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Clause 1

Planning-gain Supplement (Preparations) Bill – in a Public Bill Committee at 10:45 am on 30th January 2007.

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Preparatory expenditure

Photo of Mark Francois Mark Francois Shadow Paymaster General

I beg to move amendment No. 1, in clause 1, page 1, line 2, after ‘expenditure’, insert

‘not exceeding £25 million in total’.

I do so in my name and that of my hon. Friend the Member for West Chelmsford (Mr. Burns), who is my parliamentary neighbour, as well as my neighbour this morning, as he sits in his place on the Front Bench.

The amendment is designed to place a limit on the amount of expenditure that may be incurred by the Government under this paving Bill, in preparation for the implementation of the planning gain supplement. There are several reasons for this approach. First, the Government are not committed to introducing the planning gain supplement at all. In the debate on amendment No. 2, I hope to lay out in more detail how, over a period of time, the Treasury has gradually watered down its commitment to the introduction of the PGS, to the point that the PGS was recently described by the Financial Secretary on the Floor of the House as only “a lead option”. However, we are now being asked to commit significant amounts of public money in preparing to implement an option that may yet be discarded. On Second Reading, my hon. Friend the Member for South Staffordshire (Sir Patrick Cormack) said in an intervention on the Minister:

“The Financial Secretary is speaking with great charm, and he is beguiling and almost converting me, but although I am an advocate of pre-legislative scrutiny, he has not yet made me an advocate of pre-legislative legislation”.—[Official Report, 15 January 2007; Vol. 455, c. 571.]

Secondly, the Government’s hesitation in pressing ahead may have been compounded by the number of organisations that are on the record as opposing the introduction of the PGS. What follows is not an exhaustive list, but those organisations include the Confederation  of British Industry, the Institute of Directors, the British Property Federation, the Home Builders Federation, the Royal Institution of Chartered Surveyors, the Royal Town Planning Institute and the Chartered Institute of Taxation. In addition, a set of legal and accounting firms, including companies such as Reed Smith, Deloittes and PricewaterhouseCoopers, have all expressed reservations of one kind or another about how the new system that the Bill is designed to facilitate might operate in practice.

For instance, before we commit the taxpayer to the financial requirements of the Bill, we should bear in mind that the CBI said of the planning gain supplement that

“the Government’s proposals to implement PGS are likely to lead to a number of unintended and negative consequences that would outweigh any 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 PGS, said—among other things—that

“PGS is not suited for brownfield or previously developed sites; removes the linkage between the developer, the development and direct community benefit; can provide for uncertainty in the development 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.”

The Royal Institution of Chartered Surveyors said of the PGS that

“the proposals are based on a misunderstanding of how land is valued, how planning gains arise and how the property market operates”.

For good measure, Labour’s previous planning Minister, the right hon. Member for Greenwich and Woolwich (Mr. Raynsford), who is unfortunately not with us in the Committee, is on record as opposing the planning gain concept. He reiterated that a fortnight ago on Second Reading, when he gave the Minister the apposite warning:

“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.”—[Official Report, 15 January 2007; Vol. 455, c. 582-83.]

Considering that even well respected previous Labour Ministers are sounding warning bells, it is little wonder that the Government have paused for thought before going ahead with the supplement, yet they still want parliamentary approval to spend the money.

Thirdly, there is no expenditure limit in the Bill, so the expenditure that we are being asked to approve could theoretically be open-ended, particularly if the Treasury continues to dither on whether to proceed with the PGS. The Treasury’s explanatory notes provide an estimated cost for project staff and an associated information technology system of up to £52 million, which it justifies in the following terms:

“Project planning is at an early stage. The enactment of this Bill will allow further development of the project by HMRC and their IT partners and for the technology to be properly costed.  The current upper end estimate is that IT build, infrastructure and service costs will be approximately £40 million, however these are subject to change as the project is refined and policy finalised.”

In arguing for the need to authorise such expenditure, the notes add for good measure:

“Between enactment of the Bill and the implementation of PGS a core team of project staff will also be needed to develop the new operating model and recruit and train staff. These costs are currently estimated at £12 million for HMRC and the Valuation Office Agency up to and including 2008/09.”

Even allowing for the notorious difficulty of forecasting accurately the future cost of IT systems, a matter to which I hope to return on new clause 1, we are entitled to ask why those estimates are so high. At a time when most primary care trusts are under serious financial pressure—I am sure that Members of all parties share that experience—why are the Government requesting up to £50 million to prepare for a tax that they may never actually introduce?

Moreover, the Library briefing note that accompanies the Bill points out that the “closest precedent” to such a paving Bill was not, I am afraid, the Water Act 1989— almost 20 years ago—but the Tax Credits (Initial Expenditure) Act 1998. In time, that led to the much troubled tax credit system in which just under half of all payments are incorrect each year. The financial memorandum that accompanied that Bill explained that expenditure of between £15 million and £20 million would be required to facilitate the introduction of tax credits. Even allowing for inflation since then, are the Government seriously arguing that the preparatory work for the introduction of the planning gains supplement is likely to cost twice as much as that required to help bring in the tax credit system? If so, that tells us something about how complicated and bureaucratic the planning gains supplement system is likely to be.

Photo of Anne Main Anne Main Conservative, St Albans

As my hon. Friend knows, I serve on the CLG Committee, and we examined the matter. One of the Select Committee’s concerns was that the planning gain might not deliver more, and could deliver less, than section 106 money. One of the Committee’s recommendations was that the Government undertake a comparative study. They dismissed that as being too costly, but the Committee felt it vital. The open-ended approach has meant that self-assessment and the training budget for those who will investigate it have not been covered. My hon. Friend is right to suggest that we shall create an open-ended cheque book if we go down this route, because we do not know whether the proposals will deliver more infrastructure and more money in many cases, and it might well be costly to examine that.

Photo of Mark Francois Mark Francois Shadow Paymaster General

I thank my hon. Friend for bringing her considerable Select Committee experience to bear on the issue, and she is right that the Bill’s drafting makes it something of an open-ended cheque book. She mentioned a comparative study, and I hope to come to that issue later, when we examine why the Government have carried out only a thin, partial regulatory impact assessment of the implications of the PGS. My hon. Friend’s point is well made, and she may wish to intervene on me again when we reach that issue in our deliberations.

In the light of the issues that I have described, amendment No. 1 proposes a limit of £25 million, which is just under half the estimated cost in the Treasury’s explanatory notes. Such a limit would still allow the Treasury to undertake some preparatory work, but it would place a finite limit on that work, at least until the Treasury takes a firm decision in principle to proceed with the PGS. As the Minister intimated, that decision would require primary legislation in the form of a separate Bill or provisions in a subsequent Finance Bill. Such legislation could provide for additional expenditure to facilitate the introduction of the tax, but, crucially, only once a decision had been taken in principle to go ahead.

For the moment, we are in limbo, because the Government have asked for the money, but the decision to proceed has not been taken. In the meantime, the amendment would limit the United Kingdom taxpayer’s exposure until the Treasury can finally make up its mind up about what it intends to do. On that basis, I am happy to recommend the amendment to the Committee.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

I want to save most of my comments for the next string of amendments, but I will speak briefly in support of amendment No. 1.

The hon. Member for Rayleigh is right for two reasons. First, the proposals may never proceed—the Government may chose not to proceed with them, or there may be a change of Government—so there needs to be a tighter limitation on the spending commitments. Secondly, as we all know from experience with big IT projects and so on—in the private sector, as much as in government—the more money that is committed to something, the deeper Governments are sucked into it, even though they would probably think better of it if they were starting with a clean slate.

The hon. Gentleman is actually being quite generous in allowing for £25 million, and we could probably think of a much tighter constraint. However, he is trying to make the point that there needs to be a tight financial limitation on the first stage of the process. The figure is arbitrary, but it is useful to make the point, and I therefore support the amendment.

Photo of John Healey John Healey The Financial Secretary to the Treasury

In moving his amendment, the hon. Member for Rayleigh ranged rather wider than the Bill and rather widely over the purpose of his later amendments and new clauses, so those who missed his comments may have the chance to hear them a little later.

Clause 1 is the main provision in this short, straightforward Bill. It gives the Secretary of State for Communities and Local Government, a Northern Ireland Department and the Commissioners for Her Majesty’s Revenue and Customs the necessary authorisation to incur the preparatory expenditure necessary for the possible introduction of a planning gain supplement. The clause allows Parliament to provide the money in the normal way, so it is subject to the usual procedure of supply.

The hon. Gentleman urges us to speed up the decisions that we might take on the planning gain supplement, but he is in something of a minority in that respect.  Industry representatives and the Select Committee on the Treasury have welcomed the deliberate, consultative and detailed way in which we have prepared and analysed our policy on this issue. We have approached it with great seriousness and care ever since Kate Barker first included it as a recommendation in her 2004 report. Last week, in its report on the Chancellor’s pre-Budget report, the Select Committee said:

“We welcome the measured way in which the Government is consulting on and taking forward proposals for a Planning-gain Supplement.”

The Government are proceeding towards a decision on a planning gain supplement with two aims in mind: first, that we are thoroughly satisfied that the planning gain supplement concept will work and that, if a decision to proceed is taken, what will be on offer will be well thought out and detailed as a proposal. As I said, there will be substantive legislation, a full regulatory impact assessment and many more opportunities to debate and to scrutinise such a plan outside and inside Parliament.

Photo of Mark Francois Mark Francois Shadow Paymaster General 11:00 am, 30th January 2007

If the Government were to decide to press ahead with PGS, would it be their intention to introduce a separate Bill, or are they minded to introduce the provision as part of the Finance Bill?

Photo of John Healey John Healey The Financial Secretary to the Treasury

In all likelihood, it would require a separate programme Bill.

The second aim, and I think this is most pertinent to the paving Bill before us, is that, if a decision is taken to proceed with the planning gain supplement, the infrastructure that is needed to administer the scheme can be ready to allow the Government the option to introduce the PGS in 2009, should we wish to do so. That second aim is the narrow object of this Bill.

If, after further consultation, we believe that the planning gain supplement continues to be a workable and effective new policy, we will move forward with its implementation. In order to do so, the relevant parties that will need to manage the preparation and introduction of the PGS must have the necessary authority to prepare in advance.

Photo of Anne Main Anne Main Conservative, St Albans

Given that one of the reasons the home information packs bit the dust was that there were not enough people trained to administer the scheme, can the Minister perhaps give me some idea of the infrastructure? I have concerns about

“or in connection with preparing for”.

That could lead to quite an exhaustive list of experts needing to be trained. Does that mean that they will all be in place and that we will have paid for that, but that the PGS may not happen, very like the HIPs scheme?

Photo of John Healey John Healey The Financial Secretary to the Treasury

The hon. Lady was present and participated, at least with interventions, in the Second Reading debate on this Bill, so I am sure that she has studied, like the hon. Member for Rayleigh, the explanatory notes that set out in some detail what our expected preparatory costs may be. She will also have  heard me on Second Reading make it clear that the costs in the explanatory notes are our estimate at this stage of the costs of preparing right up to the point of implementation of a planning gain supplement. As members of the Committee will see, this is a straightforward clause in a straightforward Bill, allowing the necessary preparations to begin with the minimum of delay, should the Government decide to proceed with the implementation of the supplement.

The amendment will place a limit of £25 million on the expenditure that could be incurred by the persons named in subsection (2) of the clause. As I explained on Second Reading, and as I have reiterated to the hon. Member for St. Albans, the early estimate of the cost of designing and building the administrative and IT systems needed for a planning gain supplement in the full period prior to its introduction is approximately £40 million.

As the hon. Member for Rayleigh rightly said, and as we set out in the explanatory note, if the Government decide to go ahead with the implementation of a planning gain supplement, there will be additional costs associated with recruiting and training staff. These are anticipated costs, however, up to the point of implementation of a PGS. Well before that point, a substantive programme Bill authorising the levying and the administration of a PGS would have been debated, passed by both Houses and would be on the statute book. That would give full and fresh authority to spend as required, subject of course to the established procedures of this House.

I turn to the precise terms of the amendment. If the cost of a properly designed and comprehensively tested IT system is more than £25 million, to place an arbitrary limit of that amount on the preparatory expenditure is, as I hope Committee members will agree, counter-productive. To spend £25 million on only part of a computer system or on a computer system that could not do the job would be £25 million wasted. It would be equally wasteful if the Government were to build an IT system, but were not able to train and recruit the staff needed to prepare and implement a supplement.

In addition, members of the Committee would recognise that oversight of any preparatory expenditure, particularly following the discussion and scrutiny of this Bill, will come through the normal parliamentary scrutiny procedures of the Public Accounts Committee and the National Audit Office. Those are the established and proper mechanisms of Parliament to ensure that any expenditure is kept to a prudent and sensible level, while also making sure that we get the IT and administrative systems right. I hope that the hon. Member for Rayleigh is not going to press amendment No. 1; if he does, I shall have to ask my hon. Friends to reject it.

Photo of Mark Francois Mark Francois Shadow Paymaster General

This has been a valuable debate, in that it has allowed us to press the Government about why they believe that this expenditure is necessary. For instance, my hon. Friend the Member for St. Albans, who made a more substantive contribution on Second Reading than the Minister acknowledged in his remarks, raised an interesting parallel with regard to home information packs. The Government got a lot of other people to spend a great deal of money and then  changed their mind. Other people had committed a lot of their own cash and effort because of HIPs. Now the Government are asking the taxpayer to commit quite a lot of time and, particularly, money when they have not made a decision.

I take the point about consulting widely and deliberating properly. On one level, that is right, but the fact remains that since the Barker recommendations in 2004, the Government have had three years to decide whether to go ahead with the measure. They have got everybody in the industry spun up; they have created a tremendous amount of comment, most of it adverse; and now the Minister comes to the Committee this morning, asks for the money, yet is still unable to tell us definitively whether the Government intend to go ahead or not. That is the key point behind our amendment.

As the hon. Member for Twickenham appreciated, to be fair, we are trying to place some limit on the amount of money that can be spent until the Government have taken a decision in principle to proceed with the tax itself. The Minister has not entirely convinced me; in fact, he has not convinced me at all. Nevertheless, rather than push the amendment at this stage, I am minded to ask leave of the Committee to withdraw it for now, although in so doing, I give notice that we may wish to return to the matter on Report.

Amendment, by leave, withdrawn.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

I beg to move amendment No. 6, in clause 1, page 1, line 4, at end insert

‘, the revenues from which shall accrue to the local planning authority.’.

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

With this it will be convenient to discuss the following amendments: No. 10, in clause 1, page 1, line 10, at end add—

‘(4) But no expenditure by virtue of subsection (2)(b) shall be incurred until the Secretary of State has designated one or more local planning authorities for the purpose of conducting pilot studies relevant to the tax referred to in subsection (1).’.

New clause 3—Pilot studies—

‘(1) The Secretary of State must designate one or more local planning authorities for the purpose of conducting pilot studies relevant to the tax referred to in section 1(1).

(2) An authority designated under subsection (1) must conduct a pilot study and report the results to the Secretary of State and to the Treasury.

(3) The Secretary of State and the Treasury must have regard to the results of the pilot study or studies conducted under this section in formulating proposals for the imposition of the tax.

(4) The Secretary of State must reimburse any designated local planning authority for the expenses incurred by it as a result of conducting a pilot study.’.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

These amendments are genuinely designed to improve the Bill. They are not wrecking amendments; they address what seem to be two of the most fundamental flaws in it, as it is currently conceived, one of which is the lack of commitment to local funding, withdrawing funding from local communities, and the second of which addresses the issue of complexity by requiring the Government to go through a process of properly structured pilot studies. Although I could approach the Bill from the point of view of saying that it is a bad idea and it will eventually  be repealed, so why should I bother with it, it seems to me that with a bit of thought, it could be structured in a way that makes it possible for the first time, at the sixth attempt, to make such a system work.

Amendment No. 6 addresses the issue of local funding. We need to start by asking what the principal purpose of the legislation is. What are the Government really about? Is it a revenue-raising measure, or is it designed to improve the efficiency and the speed of the planning process? I do not think that it is the former, because if the Government wanted to raise more money for infrastructure, there are more efficient and simpler ways of doing that. However, it is clear, both from the terms of reference that the Government gave to Kate Barker, and from the way that she answered in her report, that the whole purpose of this legislation is to make the planning system work quicker and better. If the planning system is to work quicker and better, it needs to have buy-in and support from local communities.

As we heard on Second Reading, councils are, after 15 years of trial and error, reaching the point of getting benefit for the community from using section 106 agreements. They are an incentive for them to be positive about development. Experienced Members such as the right hon. Member for Greenwich and Woolwich spoke strongly about how the section 106 agreement was being, and could be, used to facilitate development and to keep that community involvement. That is why our amendment suggests that instead of 70 per cent. of revenue being retained by the local authority, 100 per cent. should be.

Photo of Mark Francois Mark Francois Shadow Paymaster General

The Government like to cite a figure on section 106 agreements. They say that only about 7 to 8 per cent. of planning applications carry a section 106 obligation. However, that is not that surprising when we bear in mind that most applications to build a conservatory will not require a section 106. Does the hon. Gentleman accept that most large-scale developments have one type of section 106 obligation or another?

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

The hon. Gentleman is absolutely right. That issue gets to the heart of the Bill and of the second amendment, which is about complexity. If the Government were proposing a mechanism simply for large-scale projects, that would be simpler and there would be a clearer philosophy behind the revenue side of it. It is because there is no de minimis limit in the Bill that we are confronting the possibility of 300,000 development applications a year, with all the complexity that that involves. As the hon. Member for Rayleigh says, section 106 will not apply as it is usually inappropriate for very small-scale development.

There were two contradictions in what I think the Government were saying on Second Reading; perhaps the Minister can clarify. I think that the Government were arguing that under a planning gain supplement system, local authorities would none the less make more money than at present under section 106. His argument was that for that reason, they will continue to buy into the process, work with it and be constructive about development. The logic of that is that the tax on development would be significantly higher, because the same amount of revenue would be involved, plus the  30 per cent. cut for the Government. If that were to happen—if there were effectively a higher rate of tax on development—the logic would be that less land would be brought forward for development. It would be, in effect, a voluntary tax; developers do not have to develop land. If that happened, there would be a fall in supply and yield.

Photo of Anne Main Anne Main Conservative, St Albans

From my experience on the Communities and Local Government Committee, my understanding is that that applies to the granting of the planning permission, not the development itself. That is part of the tortuous process; planning permissions are often enhanced, sold on and added to. A whole chain would be involved in trying to see how much had been accrued. As I said, I believe that the issue applies not to the development but to planning permission being granted. Perhaps the Minister can clarify. The money is only paid on development.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

The hon. Lady is right; there could be all kinds of unforeseen consequences. Certainly, once planning permission has been granted and planning gain supplement has been charged on that approval, it will be in the interests of the developer to bring the development forward, rather than sit on it. If the land has not got to the planning stage, building in a higher rate of tax is a disincentive for development. I am trying to get clarification on whether the Government envisage a higher rate of tax overall on development to ensure that local authorities receive a larger yield than at present.

Photo of Michael Connarty Michael Connarty Chair, European Scrutiny Committee

I wonder whether the hon. Gentleman has spent any time in local government. I spent 10 years as leader of a council and I work closely with two different councils because my new constituency straddles two of them. I will not name names, but I have listened to planning officers’ conversations in which one boasted of how much they got per house, while planning development proposers on the other side were talking about double that sum.

It depends on the ability and determination of the planning officers to get a certain sum per house. Having some clear idea of what developers and landowners had to pay would be an attractive proposition to local authorities. Even developers say that if they knew what the sum was for doing their developments, they could work out a proper economic programme for them. I do not know whether the Government intend this, but it might be useful to all local authorities if, when they were approached by developers, there was a way of clearly signalling the value of a development and what the local authority would receive, and that is the point of the provision.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury) 11:15 am, 30th January 2007

That is a good question. On the personal point, I sat on the planning committee of a local authority in Glasgow, as it happens, but that was long before the current policy debates. At that time, the Government of the day were unscrambling the land value legislation of the 1960s, so the context was very  different. It is generally increasingly true that well trained planners looking at good practice are able to take advantage of the flexibility offered by section 106 agreements. As we discussed on Second Reading, tariff systems are being used successfully by councils of all political parties. That is now accepted as good practice, and most planners are copying it. Why unpick that whole system when local authorities are working well within it?

The second basic question on revenue is: why do the Government need to take a 30 per cent. cut? I expect that the Minister will argue that they need some money for regional developments, but the consultation paper and the response to it are contradictory on Government revenue. It has been said that more revenue will accrue to the Government through the planning gain supplement, but we have also been told that it will be allowable as a business expense against tax and that capital gains tax, for example, will be cut when the planning gains supplement is imposed. It is therefore not clear that it will make any money for the Treasury.

Why not simply say that all the revenue should go to local authorities? That way, there would be local buy-in and there would not be the suspicion about developments elsewhere being cross-subsidised. There would be no argument between central and local government, because the money would go straight to local authorities, as it does with section 106 agreements. That is the purpose of amendment No. 6.

Photo of Mark Francois Mark Francois Shadow Paymaster General

I have been following the hon. Gentleman’s argument closely. He says that all the revenue should be recycled back to local authorities, whereas the Government’s proposal—at least that which they have given away—is that about 70 per cent. should go back and that there will be a regional component of about 30 per cent. Historically, the Liberal Democrats have been zealots for all things regional, so it is interesting to hear the hon. Gentleman arguing that they do not want a regional component, but want all the money to go back to local authorities. Why this Damascene conversion within the Liberal Democrats?

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

I do not think that this is about Damascus. In the real world, we do not have regional government. The Deputy Prime Minister led an experiment a few years ago with the aim of creating regional government, but that was decisively rejected in the north-east of England. That is the reality, so we are working with the world as it is. There clearly will not be regional government in the foreseeable future, so we are not arguing for it. A cleaner, simpler system of the kind that I recommend will obviate any need to worry about that.

Photo of Anne Main Anne Main Conservative, St Albans

We have regional targets on planning, carbon dioxide and water, all of which are currently being discussed. Having regional housing targets and giving money to the region to deliver a regional strategy chimes in exactly with that.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

We could get on to a separate debate on regional government, and I could have mentioned in my first answer that there is regional government in   some parts of England—notably in London, where some of us have parliamentary seats. My central point is that even if the Government needed to earmark a certain amount of revenue to achieve regional objectives, they have said elsewhere in the consultation process that they will lose revenue through the surrender of capital gains and other taxes against business relief. Therefore, it is not clear from the Government’s proposals that there will be a net yield for this regional infrastructure.

Amendment No. 10 is about the merits of pilot studies. It is, in some ways, a non-controversial proposal, and I hope that the Minister will look sympathetically at it. It seeks to address the fact that the planning gain supplement promises to be an extremely complicated system. We have discussed the fact that 300,000 developments a year will potentially need to be assessed in terms of their pre-planning and post-planning values. That would be an enormously complex process involving valuers, disputes and appeals. There would then be the self-assessment process involving the Inland Revenue and the problem of complex projects and mixed developments, which come to fruition at different times and which have a different tax base. In addition, we must consider how we handle improvements that need planning permission, as opposed to new developments. That was mentioned on Second Reading.

Many technically difficult issues will need to be dealt with by the new planning gain supplement. Surely one of the sensible ways of approaching the matter is to allow some local authorities to pilot the scheme. My proposal is phrased in a way that is deliberately helpful to the Government. It says that the Secretary of State should choose the local authorities, which could mean solid Labour councils that are completely on side, and experiment in them. Through experimentation it will be possible to identify how the practical problems can be overcome and, for example, whether it would be desirable to have a de minimis limit to the level of development. There could be experiments with different levels of planning gain supplement to work out what has the best impact in terms of revenue and development.

Photo of Anne Main Anne Main Conservative, St Albans

I note with interest that the hon. Gentleman said that there could be experiments with different levels of planning gain supplement. The Government’s reasoning for wanting to keep it centrally collected is that it is a tax that could be buried in the Budget so that the Chancellor could deliver other measures that possibly have national significance for infrastructure. While I support local authorities being given compensation for the harm they suffer, that will not necessarily fit in with the Chancellor’s Budget forecasts.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

That may be the case, but, as I said at the outset of my remarks, we need to be clear about whether the purpose of the Bill is to raise revenue or to facilitate development and more efficient planning. I understand that the latter is the primary aim—at least, that is the declared aim. If that is the objective, it is better to proceed by experiment. We know that enlightened local authorities learn from experience and are developing good practice. To prevent planning gain supplement from being a disaster and from being thrown out, as all previous experiments of this kind have been, it is in the  Government’s interest to take this step by step, to build confidence and to demonstrate that councils can do this well. I hope that the Minister will be able to respond positively to the idea of pilot studies.

Photo of Mark Francois Mark Francois Shadow Paymaster General

I listened to the arguments advanced by the hon. Member for Twickenham with interest. He has clearly learned a fair amount about these matters since serving on a planning committee in Glasgow. We will not detain the Committee by asking him about the background to that, although I would be intrigued to hear about it.

The Conservatives do not oppose the arguments behind amendment No. 10 in principle and the associated new clause 3, which relate to the Government running pilot studies with local authorities before the planning gain supplement comes fully into effect. However, I would like the hon. Gentleman to address a couple of questions about how the proposed studies would work in practice.

First, will the hon. Gentleman say a little more about how the pilot areas would be selected? As drafted, his proposal confers the power of selection on the Secretary of State. What criteria would be employed in deciding upon such a selection? Should they concentrate on local authorities above a certain size or population? Should they concentrate on certain local authorities that have a particularly busy development record? Milton Keynes is one example that obviously springs to mind, and it was mentioned several times on Second Reading. Alternatively, should such pilot studies involve a representative sample of different types of local authorities, such as a basket of London boroughs, urban mets and rural district councils? If that were the case, how many local authorities would be required to provide a useful sample from which the Government could draw conclusions? Presumably, it would need to be run with more than one local authority in order to find out how it would operate.

Secondly, with regard to timing, how long does the hon. Gentleman envisage such studies would take in practice? His amendment argues that the Secretary of State and the Treasury should “have regard to” the findings of such studies before introducing the planning gain supplement. In order to allow them to do that, how long does he believe that the process would take? If, in theory, the planning gain supplement is to be introduced in 2009, does he believe that the timetable allows sufficient time for the pilot studies to be carried out and for lessons to be taken on board? If there were no time for the lessons to be learned before the process kicked off, what would be the point of his amendment?

Alternatively, does the hon. Gentleman’s amendment imply further delay in the proposed introduction of the planning gain supplement beyond 2009 while the studies take place and interpreted? If it does imply such a delay, how much more time are we talking about? I have listened carefully to what he has said, and I would be grateful if he could respond to those questions before we come to vote on the amendment, if he chooses to press it to a Division.

Photo of John Healey John Healey The Financial Secretary to the Treasury

I shall start with amendment No. 6, as the hon. Member for Twickenham did. It would allow the Government to prepare for a planning gain  supplement in which all revenues collected would be hypothecated to the local planning authority level. I recognise the thinking behind the amendment and I think that the hon. Gentleman would accept that the Chancellor has made it quite clear that, as an essentially local measure, the planning gain supplement will predominantly support infrastructure provision at the local level. In the pre-Budget report in December, we made a commitment to ensure that at least 70 per cent. of planning gain supplement revenues are recycled back to the local authority area from which the revenues are derived. That represents an unprecedented commitment to funding local infrastructure and we would not seriously consider a planning gain supplement unless we believed that it could raise additional revenue and resources for the support of the infrastructure required for development.

I have to say to the hon. Gentleman, without being tempted to stray too widely, that even after years of trial and implementation, section 106 is still very patchy. Many local authorities are not negotiating section 106 agreements and therefore many local communities are not benefiting from contributions from developers to their local area and to the infrastructure required to support those developments. The Sheffield Hallam university study recently showed that only 40 per cent. of major developments had section 106 agreements and 60 per cent. did not.

It is important to recognise that the infrastructure to support the growth and development needed may often have to be delivered beyond the local authority area in which the planning gain supplement may be levied. It may be required to be delivered at a regional level, and certainly beyond the area in which the local authority concerned has any direct jurisdiction. Simply to grant all the money to the local planning authority—in two-tier areas, that would be the district council—would preclude the planning gain supplement from funding wider, more strategic projects, which could clearly affect the ability to encourage the necessary development that may be required.

Photo of Michael Connarty Michael Connarty Chair, European Scrutiny Committee 11:30 am, 30th January 2007

This is a sensitive point because the arithmetic is not on the table, but will the Minister assure the Committee that it is unlikely that the local authorities will receive less than they would if they had a section 106 agreement? If there is a perception of a smash and grab by the Government that is likely to be very unpopular.

Photo of John Healey John Healey The Financial Secretary to the Treasury

The purpose of the planning gain supplement is not to raise funds for the Treasury. It is not a revenue grab by central Government. Also, the specific revenues that may flow from planning gain supplement will vary from area to area, just as section 106 agreements produce varying revenues, so it is impossible to say precisely what will happen in any one local authority area. However, overall—and I return here to the point that I made in response to the hon. Member for Twickenham—we would not be considering planning gain supplement unless we believed that we could introduce such a supplement at a modest rate, while still raising additional revenues for  the infrastructure that, all members of the Committee will I think agree, is required to support commercial and housing development for the future.

Photo of Anne Main Anne Main Conservative, St Albans

The Minister must surely accept the findings of the Select Committee on Communities and Local Government, which stressed that in some cases less funding might come in as a result of the planning gain supplement than under section 106. That is why we asked for a comparative study, which we have still not been given. Hon. Members on both sides of the House will be concerned that although there may be a better cut for the Government, some areas may be financially worse off under planning gain than under section 106. It seems that assurances will not be forthcoming from the Minister, because the figures are so vague.

Photo of John Healey John Healey The Financial Secretary to the Treasury

The hon. Lady is a member of the Select Committee and she will appreciate that precise judgments cannot be made until a rate and any possible exemptions are confirmed—until, that is, the detailed design in connection with such matters is confirmed in any potential announcement that we plan to proceed with a planning gain supplement. I hope that the hon. Lady will have read point by point the Government’s very full response to the Select Committee inquiry.

Perhaps it would help the Committee if I gave an example demonstrating the flaws in the approach of simply confining PGS revenues and arguing that somehow infrastructure is required only in a particular local authority area. It may be an example of interest to the hon. Member for Mid-Bedfordshire, who I know has been following the proceedings closely but who has not yet contributed to the debate. She will know that in Bedfordshire the A421 is being dualled between the M1 and the A1. That is to support new growth in the area. It involves multiple local planning authorities, such as Bedford borough council and Mid Bedfordshire district council. The work is being carried out by the Highways Agency and is part of the east of England regional transport plan. One local authority on its own simply could not carry out the task, even if it were equipped with 100 per cent. of the PGS revenues from the area.

The Government consulted carefully and quite widely on the matter, in the 2005 consultation paper. Respondents often suggested that the split should be in the range of 2:1 or 3:1. Very few argued that it was wise to recycle all funding back to local authorities, particularly because it is recognised that a lot of infrastructure, from trunk roads to flood defence control systems, needs to be delivered by bodies that can work across single local authority areas. If we do decide to introduce a planning gain supplement there will be ample time to debate the principles and proportions of the allocation of any PGS revenues.

I am touched that the hon. Member for Twickenham made it clear that amendment No. 10 and new clause 3 were framed deliberately to be helpful to the Government. I understand his sentiments, but in practice planning gain supplement pilots would, as he may appreciate, be difficult to set up. They would in any case be of limited value in informing policy development. It is hard, for instance, so see how Her Majesty’s Revenue and Customs and local authorities would be able to run pilot schemes by authority of the  Bill, because to run those schemes—just as with a full planning gain supplement—would require substantive legislation to be in place, enabling the tax to be levied in the piloting areas. There needs to be a framework of legislation well beyond this Bill to identify, for example, who would administer the pilots or collect revenues; how those revenues would be used; how the local planning systems would be changed to accommodate the pilot schemes; and, of course, what the responsibilities of local and national agencies would be. A successful local pilot could not be implemented based on this Bill, if it were amended as the hon. Gentleman proposes.

My other reservation about pilot schemes is that they would result in different tax systems and levels being payable for similar developments in one local authority area that was in the pilot, compared with another that was not. I think that the hon. Gentleman would accept that the impact of that is likely to modify behaviour in the decisions of developers and, to that extent, is likely to distort and so not really tell us that much about what a full-scale, comprehensive planning gain supplement could deliver.

Instead, I assure the Committee that we will continue to work as hard as we have in the past two or three years to get the full policy right—if we decide to go ahead—and that we will do so in the same measured way as we have to date, which the Treasury Committee recognised and approved of last week in its report. I hope the hon. Gentleman will not press his amendment, as I will have to ask my hon. Friends to resist him if he does.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

I thank the Minister and the hon. Member for Rayleigh for their feedback. I was not proposing to press these amendments to a division, but wanted to tease out the arguments on both sides. We reserve the right to come back to these again.

On pilot studies, there was a serious and specific question. If one were designing this, one would try to do it in a scientific way and to get a diversity of boroughs and districts. One would probably take several years over that, to get the results properly teased out. There would be some merit in delay if that were to ensure a successful project—rather than a fifth failure and a return to this in 20 years’ time—but I deliberately couched the amendments to give the Minister discretion, in order to help the process along and make it as easy as possible.

The Minister is quite right that to say that, with pilots, there would for a while be different regimes in different parts of the country while the studies were going on. But that is what we already have with different levels of tariff and different applications of section 106. As the Minister said, it is patchy, so introducing a few pilot studies changes nothing from the present. It merely delays introducing a scheme so that some evidence can be gathered on the ease of implementing it. I take the Minister’s point that many of the issues I am raising will perhaps be discussed more effectively when the full Bill is introduced. We will then be clear on how the Government intend to address all the administrative problems, whether they intend to exclude small developments, and so on. I was merely anticipating how the process might be facilitated. On amendment No. 6, the Minister acknowledged the  basic point that we are emphasising: planning decisions should be local, and we should be stressing local autonomy. Our argument here is about 70 per cent or 100 per cent.

The Minister’s central point was that the current section 106 system is patchy in the competence and thoroughness with which it is implemented. He produced an interesting statistic that I had not heard before: 40 per cent. of major projects do not currently carry that levy. There may be good reasons for that in some cases, but it may well reflect different levels of competence. Local government is varied and has those different levels. My experience of it, many years ago, was indeed of patchiness: so much so that, on the planning committee on which I sat, some of the members were in the habit of negotiating their own private section 106 agreements with developers—and finished up in Barlinnie prison as a result. I am not recommending that as one of our pilot studies.

Photo of Mark Francois Mark Francois Shadow Paymaster General

The hon. Gentleman is obviously determined, one way or another, to tell us the history of how he served on the planning committee in Glasgow. Will he give the Committee a firm commitment that he will return to the matter on Report?

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

Maybe.

The patchiness argument works both ways. There are currently very good systems of section 106 implementation and tariff. The Government risk wrecking them by withdrawing revenue that those councils currently own—the Milton Keynes example is one, but there are many others—and channelling it to central Government, undermining all the good work and the local competence that the planners have developed.

Photo of Anne Main Anne Main Conservative, St Albans

The section 106 agreements are envisaged as continuing in tandem with the planning gain supplement. It could be that some accrue both 106 agreements and planning gain supplement charges. I agree with the hon. Gentleman that the Committee was firmly of the opinion that section 106 agreements work well. The whole process of making them better should have been explored, particularly as we are going to retain an element of them.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

Yes, indeed. The hon. Member for St. Albans—I think I libelled her on Second Reading by calling her the hon. Member for Watford—makes a perfectly valid point. It is not clear how, in the diverse system that is going to be developed, one is going to have section 106 plus affordable housing obligations plus planning gain supplement. How is the value going to be squeezed out of the development? The thought is mind-boggling. However, we are anticipating the Bill in full.

My final point is that the Minister said that we of course need money for strategic development. As I understand it, that funding is not there now. We are  talking about something new. That new funding is going to have to come from the 30 per cent. revenue—at least 30 per cent. revenue—less the amount of offset that the planning gain supplement is going to attract through being an allowable relief. That the money for regional development outside the district or borough boundary is going to be sufficient is very uncertain. This whole area is massively unclear. I am glad to have had the opportunity to raise some of the issues. I thank the Minister and the hon. Member for Rayleigh for their replies. We may get an opportunity to return to this later, but as it stands I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mark Francois Mark Francois Shadow Paymaster General

I beg to move amendment No. 2, in clause 1, page 1, line 10, at end add—

‘(4) But no expenditure by virtue of subsection (2) shall be incurred before the publication of the Chancellor of the Exchequer’s Financial Statement and Budget Report for 2007.’.

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

With this we may discuss the following amendment: No. 3, in clause 1, page 1, line 10, at end add—

‘(4) But no expenditure by virtue of subsection (2) shall be incurred until the Treasury has laid before the House of Commons a full regulatory impact assessment of the likely effects on business of the introduction of the tax referred to in subsection (1).’.

Photo of Mark Francois Mark Francois Shadow Paymaster General

The purpose of amendment No. 2 is to delay spending on preparing for the introduction of the planning gain supplement at least until the Budget statement of 2007, by which time the Government may have finally decided whether to proceed with the tax itself. Similarly, amendment No. 3 will also delay any such spending until a detailed regulatory impact assessment has been carried out to address the likely impact of the tax on business, including those businesses that specialise in the provision of affordable housing.

Taking amendment No. 2 first, which concentrates primarily on the timing involved, as I have already intimated, part of the reason for our concern is that the Treasury appears confused about whether it is going to go ahead with the tax at all. Parliament is still being asked to authorise expenditure in preparing for it, but that money would ultimately go to waste if the tax subsequently did not proceed. Given the hostile reaction that the proposed planning gain supplement has received, the Treasury appears gradually to have been backing away from its introduction, particularly in recent months. Originally, we were told that the Government planned to introduce the PGS in 2008. The Treasury issued a consultation document in 2005 on how that might be achieved in practice. The proposal resulted in a barrage of criticism from experts in the field.

The Chartered Institute of Taxation gave a backhanded compliment to the consultation document when it said:

“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.”

Then there was the consultation response from the Institute of Directors which called on the Government to drop their proposals. It stated:

“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”,

that it would be

“a direct attack on business competitiveness, contrary to the Government's own stated objectives”,

and

“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 engagingly 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.”

Other than that, the institute thought that the proposals were a good idea. Perhaps in reaction to that hostile response, after what might be termed a period of reflection, the Treasury confirmed only last month in the pre-Budget report 2006 that the proposed introduction of the PGS has been delayed until 2009.

To coincide with that announcement, the Treasury also announced a further three consultation documents on the proposed detailed introduction of the PGS: first, “Valuing Planning Gain: a Planning-gain Supplement consultation”; secondly, “Paying PGS: a Planning-gain Supplement technical consultation”; and thirdly, “Changes to Planning Obligations”, a parallel consultation document issued by the Department for Communities and Local Government.

Mr. Peter Bill, editor of “Estates Gazette”, derided that approach in a December 2006 editorial in the following terms:

“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.”

By Second Reading on 15 January, the Financial Secretary, in introducing the Bill on behalf of the Government, watered down the Government’s commitment still further. As he put it that afternoon:

“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.”—[Official Report, 15 January 2007; Vol. 455, c. 568.]

Even the Government are backing away from their idea. What was recommended in 2004 and consulted on in 2005 was going to be introduced by 2008, but it is now delayed until at least 2009 and it has been downgraded from a proposal to the status of a lead option. However, the Government still want the House to approve spending up to £52 million, or perhaps even  more, as a substitute for the fact that they cannot make up their mind about what to do.

In addition, and on a very practical point about timing, the Government’s latest set of consultation exercises on the proposed introduction of PGS, which I referred to, is due to close on 28 February, approximately one month from now. It would make convenient timing for an announcement—one way or another—in the course of the Budget, and our amendment has sought to recognise that.

Even if the Government eventually decide to press ahead with introducing the planning gain supplement, despite the authoritative third-party advice to the contrary, including advice from previous Labour Ministers who know a thing or two about it, as the tax is not due to come into operation until 2009 anyway, surely they can wait a further two months before confirming their intentions in the Budget. We would at least know that the money was being dedicated to something with which the Government intend to proceed and there would be some purpose in spending it, even if we disagreed with the principle behind why it was being spent.

The Bill puts the cart before the horse, so amendment No. 2 makes the case for delaying any expenditure connected with the introduction of the PGS until at least the Budget statement 2007, at which time the Treasury will hopefully abandon the whole scheme. Thus, the taxpayer’s money will not have been wasted. For that reason, I urge the Committee to support the amendment.

Amendment No. 3 relates to the argument that no expenditure should proceed until a regulatory impact assessment of the effects of the PGS have been carried out. My hon. Friend the Member for St. Albans in part raised the point that a regulatory impact assessment is needed because of the complexity of the proposed tax, five previous versions of which have failed in the last century—three since the second world war. Historically, the principal reason for that failure has been the difficulty in agreeing a valuation for the land that is to be taxed and the protracted disputes between the developers and the tax authorities.

Despite that knotty problem, the Government have to date carried out only a partial regulatory impact assessment on the likely effects of introducing the PGS. In fairness, the Treasury acknowledges that in the explanatory notes on the Bill, under the somewhat euphemistic heading, “Summary of the regulatory impact assessment”, when it says:

“The Bill authorises the spending for the creation of the infrastructure necessary to implement PGS. There is no regulatory impact expected, therefore, no Regulatory Impact Assessment is required specifically for this Bill, as there will not be any costs or benefits on business, charities, or the voluntary sector. However, a partial Regulatory Impact Assessment for PGS was published at the 2005 Pre-Budget Report.”

I have a copy of that report: it is partial, both in its bias and its brevity, and stretches to barely eight pages, excluding any small firms impact test, in contravention of the Government’s guidelines on RIAs, and with precious little detail on many of the more controversial points that have been raised so far despite various organisations in both the commercial and voluntary sectors criticising the introduction of PGS specifically on the grounds of its complexity. For instance, on the  difficulty of agreeing a valuation that could be taxed, the Royal Institution of Chartered Surveyors, which is expert in this field, said in a submission to the Department for Communities and Local Government:

“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.”

In looking at the proposed impact on business, the CBI, the British Property Federation, the Home Builders Federation and the RICS collectively commissioned Knight Frank to carry out a detailed audit of the effect of the proposed PGS,

“including its effect on individual schemes and financial viability.”

That detailed study was published just a few months ago, in September 2006. Those bodies argued that

“the proposed valuation procedure could add a lot of complexity, as the nature of valuation is imprecise”.

However, page 4 of the executive summary of the same Knight Frank report, which stretches for some 100 pages, says:

“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.”

Such an issue might be addressed if the Treasury undertook a credible PGS regulatory impact assessment, as our amendment urges it to do.

Concern has also been expressed about the potential effect of introducing the PGS on charities and on the creation of new affordable housing. In that respect, the National Housing Federation—the umbrella body for housing associations—argued in its evidence to the Select Committee on the Office of the Deputy Prime Minister, as it was then called, back in 2006, that:

“"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.”

Photo of Anne Main Anne Main Conservative, St Albans 11:45 am, 30th January 2007

I remember that evidence to the Select Committee particularly well. The other thing that came out of our report was that we would be creating a legal minefield. I note the Minister’s comment about exemptions. I am sure that he has read the report as closely as I did and it stated that exemptions could not be viable because the more exemptions were allowed, such as for affordable housing and the Playing Fields Association, the more the whole system was left open to the minefield of legal challenge. Many members of the Select Committee were concerned that it could be a counterproductive tax which would delay the provision of extra facilities such as playing fields, affordable housing, hospitals and so on if the Government do not allow exemptions, which they do not look like doing.

Photo of Mark Francois Mark Francois Shadow Paymaster General

Again, my hon. Friend raises an important point. It is true in principle that if any tax is introduced and exemptions or opt-outs from it are allowed then, perforce, the procedure becomes more complicated. This is already a very complicated tax.  Housing associations have argued specifically for an exemption if the Government go ahead because they know full well from their experience the deleterious effect the measure could have on the provision of affordable housing.

The National Housing Federation is not affiliated to any political party, but it represents housing associations and registered social landlords across most of the country. It knows what it is talking about. Therefore, I do not think the Government have adequately answered the charge that if we proceed with the Bill it could adversely affect the provision of affordable housing which all members of the Committee would like to see achieved.

A joint memorandum was submitted to the same Select Committee in March 2006 by the Labour Land Campaign and the Labour Housing Group, which describes itself as

“A socialist society affiliated to the Labour Party, who aim to promote affordable housing”.

It is nice to know there are still some socialists in 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”.

Similarly, there have been strong concerns about the effect on the charitable sector, which the Government have not adequately examined in their very partial impact assessment. The Charitable Properties Association argued on this point in more recent evidence to the Select Committee on Communities and Local Government when it said:

“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.”

It is pretty clear that there are strong concerns among both business organisations and third sector bodies about the likely impact of the proposed planning gain supplement. All of that strengthens the argument that expenditure and preparing for it should not take place until a detailed and reliable regulatory impact assessment has been carried out.

For a further point on the complexity inherent in the planning gain supplement and its unsuccessful predecessors, I refer those members of the Committee who have a sense of history back to the debates in 1965 on the proposed introduction of what was then called the betterment levy. In November 1965, the Opposition spokesman arguing against the introduction of the tax said:

“It used to be said that a tax should be certain in incidence, cheap to collect and simple. This is certainly not certain in its incidence, as I shall show shortly, because of the enormous gaps in the White Paper. It certainly will not be cheap to collect, because there is to be set up a whole new machine especially to collect a tax most of which would be collected otherwise. It is certainly not a simple tax in any way...We are going to a bureaucrat’s paradise”.—[Official Report, 11 November 1965; Vol. 720, c. 483.]

Margaret Thatcher was right about the betterment levy in 1965, and we are equally right to oppose the planning gain supplement in today’s paving Bill. So before asking Parliament to commit public money to pave the way for the introduction of the planning gain supplement, the Treasury should have carried out a thorough assessment of the likely effect of the tax on business and voluntary bodies, which it has evidently failed to do. [Interruption.]

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East 12:00 pm, 30th January 2007

Order. I must ask hon. Members not to shout across the Committee Room. Hon. Members are at a great disadvantage this morning, because since I have got my new digital hearing aid, I cannot be selective in my hearing. I can hear murmur and chatter, which, as all hon. Members know, is out of order. The hon. Gentleman, who was concluding his remarks, was moving into a stand part debate, and I ask him to return to his amendment.

Photo of Mark Francois Mark Francois Shadow Paymaster General

Thank you, Mr. Hood. Clearly, your hearing aid is working perfectly. I have a few additional points to raise in the clause stand part debate, but you are quite right—I was winding up my remarks on the amendment. I am delighted to know that Margaret Thatcher’s name still inspires a reaction in Committee, as it always used to.

Amendment No. 3 would deny the release of funds to begin preparing for the introduction of the planning gain supplement until a full regulatory impact assessment is carried out and the true effect on businesses and the voluntary sector is properly calculated, which this little eight-page missive absolutely fails to do. On that basis, I ask the Committee to support amendment No. 3 as well as amendment No. 2.

Photo of John Healey John Healey The Financial Secretary to the Treasury

We need the paving Bill to fill the gap in the Department’s authority when preparing for the possible introduction of the planning gain supplement. As a matter of accountability to this House, the Bill has been brought in Committee for approval.

I say to the hon. Member for Rayleigh that his amendment is simply unnecessary. I would have thought that he would welcome the fact that we are undertaking a serious consultation exercise, instead of belittling our publication of the three consultation documents. Clearly, it is in no one’s interest—certainly not the Government’s—to proceed with the implementation of a planning gain supplement before we are satisfied that the policy is workable and effective in supporting growth and helping to finance the infrastructure required for that growth. I shall repeat what I said on Second Reading: the Bill only provides authority in connection to the preparation and imposition of the planning gain supplement. If a decision is taken not to introduce it, no further expenditure will be made under the Bill.

The hon. Member for Rayleigh made a point about valuations, which do not directly relate to either amendment, during his remarks on amendment No. 3. He seemed to suggest that valuations are a new feature of the tax system, but they are a regular part of it. The Valuation Office Agency undertakes about 60,000  property valuations every year in relation to capital gains and inheritance tax. He might be interested to know that only six of those went to a land tribunal. The VOA does that now, and it would continue to do so under a planning gain supplements system.

Amendment No. 3 would delay the expenditure provided under the Bill until a full regulatory impact assessment is laid before the House. The Committee will have appreciated from the hon. Gentleman’s remarks that, as required by Cabinet Office guidelines, we have already carried out a partial regulatory impact assessment on PGS, which was published alongside the first consultation in December 2005. I am happy to confirm to the Committee that we will continue to follow Cabinet Office guidelines. We will publish a full RIA for the planning gain supplement at the appropriate time, if we decide to proceed with it. Only then will it be appropriate to include assessments of the impact on small firms and on competition.

Photo of Michael Connarty Michael Connarty Chair, European Scrutiny Committee

I cannot resist the comparison with Mrs. Thatcher’s approach to regulatory impact assessments. Will the Financial Secretary assure us that his study will be better than Mrs. Thatcher’s assessment of the poll tax, which cost billions of pounds in lost revenue?

Photo of John Healey John Healey The Financial Secretary to the Treasury

I am not sure that the then Government had a system for regulatory impact assessments. If such an assessment had been carried out, it would have shown the costs and consequences. Perhaps Mrs. Thatcher would have been better off with a political impact assessment, because the poll tax lost her not only millions of pounds but millions of votes, including a lot of support in the Conservative party.

The amendment, however, confuses this Bill, which will merely authorise expenditure connected with preparation for a planning gain supplement, with the substantive Bill itself, which will capture the detail of the policy, operation and design of any planning gain supplement. It is that substantive Bill on which a full regulatory impact assessment should and will properly be prepared. I therefore hope that the hon. Member for Rayleigh will not press his amendments. If he does, I ask my hon. Friends to resist them.

Photo of Mark Francois Mark Francois Shadow Paymaster General

In response to the point made earlier from the Labour Back Benches, I cannot help but say that the Government looked in great detail at tax credits and had a paving Bill for that before they brought it in. All the people who are suffering because of demands for the clawing back of overpayments would have a very firm view—

Photo of John Healey John Healey The Financial Secretary to the Treasury

Will the hon. Gentleman accept that around 6 million families are currently benefiting from tax credits? Tax credits provide a boost to their take-home and household income that simply did not exist before. He will find that any threat to remove that valuable source of income to such families is deeply unpopular.

Photo of Mark Francois Mark Francois Shadow Paymaster General

I remind the Minister that some 6 million families in the United Kingdom are now in receipt of tax credits. In the last year for which full figures are available, about 2 million of those families were overpaid and just under 1 million were underpaid.   In short, almost half of all payments in the tax credit system were wrong. The system is far too complicated for its own good, because it was personally designed by the clunking fist. We made it plain in our Opposition day debate last year that our policy is to reform the tax credit system to make it operate more effectively. It must be possible to come up with a better system than the Government’s.

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

Order. I want to wrest the hon. Gentleman away from the temptation of discussing manifestos.

Photo of Mark Francois Mark Francois Shadow Paymaster General

In fairness, I was responding directly to the Minister’s intervention, but you are quite right, Mr. Hood, to bring us back to the matter of the planning gain supplement itself and the two amendments—

Photo of Anne Main Anne Main Conservative, St Albans

Will my hon. Friend give way? My intervention relates to the point about assessments.

Photo of Mark Francois Mark Francois Shadow Paymaster General

I have no doubt that the intervention will be relevant, so I shall gladly give way.

Photo of Anne Main Anne Main Conservative, St Albans

I do not wish to go down the route of tax credits, but I think that there is a lesson to be learned. A self-assessment element comes into the planning gain supplement that will not be transparent to the public and that will be open to challenge by the Inland Revenue. We must be sure that the assessment process is better than, for example, the existing process for tax credits, because people are not sure what the liabilities are. That will land people with a lot of issues when the self-assessment comes in.

Photo of Mark Francois Mark Francois Shadow Paymaster General

Again, my hon. Friend has raised an apposite point. As I have said, the system has been tried five times before, and it has broken down every time. Usually, the system has broken down because both sides—the developers on one side and the tax authority on the other—have spent endless amounts of time arguing about the valuation of the land that is going to be taxed.

The right hon. Member for Greenwich and Woolwich has observed that that is a major weakness in the Government’s proposals. To paraphrase him, he has said that it will create a whole new industry of people who will be employed in advising developers on how to depress the notional value of their land to reduce their PGS tax liability. Such schemes have failed on five previous occasions because of their inherent complexity, and that is all the more reason to have a full regulatory impact assessment before Parliament is asked to vote £52 million or more to allow such a tax theoretically to be brought in.

I hope that the Minister has listened to me, although I am not sure that that was the case, particularly in his response on amendment No. 2. I shall not press the amendments now, however, although we may want to return to the topic on Report. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed,That the clause stand part of the Bill.

Photo of Mark Francois Mark Francois Shadow Paymaster General

I rise to argue that clause 1 should not stand part of the Bill, and in doing so I shall seek to introduce information further to that which we have already heard in the debate on the amendments. The Government could save the taxpayer a considerable amount of money by scrapping their plans now.

On Second Reading, I set out the Opposition’s reasons for opposing the PGS in principle and thus for opposing the Bill, which is designed to incur preliminary expenditure for the introduction of a tax with which we do not agree and with which we would not continue were we to enter office. The reasons for opposing the PGS itself have been set out in Hansard, and I do not intend to repeat them in detail. Briefly, however, our reasons for opposing the PGS are: first, it is supposed to assist local communities, but it is designed to be centrally collected and redistributed according to Government fiat; secondly, a significant element is intended to be regionally administered by undemocratic and unrepresentative regional bodies; thirdly, it is likely to hinder rather than help the creation of affordable housing, as the National Housing Federation has observed; and fourthly, it would be a highly complex tax to administer in practice, not least because of lengthy arguments on valuation, which were largely responsible for the failure of the five similar impositions in the previous century.

On the Bill itself, we oppose the key enabling provision in clause 1. Central to our case is that the Government are asking Parliament, through the Bill, to sanction considerable public expenditure in preparation for a tax that they have not yet decided to introduce. In the comparable example of the 1998 paving Bill for tax credits, the Government had, in fairness, already decided to proceed, and they asked Parliament to approve initial facilitating expenditure, which is clearly not the case now.

The Opposition spokesman on that paving Bill was the late, great and much lamented former right hon. Member for Chislehurst, Eric Forth. I believe that he would be pleased to know that he was still opposing the Government today, albeit through an intermediary such as myself. If he will allow me, I should be pleased to speak for him on this occasion. I understand that once, during a debate that was taking place at about 1 o’clock in the morning, when he had spoken for over an hour and was keeping all the Labour Back Benchers up, he famously uttered the words, “And now, Mr. Deputy Speaker, turning to the Bill itself”.

As he put it—I shall not attempt his accent—in the 1998 debate on the paving Bill for tax credits:

“The Bill is like the famous prospectus for the south sea bubble—a proposal was on offer to do things later about which no details could be given at the time. The Bill allows Revenue commissioners to spend sums of money that are not defined on projects that are ill defined. It is not good legislation, so I urge the Financial Secretary to accept the amendments.”—[Official Report, 14 May 1998; Vol. 331, c. 544.]

Long live his memory.

The Government are not fully committed to introducing the planning gain supplement, as they were with tax credits. If anything, as we have heard, they are backing away from introducing the PGS and are now describing it only as a “lead option”. In addition, they  now have three consultation exercises still open on how to implement the proposed new tax, and those will remain incomplete for at least another month. In theory, at least, the Government will want to assess the responses to the further consultation. The original one apparently generated some 700 replies, although most were kept confidential at the respondents’ own request. Only a relatively small proportion, mainly from the big organisations, are available in the public domain.

Presumably, the Government will want to examine the responses to the new consultation before deciding whether to press ahead with the measures, yet they are asking Parliament to sign up to £50 million or more now with no guarantee that that will be the limit and no assurance that the tax will eventually be introduced. Moreover, the Treasury has failed to carry out any but the most cursory regulatory impact assessment, despite warnings from industry, charitable bodies and representatives from the voluntary sector that the PGS is a bad idea. The Bill and clause 1, which is at its heart, do not represent good value for money. Yet the Government plough on regardless.

The tax has few, if any, friends and a lot of opponents. As everyone in the industry knows, the PGS itself is unlikely to be introduced successfully without cross-party support. That has been stated in the press on many occasions. For reasons that I outlined on Second Reading and reiterated today, the Conservatives will not give it that support. Indeed, my boss the shadow Chancellor made that plain in a speech last year:

“All Labour Chancellors try this one when they run out of money, and this Chancellor is no different. He claims that the proceeds will be used to support improvements in local infrastructure, but that is not true. It is centrally-collected and centrally-distributed. The only concession is that the majority of revenue ‘will be recycled within the region from which they are derived’. So a planning gain supplement drawn from new housing in Cornwall might pay for bus shelters in Bristol, and proceeds from a retail park in Hertfordshire could be spent in north Norfolk. So this centrally administered, Treasury-driven planning gain supplement has nothing to do with providing genuine local infrastructure.”

As I said on Second Reading, most MPs from all parties accept the principle that developers should make an adequate contribution to infrastructure costs in return for development rights, but the Bill is not the best way to do that. Moreover, many suspect that the Treasury may yet abandon its original commitment to the planning gain supplement in response to the weight of opinion against it and indeed to the lessons of history. The CBI, the Institute of Directors, the British Property Federation and the Royal Institution of Chartered Surveyors are against it. The National Housing Federation and the Charities’ Property Association are against it. Margaret Thatcher was always against it. Eric Forth is still against it from beyond the grave. This piece of legislation has very few fans.

Unless the Minister can tell the Committee unequivocally that the Treasury has decided to go ahead with the introduction of the PGS, and therefore that the money that it is effectively asking Parliament to vote it will go towards a tax that the Government intend to introduce, it will be unwise for the Committee to authorise that amount of public spending and to  indulge in what my hon. Friend the Member for South Staffordshire wisely described as pre-legislative legislation.

I say again that we all have primary care trusts in our constituencies that are under severe financial pressure. Labour Members might not want to admit that in the Chamber, but I am sure that in their heart of hearts they know that it is true. Maybe they are lucky and their PCTs have not been top sliced, although mine certainly has, but I expect that they all have some financial burden or other. In those circumstances, why do the Government propose to spend up to £52 million of public money that could be spent to alleviate the pressures on our local health services?

On that point, I give way to the hon. Member for Wrexham, who also served on the Environmental Audit Committee.

Photo of Ian Lucas Ian Lucas Labour, Wrexham 12:15 pm, 30th January 2007

Indeed I did. On a point of information, at least three Committee members have local health boards, not primary care trusts, in their constituencies, and I am not aware of a financial crisis of the type that the hon. Gentleman describes.

Photo of Mark Francois Mark Francois Shadow Paymaster General

I am delighted to hear that the primary care trusts in the hon. Gentleman’s constituency and the wider area—

Photo of Kevin Brennan Kevin Brennan Government Whip

My hon. Friend has just said that he does not have a PCT.

Photo of Mark Francois Mark Francois Shadow Paymaster General

I am sorry—of course, because he is a Welsh MP. I am delighted to hear that his local health board is doing rather well. I invite him to pop down to Essex for a day to visit some of our PCTs

Photo of Mark Francois Mark Francois Shadow Paymaster General

From behind me I hear Bedfordshire. I understand that the situation is not quite so rosy—

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

Order. I suspect that my generosity in allowing the hon. Gentleman and other hon. Members to move away from the debate on clause stand part has run its course. I invite him to return to the stand part debate.

Photo of Mark Francois Mark Francois Shadow Paymaster General

Thank you very much, Mr. Hood. My point is made.

There are other ways in which £52 million—or more—could be spent. I make one plea to the Committee again on that point. The Government are basically putting the cart before the horse. They might not be far away from making a firm decision in principle to proceed or not to proceed with the planning gain supplement. The Budget is not far away; the consultation exercise closes in a month’s time. The Government ought then to be in a good position to decide finally, one way or another, whether they intend to go ahead. That being the case, surely we should wait until that point to decide whether we should authorise  the expenditure of public money on such a scale. I thank you for your understanding, Mr. Hood, and for the reasons that I have given I propose that clause 1 should be deleted from the Bill.

Photo of Anne Main Anne Main Conservative, St Albans

I support my hon. Friend’s call for the clause not to stand part of the Bill. Although the Minister regularly mentioned “preparing for the imposition of a tax”, he did not really address the words “or in connection with”. Those words have enormously wide-ranging implications. Many things would be considered to be “in connection with”.

A Bill on the planning gain supplement would be full of holes, as we would not have the information to be able to make a decision on whether it would deliver more or less benefit to communities, and on what the impact would be on charities, Churches, schools and bodies involved with sport. I believe that the words “in connection with” could be incredibly wide-ranging. They could lead to a far bigger budget than the £52 million being run up.

The quotation from the dear, great, late Eric Forth about all

“projects that are ill defined”—[Official Report, 14 May 1998; Vol. 331, c. 544.], certainly meets the criteria. We are not sure what we are being asked to consider. As I believed when I sat on the Select Committee, the measure is supposed to deliver money in addition to funds already allocated for infrastructure, which people in many areas, including my own, feel is sadly lacking and in deficit, but we have seen no figures to show that that will be the case. Nothing in the Bill gives us any confidence that we are not just going to spend far more money than we are likely to gain.

I cannot accept that we should sanction something that has only a vague connection with the Bill. It could well be that, when a planning gain supplement Bill is being drafted, more and more people will start to show concern about what a bad impact it will have on delivery. I gather that the Government have decided to resile from comparing funding under section 106 agreements with funding under the planning gain supplement, which the Select Committee decided would have been advantageous. We are supposed to take it on trust that the PGS will be a better process. Some authorities that make good use of section 106 agreements may come to the Minister and say, “We think that we might be worse off”. I would say that a consultation process where they could consider figures and comparisons would be “in connection with” the Bill. I can see that there will be an open-ended cheque book.

My hon. Friend the Member for Rayleigh has rightly raised concerns about providing an open-ended cheque book for something that the Government have spoken so lukewarmly about in recent weeks. If they cannot feel more confident about the positive delivery of a planning gain supplement, I cannot feel confident about allowing them to have an open-ended cheque book to explore the possibility of PGS and then, as with the home information packs, to decide at the last minute to pull the plug but perhaps to revisit it later in a different form.

The public would think less of us if the Committee did not say, “Hang on a minute. What are we being asked to sanction?” Frankly, we do not know. We are being asked to sanction a large sum of money to explore a nebulous and ill defined concept.

The Minister said that we do not know about exemptions, but we do. It came out loud and clear from the Select Committee report that exemptions would not be allowable. He should put it on the record now that we are not looking at exemptions. If that were the case, the list of people who would like to be consulted in connection with the Bill and to present their case before the planning gain supplement was put into practice would grow ever more.

Clause 1 cannot stand part of the Bill because it is too open-ended. It will allow every man and his dog who will be affected by the proposal to have a say—quite rightly. They must be dealt with, following the inclusion of the phrase “in connection with”, or ignored.

Photo of Mark Francois Mark Francois Shadow Paymaster General

My hon. Friend touched on the section 106 process. When considering whether to sanction the expenditure, it is important to bear in mind that the Government have not said that the planning gain supplement will replace the section 106 process. They are saying that it will run in parallel with it and that the section 106 process will be scaled back. As with so much else in connection with the tax, they have not been specific about how exactly it will be scaled back; they have not even told the House what the PGS levy will be. It is impossible for people to calculate the precise impact until they know the figures. Does my hon. Friend agree that the clause will result in a double dollop of taxation, instead of just one?

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

Order. Again, my generosity is running out. Interventions should be a wee bit briefer than that, and we are having a stand part debate.

Photo of Anne Main Anne Main Conservative, St Albans

I will not revisit what my hon. Friend said, but he is completely right on that matter. None of us is sure what the planning gain supplement will mean. If the Government were to have a firmer view now, we would perhaps have a firmer idea of what

“in connection with preparing for” meant. It is such a nebulous concept—it seems to be a moveable feast as to who will incur planning gain supplement. I understand from the Minister’s response to the hon. Member for Twickenham that there would be a minimum of at least one unit, but not particular extensions, so we are looking at every development incurring a planning gain supplement. I suspect that that will be open to challenge. Local communities would like to have their say on the matter and the Government have said nothing about having an extensive consultation process in which local communities will have an input.

The clause is asking far too much of Parliament and of our constituents, who must try to get their heads around the fact that their taxes are going to go towards an open-ended, ill defined Bill that is nebulous in concept and may be dumped in the end. The proposal  should be shelved until the Government have done the work on the Bill and come forward with a concrete proposal, so that we know what we are paving the way for.

Photo of John Healey John Healey The Financial Secretary to the Treasury

This Bill is not what the hon. Member for Rayleigh principally spoke about, but it is useful to have on the record his clear and emphatic opposition to a planning gain supplement. It is not the view of Conservative leaders in some local authorities.

The Bill is a narrowly drawn paving Bill. It is entirely in keeping with the proper procedures of the House and in line with normal Government accounting rules. It does not deal with the policy, the design or the operation of the planning gain supplement, which the Opposition are keen to debate. It authorises the preparatory expenditure necessary for a potential planning gain supplement.

I say to the hon. Member for St. Albans that the Bill is not an open-ended cheque book. If the proposals to introduce a PGS are not confirmed, there will be no expenditure on preparations that go beyond the Government’s current work on the feasibility and the workability of the scheme.

Photo of Simon Burns Simon Burns Opposition Whip (Commons) 12:30 pm, 30th January 2007

On a point of information, will the Minister explain which Secretary of State is referred to in clause 1(2)(b)?

Photo of John Healey John Healey The Financial Secretary to the Treasury

I recognise that the hon. Gentleman has heavy duties as the Opposition Whip on this Bill and may have missed my earlier explanation. The specific Secretary of State referred to in the clause is the Secretary of State for Communities and Local Government. I hope that that helps him.

If we go ahead, substantive legislation will, as I have said, be debated and passed by both Houses. It would be in place well before the point at which a planning gain supplement is implemented. It would therefore provide full and fresh authority to spend prior to the introduction of the supplement itself. As the Committee knows well, paving Bills are used sparingly. They are used to ensure the regularity and the propriety of Government expenditure, where advance work is necessary. That is precisely the case for the Planning-gain Supplement (Preparations) Bill. Clause 1 is the principal provision of the Bill. I ask that my hon. Friends support its standing part of the Bill.

Photo of Mark Francois Mark Francois Shadow Paymaster General

I assure the Committee that I shall be brief. This debate on clause 1 stand part has been an important opportunity to touch upon some of the background to the Bill and its proposed implementation. I have listened carefully to the Minister’s attempt to make a case for pre-legislative legislation, but I am afraid that, despite his usual courtesy, which I am the first to acknowledge, he has unfortunately not succeeded on this occasion.

The Government are still asking us to sanction around £50 million or more of public spending to keep alive their lead option to introduce a widely unpopular tax. Despite the blandishments of the Minister, I still believe that clause 1 should not stand part of the Bill and I would like to test the will of the Committee on that point.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 8, Noes 6.

Division number 1 Nimrod Review — Statement — Clause 1

Aye: 8 MPs

No: 6 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly agreed to.

Clause 1 ordered to stand part of the Bill.