Amendment 364B

Levelling-up and Regeneration Bill - Committee (13th Day) – in the House of Lords at 2:45 pm on 18 May 2023.

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Baroness Taylor of Stevenage:

Moved by Baroness Taylor of Stevenage

364B: Clause 127, page 158, line 34, after “the” insert “sustainable”Member's explanatory statementThis means that the objective of CLA is to support ‘sustainable’ development.

Photo of Baroness Taylor of Stevenage Baroness Taylor of Stevenage Opposition Whip (Lords), Shadow Spokesperson (Levelling Up, Housing, Communities and Local Government), Shadow Spokesperson (Transport)

My Lords, we move on to Part 5, “Community land auction pilots”. This was not in the Bill when it went through Committee in the other place so it has not really had any proper scrutiny.

We are asking: why legislate for pilot schemes? Once again, as I mentioned under the part of the Bill concerned with the infrastructure levy, surely it makes more sense to run pilot schemes before legislation is brought forward, not to put them in the legislation. For example, although we on these Benches were very unhappy with the introduction of voter ID, as the noble Earl the Minister knows, at least the Government spent a couple of years running pilot schemes on it before bringing the legislation forward. Can the noble Earl explain the thinking about the process that is being followed, in this case, of putting pilots in the legislation instead of running them before the legislation comes before us?

As we all know, currently, when planning permission is given for new homes, the land in question can increase in value by over 80 times. The vast majority of this goes to the landowner and other players, with very little being captured by the local authority. Community land auctions would give councils the tools to capture much more of the value uplift, which they can then spend on local priorities such as improved infrastructure and better public services. In theory, this sounds like a really good idea but, as always, the devil is in the detail. We need to understand properly how this would work in practice. What will the impact be on developers and how will they react? What consultation took place between the Government, local authorities and developers before this proposal was put in the Bill?

Under Amendment 362, in the name of my noble friend Lady Hayman of Ullock, the objective of community land auctions would be to support sustainable development. I am not going to go into all the reasons for that again now. We have had lots of discussions about why it is important that the Bill focus all the time on the sustainability of the development that will take place as a result of some of its provisions, so I do not need to highlight that any further.

Under Amendment 365, in the name of my noble friend Lady Hayman of Ullock, any relevant combined authority would be given the report to scrutinise. It is very important that we enshrine liaison with local authorities as part of the Bill, and I hope we will be able to do that.

There is also a stand part debate on Clause 127. I will be interested to hear the noble Lord, Lord Lansley, discuss the purposes and mechanisms of community land auctions. It would be useful to hear about the relationship between community land auctions and the plan-making process, and how they will fit in as the process takes place. I beg to move.

Photo of Lord Young of Cookham Lord Young of Cookham Deputy Chairman of Committees

My Lords, I shall speak to the proposition in my name and that of my noble friend Lord Lansley that Clause 127 should not stand part of the Bill. My noble friend and I are job-sharing for much of this section of the Bill.

This clause deals with pilots for community land auctions, which aim to give local authorities the ability to benefit far more greatly from new development than they do under the current system, even as proposed in the Bill. Basically, it takes the principle behind Section 106, the new homes bonus, CIL and the infrastructure levy a stage further, but in doing so it risks compromising the integrity of the planning system by moving more towards the sale of planning consents.

The Explanatory Notes to the Bill are normally quite helpful, but the 10 lines on the background to CLAs, on page 126, do not explain what is going to happen. As I understand the proposal, a landowner can name the price at which he is willing to sell his land to the council—it would probably be agricultural land, but it could be industrial land—which then has an option to purchase the land at that price. The price will be somewhere between the current value and the hope value with planning consent. The local authority then develops its plan, and if that land is deemed suitable for housing development, it buys it at the option price and resells it to the developer, pocketing the difference. I assume the Government hope that many landowners will take advantage of the scheme so that the local authority has a choice and the ability to choose best value. I think it clear from that scenario that the local authority has a financial incentive to designate land for development over which it has an option, in preference to land over which it has no option but which may be more appropriate for development. I will return to that in a moment.

As the noble Baroness, Lady Taylor, said, this clause was not in the original Bill; it was shoehorned in at a relatively late stage in November, along with street votes. Noble Lords who were in the Chamber at the time may recall that I was less than enthusiastic about street votes, and indeed they received a sceptical response from the House. So, we now have two policies that seem to have gone straight from a think tank into primary legislation without the normal careful scrutiny that one associates with planning reform, overtaking on the way many oven-ready policies on leasehold and rental reform or repeal of the Vagrancy Act, which was originally in the Bill but now dropped.

It is actually quite difficult to get information about community land auctions. I googled it and discovered that apparently the only place that has them is Hong Kong, but all land there is in public ownership so it is not really a good comparator. They have been championed by Tim Leunig, a respected economist, when he was at the CentreForum think tank in 2011-12; he is now a senior policy adviser to the Secretary of State at DLUHC. Tim Leunig gives an illustration of his proposal that will strike terror into the heart of my noble friend Lord Lansley. He says that

“were Cambridge to allow a million new houses near the city—like America’s Silicon Valley—it could give current adult residents around £700,000 each. Again, that should be a vote winner”.

I see my noble friend wondering what he is going to do with all that money. One of the articles that Tim Leunig wrote making the case said that

“it will kick start the economy. Every extra house we build creates at least three jobs. Building an extra 300,000 would boost employment by around a million jobs … The government says that it will pilot this scheme; we should hold it to its word”.

The date of that article was 4 January 2012, and indeed in his 2011 Budget George Osborne announced that he would pilot a land auction model. However, as far as I can see, no progress has been made, perhaps because the proposition did not withstand critical scrutiny.

The only other reference that I have been able to find in this country is from 2017. The Government announced a task force to investigate a new way of paying for infrastructure projects, such as new public transport. It asked the task force on funding infrastructure to look at the so-called development rights auction model of land value capture. I have not been able to find its conclusions so perhaps my noble friend can shed some light on what happened to that task force.

I am reluctant to condemn out of hand proposals to capture more effectively the windfall gains made from planning consents, but I think this House has a responsibility to scrutinise with particular care policies such as this that simply have not undergone the normal critical scrutiny. We need to look at the risks and ask why it appears that no one else has adopted this policy.

An obvious risk is that it could distort the planning system. Local authorities, which are under enormous financial pressure, could stand to make large windfall gains from land that is less suitable for development. They will be announcing the winner of a race when they have backed a particular horse. The policy risks contaminating the integrity of the planning system and producing suboptimal sites for development, and I suspect that my learned friends will be considering the possibility of judicial review.

I can illustrate the risks from my former constituency, North West Hants. In 1996, Basingstoke and Deane Borough Council and Hampshire County Council bought 2,000 acres of agricultural land just outside Basingstoke. Now, 3,500 new homes are being built on that site, begging the question of whether ownership may have influenced the planning decision.

I wonder how many landowners will be tempted by the scheme. It works only if there is a proper market. Will they go through the hassle of submitting options? What inquiries have the Government made of landowners to see whether they will play? If a landowner thinks the land is suitable for development, why should they not wait and pocket all the money instead of sharing the windfall with the local authority? Most of them are able to take a long-term view of their interests. What happens in an area where there is only one major landowner, or there are not very many and they can easily collude on the option price or decide not to play?

Then there are some technical questions. How does this interact with Section 106 or the infrastructure levy? Does the developer have to pay that as well, or has the planning authority already secured its share through the auction? What has been the response of the LGA or the TCPA to this proposal?

Another issue was raised by my noble friend Lord Lansley and the noble Baroness, Lady Taylor, in responding to the last debate. When I first became a local councillor in 1968, there were few sources of revenue for the council. We had the rents and the charges as revenue that we generated locally; there were the business rates and domestic rates; and there was the central government grant. We are now moving progressively towards a different system of funding local government with Section 106, the infrastructure levy and, potentially, community land auctions. In the old days, we had something called rate equalisation, which recognised that some local authorities had fewer resources than others. Given that factor, which is central to levelling up, I wonder to what extent central government is going to have to inject some sort of equalisation into this new scenario of the infrastructure levy and community land auctions.

To take the Cambridge example that I mentioned a few moments ago, would central government really stand back and allow one local authority to make such a huge gain, or would it say, “We need to share this benefit more generally”? Can my noble friend say, in winding up, in addition to addressing the consequences of moving down the CLA route, what the Government’s proposal is to make sure that this is a levelling-up Bill? My noble friend said in winding up the earlier debate on the infrastructure levy that it will capture more in high-value areas. Yes, of course it will—and so will this. How are we going to make sure that the whole thing does not go against the grain of levelling up?

I hope I have not been too unfair on the proposal. We need fresh thinking, but the job of this House is to scrutinise legislation. That is what we need to do with Clause 127.

Photo of Lord Lucas Lord Lucas Conservative 3:00, 18 May 2023

My Lords, I cede everything to my noble friend Lord Young when it comes to experience and wisdom in this matter, but I am very attracted by the idea of running the pilot proposed by the Bill. It has long seemed to me deeply inequitable that when it comes to property development, the landowner gets so much for the uplift and the community gets so little. We very much need to explore and try out ways of setting that right, and this seems an excellent thing to try. I share my noble friend’s reservations that aspects of it may turn out not to be right, but that should not prevent us having a go. My amendment just says that if it proves to be a success, and I shall keep my fingers firmly crossed that it is, it would seem foolish to let it die after 10 years without giving Parliament the opportunity to let it continue.

Photo of Baroness Pinnock Baroness Pinnock Liberal Democrat Lords Spokesperson (Levelling Up, Communities and Local Government)

My Lords, I thank the noble Lord, Lord Young of Cookham, very much for the best explanation of community land auctions that I have heard. I have searched the internet to find a good explanation but have heard the best one this afternoon from him.

The issue is how we capture for local communities the uplift—a very large uplift in many cases—in land values once planning consent has been given to a site. This is one way in which it could work and it has some attraction to it. However, living as I do in West Yorkshire, where land values are not like those in Surrey, Hampshire or Berkshire, the inevitable consequence of community land auctions is exactly as the noble Lord, Lord Young, said: to the well off, more shall be given while to the least well off, little shall be given.

As far as I can tell, this will exacerbate regional inequalities. As the noble Lord, Lord Young, said, this is a levelling-up Bill. Living where I do, I was really looking forward to lots of proposals in it to reduce regional inequalities, but this is one example of where it will do the opposite. Somehow we have to find ways of extracting the very considerable uplift in land values once planning consent is given for housing.

Where I live, we still have many former industrial sites in need of costly remediation, and those land values will not be there for a community land auction. The provision will work only on greenfield sites, which is contrary to what we are trying to achieve. It will increase regional inequalities, which is contrary to the purpose of the Bill. If we can find a better way of extracting land value once planning consent or planning allocations have been given, that is where we should go. I am not convinced that this is the way, interesting though the proposal is. “Let us see the evidence” is what I would like to say. I know we are going to do a pilot, but somebody somewhere in the department has done some thinking and provided some evidence. Let us see it before we make a decision on this, because otherwise it is a dive into the unknown.

My last point is that there have not been good examples recently of local authorities getting involved in commercial practice—in fact, the contrary is the case. That is where this would take us: local authorities bidding for and buying land at a certain value and then hoping that, once they sell it on with planning consent, the extra can be extracted. That is putting a lot of faith in the commercial expertise within local authorities, which I am not sure they have. If I was putting a bet on developers and landowners against local authorities, I know which one would win.

Photo of Earl Howe Earl Howe Deputy Leader of the House of Lords

My Lords, in addition to the levy we have been debating, the Government are interested in testing other mechanisms that could improve land value capture.

Community land auctions are an innovative process of identifying land for allocation for development in a local planning authority’s area in a way that seeks to optimise land value capture. Their aim is to introduce transparency and certainty by allowing local planning authorities to know the exact price at which a landowner is willing to sell their land. The crux of our approach is to encourage landowners to compete against each other to secure allocation of their land for development in the local plan by granting a legally binding option over their land to the local planning authority.

The competitive nature of community land auction arrangements incentivises landowners to reveal the true price at which they would willingly part with their land. If the land is allocated in the local plan upon its adoption, the local planning authority can sell the CLA option, keeping the amount that the successful bidder has paid and capturing the value that has accrued to the land as a result of the allocation. The successful bidder must then pay the price set out by the original landowner in the option agreement to purchase the land. The detailed design of community land auction arrangements will be set out in regulations that will be subject to the affirmative procedure. In a moment, I will address my noble friend Lord Young’s clause stand part notice but, for now, I hope that that is useful background, by way of introduction.

On Amendment 364B, I reassure the noble Baroness, Lady Hayman, that sustainable development remains at the heart of our approach. Piloting authorities will decide which land to allocate in their emerging local plans by considering a range of factors, which the Government will set out in guidance. Unlike conventional local plans, when allocating sites, local planning authorities will be able to consider the financial benefits that they are likely to accrue from each site. How, and the extent to which, financial benefits may be taken into account will be determined in regulations. Importantly, the existing requirement to prepare local plans, with the objective of contributing to the achievement of sustainable development under Section 39 of the Planning and Compulsory Purchase Act 2004, will remain.

We are not altering the existing local plan consultation and examination process. Piloting authorities will still be required to consult on the proposed land allocations in their draft local plans, before they are submitted and independently examined in public in accordance with the local plan preparation procedures, as modified by Schedule 7 to the Bill.

On Amendment 365, the Secretary of State is required to lay a report before each House of Parliament on the effectiveness of the pilot within the timeframe set out in Clause 134(2). There is a requirement to publish this report, which means that it will be publicly accessible and available to any combined authority that was involved in the pilot.

The noble Baroness, Lady Taylor, asked about whether there had been prior consultations. We will consult on community land auctions shortly, and taking part in the pilot will be voluntary for local authorities. We need the powers in the Bill to enable the pilot to happen.

I appreciate the thought behind my noble friend’s Amendment 366. However, as community land auctions are a new and innovative process for identifying land for allocation for development, our view is that it is right that the Bill makes provision for them to be piloted on a strictly time-limited basis.

If community land auction arrangements are deemed successful, and if there is ambition to extend the approach, further primary legislation would be required to implement them on a permanent basis. As we do not have the evidence about their effectiveness yet, we think it right that the Bill does not include provisions that could make CLAs a permanent fixture. Instead, the Government will take a decision at the relevant point in the future, based on the evidence. I hope that, with those reassurances, my noble friend Lord Lucas and the noble Baroness, Lady Taylor, will feel able not to press those two amendments when they are reached.

On Clause 127 as a whole, my noble friend Lord Young questioned the relationship between community land auctions and the plan-making process. I stress to him that it is essential that community land auctions are compatible with plan-making and that they dovetail within new and existing frameworks in the planning system. Sites that are allocated through the community land auction process will still need to secure planning permission in the normal way.

My noble friend asked whether community land auctions amounted to a process of selling planning permissions. The answer is no. CLA arrangements will be the means of identifying land for allocation for development in a local plan. Local authorities will be required to consult on the proposed land allocations in their draft local plan before the plan is submitted and, as I mentioned, independently examined. My noble friend described the process as, in essence, handing out money to people. Local authorities will need to spend the levy in line with the requirements in the Bill, which sets out that it should be spent in the same way as the infrastructure levy.

My noble friend also asked what happens when there is only one landowner. Community land auctions will be a voluntary pilot scheme, as I mentioned. We are not proposing that they should be mandatory everywhere. We confirmed in our May 2022 Bill policy statement that there will be a requirement for two rounds of community engagement before plans are submitted for independent examination.

Clause 127 requires that any directions given or regulations made under Part 5 aim to ensure the overall purpose of community land auctions arrangements, which is that the costs of supporting the development of an area and the costs incurred in achieving other specified purposes should be funded wholly or partly by owners or developers of land. As I have explained, introducing this clause will allow the Government to test the effectiveness of community land auctions in practice through a pilot scheme. The provisions allowing for the community land auctions pilot in the Bill will expire 10 years after CLA regulations are first made, and we will seek local planning authorities which wish to participate in this pilot to volunteer to do so.

I hope that I have given my noble friend sufficient assurance. However, I will carefully examine the remarks that he made and the questions that he asked. If I have not covered those points sufficiently, I undertake to write him, but I hope that, for now, he will be content for this clause to remain part of the Bill.

Photo of The Earl of Caithness The Earl of Caithness Conservative 3:15, 18 May 2023

My Lords, maybe it is because it is Thursday afternoon, but I am slightly more confused now than before my noble friend gave his reply. He said that the land would be within the development plan, but he also said that it is an innovative way of identifying land for development. Those two statements do not seem to agree; there is a contradiction. I do not think that my noble friend answered my noble friend Lord Young’s point about the distortions that this can cause to a potential development plan.

It is perhaps true more in the south of England than in the north, where land values are cheaper, but if a landowner gets in cahoots with the local authority and says, “I will sell you my land at X”, knowing very well that his chances of getting planning permission are zero, would that not encourage the local authority to alter the development plan to benefit itself and the community rather than doing planning in the old-fashioned way, which was to develop with a holistic view of the area?

One thing I am not certain about is where local authorities will get the funds from to buy that land, particularly in the expensive south-east. I wonder whether my noble friend can help me on that.

Photo of Earl Howe Earl Howe Deputy Leader of the House of Lords

My Lords, the process will not be as my noble friend has described. The simplest way I can describe this is that community land auctions will be a process of price discovery. In the current system, local planning authorities have to make assumptions about the premium required by a reasonable landowner to release their land for development. For Section 106 agreements, this manifests itself through viability negotiations between the local planning authority and a developer. As these can be negotiated, there is a higher risk that, in effect, higher land prices lead to reduced developer contributions, rather than contributions being fully priced by developers into the amount that they pay for land.

For the community infrastructure levy and the proposed infrastructure levy, a levy rate is set for all development within certain parameters. When setting rates, the local planning authority has to calculate how much value uplift will occur on average, and has to make assumptions about landowner premiums and set a levy rate on that basis. The actual premium required by individual landowners will not be available to local planning authorities and will vary depending on individual circumstances. If the local planning authority makes an inaccurate assumption about landowner premiums, they may either make a lot of sites unviable by setting too high a levy rate, or else they will collect much less than they might have done otherwise by setting too low a levy rate.

Under the CLA process, landowners bid to have their land selected for allocation in an emerging local plan, as I have described, by stating the price at which they would willingly sell their land to the LPA for development. The offer from the landowner, once an option agreement is in place with the LPA, becomes legally binding. The LPA can either exercise it themselves, thereby purchasing the land, or auction it to developers. The competitive nature of CLAs incentivises landowners to reveal the true price at which they would willingly part with their land. If they choose to offer a higher price, they risk another piece of land being allocated for development, in which case they will not secure any value uplift at all.

I do not want to prolong the debate unnecessarily, so I will respond to my noble friend in writing on the other questions I have not covered.

Photo of Lord Young of Cookham Lord Young of Cookham Deputy Chairman of Committees

I am very grateful to my noble friend the Minister for the very patient way he dealt with the argument I put forward. I will take him up on two points. First, he said that the Government will consult local authorities about this. Surely, before introducing primary legislation on a major planning system, they should consult the local authorities first, rather than after the Bill has gone through. Secondly, and perhaps more importantly, I think he said that when the local authorities were drawing up the plan they could take into account the financial benefits. I think that is moving towards what he subsequently deplored: namely, the sale of planning permission.

Photo of Earl Howe Earl Howe Deputy Leader of the House of Lords

The extent to which those financial benefits can be taken into account will be set out, as I mentioned, in regulations. My noble friend makes a fair point, but parameters will be set around this. On the issue of prior consultation, which the noble Baroness, Lady Taylor, also raised, one can take two views: one is to go through the process that my noble friend advocated, and the other is to say that the integrity and workability of the scheme is such that we can afford to come to this House and the other place first before launching a pilot. Our view is that it will be perfectly satisfactory to take that course.

Photo of Baroness Taylor of Stevenage Baroness Taylor of Stevenage Opposition Whip (Lords), Shadow Spokesperson (Levelling Up, Housing, Communities and Local Government), Shadow Spokesperson (Transport)

My Lords, this has been a very interesting discussion. This is probably one of the cases where there is less clarity at the end of the debate than there was at the beginning. I am very grateful to the noble Lord, Lord Young, for once again giving a very forensic and detailed analysis of the subject and for raising all the key issues that sit within it. As the noble Baroness, Lady Pinnock, said, it was a very clear description of community land auctions.

On the issue of consultation, I remind the Committee that the noble Lord, Lord Benyon, in answer to an Oral Question earlier today, said that we are in danger of doing too much consultation. In this case, it would have been helpful if councils had been consulted before this proposal was put forward in primary legislation, because some of the issues raised in the debate would have come up immediately—they are quite obvious to those of us engaged in local government.

I have great sympathy with what the noble Lord, Lord Young, said. There is a queue of things that many of us feel should be in this Bill, including renters reform, leasehold reform, repealing the Vagrancy Act and so on. They did not get across the line and put into this primary legislation; yet here we have a fairly unformed idea, which has not been tested, which is in the legislation. That process is a bit mysterious to some of us.

The potential for contaminating the planning process is a key issue that needs to be thought through carefully. How would it look to the public when they go to a local plan inquiry, for example, if they find out that the council has already done a deal with the landowner over a particular site and they have no say in whether that will go into the local plan, because there is already a financial deal between the council and the landowner? That is a tricky one to get over. We have to think carefully about where, in the end, we are going with this.

The noble Earl, Lord Caithness, raised a very important question about where the money is coming from. Local councils are not exactly swimming in cash at the moment, so how will they find the cash to buy up this land to do the developments on?

The question of how this helps levelling up is also key. There will be significant differences in land value in different areas of this country; that has been the case for centuries and remains so. It will be the reverse of levelling up if it works in the way explained to us, and it could exacerbate inequalities, not improve them.

The noble Lord, Lord Young, spoke about local authority funding and how it used to work in, I think, 1968. Of course, things have changed a huge amount since then. There is now no government grant for many local authorities; some still get a bit, but there is not much for many of them.

We now have a tariff and top-up system for non-domestic rates. Is the intention that, if you have different land values in different parts of the country, community land auctions will be subject to a tariff and top-up system? Who pays for that?

We therefore have a lot more questions on this issue. I am sure that we will come back to it but, in the meantime, I beg leave to withdraw the amendment.

Amendment 364B withdrawn.

Clause 127 agreed.

Clauses 128 to 133 agreed.

Clause 134: Parliamentary scrutiny of pilot

Amendment 365 not moved.

Clause 134 agreed.

Clause 135 agreed.

Clause 136: Expiry of Part 5

Amendment 366 not moved.

Clause 136 agreed.

Clause 137 agreed.

Clause 138: Power to specify environmental outcomes