The options open, and the issues that arise, now that the proposed planning gain supplement is not to be introduced

I wrote this article shortly after attending a meeting of the Scottish Parliament’s cross party economy group on “planning contributions”.

The timing of the meeting was excellent given the fact that Alistair Darling, the latest Chancellor from a Scottish constituency, had announced in the earlier-than-expected Pre-Budget Report that the UK Government had decided not to introduce a planning gain supplement (PGS).

A quick reminder for those of you that were lucky enough to not come across PGS. PGS was to be a new tax levied throughout the UK. PGS was to be a tax on “planning gain”, i.e. the uplift in value when planning permission is granted. The funds raised by PGS were to be used to fund the infrastructure needed to build the tens of thousands of new homes that it is argued are needed both in Scotland and throughout the UK.

PGS was often described as the “Billy no mates” of the tax world, due to the lack of support it received. For those of you that wish to know a bit more background on PGS I first wrote about it for the Journal in January 2006: “For supplement read tax”, followed by an online update in August 2006.

What next?

So, what if anything happens now? First, there is clear evidence from the Scottish Government’s creation of a Housing Supply Task Force and the publication of its discussion document Firm Foundations: The Future of Housing in Scotland, that these new homes are needed. New homes need new infrastructure. If that is accepted then the question now is how Scotland is going to pay for this infastrcuture, bearing in mind the Chancellor’s decision on PGS – a decision welcomed by the Scottish Government.

The likely answer to this question can be found in the Department for Communities and Local Government’s green paper, Homes for the Future, which sought views on alternatives to PGS as then currently proposed, and also the Scottish Government’s response, Options for and alternatives to the planning gain supplement.

The publication of the green paper was the first sign that the Treasury was considering a change in direction.

The green paper sought views on alternatives to PGS and outlined four possible options. Options A and B were modified forms of PGS, alongside the continued use of planning obligations. Options C and D proposed different locally determined charging mechanisms.

Devolved competence

The importance of options C and D was not lost on the Scottish Government. If one of these options was chosen, this would become a matter for the Scottish Parliament as planning is a devolved matter. That in fact had been one of the main reasons for opposing PGS. The argument was PGS was as much, if not more, a planning and housing issue – both devolved matters – rather than a tax issue, a reserved matter.

The new Scottish Government was clear in its opposition to PGS in any form. It argued that both the policy objectives and the policy areas affected by PGS fall entirely within devolved competence: “This is only a UK issue because the mechanism to address the issues of housing and provision and infrastructure – PGS – is tax.”

The Scottish Government was also clear in the need for a local solution: “The imposition of PGS was based on the assumption that central government intervention is required to ensure the effective provision of housing and related infrastructure. We disagree: it is our view that the role of local government in Scotland requires to be enhanced rather than diminished.”

The Scottish Government also stated: “We are much more convinced that there is scope for local authorities to make more effective use of planning obligations or other local charging mechanisms.”

The above statements show that the Scottish Government’s preference is for a local solution that involves the planning system. That is likely to mean that “s 75” and other similar type agreements will remain. These types of agreements are used by the vast majority of Scotland’s local authorities to provide affordable housing, infrastructure improvements and in some cases a cash injection for local services.

More key questions

Is this a viable option? Can s 75 type agreements provide enough funds for the infrastructure needed? That is a classic two-sided question. How much do we have and how much do we need? The Scottish Government’s response to the green paper begins to answer the first part of that question: “Our current research into the use of s 75 agreements suggests that, from a very low base in 2004-05 of around £10-15 million, contributions from such agreements rose to £50m last year.” These figures indicate that our local authorities already appear to be making more “effective use” of these types of agreements.

A number of other questions need to be asked as part of this debate:

  • Should part of the funds raised go towards the employment of more local planning officials?
  • Or providing additional funds for new water and sewerage infrastructure?
  • Or providing support for local authorities in their negotiations with developers?
  • Should each local authority have a “planning gain coordinator“ (a number already do)?
  • How successful have specific development funding projects, such as those used for the Edinburgh Trams and the Borders Railway, been?
  • Is it possible to agree the level of planning gain at early stage in the planning process by bringing together the developer, the local authority and the local community?
  • What use can be made of the Planning etc (Scotland) Act 2006?

History shows that the Chancellor made the correct decision. A “one size fits all” development type tax has been tried at least four times since World War II and failed on each occasion. There also seems to be general agreement that Scotland needs thousands of new homes. If that is in fact the case then we also need new infrastructure. The debate of how this is paid for has just begun. Hopefully common sense will continue to play some part.

The Author
James Aitken is a senior associate with HBJ Gateley Wareing
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