I beg to move amendment No. 3, in page 1, line 10 at end add—
'(4) No expenditure shall be incurred under section 1 earlier than 90 days after the conclusion, on 28th February 2007, of the consultation exercises on the implementation of the Planning-Gain Supplement.'.
The amendment is designed to delay implementation of the Bill for at least 90 days after the consultation exercises on the PGS have ended next week. It has been tabled partly because the Treasury still appears confused about whether it intends to proceed with the PGS at all. Nevertheless, as my right hon. Friend Mr. Gummer said earlier, the Treasury is still asking Parliament to authorise expenditure to prepare for a tax that it has not yet decided to introduce. The money could ultimately go to waste if the Government do not intend to proceed.
I want to press the Financial Secretary on a point that my hon. Friend Anne Main made in Committee about the purposes to which the Treasury wants to put the money that would be authorised by the Bill and could be spent immediately after Royal Assent, which could theoretically happen as early as next month.
Rumours are circulating in the media that, despite doubts about the PGS, the Treasury still wants the Bill because it would like to begin work on a new IT system, which could be used for alternative planning-related purposes if the PGS collapsed. The new planning permission that the Government recently proposed might be an example. Can the Minister give a firm commitment that the funds being requested by the Bill will be used solely for PGS-related work? I ask that partly because, following the hostile reaction that the proposed PGS has provoked so far, the Treasury appears to have been gradually backing away from its introduction in recent months. We were originally told that the Government planned to introduce the PGS in 2008, and the Treasury issued a consultation document in 2005 on how that might be achieved.
The response to the Government's consultation was hardly encouraging from their point of view. The Institute of Directors called on the Government to drop their proposals, stating:
"The proposals as currently envisaged are thoroughly bad both in principle and detail... the IoD feels that this additional tax would do nothing to help the housing supply".
It also said that the tax constituted
"a direct attack on business competitiveness, contrary to the Government's own stated objectives", and would
"introduce an added bureaucracy to allocate the money as well as collect it."
The Royal Town Planning Institute responded to the consultation exercise in a document entitled "Consultation Paper Exposes Folly of New Land Tax". It said:
"PGS will create a polarity of investment between north and south, it encourages land-banking, creates inflexibility in the market and fails to support infrastructure planning."
A detailed study of the proposed operation of the PGS was conducted by property experts Knight Frank on behalf of the British Property Federation, the Confederation of British Industry, the Home Builders Federation and the Royal Institution of Chartered Surveyors. Page 4 of its executive summary, produced last September, states:
"It is clear that extensive further research is needed to achieve sufficient public confidence that that PGS would work effectively and meet the required increase in housing output. At present it is not clear that this would be the case."
Perhaps in the light of that reaction, in the December 2006 pre-Budget report the Treasury confirmed that the proposed introduction of the PGS was to be delayed until 2009.
By the time we reached Second Reading on
"Just as Kate Barker did, the Government have considered a range of alternatives. We will continue to do so, but at this point the PGS is our lead option."—[ Hansard, 15 January 2007; Vol. 455, c. 569.]
So even the Government are now apparently backing away from their own idea, which has been downgraded from a proposal to the status of only a "lead option".
To coincide with the delay announced in the pre-Budget report, the Treasury also announced a further three consultation documents on the proposed introduction of the PGS: "Valuing planning gain", "Paying PGS" and, in co-operation with the Department for Communities and Local Government, "Changes to Planning Obligations". The three consultations will not close until
The explanatory notes that accompany the Bill provide an indicative figure of up to £52 million for staffing in the procurement of an associated PGS IT system, but as the notes point out, they do not form a part of the Bill itself, so it is purely an estimate, not a cap. The actual figure could easily exceed the estimate, particularly if there are cost overruns on the associated computer system—a point that we debated in some detail in Committee and in relation to which recent experiences in the Home Office and the NHS are hardly encouraging.
For instance, in respect of the new NHS IT system, Mr. Andrew Rollason, the health care practice leader at Fujitsu—one of the major contractors running the £20 billion programme—recently said of the new NHS system:
"It isn't working and it isn't going to work".
Even the Treasury's own IT system's projects are now running a collective total of 17 years late, which does little to inspire confidence that the estimates outlined in the notes will be adhered to in practice. At a time when our prisons are effectively full up, gun crime in inner cities is running out of control and most of our local NHS primary care trusts are under serious financial pressure, why are the Government requesting permission to spend £50 million or so of public money on a tax that they may never actually introduce?
May I draw the hon. Gentleman's attention to items that he left out of his list of things that are happening, such as the increasing housing crisis and the dire lack of affordable housing, particularly across London and the south-east? That might be related to the fact that the Government wish to have a tax that could fund the infrastructure.
As the hon. Lady well knows, the provision of affordable housing has gone down quite a lot under this Government by comparison with their predecessor. One of the reasons for that is that the Government have failed to provide the resources. I would have thought that the hon. Lady, as Chairman of the Select Committee, already knew that.
As I argued in Committee— [Interruption.] I will give way in a moment. Mr. Raynsford has only just entered the Chamber and I have already said that I will give way to him in a moment. [Interruption.] I said in a moment.
As I argued in Committee, the Bill puts the cart before the horse, so our amendment makes the case for delaying any expenditure in conjunction with the introduction of the planning gain supplement until three months after the latest consultation exercises have closed. The Treasury can then hopefully take those responses properly into account. I will now give way to the right hon. Gentleman, who is a former housing and planning Minister and who is firmly on the record as opposing the whole planning gain supplement concept.
I would not want the hon. Gentleman to mislead the House by implying that there has been a reduction in expenditure on housing under this Government when compared with the record of the previous Government. He will be aware that there has been a very substantial increase in resources and that many of them have been allocated to improving the quality and condition of the existing stock, which was left in a very poor state indeed by the previous Conservative Government, whom the hon. Gentleman supported. I hope that he will recognise that.
Order. Before the hon. Gentleman responds, I remind him that we are not conducting a general debate on housing, but discussing amendment No. 3.
I understand that, Mr. Deputy Speaker, but if you will allow me, I have been accused of misleading the House, so I would like to explain for a few moments. My point was that, as I understand it, the number of new completions has gone down, although I take the right hon. Gentleman's point about refurbishment. [Interruption.] The number of new completions has fallen over the past few years— I believe that that is correct. [Interruption.] I shall move on.
When the Treasury has received the responses to the consultation exercises and had 90 days—a reasonable period—to examine them, perhaps at that time, if not before, the Treasury will abandon the whole planning gain supplement and save us a great deal of further time and trouble as a result. In the meantime, I urge the House to support the amendment this evening and to protect the interests of the UK taxpayer while this dithering Government desperately try to make their minds up about what they are going to do.
As Mr. Francois has made clear, the amendment is designed to insert a three-month delay between the end of the current consultation, which is completed on
I assured the House on Second Reading and in Committee that if the Government decided not to introduce the planning gain supplement, there would be no further expenditure under this legislation. I also want to make it clear, in response to the question that the hon. Gentleman has raised, that clause 1(1) of the Bill sets out the purposes for which expenditure under this legislation can be used, and that they are specifically and strictly related to preparations for the introduction of a possible planning gain supplement. They could not be used for an IT system for other purposes.
The Government gave a commitment in the pre-Budget report that we would not introduce a planning gain supplement unless we considered it to be a workable and effective policy. Of course, the decision on whether the planning gain supplement is workable and effective will be informed by the responses to the consultation. I should remind the hon. Gentleman that a consultation is not simply a 12-week period in which the Treasury and the other Departments involved shut up shop and officials sit on their hands, followed by a period of frenetic reading and analysis of correspondence. On the contrary, it is a period of intense activity, particularly by officials who, during the consultation period, have been out meeting and discussing the issues with representatives of all sorts of interested groups right across the United Kingdom in order to determine their concerns about the matters under consultation. So, officials and others have been out there, explaining the proposals and listening to people's views on them. Many of the written responses to the consultation will formalise the views that we are already aware of and that have already been discussed, and which have been gathered during these meetings.
The amendment would simply delay expenditure for up to three months beyond the end of this month, even if we decided to introduce a planning gain supplement before the end of that 90-day period. At best, that would achieve nothing. At worst, it would increase the costs of any IT systems by reducing flexibility and by increasing the time pressures involved in bringing in a planning gain supplement in an orderly and timely way. I hope that the hon. Gentleman will not press the amendment to a vote, but if he does I shall have to ask my hon. Friends to resist it.
Our debate on amendment No. 3 has given the House an opportunity to press the Government on why they insist on pressing ahead with a request for the House to authorise expenditure in preparing for a tax that they have not yet decided to introduce. The sum of £52 million—or, potentially, even more—of public funds is a lot of money to shell out on what is only a lead option. By definition, another option might eventually be adopted instead. It would be preferable to delay any expenditure until the Government have definitively decided whether to go ahead with the substantive measure of the planning gain supplement.
The Government's approach was criticised by Mr. Peter Bill, the editor of the Estates Gazette, in a December 2006 editorial, in which he said:
"In the face of a set of negative responses to a consultation paper, Ministers have baulked at driving a stake through PGS—well, for now. Instead they have executed the classic Whitehall manoeuvre: the introduction of PGS has been postponed for a year and no less than three more consultation documents have been issued. Read Paying PGS from the Revenue and weep."
In the light of all that, we believe that the Government are indulging in what my hon. Friend Sir Patrick Cormack rightly described on Second Reading as "pre-legislative legislation". We have not been sufficiently persuaded on this matter, and I should therefore like to test the will of the House.
Question put, That the amendment be made:—
I beg to move, That the Bill be now read the Third time.
This Bill is a short, straightforward measure. It is a one-page, three-clause paving Bill designed simply to ensure the regularity and propriety of Government expenditure in accordance with Government accounting rules—no more, no less. As a narrow preparations measure, it obviously has nothing to say about the underlying policy, nature or operation of a planning gain supplement, although many Members have had much to say about such matters during our deliberations. In fact, I welcome that level of interest, along with the expertise demonstrated in all parts of the House, which has contributed and will continue to contribute to our thinking on the policy of a planning gain supplement.
We have approached the question of whether to introduce a planning gain supplement—and if so, how best to design it—with a degree of caution and a significant degree of consultation. We published a wide-ranging consultation document in December 2005 on the principle of a planning gain supplement, and on
"We welcome the measured way in which the Government is consulting on and taking forward proposals for a Planning-gain Supplement."
That process and approach will continue, but the Bill authorises three parties—Her Majesty's Revenue and Customs, the Secretary of State for Communities and Local Government, and the Northern Ireland Departments—to incur preparatory expenditure. Nevertheless, the burden of, and the most significant responsibility for, building the administrative systems—and, ultimately, for managing any planning gain supplement—will rest with HMRC. Its expenditure before the introduction of any further legislation will include new information technology for the planning gain supplement and the adaptation of its existing system; designing the business systems necessary to administer the tax, and putting in place appropriately skilled staff to manage it; and equipping the evaluation office agency and the Valuation and Lands Agency in Northern Ireland with the necessary facilities to help administer a planning gain supplement, including staff, training, accommodation and IT equipment.
The hon. Gentleman races ahead of the point that we have reached in speculative work on how a system might be designed, commissioned and developed. Authorisation for that next stage is required by this very paving Bill, but these administrative functions would have to be based on further substantive legislation, and properly tested and in place before the introduction of the planning gain supplement, which we have said will not take place before 2009.
I did not say that it would not be populated by information. Clearly at some point any IT system would need to be populated by information. All I said was that Stewart Hosie was asking specific questions that were taking us several stages ahead of where we are in the process at the moment. A final decision on whether to introduce a planning gain supplement awaits the conclusion of the current round of consultations. The passage of this Bill is needed in advance of that decision and that is the purpose of bringing it forward. If we decide that we should introduce a planning gain supplement, we can start to design, commission and build the IT administrative systems immediately to support that, and increase the chances of doing so successfully and in a timely and cost-effective way.
The Bill is not exceptional, in that the House has approved paving measures for policies that have been far less developed than our proposals for a planning gain supplement are at this time. Paving Bills are not unusual and are introduced where there is a need to incur expenditure in advance of the main legislation. Examples include the British Coal and British Rail (Transfer Proposals) Act 1993 and the Tax Credits (Initial Expenditure) Act 1998. More recent examples include section 137 of the Finance Act 2002, which authorised preparatory expenditure on a lorry road user charge, and section 324 of the Finance Act 2004, which gave authorisation to the Treasury to incur expenditure if we were to adopt the single currency. Clearly it is in no one's interest—certainly not the Government's—to proceed with the implementation of a planning gain supplement unless or until such time as we are satisfied that the policy will be workable and effective.
Order. I really do not think that the Minister should be tempted too far down that route. I shall allow a brief response, but that is all.
I am happy to take your guidance on that point, Mr. Deputy Speaker .
The central question when considering whether to introduce a planning gain supplement is whether it would be workable and effective as a means of capturing the land value uplift that comes with planning permission to finance infrastructure and support growth. I reiterate to this House, as I have clearly stated before, that if the Government decide not to go ahead with a planning gain supplement, no further expenditure will be incurred under this legislation.
The explanatory notes we published with the Bill set out the latest estimates of the possible cost of introduction. They are cautious, top-end estimates that are subject to change as the project is refined and the policy finalised. They also represent costs right the way through to full introduction and initial operation of a planning gain supplement, by which time of course there would have been full subsequent debate and legislation to authorise its administration.
The Bill is simple and straightforward. It is a preparations Bill to allow the Government, pending further decisions on whether to introduce a planning gain supplement, to prepare adequately for the policy prior to its implementation. I commend it to the House.
We now come to the Third Reading of this paving Bill, which is designed to help implement a planning gain supplement. This is not the first time the House of Commons has been asked to debate a tax on the increase in the value of land. The earliest specific example that I was able to find of such a measure was an Act in the reign of Henry VI, dated 1427, which facilitated a tax on the improvement in land values based on the construction of sewers. For the record, a similar measure was apparently also attempted under Henry VIII in 1531. To leap forward some four centuries, something like this was tried five times in the 20th century, and on each occasion it foundered, principally over the issue of how to agree on the valuation to be taxed. In debating this matter again tonight we are following in the footsteps of our legislative predecessors—with, I suspect, the same ultimate outcome at the end of the whole process.
Coming right up to the present, we opposed this paving Bill on Second Reading and in Committee, and we remain opposed to it tonight. We remain opposed to the related planning gain supplement in principle for a number of reasons, which I laid out in some detail on Second Reading on
Despite the earlier debate in Committee and on Report this evening, the Government have not made a convincing case for their introduction of what even they admit is now only a lead option. If they cannot even convince themselves, how do they expect to convince the House? This is a Bill, and indeed a tax, with few friends. For instance, the CBI said of the proposed planning gain supplement:
"the Government's proposals to implement PGS are likely to lead to a number of unintended and negative consequences that would outweigh the potential benefits of PGS and we would strongly urge the Government to reconsider its proposals."
Similarly, the British Property Federation, which has been staunchly opposed to the planning gain supplement throughout, said that it
"Is not suited to brownfield or previously developed sites; removes the linkage between the developer, the development and direct community benefit; can provide uncertainly in the planning process; is unworkable on most commercial developments; will slow the rate of developments coming forward; will discourage regeneration schemes; will create a blockage in the planning system; could lead to lengthy disputes in the courts and does not give any certainty that the necessary infrastructure will be provided."
Other than that, the British Property Federation thought that the planning gain supplement was a good idea.
Meanwhile, the Royal Institution of Chartered Surveyors said of the planning gain supplement:
"The proposals are based on a misunderstanding of how land is valued, how planning gains arise and how the property market operates".
The Chartered Institute of Taxation was equally unimpressed and commented as follows:
"Not even a well thought out consultation document can save a bad idea and we think that the law of unintended consequences will apply, with the result that the proposals will not deliver the Government's policy objectives without a major element of compulsion being applied to local planning authorities, to allow developments that they do not wish to allow."
The National Housing Federation, the umbrella body for housing associations, argued in 2006 in its evidence to the then Select Committee on the Office of the Deputy Prime Minister that the planning gain supplement would not assist the development of affordable housing. It is an expert in the area, and as it explained:
"By charging PGS on affordable housing the Treasury will simply be pushing money around the public funding system....If PGS is levied on housing associations a proportion of housing association grant for social housing will effectively be paid back to the Treasury via PGS and fewer homes will be provided. Moving funds from one part of the public purse to another is not efficient."
Similarly, there have been concerns about the effect on the charitable sector. The Charitable Properties Association—the CPA—argued on that point in evidence to the Communities and Local Government Committee. It stated:
"The CPA believes the PGS will have a seriously detrimental impact on the financial position of property owning charities. This includes both charities which have significant land holdings as part of their endowment...and charities which develop their own land in order to fulfil their charitable purposes, for example by providing affordable housing."
The Government's proposals still fail to address the fundamental weakness of this type of tax, which has foundered historically on the problems of agreeing the increase in land value on which it is to be levied. As the Royal Institution of Chartered Surveyors, which is a specialist in this area, has argued:
"The valuation of development sites comprises of making assumptions about different variables, six of which can have a big impact on the opinion of value. A change of around 5 per cent. in each of these variables can result in an overall change in the value of the site of over 25 per cent."
It is not just representatives of business and the third sector who have voiced their public opposition to the planning gain supplement. A number of prominent Labour party members and organisations have done so too. A previous Labour Minister with responsibility for planning and housing, Mr. Raynsford, who is in his place this evening, is on the record as opposing the concept of the planning gain supplement. He reiterated his opposition during the Second Reading of the Bill on
"Although this is only a paving Bill, it begins a process that is inherently complex and risky and that could end badly. I urge my right hon. and hon. Friends to take stock and give careful thought to all the issues involved, as well as the considered views of the people and organisations who best know the minefield that they are approaching. If they do so, they may well conclude that the alternatives available can generate better outcomes and save them from repeating the mistakes of the past. When history has such good lessons to teach us, it is unwise—to say the least—to ignore them."—[ Hansard, 15 January 2007; Vol. 455, c. 582-3.]
Quite. When even well respected Labour former Ministers are sounding warning bells it is little wonder that the Government have paused for thought, yet they want the approval of the House to spend the money nevertheless.
That is not the only objection to the tax from a socialist quarter. As we have already heard this evening, the Labour-led Scottish Executive have expressed strong reservations about the implementation of the planning gain supplement. Despite our giving the Minister a good opportunity under new clause 1 to lay out in more detail how some of the aspects would operate in Scotland, he declined to do so. Moreover, a joint memorandum was submitted to the then Select Committee on the Office of the Deputy Prime Minister in March 2006 by the Labour Housing Group and the Labour Land Campaign, the former of which describes itself as
"A socialist society affiliated to the Labour Party, who aim to promote affordable housing".
It is reassuring to know that socialists are still allowed to be affiliated to the Labour party. The memorandum states:
"The PGS proposals combined with the package of reforms proposed for the planning system following the Barker Report will not address the problem of the shortage of affordable housing, a severe problem in the South West and many rural areas, including parts of Yorkshire, Derbyshire and Cumbria".
On top of all that, the Library briefing note that accompanies the Bill points out that the "closest precedent" in terms of a similar paving Bill was the 1998 Tax Credits (Initial Expenditure) Bill, which led to the much troubled tax credits system, in which just under half of all the payments in the system each year are incorrect. In his Third Reading speech, the Minister cited that as a recent example of a paving Bill. The financial memorandum that accompanied that Bill nine years ago explained that expenditure of between £15 million and £20 million was required to facilitate the introduction of tax credits. Even allowing for inflation since that time, are the Government seriously arguing to the House that the preparatory work for the introduction of the planning gain supplement is likely to cost twice what was required to help bring in the whole tax credits system, which now equates to some £16 billion a year of public resources? If they are, that really tells us something about how complicated and bureaucratic the planning gain supplement is likely to be.
As we have argued throughout the course of the Bill, most MPs across the House would accept that developers should make an adequate contribution to infrastructure costs in return for receiving permission to build, but the planning gain supplement is not the way to achieve that. As the Estates Gazette argued forcefully about the planning gain supplement in December 2006:
"Of course it won't work. It didn't work the five times it was tried in the past century and it won't work now."
In advocating the Bill tonight, the Government are asking the House to commit an unlimited sum in preparation for an unpopular tax that does not itself guarantee that the full proceeds of any development will return to the area in question, and which in Scotland and Wales does not guarantee that anything at all will be returned to the affected locality.
Perhaps that is part of the reason why so many organisations oppose the planning gain supplement. To remind the Minister, the Confederation of British Industry does not want it. The Institute of Directors does not want it. The British Property Federation does not want it. The Scottish Property Federation does not want it. The Royal Institution of Chartered Surveyors does not want it. The Royal Town Planning Institute does not want it. The Chartered Institute of Taxation does not want it. The House Builders Federation does not want it. The National Housing Federation wants it, but only if it does not apply to the federation. The Scottish Executive might want it, but only if it does not apply in Scotland. The Labour Housing Group does not want it if it applies to Cornwall, Cumbria, Derbyshire or Yorkshire. The right hon. Member for Greenwich and Woolwich does not want it to apply anywhere at all, and nor does my right hon. Friend Mr. Gummer—he would not want it even if it applied only to Protestants. No one wants it except the Treasury, and even the Treasury is not sure whether it wants it at all.
Despite that wall of opposition, the Government's hesitation and the fact that they have downgraded their proposal from a definite way forward to only a lead option, the Minister still had the neck to ask the Commons to vote Supply of more than £50 million to prepare for the introduction of a tax with which the Treasury might never proceed. All that money might eventually be wasted, not least because the Minister assured us earlier that any IT procured would not be used for anything else.
The Conservatives oppose the Bill, and the planning gain supplement to which it relates. We have stated clearly that if the Government are foolish enough to try to introduce a planning gain supplement, an incoming Conservative Government will repeal it. I hope that the House will spare us the trouble and put the Treasury out of its misery by voting against this benighted measure.
I have to tell my hon. Friend the Financial Secretary that the reservations that I voiced on Second Reading remain real. I am speaking to express the hope that during the consideration that the Treasury will give to representations submitted during the course of the consultation, it will consider very carefully indeed reservations expressed by a wide range of authoritative commentators who believe that the Bill—it is, admittedly, a short paving Bill, as my hon. Friend emphasised—is taking us down a high-risk route and that it could well lead to an outcome that he, I and many hon. Members would deeply regret.
I speak not from the point of view of someone who has any doubt about the merits of raising a significant contribution from the profits that accrue from development to fund necessary and desirable infrastructure and social provision that would enhance those developments. I wholeheartedly endorse the principle of ensuring that developers contribute towards a more sustainable and rounded development than would otherwise be possible and the principle that the community, as well as the developer, should receive a true gain from the process. The issue is not the principle of raising revenue from the profits of development to fund necessary infrastructure and social provision, but the mechanism by which those funds are raised.
I know that the Government's argument is that the implementation of the existing system, which is largely based on the section 106 mechanism in England and the section 75 mechanism in Scotland, is patchy. I accept that entirely. However, I speak as someone who represents an area in which the mechanism has been used to good effect by a local authority that has been absolutely clear in its objectives and open in its relations with developers. It has wanted not only to ensure that there is a fair contribution—often quite a significant one—but to give the certainty that that contribution will go into the area concerned to deliver demonstrable and tangible benefits for the benefit of not only the wider community, but the developer.
I have seen that happen in a range of areas. The millennium village in the Greenwich peninsula is widely spoken of as an exemplar of sustainable new development and high-quality housing. It has achieved high environmental standards and has a mix of tenures, with owner-occupiers, tenants and people on intermediate tenures living together in a harmonious framework. The attractive ecology park makes the area a desirable place in which to live. A primary school was taken in one form of its existence on to the site so that there would be a school there as and when residents moved into the development. The school has the capacity to expand to two forms of entry so that it can absorb the additional pupil numbers that come as a result of the development. A health centre provides high-quality health care for people in the new development. All that, together with the transport infrastructure, such as the Jubilee line and other transport facilities, makes the development highly sustainable.
The development has benefited hugely from developer contributions, and everyone has seen the benefit of that. The developer has received a benefit because the contributions have made the development more attractive. People want to come to live in the area—they are moving not to a frontier town, but to somewhere with an attractive existing park, a school and a health centre that were in place from the early stages.
The community has benefited from the contributions because it has such facilities, which was not the case for earlier developments that had far less good social infrastructure throughout their early stages. The development in the 1960s and 1970s in Thamesmead, in my neighbouring constituency, was often heavily criticised because it was predominantly residential and there was a shortage of the necessary facilities and infrastructure to allow a vibrant community to be in place right from the outset. A lot of work has been done subsequently to transform Thamesmead, but its start was not auspicious because of a lack of the extensive employment and social infrastructure that should have been in place at the beginning. We have learned lessons from history, and new developments in our area are being carried through in such a way as to ensure that developers make a significant contribution towards necessary infrastructure.
As I have implied, developers are generally happy to pay the contribution, but there are few developers who are keen to pay. They see the benefits of the contribution and appreciate the certainty that if they pay the contribution, they will get their planning permission and have a development of which their new residents, tenants and occupiers can all be proud. There is a win-win situation.
I can cite not only the single example of the Greenwich millennium village, although that is a fine example, because there are many others. Although the Meridian Delta Ltd. development on the same Greenwich peninsula has not yet begun, contributions have already started to be made towards improving road access to the site, which will be necessary to cope with the larger number of people living there. Although I am in favour of more sustainable forms of transport, some improvements to the road network were necessary. Those improvements are being funded in advance of the beginning of the development, but I am afraid that that would not be feasible under the formula proposed for the planning gain supplement, under which sums would be payable only at the start of the development. In addition, those funds would be payable to central Government, so it would probably take more time for them to come back to the locality. There is thus a question of timing. Developers are happy to make a contribution at the beginning of the process because they know that that is necessary to facilitate the development from an early stage.
The question of valuation is the nub of the issue. The sites on the Greenwich peninsula that I have described were profoundly polluted before any development began. They were the relics of our industrial past—I think that the Greenwich peninsula housed the biggest gasworks in Europe in the early to mid-19th century. There was an enormous residue of heavy metals and other pollution in the land, so there were vast remediation costs involved in making development possible on the land.
Of course, any developer who was faced with the prospect of paying the planning gain supplement would have at its disposal a bank of well-qualified advisers and lawyers who could identify all such offsetting costs and would be able to demonstrate, with extraordinary skill and facility, that when account had been taken of the remediation costs and the other offsets necessary to secure a successful development, such as discounted commercial lettings in the early years to ensure that tenants are found for properties, the uplift in value associated with the grant of planning permission would be either very small indeed, or perhaps nothing at all. However small the percentage take of planning gain supplement, a very small percentage of a very small or even non-existent figure is of no great value or even nothing. Yet there may well be very considerable downstream development gains. These are big developments that will only really come into their own over 10, 15 or 20 years, at the end of which profits will be considerable.
The section 106 agreements being negotiated by my local council—with MDL in relation to the peninsula, with Berkeley homes in relation to the Woolwich Arsenal, and on other very big sites—take account of long-term profit and benefit, rather than simply the immediate uplift in value associated with the grant of planning permission.
I therefore put it to my hon. Friend the Minister that in these examples there is a likelihood that a planning gain supplement introduced on the principles that the Government propose could well result in a reduced take overall, once the developers have demonstrated all the offsetting costs and the limitations on the increase in value attributable to the grant of planning permission. They will be able to minimise their potential contribution. There is a serious risk that on some of these sites the public sector take will be less than is being secured under the section 106 system.
That would be a tragedy and a disaster. First, it would involve the parties—the local authority, the developers and the community—no longer working together harmoniously to secure benefits to the community. There would be a separate process in which there would no longer be an incentive for the developer to work positively and constructively to get the best outcome. The incentive would be for it to minimise its liability for planning gain supplement—that would be a natural reaction.
Secondly, the local authority would be worried that it would not get sufficient money from its 70 per cent. share of the planning gain supplement to provide the infrastructure that it wanted to provide—and was able to provide using the existing section 106 framework. Those are genuine fears coming not from the developers but from local authorities and other practitioners who have been involved in facilitating development and using section 106 to secure benefits to the community. They fear that the planning gain supplement could deliver less than the current arrangements.
That brings me to the obvious question: why are the Government introducing this measure? There are a number of reasons. One is the recommendation from the Barker report which suggested this option. If we look back at the context of that report, we may well feel that this is not one of the happiest of its recommendations. It was in many respects a trade-off because of other pressures on the planning system to deliver more houses. I am not sure that the mechanism will deliver, for reasons that I have already explained, or that it is entirely appropriate.
I certainly think that the Government have got themselves into a position where the planning gain supplement is becoming a totem, and there is a risk that it will proceed despite all the reservations that have been widely voiced about its potential downsides. That will be because it has got into the currency, because the Barker report recommended it, because in responding to the report the Government said that they would proceed with it, because they consulted and following that they said that it was a lead option, and because they then introduced a paving Bill allowing them to take further steps.
In my most pessimistic moments, I see a remorseless process, with the juggernaut going down the road through various stages and reaching a point where it becomes unstoppable. I fear that if that happens, we will find ourselves, in two or three years, seeing the introduction of a tax which has serious disadvantages, including its possible impact on certain communities, such as mine, which has benefited from the existing section 106 framework, and which will end up proving to be a problem that the Government could well have avoided.
I hope that, even at this late stage, my hon. Friend and his colleagues in the Treasury will reconsider. I do not believe that section 106 is incapable of delivering the benefits that should be delivered to facilitate development. I have accepted entirely that the performance is patchy. We should be looking much more closely at options for sharing expertise, for sharing the good practice of those who are doing things well and for assisting those local authorities that are not currently making the most of the section 106 system, to ensure greater benefits for their communities from the profits of development. That is not unfeasible. I am sure that there is scope for doing that, and I am sure that within the sums that have been allocated under the paving Bill it should be possible to provide expert advisory units to support local authorities to do the job better and to gain more from the section 106 process.
I also think that there is considerable scope for developing innovative thinking such as that in Milton Keynes, I note that my hon. Friend Dr. Starkey is here and I know that she will be more expert in the matter than I. English Partnerships, the local authority and other development interests in Milton Keynes worked for some time to produce the concept that was called, perhaps inappropriately, a roof tax, although it is more a tariff system. The benefit is that it gives certainty to all parties that there will be proceeds from development and that those can be used to fund the necessary infrastructure and social provision.
Obviously I am a great admirer of the tariff in Milton Keynes, but my right hon. Friend will be aware that Milton Keynes is very particular in having, essentially, a single landowner in English Partnerships and in having, as a growth area, large development that is planned, so that we know where housing will be and can say precisely what infrastructure is needed over time as well as within an area, meaning that it can be costed in advance and a sum agreed per dwelling. That is applicable to other growth areas, but it is difficult to see how it could be generally applicable.
I agree wholeheartedly. I was not recommending that the roof tax be applied generally. As my hon. Friend rightly highlighted, it is an appropriate mechanism for areas with a greater than average concentration of land ownership, with greater than average uniformity of land values and where there is certainty in the development pipeline. It is precisely in such circumstances that that mechanism is one of the most effective tools to achieve the objectives that we all have. It would be wholly inappropriate in Greenwich, but as I have pointed out, I do not think that the planning gain supplement will be appropriate in Greenwich, and I would rather have a framework that allowed section 106 agreements, which have worked well there, to continue, allowing the developments to flow in the area.
The argument that I have been advancing is that there should be more of a focus on existing mechanisms or new thinking about appropriate mechanisms that may be tailored to the needs of individual areas. We should allow those to succeed rather than focusing on the single, across-the-board mechanism of the planning gain supplement, which in my view will not deliver the promised benefits in certain areas. I have explained why I do not think that it will deliver in many development sites on my own patch. I agree with my hon. Friend, but the conclusion that I draw is that an across-the-board taxation system such as PGS is probably not the right way forward. Instead, we should be looking at how to develop the different mechanisms that exist at the moment or are being developed.
The last one that I want to refer to briefly is the concept of a strategic section 106 agreement. One of the greatest worries about section 106 is the uncertainty for developers as to what they are likely to be required to pay. I fully understand the worries that they have expressed about that element of uncertainty in the existing system. The idea of a strategic approach is to set out in advance a much clearer indication of the contribution that developers will be expected to make, so that when they go to explore a particular site, they can do so with greater certainty. That would be a good way to tackle one of the difficulties with section 106, and it would do it in a way that ensures that developers and local authorities have a common interest. That common interest would mean that development would happen, that the developer would know what they were expected to contribute, that there would be greater certainty, and that the contribution would be used for local benefit.
There are a range of options; the planning gain supplement is not the only possibility open to the Government. I hope that my hon. Friend the Minister will recognise that the alternatives merit further consideration. I hope that when the consultation is finally assessed, he will come to the conclusion that we should not take a highly risky route that may not provide all that was promised, and that there is considerable merit in exploring the scope for making existing mechanisms work better, and ensuring that the objective that we all share is achieved. That objective is greater success in capturing the profits of development to ensure more successful, sustainable developments that work well, and for the interests of the whole community.
It is a privilege, as it was on Second Reading, to follow Mr. Raynsford, who speaks with a great deal of experience and wisdom on the subject, and who has addressed it in a completely non-partisan way. He exposed the arguments very properly, and gave the strongest argument for not proceeding with the paving Bill. Of course, that is partly a matter of public finance, as sums of £50 million are by no means trivial, but the real argument was the one that he advanced. There is a juggernaut principle in Whitehall, and once contracts are signed, once the computer company is involved and once a Whitehall section is set up to promote a measure, it is very difficult to stop the juggernaut. That is why it is important to discuss issues of substance.
I seem to recall it being mentioned earlier that there was a paving Bill to enable us to join the European currency, yet that juggernaut has not yet driven us inexorably into the European currency. Does his argument not therefore fall away?
Well, I am not sure that the juggernaut has entirely ground to a halt, because I still sit on the Chancellor's preparatory committee, but I think that the brakes have indeed been applied. I want to pay a compliment to the Minister, who has dealt with the Bill in a good-humoured, tolerant way. I think that he has taken every intervention that has ever been thrown at him, and as a result we have had a much more substantial discussion that we would have done otherwise.
I shall briefly summarise the arguments for not proceeding with the Bill, which are of course based on wider arguments about the planning gain supplement principle. The first argument is that the Bill is precipitate, as there is no consensus on it. Mr. Francois summarised the objections of various institutional bodies, and of local government, which is a crucial partner in the proposal. I add that there is need for party-political consensus, too. Certain policies need to span generations; pensions policy is one of them, and policy on the planning gain supplement is another. A lesson has been learned, because different parties have tried to introduce a similar measure, starting with Lloyd George and Winston Churchill in the 1906 Government. Attlee had a go at it; Wilson had a go at it twice; and even Mrs. Thatcher had a try, before abolishing the measure. Everybody has had a go at it, but it has been difficult to implement the measure, partly because of vested interests, party-political opposition and technical problems. It is essential that a much stronger consensus be developed on the idea.
It is the second objection that was behind the amendments that I tried to move in Committee, and which the right hon. Member for Greenwich and Woolwich dwelled on. It concerns the way in which the measure takes away from local autonomy, which is already limited in respect of planning matters, and weakens the scope for section 106 agreements. The right hon. Gentleman gave some very good examples from south-east London, showing how creative and experienced planners can extract value for their community, in a way that is appropriate to that community. There are many different ways in which communities seek offsets; it can be through local infrastructure, or through wider infrastructure, such as that relating to health and education. Some councils want cash, and others want affordable housing. The balance is different in each case.
My constituency houses the Mecca of rugby union, and the Rugby Football Union has just expanded one of its major stands. As a result of negotiation through the planning process, a planning gain agreement has been signed that provides for, among other things, improvements to the local town centre, a system of buses to take fans to local railway stations, and part-access to the conference centre for local performance arts bodies. Those are local concerns that local planners and their representatives understand, and an optimum mix has been obtained. In an area planning application, the Rugby Football Union made the concession of supporting a local residents' parking scheme, intended to deal with the problems caused by fans on match days. That local input in the negotiating process will be missing once there is a national tax, which will simply become a revenue source.
To take another example, I recently visited a rural district where there is intense pressure on affordable housing. It so happens that the local planners are sophisticated and use section 106. In fact, they use it in a very aggressive way, and they have gone beyond the normal de minimis limits. Normally, the Government suggest that affordable housing offset should be asked for once 12 residential units are to be built. The council in question was very aggressive, and said that for every new private residential home, one affordable home should be provided. That is quite a tough policy, but given the context—there was a great deal of development uplift, and a great scarcity of affordable housing—it worked, and the council obtained a lot of affordable houses. It is the council's judgment and its call; it understands the local balance. That is what section 106 agreements allow, and why use of it should be nourished, rather than stifled.
The right hon. Gentleman was right to acknowledge, as I do, that the system is patchy. I was struck by the comments of the Minister, who made the good point that many councils do not use section 106 at all. Clearly, there are many smaller developments for which use of section 106 may not be appropriate, but the Minister quite correctly asked why some councils do not pursue that route even for large projects. It is a good question, and I am not entirely sure what the answer is. I suspect that, in some cases, there is not very much development uplift. There may not be the same pressures, and in many industrial parts of Britain, the land is contaminated and does not have a great deal of value to developers. It may well be that many councils are just not working with the system properly and have not got used to it. That gives us all the more reason to do a lot more to spread good practice, even if we do not proceed with the scheme. We should develop pilot schemes, whether they involve tariffs or take other forms, to make the existing system work much better.
I have given two compelling arguments for not taking the Government's route—the first was the lack of consensus, and the second was the draining away of local authority—but there are others, too. The third point is that the scheme is unnecessary. There is, of course, a strong philosophical argument for obtaining planning gain for the community. Clearly, if there is an uplift through planning approval, and if that uplift is considerably in excess of the opportunity cost for the developer—the risk-adjusted return, which obviously has to be considered—there will be a gain to which the community might reasonably want access. However, discussions on that point have largely ignored the fact that there is already a mechanism to ensure such access: as well as the section 106 agreement, there is capital gains tax.
As a result of the planning gain supplement, many developers will pay under section 106, and then pay up to 40 per cent. capital gains tax, and then pay the planning gain supplement, too. We are not told the planning gain supplement rate, but it is an open secret that it is 30 per cent. Section 106 plus 40 per cent. plus 30 per cent. would be quite a high rate of tax. Of course, the Government say that in practice they would not apply full capital gains tax, but would instead give a tax offset, and that in turn would reduce the revenue. The question of whether the measure is necessary, even in revenue terms, has to be posed.
Fourthly, there are basic issues of complexity. If the Government proceed with a substantive Bill, we will find out whether they would impose de minimis limits of some kind on small developments. That would greatly reduce the bureaucracy involved, but some things are inherently complex, and that includes big development projects. They often involve pieces of land with different owners, obtained at different times. Calculating the planning uplift for a big development is inherently a difficult and complicated process.
Planning itself is complicated. I have never heard a proper answer to the case that I cited on Second Reading. The external cladding of a building, for example, may well require planning permission. Does the valuation have to be calculated for tax purposes? There is enormous administrative complexity associated with the planning process that could well make it prohibitive.
The final point, which has been made by the right hon. Member for Greenwich and Woolwich and others, is that PGS might create disincentives to development. There are, however, cases where the impact may be positive. Mr. Redwood came up with a slightly perverse example, which was nevertheless valid. Some developers may be panicked into developing because they feel the planning gain supplement coming. There will be other cases of developers who have planning permission, have paid the tax and may therefore be discouraged from keeping the land in a land bank. They have already paid the levy, so why not develop it? There may be positive incentive effects, but it is much more likely that developers will be discouraged from making planning applications. Experience suggests that that is overwhelmingly the case.
Given that there are so many reservations about the fundamental principle, which are widely shared by practitioners in local government and across the House, it seems extremely unwise and unnecessary to proceed with the paving Bill.
As the House knows, the Communities and Local Government Committee carried out an investigation on the planning gain supplement. I remind Members that it is an all-party Committee, and the view of the Committee was that there were some potential benefits to the planning gain supplement, but that whether those benefits were realised would depend on the detail of the PGS.
Evidence was given to the Select Committee by a wide variety of organisations, many of which had also responded directly to the Treasury's own consultation, on what they perceived to be the likely effects of the tax. Obviously, because that consultation was carried out without any of the details of the tax having been decided on or made clear, in their responses to the consultations many organisations looked at the worst possible case, so they were responding not to a PGS that might be levied at, for example, 20 per cent. or 30 per cent., but to the possibility that it might be levied at 110 per cent., like one of its predecessors. Not surprisingly, at 110 per cent. it was a disaster.
One of the Opposition Members pooh-poohed the argument about the rate. Income tax levied at 30 per cent. or 40 per cent. is reasonable. Income tax levied at 99 per cent. clearly would be unreasonable. The rate is therefore relevant to whether a tax is reasonable and operable. It is perfectly reasonable to point out that in all the predecessors to the planning gain supplement, the rate has varied from 52 per cent. to 110 per cent. As I said, at that rather extortionate level, it is not surprising that the tax did not work, but it cannot be logically argued from that that a more reasonable tax would not work.
There are merits to the PGS, but the issue is the detail. I welcome the fact that the Treasury responded to the Select Committee report by not rushing straight from the first consultation into firm proposals, but has launched three other consultations on further technical detail. Personally, I think it might be necessary to hold a further consultation once the Treasury has decided on some of the details of PGS. It is an extremely complicated tax, were it to be introduced, and it is important that the Treasury get the detail right and that external stakeholders be given the opportunity to respond at every stage in the process of implementation of the tax. The more some details are firmed up, the clearer and easier it will be for those organisations to respond on the remaining detail.
It is important that we constantly restate the context in which the tax is proposed, which is the failure to build enough houses to meet household growth, particularly but not exclusively in the south-east and in London. Those of us who represent areas in the south-east and in London know well the consequences of that shortage of housing at all levels, including affordable houses, for the lives of our constituents, particularly for the younger generation.
That shortage of housing has the potential to set up an unhelpful intergenerational conflict between those of us who are fortunate enough to have bought houses—for example, my first house cost less than £5,000, which is an unimaginably small sum for a three-bedroom house—and those of the same generation as my own children who, even though their earnings in real terms are comparable to what my husband and I earned at the time that we bought our first house, are nowhere near being able to afford a comparable house. That is a generality across the south-east and London. Those of us who have been fortunate need to understand the consequences if younger people coming up cannot afford to buy their own house, even if both partners are in reasonably well paid employment.
It is important that we consider ways of funding the infrastructure, because everybody, developers included, is clear that it is not enough to build housing; the infrastructure must be provided in a timely way to support that housing. Clearly, therefore, the infrastructure needs to be funded. The Committee was not wholly convinced that better use could not be made of section 106 powers. Many local authorities use section 106 very effectively, but there are unfortunately many others that do not.
The Milton Keynes infrastructure tariff is a particularly imaginative use of section 106 powers, aided by the fact that the Treasury, through English Partnerships, is forward-funding it, which is a crucial part of making it a success. However, as I explained in an earlier intervention, I do not think the infrastructure tariff is generally applicable, though it is being taken up by a couple of other local authorities already—Ashford and Reigate and Banstead—so it is applicable in some cases.
Section 106 has not delivered well across the piece. I cite again the example of Kent county council, an authority which, in its evidence to us in one of our other inquiries, made great play of the undeveloped land in Kent that had planning permission but was not being developed. When the witnesses were pressed, it became clear that the land was not being developed because of a lack of funding for the infrastructure that would unlock those sites. Given that Kent county council presumably wishes those sites to be developed, as it has granted planning permission and as Kent has a dire shortage of housing, and given that Kent county council is, on the whole, a fairly well run authority, if it were able to use existing section 106 powers to unlock the funding for the infrastructure that would unlock those sites, I assume it would do so. That in itself demonstrates that there are problems with relying on section 106 if we are to fund the infrastructure properly to provide for the housing that is needed.
The Committee asked the Treasury to carry out a cost-benefit analysis of PGS with a scaled-down section 106, as compared with the effective use of section 106, and I hope the Treasury will still do that. That needs to be backed up by a realistic assessment of how effectively good practice on section 106 can be spread across the whole country and a recognition that local authorities of all three political parties are clearly not effectively using section 106 powers at present. We need to consider why they are not doing so, rather than believing that by waving a magic wand we could ensure that all those authorities used section 106 properly in the future.
In the lead-up to the introduction of PGS, I hope, in special pleading as a Milton Keynes MP, that the Treasury will consider transitional arrangements—