Clause 163

Planning Bill – in a Public Bill Committee at on 31 January 2008.

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The levy

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government 9:00, 31 January 2008

On a point of order, Mr. Illsley, may I seek your advice before we start? You will recall that, when we talked about national infrastructure projects previously, we were worried about “mission creep”, as we called it; that is, the inclusion of areas other than those listed in the Bill. How can we return to that part of the Bill? I have come across a letter dated 7 January to my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), and signed by the Under-Secretary of State for Communities and Local Government, the hon. Member for Gloucester, the last paragraph of which states:

“The Planning Reform Bill is concerned primarily with nationally significant infrastructure projects such as airports, supermarkets and power stations.”

I think that that is an example of mission creep. Could we return to the relevant part of the Bill to discuss that area? If supermarkets are to be included in nationally important infrastructure projects, we might have a problem.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

That is not a point of order for the Chair. That matter can only be revisited, as the hon. Lady probably realises, on Report. I am sure, however, that the Ministers will have listened intently to the contents of the letter, and she might wish to raise the matter privately with the Minister concerned.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

I beg to move amendment No. 536, in clause 163, page 92, line 36, after ‘owners’, insert ‘or developers’.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

With this it will be convenient to discuss Government amendment No. 538.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

Supermarkets do not fall within the definition of or criteria for nationally significant infrastructure projects. We have debated at some length the criteria that might be appropriate for such projects under part 3. As you point out, Mr. Illsley, we will no doubt return to the matter at subsequent stages of our deliberations.

We now come to part 10, which is an important part of the Bill, with an important provision: the community infrastructure levy. Its purpose, restated in the discussion paper published on Thursday last week, is essentially to recognise the need to increase investment in vital  infrastructure such as health centres, schools, roads, transport, parks and flood defences to support new homes and a growing economy. The private sector, which benefits from such infrastructure, should play an important part in funding it. That is the purpose behind the levy.

I am sure that we will have a wide debate during discussion and scrutiny of part 10. The amendments, however, are narrow in their intent and application. We, and others, think that there might be practical difficulties if it is only the landowner who might ever be liable for the levy. For example, when land is unregistered, it might be difficult to find out who has the freehold or leasehold interest; it might be hard to ensure enforcement against landowners when they are outside the jurisdiction of UK courts; and where there are multiple interests in land being developed, it might be difficult to work out how liability should be apportioned. Enabling developers to be made liable would ensure that levy liability could not be evaded or disputed in such circumstances.

The purpose of the amendment is to allow developers to assume liability, and that, of course, is a well-understood and well-established approach that is supported by a number of interest groups that have been following our development of the policy and contributing to it. The amendments make the necessary changes to clauses 163 and 165, and I commend them to the Committee.

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

I am grateful to the Minister for bringing the amendments forward because it had certainly occurred to me, unprompted by any other group, that confining the levy only to owners could lead to significant problems. In fact, the evidence from people involved in that area suggests that limiting it to owners could potentially reduce the supply of land. Therefore, it is useful to have that clarification and the further clarification in clause 165 included in the Bill. My only other comment is that I hope that both owners and developers can afford good lawyers to sort out the liability between them when developments come to pass.

Amendment agreed to.

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

I beg to move amendment No. 591, in clause 163, page 92, line 36, after ‘the’, insert ‘capital’.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

With this it will be convenient to discuss amendment No. 594, in clause 165, page 94, line 4, leave out ‘whether or not’ and insert ‘where’.

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

The amendment brings us immediately to one of the major concerns on which we want clarification and attempts to steer the Government away from land value and towards increase in capital value as the basis for the levy. Our major concern is that references to land value imply that the Government still hope to introduce a land-based tax through the levy so that the planning gain supplement would in effect come back into play.

We have tabled a number of amendments that would remove all reference to land value as we go through the Bill. Indeed, we will in due course come to our amendment to repeal the Planning-gain Supplement (Preparations)  Act 2007, because having looked at the detail that we have had on the community infrastructure levy in the relatively short time since the consultation paper was published, I remain concerned that the Government are probably setting up the community infrastructure levy to fail so that they can bring back the planning gain supplement.

Amendment No. 594 is on a slightly different point, because by leaving out the words “whether or not” and replacing them with “where”, we are trying to ensure that the levy should not be based on land value again, because we believe that regeneration projects potentially would not go ahead. We will return to that issue when we discuss further amendments.

Where land is to be regenerated, there would be no increase in capital value. By definition, were there an increase in capital value, an area would not require regeneration, but would be regenerated by the market. We all want to see as much regeneration as possible and all of us probably have areas in our constituencies that need to be regenerated. The London borough of Bromley probably does not have such areas to the same extent as some other places, but even in the south-east there are areas that need regeneration.

If the infrastructure levy were to apply to land that is to be regenerated, such projects might not move forward because they would not stack up financially. The amendment would ensure that there is the opportunity to maximise regeneration without penalising it through the levy.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow Spokesperson (Innovation, Universities and Skills), Shadow PC Spokesperson (Home Affairs), Shadow Chief Whip (Commons), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Environment, Food and Rural Affairs), Shadow Spokesperson (Foreign and Commonwealth Affairs), Shadow Spokesperson (Justice)

I would like to ask the Minister a question. Under clause 166 the amount of the CIL will be determined and regulations will be brought forward. Will the regulations set a uniform calculation for all charging authorities or will there be discretion for different charging authorities to charge different rates? That question is predicated on the fact that there are some authorities that are determined not to have wind farms in their area and others with particular views on other developments. What would prevent a charging authority from coming up with a huge levy amount that would make a particular development unviable? Will there be a uniform basis of calculation for the CIL?

Photo of Clive Betts Clive Betts Labour, Sheffield, Attercliffe

This is a very important part of the Bill. I understand that the Opposition will raise several detailed issues of concern, but I hope that there is general support across the Committee for the principle of what the Government are trying to do.

I thank the Minister for the excellent document that was produced last Thursday, which explains what is quite a complicated measure. Whoever wrote it should be congratulated for the clarity with which it was written. It was a very helpful explanatory paper, which also details the issues about further consultation.

We all know the history of this matter. The main issue is that of value, to which the amendment refers. It is right that we find a mechanism that does two things, as the explanatory document explains. It will enable finance to be provided for infrastructure across a wider area than perhaps the 106 arrangements were initially designed for, although they have been expanded by  particular authorities. That gets us away from an historical problem with development in this country. Very often, authorities see development as bringing costs rather than benefits. Development coming with the CIL will help to provide the resources for the infrastructure that is needed.

The explanatory document explains this in more detail. The clause recognises that if planning permission is given by an active public policy, private individuals have the value of their assets increased. Planning permission gives the authority to develop, and with that ability to develop, the value of the land is increased. As a result of that increase in value, developers or owners—we just discussed the Government amendment, and it may be owners in certain circumstances and developers in others—may have the financial resources to contribute towards development costs.

Photo of David Curry David Curry Conservative, Skipton and Ripon 9:15, 31 January 2008

Will the hon. Gentleman not forget that if one lives next door to an area that is going to get planning permission, it may cause a significant decline in the value of one’s assets?

Photo of Clive Betts Clive Betts Labour, Sheffield, Attercliffe

That is entirely possible but looking at the generality, as I am trying to do, the aim is to capture some of that increase in private value for public good, because it is an act of public policy that increases the private value.

On the specific of the amendment, I think that the hon. Lady is wrong. I pursued the issue of value closely in our witness sessions. People in the coalition of groups support the CIL, partly because it is not the PGS. However, they are concerned about value. My hon. Friend the Minister will no doubt have a better view of this, but my understanding is that the clause sets the scene for the CIL. It recognises that it is a general increase in value, brought about by an act of public policy, that we are trying to capture to fund infrastructure.

During the evidence hearings, I pushed my right hon. Friend the Housing Minister, now Chief Secretary to the Treasury, about whether CIL is payable only on land that has increased in value once planning permission has been given. She helpfully explained afterwards that clause 165(3) says that where planning permission is given, it is not necessary for the increase in the value of the land to occur for CIL to be payable. In other words, the clause sets the general scene; it does not say that a particular site has to have increased in value because of planning permission for CIL to be payable.

The one issue that greatly concerned me was whether, on a more practical and detailed level, we were replicating what was going to happen in the PGS. I support that in principle, recognising that there are complications in trying to calculate increases in value to pay PGS, and we get down to the technicalities in clause 166, with a reference to value. That could cause problems. The calculation of CIL for a particular site could be related to value. Government amendment No. 38, which I support, takes out the reference to value in the calculation of CIL for a particular site.

The Government have set the scene by saying that it is the general increase in value that comes about from planning permission that enables the resource to be generated that funds the contribution towards the infrastructure, but they are removing the connection between an increase in value on a particular site and the CIL that is payable on it. In that respect, the Government have got it right and the amendment is not necessary.

Photo of Richard Benyon Richard Benyon Opposition Whip (Commons)

I refer hon. Members to my entry in the Register of Members’ Interests.

I raise a couple of points in support of my hon. Friend the Member for Beckenham. Uplift in land value is taxed under capital gains tax. There are considerable arguments involved. Trying to assess the uplift and the costs that can be set against it is a long drawn-out process. It remains the case that the Government take a large amount of money every year on the uplift in land values which they are entirely entitled to apportion towards infrastructure costs.

Some years ago we had the development land tax, which stifled many regeneration projects in a way that I fear this charge may do in future. We have to be careful. It is so far unclear how we can assess the charge’s impact on such projects. There is a regeneration project in the centre of a major town in my constituency. In itself, it is a marginal project, particularly with retail values dropping as they are, but an added charge of this nature could be the straw that breaks the camel’s back. We have to be extremely careful how we implement it.

I want the Minister to respond to the submissions that we received from several local authorities that have their own scheme, including my local authority, West Berkshire council. In 2004, it introduced a developer’s contribution scheme that works extremely well. What impact will the levy have on wise and thinking authorities such as mine, which have thought ahead and produced a scheme that brings in, for a small unitary authority that looks after the lives of 145,000 people, an income of £8 million to £9 million a year and growing? The fee that is charged to developers is entirely clear, right from the start. Developers know what they will pay because the charge is calculated on the basis of the impact that the development will have on local education provision, the primary care trust, fire services, the highways, libraries and so on, unlike this scheme’s levy, which is calculated on the value of land.

The fee charged by my local authority is completely cost-neutral. The charges are calculated to take into account the work done by the section 106 and the legal departments. The scheme is very successful. It is entirely transparent, and everybody knows where they stand.

Many authorities that are considering introducing their own schemes are beating a path to the door of authorities such as West Berkshire and others that produced submissions. They want to know how much regional money will be sliced off the top for regional government, how many decisions will be made in the  centre, how much money the local authority will be allowed to keep and how the scheme will actually work. We need many answers from the Minister.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow Spokesperson (Innovation, Universities and Skills), Shadow PC Spokesperson (Home Affairs), Shadow Chief Whip (Commons), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Environment, Food and Rural Affairs), Shadow Spokesperson (Foreign and Commonwealth Affairs), Shadow Spokesperson (Justice)

The hon. Gentleman mentioned capital gains tax. I think that the Minister is uniquely qualified to discuss it, having been some time in the Treasury. Can he possibly explain the interaction between CIL and CGT? In other words, would the payment of CIL be a deduction for the purposes of CGT if an owner-developer were subject to CGT?

Photo of Richard Benyon Richard Benyon Opposition Whip (Commons)

We would all like to hear the Minister’s reply to that question, but I fear that we know the answer. I look forward to his comments.

Photo of Alun Michael Alun Michael Labour, Cardiff South and Penarth

I wish to raise a point that is appropriate at this stage, as the debate has already gone rather wide. As the Minister is being asked to clarify several matters, it would be helpful if I raise this one now rather than doing so on clause stand part. It is about how the levy will operate in practice.

I raise these questions from a background of having been not only construction Minister for a period but also waterways Minister for several years. British Waterways and the development of canals in this country provide a considerable success story. Hon. Members may be aware that our canal network was in a disastrous state due to long-term neglect, but the backlog of repair and maintenance has been tackled over the past 10 years and the canal network has been modernised. Much of that has been due to links to development alongside canals, sometimes in the centre of cities such as Birmingham, sometimes in rural communities and small towns. Often, projects that have been about construction have also been about regeneration, bringing new employment to an area and generally cleaning up and modernising areas as well as doing the specific work of repairing, maintaining and even expanding the canal network.

The fact is that a great deal of that work has been possible because land that is near or alongside the canals and historic infrastructure that is public realm—inland waterways, docks, parks and other open space—is very much in demand and commands a premium price. New development, therefore, can derive significant benefit from the presence of the existing infrastructure, but in the case of waterways it does not usually contribute to its cost, due to the absence of any local charging mechanism that could in effect tax new developments to pay for improvements or additional burdens on that infrastructure. Occasionally, section 106 agreements have been reached, but that is a haphazard basis on which to deal with investment in the infrastructure.

It is a big issue because new development can impose significant costs on the providers of such infrastructure, as it may lead to much greater local usage by people living in the area, by visitors and by heavy contributions from the entertainment or hospitality industry, all generated by the development. A new development nearby puts the surfacing of footpaths and towpaths, fencing, signage, street furniture and safety issues under considerable pressure and it may require significant upgrading.

The crux of the issue is the phrasing of the clause. There is perceived to be a risk that the word “providing” could be interpreted as referring to new infrastructure only. Furthermore, “support” could be interpreted to imply a direct functional relationship, thus excluding infrastructure from which the development nevertheless obtains benefit at second hand.

We need greater clarification of the proposal, which can be done in one of two ways. First, will my hon. Friend the Minister for Local Government consider amending the clause to refer to “improving” as well as “providing” the infrastructure? Alternatively, can he assure me that the word “providing” includes improving? If it does, can he assure me that that interpretation will not be open to legal challenge? It is important to have clarity. I would not be surprised if he were sympathetic to my concerns and wanted the clause to do the job in the way that I have outlined. If there is any doubt about that, will he look again at the clause to ensure that it is cast iron and will not subsequently be open to legal doubt or challenge?

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

I will try to deal with the wide-ranging points. Mr. Illsley, the Committee would welcome your guidance on whether it will be possible to have a wider debate on clause stand part. If you agree, I will deal specifically with the points raised in this debate.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

The debate on the amendment ranged rather widely and strayed into clause 166, which relates to the amount of the charge. If the Committee wishes it, we can use the amendment as a clause stand part debate, but the vote on stand part will be taken formally. I am willing for hon. Members to speak to clause stand part in this amendment, given that issues have already been raised.

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

I seek your guidance, Mr. Illsley. I was going to press for a clause stand part debate because our amendments do not cover all the points that I wish to raise.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

In that case, I ask the Minister to restrict his comments to the proposal before us. The issues that he wishes to respond to can be raised again in the clause stand part debate.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

I am grateful for your guidance, Mr. Illsley, which I will try to follow closely.

I was interested in what the hon. Member for Newbury said about the local authority’s approach in West Berkshire. He may be interested to know that it has been invited to sit on the practitioners group, which we will work closely with in the coming months. It has an important contribution to make to the development of our policy and our plans for the regulations, and I hope that that contribution will be made.

With the CIL, we are trying to build on the innovative approaches of some local planning authorities in developing tariffs for development, as the hon. Gentleman described. He is right about the characteristics of those tariffs: they tend to be standard charges; they reduce the negotiation that is necessary; they increase the certainty at an earlier stage; and they allow local planning authorities to secure contributions from developers of smaller  developments. That ensures that more developments pay a fair share towards the costs that they impose on a local area. Those contributions mean that the local community will derive a greater benefit from those developments. We are attempting to capture all of those principles in designing the CIL.

To pick up on the hon. Gentleman’s other point, we are trying to learn from some of the lessons of the past. The CIL is a very different mechanism to the land development tax that was repealed by the Conservative Administration in the mid-1980s. As the Barker review said, previous development gain taxes which were specifically designed in that way suffered from two principal problems: first, from their complexity and, secondly, from the unduly punitive level at which they were set. That had a huge impact on the supply of land and the pace of development. We are anxious to avoid both those problems with the CIL.

The other weakness of the development land tax, which the hon. Gentleman did not mention, is that it was designed to supplement central Government expenditure and revenues. The levy will be collected locally and spent specifically on local and regional infrastructure that has been identified as necessary to support the growth of housing, the economy or developments in the local area.

Photo of Richard Benyon Richard Benyon Opposition Whip (Commons) 9:30, 31 January 2008

I feel that some progress is being made. Does the Minister agree that a system of thresholds could be introduced to the levy, through consultation? Developments below a certain size, such as a few houses, will have no regional impact. For developments that fall under such a threshold, the local authority would keep all of the receipts from the levy. Obviously, a larger development might have regional implications, but it seems unduly harsh on local authorities that have developed their own schemes which are working well that those will be trammelled by a Government scheme that will top-slice a large proportion of the levy to be spent regionally or nationally on things that local communities might not benefit from.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

No local authority or local planning authority is obliged to introduce a CIL. Those decisions will properly be taken locally. The lessons that we can draw from the innovations by some councils, such as West Berkshire, will be considered in detail as we develop the policy further.

Photo of David Curry David Curry Conservative, Skipton and Ripon

The Minister said that local authorities will not be obliged to introduce the levy. If a local authority chooses not to introduce it and is therefore unable to make a contribution from it to an infrastructure project that is drawing in other sources of funds, will that jeopardise the availability of those other sources? In other words, if a local authority does not put in its whack, will that threaten the availability of funds from national sources? Will the Government naturally want to direct their money where they have the leverage of a local tax?

In paragraph 24 of the consultation document, the potential of the tax is estimated as being able to raise hundreds of millions of pounds. That seems to be a very small amount in the light of the cost of infrastructure projects. I am surprised at the modesty  of that amount. It suggests that we are going to a great deal of trouble for not very much reward at the end of the day.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

In a sense, the right hon. Gentleman answers his own question. All the statements and explanations that we have made on the levy have been clear and consistent that it will be additional to other sources of funding. Depending on the extent to which local planning authorities introduce the levy and whether it is set at a reasonable rate, we think that it will raise hundreds of millions of pounds—perhaps some £500 million. It will potentially be only a contribution. It will be significant, but the comparator set out in paragraph 16 of the consultation document makes it seem modest. That makes clear the scale of the public investment that the Government have allocated over the next few years to support the growth, in particular of housing development, but also of other infrastructure that is necessary for economic growth in local areas. The paragraph states that there will be

“£1.7 billion of targeted funding for growth areas, growth points and eco-towns, including £300 million for the Community Infrastructure Fund.”

The community infrastructure levy is not the full answer, by any means, to the need to raise investment, which is often forward-funding, for infrastructure to support growth. However, it is an important additional potential source and power that we are seeking to put in the hands of local planning authorities, so that they can make those decisions for themselves. The funds and revenues that it might produce are additional to other sources, including public investment funding to support growth.

The leverage may be relevant in creating a more certain forward revenue stream in a local or a wider area which could be used to lever in further investment from the private sector to help develop the infrastructure that is needed. In some circumstances, it could be used to support the use of borrowing powers, which the Government also gave to local authorities in 2004.

Photo of David Curry David Curry Conservative, Skipton and Ripon

But would the decision to raise or not to raise a levy by a charging authority—we will come to which body that will be later—have any impact on the availability of other public funds for projects? We know that everyone wants more development than there is money to finance. It is the eternal truth of government. I am trying to discover whether local authorities will have to take into consideration, if they choose not to apply the levy, that they are jeopardising other possible sources of funds from the public sector. I accept the point about leverages coming out of the private sector.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

No, there is no reason for local authorities to fear that. They may worry that if they choose not to take advantage of the potential for locally raised revenues that a levy could bring, there might be a gap that they could otherwise have helped to meet in the financing of infrastructure to benefit their area, support potential growth and bring benefits to their community. In those circumstances, I can envisage many local people starting to ask questions of their local authority or local planning authority as to why it is not taking advantage of the power

Photo of David Curry David Curry Conservative, Skipton and Ripon

The Minister has been talking about private leverage and we have had some references to flood relief schemes. Will he consider seriously the current problem whereby the contributions that local authorities or regional flood relief bodies make to flood relief schemes might be caught by council tax capping? That is a major disincentive to local authorities to put money into the pot to try to move schemes up the priority ladder, as in Ripon, where we have been flooded twice.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

Mr. Illsley, I am sure that you would not want me to get tempted on to the territory of council tax capping.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

So I will not, but flood defences are precisely the type of infrastructure for which a community infrastructure levy can help to support funds, if it is identified in the preparation of local infrastructure planning as an important element in the investment required to have further growth in the area.

I am failing not to be drawn too widely, but will do my best and return to where I started—the comments made by the hon. Member for Newbury. Essentially, we want it to be clear from the start that developers pay what they see on the charging schedule. I think that that is also what he wants, because it is the case in West Berkshire. That way, we get away from the potential complexity, uncertainty and bartering that tends to go on in back rooms, out of sight of the public and out of reach of strong scrutiny. That is the principal purpose of our approach.

I am glad that my hon. Friend the Member for Sheffield, Attercliffe welcomed the policy document. I would like to claim full credit for it, but cannot. I will, however, ensure that his remarks are passed on to those who were involved in the detailed drafting. He is right that clause 163 sets the general scene, and in the coming debates we will get into some of the specific concerns and details that I know the Committee and others are interested in. We will get to the question of value in more detail later. To be clear, he is right that Government amendment No. 538 removes reference to value, but he might be disappointed that Government amendment No. 546 to clause 166 will reintroduce it. I will explain why when we get to it.

My right hon. Friend the Member for Cardiff, South and Penarth is a great champion of the value and importance of waterways to our country and to regeneration, which he knows from his area. The clearest answer to his concern, and that of British Waterways, that somehow the levy will be used only for brand new infrastructure is contained in paragraph 34 of the policy document that we published on Thursday. I think that he will find everything he needs at that point. If he does not, he can come back to me.

Photo of Alun Michael Alun Michael Labour, Cardiff South and Penarth

I am grateful to my hon. Friend for pointing the way to the policy document. Part of my concern is that there could be a danger of misinterpretation or a legal challenge that would take us in a different direction from his stated intention. Will he undertake to look at the phrasing of the legislation to ensure, from his point of view and mine, that his intentions could not be undermined in that way at a later stage?

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

My right hon. Friend is always reasonable, so of course I will.

With regard to the question asked by the hon. Member for Meirionnydd Nant Conwy, the short answer to whether local authorities will have the discretion to charge different rates is yes. What one local planning authority decides are the infrastructure needs for its area and what appropriate contributions to that could be through a community infrastructure levy will be different to the next.

The process for making charging decisions and the basis on which those decisions might be made are likely to be set out in the framework that we intend to introduce through the regulation-making powers. There will also be safeguards, as the Bill indicates, to stop a levy frustrating or choking development, which I think is a concern shared by all members of the Committee. There will be strong scrutiny in the preparation of the charging schedule, and there will be some reserve powers, which we will deal in clause 172.

The hon. Gentleman asked me about the interaction of the community infrastructure levy and capital gains tax. [Interruption.]

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

Well, I suppose the short answer is that it is complex, given the nature of tax legislation. That will not surprise anyone.

In essence, CGT is payable on disposal of assets, so it is generally payable on the sale of land or property. Our starting point is Kate Barker’s report, which, as hon. Members may recall, argued that CGT does not adequately capture the gains that arise from planning permission. Essentially, planning permission is a public administration decision, not an investment, activity or value that is enhanced by, or is the responsibility of, those who happen to own the land. In other words, Kate Barker’s major contention was about the gap in our ability to capture, justifiably, in her view—I would argue that the design of the community infrastructure levy will do this—the many gains that come specifically from a public administration decision, and not by dint of the efforts of anyone who happens to own the land to which the permission applies.

In contrast with the point at which CGT may become payable, the levy as we propose it is payable on commencement of the development. In the end, these are different policies, tools or instruments for very different purposes. The final distinction, separation or difference is that the levy is specifically for the purposes of supporting the development of infrastructure. CGT, of course, is simply a revenue stream that goes to the Exchequer, rather like aspects of the development land tax that I mentioned earlier.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow Spokesperson (Innovation, Universities and Skills), Shadow PC Spokesperson (Home Affairs), Shadow Chief Whip (Commons), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Environment, Food and Rural Affairs), Shadow Spokesperson (Foreign and Commonwealth Affairs), Shadow Spokesperson (Justice)

I do not mind if the hon. Gentleman prefers to write to me with the answer in due course. I am not trying to be funny, but I put to him the case of an owner-developer who is, for example, a farmer. He decides to develop an estate of 100 houses. He obviously makes a substantial gain on the land, but, equally, he may have to pay a large amount of CIL.  That is the kind of scenario I am looking at. I do not wish to raise complicated matters that may or may not be reasonable, but my question is perfectly reasonable. Will the payment of CIL at the early stage be taken into account in calculating a proper deduction from the capital gain that the farmer has made on the land as an owner-developer?

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

The short answer is no. Anybody in that position who is considering whether they want to use their land in any way for development for which they might need planning permission would look at the charging schedule for the CIL, would see in advance what they would be liable to pay if they were to go ahead, would build that into their general financial and business planning case in deciding whether to go ahead, and would make a business decision as a result of that.

Any CGT that may become liable for any disposal that is made later would be an entirely separate calculation and liability. The only connection that I can see between the two is that where the levy may have in the mix some impact on the level of capital gain, it could affect the liability for CGT.

My right hon. Friend the Member for Cardiff, South and Penarth has been very reasonable, and I shall reflect on his concerns. If I do not feel that I have answered him, as I have tried to do immediately for the Committee’s benefit, I shall of course write to him—I do not anticipate that that will be necessary, but if it is I shall.

Photo of Dan Rogerson Dan Rogerson Opposition Whip (Commons), Shadow Minister (Communities and Local Government)

This has been a very useful exchange, prompted by the hon. Member for Meirionnydd Nant Conwy. Clearly there are concerns about somebody being hit twice for effectively the same gain. Does the Minister agree that the distinction might be that the community infrastructure levy is aimed primarily at the increase in land value through planning permission, and that capital gains usually takes into account the general increase in value over time? The CIL is focused on the administrative decision as opposed to the appreciation of land value, as is the case with capital gains.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

I suppose that if there has been no appreciation in the value of an asset being disposed of, a capital gain is less likely. The hon. Gentleman might have a point and I appreciate his attempt to—

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

Yes, to help me out, although I had not appreciated that I was in a hole and required assistance. Nevertheless, I appreciate the hon. Gentleman’s intervention.

The hon. Lady expressed concerns similar to those of the hon. Member for Newbury about how the levy would choke development, particularly in certain areas such as on brownfield sites. The answer is that the levy will need to be set at a level that reflects the local authority’s priorities and identified infrastructure and growth needs. It must take into account the likely land value, which is one important way to assess the development viability of a particular area.

Photo of Bob Neill Bob Neill Shadow Minister (Communities and Local Government), Deputy Chair, Conservative Party

I appreciate what the Minister is saying. However, development of the infrastructure of the Thames Gateway, for example, might involve considerable decontamination costs prior to completion. Is a mechanism proposed for deducting those costs or for taking them into account in other ways, so that development on brownfield land, which might be desirable, does not become less economically attractive and competitive than on other land?

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

We are discussing that with some of those who have a direct or representative interest. The proposed consultation on the design of aspects of the regulations that we will introduce should ensure that we can deal with all those concerns, and that the levy is set at a level that will provide an incentive and support for development, rather than a disincentive and a barrier. That is what we are aiming at.

On amendment No. 591, as my hon. Friend the Member for Sheffield, Attercliffe said, it is not clear that making reference to capital value is necessary, and nor is it entirely clear what that would add. On amendment No. 594, I and others have made the point that it is important that the levy regime does not choke development. However, we want to move away from case-by-case assessments of the land value uplift and viability—in other words, to put the emphasis on the production and publication of a charging schedule. The site-by-site assessment of land value or viability was one of the main characteristics of the planning gain supplement. Many of those who followed that closely had concerns about it. The clause will enable us to take such action, but it must be done in way that preserves the incentive to develop. The design of the levy, with the requirement to set out a schedule of standard charges in advance, will remove the need for site-by-site evaluations.

Developers have put it to us that while a development creates value, which the levy will tap, there are circumstances in which the permission itself does not result in an increase in land value, or in which the level of increase is uncertain. That is an argument that I remember all too well from many developers against the planning gain supplement. However, we do not want disputes over whether the permission is the particular aspect that has generated a value increase. In other words, we do not want the general purpose of the levy, as set out in subsection (2), to undermine the requirement to pay the amount of the levy set by the charging schedule.

This provision is designed to put it beyond doubt that the levy is still payable in such circumstances. Therefore, the potential developer will be clear from the outset that what they see in the charging schedule is what they will pay. They will therefore be able to factor that into their business and financial planning in determining whether they wish to go ahead with the project. With that and the other safeguards we propose putting in place to ensure that the charging schedule is set at a level that does not choke up an unacceptable amount of development, I hope that hon. Members will accept the Government amendments, rather than those of the Opposition.

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

As I hope I indicated earlier, the amendments were tabled to signal two main areas of the Government’s proposals that we have concerns  about. In that sense, they are probing amendments. However, there are real concerns about the impact that downturns in the market will have on regeneration areas. My hon. Friends the Members for Bromley and Chislehurst and for Newbury and my right hon. Friend the Member for Skipton and Ripon, raised practical issues with the levy that we still have concerns about. I am happy to withdraw the amendment at this stage, but we will return to these issues in greater detail as we go through the Bill. We might press these matters to a vote with later amendments. However, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

I am grateful to you for allowing us to have a clause stand part debate, Mr. Illsley, because although we have already signalled two of our concerns with the clause, essentially, it will set up the CIL and there are definite worries about that whole Government proposal.

The hon. Member for Sheffield, Attercliffe congratulated the Government on introducing the consultation document last week. We congratulate them on doing so, at last, but I am not entirely convinced that it is anything other than a rush job, and it does not move forward hugely the available information about the CIL. I wish the Minister good luck in trying to get this matter sorted out, because there is a long way to go. On Second Reading, my hon. Friend the Member for Mole Valley (Sir Paul Beresford) described these proposals as not just skeletal, but osteoporotic. I am not sure that the consultation document has changed our mind.

The hon. Member for Meirionnydd Nant Conwy raised one of the principal concerns expressed by a number of people outside the House: capital gains tax. I can sympathise with the Minister here. His former role in the Treasury has in one sense contributed to his skill and in another led him into deeper waters than he might wish. He has not been at the Treasury while the reform of capital gains tax has been going through. He is, dare I say it, somewhat unsighted.

Were I to throw any thought into the pot, it would be that the current system of capital gains gives taper relief. That might be where CIL and CGT could interact. Subsection (1), however, refers to the fact that the Treasury must approve the regulations. Although it might be pro forma that that should happen, if the Treasury has anything to do with it, it will turn into a tax. That is precisely what the industry does not want, and we certainly do not want it, because the history of any tax on, let us call it, subtly, planning gain, has a poor record.

Photo of David Curry David Curry Conservative, Skipton and Ripon 10:00, 31 January 2008

Would this not break new ground in that it would be one of the first examples of a hypothecated tax, to all intents and purposes, in the United Kingdom?

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

My right hon. Friend raises a most interesting point. The Minister, with his Treasury experience, will doubtless be able to advise us in due  course. A number of Labour Members have, in effect, given the game away. The right hon. Member for Cardiff, South and Penarth referred to it as a tax when he was talking about waterways.

Alun Michael rose—

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

I am happy to give way, but I am sure that that is what Hansard will record.

Photo of Alun Michael Alun Michael Labour, Cardiff South and Penarth

I am not sure that it will. I should be grateful if the hon. Lady could explain what she thinks I said.

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

I wrote down, although sadly these days I no longer take shorthand—

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

I am not a member of my hon. Friend’s family either.

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

I wrote a note to myself because I was taken aback by what the right hon. Gentleman said. It might have been inadvertent, but he referred to “taxing developments around waterways”. I am quite happy to withdraw that once Hansard is published.

Photo of Alun Michael Alun Michael Labour, Cardiff South and Penarth

I suspect that the hon. Lady is not perhaps talking to herself but writing notes to herself. She certainly appears to have extrapolated. I have every confidence that Hansard will record accurately what I said. I think that she has gone in a different direction.

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

I look forward to reading Hansard. We can perhaps check the record together on Tuesday.

Photo of David Curry David Curry Conservative, Skipton and Ripon

Perhaps you could go outside and do it together so that we do not all have to listen.

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

Yes. I do want to move on, but the mere fact that the word “tax” is used in reference to this levy sends a cold chill down most people’s spines.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

Does the hon. Lady not accept two things? First, this is a levy that builds on the current system of section 106 planning agreements. Secondly, unlike a tax, which by and large is a general revenue stream, this is specifically and only for the purposes, if a local authority wants to use the power, of supporting investment in necessary infrastructure—no more, no less.

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

I accept what the Minister is trying to achieve. My point is that the mere fact that the Treasury has to approve the regulations means, by definition,  that it is approving the standard charges that will be included in the community infrastructure levy, and that concerns people outside the House. Those charges might vary; the consultation document stated that there will be different levies depending on the quality of the land that is being developed, and we will discuss those details later.

Everyone fears the hand of the Treasury in any form of money raising, and the inadvertent use of the word “taxation” in referring to the levy is sufficient to send a cold shiver down our spines.

Photo of Clive Betts Clive Betts Labour, Sheffield, Attercliffe

It seems almost as if the hon. Lady is trying to find an excuse to distance herself from the concept of the levy. The evidence to the Committee was that the development industry and local authorities were content that it was the best way forward to capture some of the increase in value from planning permission for the public purse. Does the hon. Lady support the principle of it or not?

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

We made it clear that there is an argument for the levy, but our job as the Opposition is to test to destruction how it will work. Some serious questions need to be asked on behalf of the British public about how the levy will work and, with the best will in the world, this Government have a deplorable record on trying to tax land development. We must ensure that if the levy is going to work, it works properly. As I said about previous parts of the Bill, when a significant group of people approve of something, the downside is not thought through to the extent that it needs to be.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

My hon. Friend the Member for Sheffield, Attercliffe’s question is important. Is the answer that the hon. Lady’s party supports the principle of a community infrastructure levy? Yes or no?

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

I thought that I had said in words of one syllable—I might have used the occasional two-syllable word—that the levy is acceptable. But the mechanism, the detail of the regulations, leads to me say that the devil is in the detail, although I hate to use that clichÃ(c). We do not have the detail and the amendments were tabled to try to extract it.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

I accept that the hon. Lady might have concerns about the detail and that it is important that the Opposition use amendments to challenge the Government on it. To follow from her commitment in principle to a community infrastructure levy, can she assure us that she will not try to delete the levy from the Bill at a later stage? For example, amendment No. 238, which has not been selected, would strike out the whole of part 10.

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

I can reassure the Minister that if we had wanted to delete the community infrastructure levy we would have found other ways to do it. I do not have any problem, but we will wait and see how it works because if it does not work, as in the case of the development land tax, we will revisit the issue in due course. There is a long way to go before we find that out.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

The fact that the hon. Lady has confirmed to the Committee that she supports the community infrastructure levy in principle and that her party will wait and see how it works is important. It is important not just to myself, as the Minister responsible for the Bill; it is of much greater importance to the interested groups who are following our discussions closely. It means that the work that we all do together—the work of the hon. Lady, myself and the interested groups—to get the design and terms of the levy to be as effective as possible from the outset and implemented as effectively as possible will not be undermined at the start by a fear that the hon. Lady’s party will simply remove the levy if it proves to be effective. Instead, she will wait and see how it works in practice.

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

If that means that the Minister will now accept some of our amendments, then I think that we have made some progress.

Photo of David Curry David Curry Conservative, Skipton and Ripon

What it means is that the Minister anticipates that he will not be in office after the next general election.

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

I am grateful to my right hon. Friend for that comment; in our party, I think that we have all taken that as read.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

I am extremely conscious of the fact—indeed, it is the reason that I asked the question—that, as the hon. Member for Newbury suggested when he urged us to learn lessons from previous land tax regimes, what inevitably undermined previous regimes that were introduced to try to achieve purposes similar to the proposed regime was a commitment from Opposition parties that, if they were to get into power at any stage, one of their first acts would be to repeal those regimes. Inevitably, that commitment caused developers to hold back on the potential supply of land and on development itself.

Therefore the commitment that the hon. Lady has given to this Committee this morning is not so much of great significance to me personally as it is potentially of great significance to other interested groups.

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

As I said before, although we are prepared to see this levy introduced, we still have serious doubts about how effective it will be. What we do not want to see—this is one of the concerns that I have had all the way through our consideration of the Bill—is a situation in which land will potentially not be brought forward. That is what has always happened before when there has been any form of land taxation. The potential for getting the proposals wrong—it has been difficult even to try and amend them, given how skeletal they are—is still very high. There is a wish to make them work. However, the problem when there is such a wish is that nobody thinks of the downside, how and where they might not work and what might stop them working once the market is affected by them.

Photo of Bob Neill Bob Neill Shadow Minister (Communities and Local Government), Deputy Chair, Conservative Party

Does my hon. Friend find it surprising, given that she might well have to pick up the pieces after the next general election and make this measure  work, that if the Government are so concerned about getting the measure right they seem to have been remarkably cavalier in setting out details about how the various interested groups can be consulted and can respond? To produce this extremely thin document about something that is seen as being of such long-term importance—something which, as the Minister rightly says, we must get right given that the detail is so important—is rather a contradictory attitude for the Government to take.

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

I would go further and say that this measure should be in a completely separate Bill, with considerably more clarity and detail, so that we all know exactly what the Government are proposing. At the present moment, we are dealing with—well, I will mix my metaphors and say that the measure is a skeleton and we are in a fog. Nobody has the details that they need and that is the problem that we are all trying to grapple with. We are tabling amendments based on the Government’s good intentions. That is the content of the community infrastructure levy in the Bill; it is full of good intentions. It is not full of the sort of detail raised by my hon. Friend the Member for Newbury with regard to the levels of the levy, on which we have tabled amendments.

The document does not make clear what size of development the levy will be levied on. We, the industry and local authorities need clarity on that. For instance, if I had a large house and garden and wished to give my children—not that I have any—the large house, but wanted to build in the garden, is that open to a levy? It would mean extra cars. [Interruption.] Please note that we are not against families building a house in the garden.

Hon. Members:

Are you sure?

Photo of Jacqui Lait Jacqui Lait Shadow Minister, Communities and Local Government

Anyone who says that we are against building a retirement home in the garden has not read what we have said. What size of development will be affected? Will it be three houses? Will it be a block of a dozen flats that replaces the big family house, if one cannot get the house in the garden? Until we know that, local authorities will not have a clue as to impact. There is a distinct lack of clarity on some big issues.

I did not want to get into these discussions during the stand part debate, but we are now going down that route because we are discussing the principle of the levy itself. Given that there is such a lack of clarity, I would be grateful if the Minister could assure us that by the time this gets to the Lords, the draft regulations will be available. They are the key to this levy and its success or otherwise. If the Lords do not have the draft regulations to work on, Parliament will not be able to explore in any great detail how the levy will work.

We have had a much longer debate, Mr. Illsley, and I am grateful for it. We are concerned that the Government are still operating on a wing and a prayer, and hope very much that by the time the Bill has gone through this House we will have considerably more clarity as to what will comprise the levy.

Photo of Clive Betts Clive Betts Labour, Sheffield, Attercliffe

Would my hon. Friend the Minister clarify one point? He said earlier that if a local authority does not want to introduce the levy, it will not have to do so. One issue that has been raised—it is a concern that many of us have expressed over the years—is that while some authorities are very expert and proficient at using section 106 agreements and getting a lot of value out of them, if one looks at other, comparable authorities, one finds that section 106 agreements hardly exist, if they exist at all. They are not something that those authorities deal with, particularly in terms of affordable housing.

I accept the Minister’s point that individual authorities should make their own choice as to whether to introduce the levy. Am I right in assuming that, in making this decision, each local authority will have to look at the infrastructure needs of its area and at likely development as part of the LDF before coming to a positive decision—as opposed to a decision by default—that a levy will not be necessary or appropriate for its area, and that there will have to be a decision made as part of the LDF process that comes to that conclusion?

Photo of Dan Rogerson Dan Rogerson Opposition Whip (Commons), Shadow Minister (Communities and Local Government)

The Minister has been checking where everybody stands on the principle of a levy. We in the Liberal Democrats support anything that hands more cards to the local community and their local authorities in enabling them to achieve their vision for the area and to ensure that adequate facilities and infrastructure are provided. We note, however, the uncharacteristically menacing tone that the former Housing Minister adopted during the evidence session with regard to the fact that the enabling legislation for the planning gain supplement is still on the statute book. The threat that that poses still hangs over us all, which is unfortunate, and we remain opposed to such an approach.

I agree with the hon. Member for Beckenham that we will have great difficulty discussing something that could be crucial to future development if we do not have enough detail to inform our discussion.

Photo of Tom Brake Tom Brake Shadow Minister (Olympics and London), Liberal Democrat Spokesperson (Olympics and London)

Following on from the hon. Member for Beckenham’s comments, let me add that clarity is key. One issue that needs further investigation concerns the partners with which local authorities will work when identifying how much the levy will cost and what infrastructure it will cover. Those partners will have to ensure that the infrastructure covered is not simply what the local authority wants developed and does not, for example, exclude any health centre facilities that the area might need.

Photo of Dan Rogerson Dan Rogerson Opposition Whip (Commons), Shadow Minister (Communities and Local Government)

Absolutely. My hon. Friend makes a good point. As I was about to say, the document now gives us a few more details, although it is still very much about opening the process. It notes that health centres may be included, although the examples of processes that have been adopted up until now include those dealt with by Reigate and Banstead borough council, and the list of facilities that it has considered clearly does not include health facilities. I do not know the local circumstances in that case, but local  authorities might have an incentive to prioritise areas where they have to provide a service and where they, rather than the primary care trust, for example, face pressures. It would be interesting to know what input the primary care trust might have into such decisions.

There is huge scope to work at the sub-regional level. My region—what the Government call the south-west—does not really function as a region, because it is far too big, and, for the most part, there is no sense that people belong to it. However, local authorities have a real opportunity to work together to come up with priorities on issues such as transport infrastructure.

The other key point is that the levy must be additional, rather than a get-out clause in respect of money that is already earmarked for important schemes. It should deliver those things that are not currently prioritised in the programme for delivery through Government or other funding. That is the sort of issue that the right hon. Member for Skipton and Ripon was getting at.

Photo of David Curry David Curry Conservative, Skipton and Ripon

The levy is designed to meet the needs that arise from the development itself, not from a wish list of local authority infrastructure schemes. It would be interesting to know what measures there will be to ensure that when local authorities go through the bottom drawer to see what schemes they would like to carry out, they do in fact confine this money to schemes that flow from the development itself, which is what I understood the purpose of the levy to be.

Photo of Dan Rogerson Dan Rogerson Opposition Whip (Commons), Shadow Minister (Communities and Local Government)

The right hon. Gentleman makes an interesting point, although I would qualify it by saying that the Government’s proposals might worsen certain problems in an area. Potentially, the levy will have an impact not only on new development, but on current residents. I am thinking of things such as road junctions.

Photo of Dan Rogerson Dan Rogerson Opposition Whip (Commons), Shadow Minister (Communities and Local Government)

I do indeed. Hon. Members are helping me to jump from one point to another, but that is one to which I was coming. The hon. Member for Beckenham was right to say that the issues before us should be the subject of a Bill, and if the detail is not in this Bill, it should have been included in a separate Bill. As I have outlined, the Liberal Democrats support the general concept, as does the hon. Lady, but there might be problems with particular provisions. We can scrutinise and discuss provisions in secondary legislation, but we can say only “Aye” or “No” to them—we cannot amend them. That is part of the problem; if the people we represent and the organisations that will be part of the consultation process are not happy with the result, that is just tough.

It being twenty-five minutes past Ten o’clock, The Chairmanadjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at One o’clock.