hammersmith and Fulham) (Conservative) Healey, John (Wentworth) (Labour) Financial Secretary to the Treasury Johnson, Ms Diana R. (Kingston upon Hull North) (Labour) Lucas, Ian (Wrexham) (Labour) McCarthy-Fry, Sarah (Portsmouth North) (Labour Co-op) Main, Anne (St Albans) (Conservative) Ruane, Chris (Vale of Clwyd) (Labour) Walley, Joan (Stoke-on-Trent North) (Labour) Wright, David (Telford) (Labour)

14