UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1024-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

OFFICE OF THE DEPUTY PRIME MINISTER:

HOUSING, PLANNING, LOCAL GOVERNMENT AND THE REGIONS COMMITTEE

PLANNING GAIN SUPPLEMENT

Monday 24 April 2006

MR KELVIN MACDONALD, PROFESSOR JOHN HENNEBURY, MR GIDEON AMOS, MR NICK FREER and MR DAVID WATERHOUSE

MS LIZ PEACE, MR MIKE GUNSTON, MR LOUIS ARMSTRONG, MR CHRIS HART and MR TED WESTLAKE

MR JOHN BEST, MS JANE HAMILTON, CLLR KEITH MITCHELL,

MR MARTIN TUGWELL and MS NATALIE DEAR

Evidence heard in Public Questions 1 - 120

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Office of the Deputy Prime Minister:

Housing, Planning, Local Government and the Regions Committee

on Monday 24 April 2006

Members present

Dr Phyllis Starkey, in the Chair

Sir Paul Beresford

Mr Clive Betts

Lyn Brown

John Cummings

Mr Greg Hands

Martin Horwood

Anne Main

Mr Bill Olner

Alison Seabeck

________________

Memoranda submitted by Royal Town Planning Institute and

Town and Country Planning Association

Examination of Witnesses

Witnesses: Mr Kelvin MacDonald, Director, Policy and Research, and Professor John Hennebury, Professor of Property Development Studies, University of Sheffield, Royal Town Planning Institute, Mr Gideon Amos, Director, and Mr Nick Freer, Director, David Lock Associates, Town and Country Planning Association, and Mr David Waterhouse, Town and Country Planning Association, gave evidence.

Q1 Chair: You will appreciate that there are a lot of witnesses in this session and we would like to try and keep to timing, although we have not started off very well since we have slipped at the very beginning. There is absolutely no necessity for witnesses to repeat a matter which is in the written submissions that you have made because, obviously, we will be taking those into account. Can I ask you briefly, starting at the right hand end, to say who you are?

Mr Waterhouse: David Waterhouse, Town and Country Planning Association.

Mr Freer: Nick Freer from David Lock Associates but with the Town and Country Planning Association today.

Mr Amos: Gideon Amos, Town and Country Planning Association.

Mr MacDonald: Kelvin MacDonald, Royal Town Planning Institute.

Professor Hennebury: John Hennebury, University of Sheffield.

Q2 Chair: Can I start with the first question to the RTPI and pick you up on a point you have made that you see there is a danger that those communities most in need of infrastructure investment will lose out to those with development pressure? Do you think therefore it is justified for national government to intervene and redistribute revenues to those areas in greatest need of infrastructure investment?

Mr MacDonald: We think that some mechanism must be found to redistribute; otherwise, I think, two effects may happen: first that one might ratchet up development pressure within those areas that are already experiencing development pressure but, secondly, that those areas that are in need of infrastructure, because infrastructure helps to make markets and to shape markets in areas where markets are not working very well, will not receive the benefit from Planning Gain Supplement unless there is some redistributive mechanism.

Q3 Chair: Does the TCPA have any comment on that?

Mr Amos: If redistribution for national infrastructure was not right at all we would have to do something about national government generally, but clearly it is important that there is a small degree of redistribution. We would like to see the vast majority of Planning Gain Supplement revenues, around 80 per cent, we would suggest, go back to the local authorities where it was raised. There needs to be some local gain for the local pain, but that should leave, let us say, around 20 per cent of the revenues to be available for redistribution.

Q4 Anne Main: On that point can I ask you where you think a local authority is? Is it regional, national, district, county?

Mr Amos: A local authority would be the local planning authority, which usually in a county shire system would be the district council and in a unitary authority would be the unitary authority.

Q5 Lyn Brown: This is to the Royal Town Planning Institute. You argue that the Planning Gain Supplement will not be able to raise much more money than section 106 agreements. Do you think that this is because greater taxing of land value is impractical in that it would discourage development or is it because the Planning Gain Supplement proposals need somehow restructuring?

Mr MacDonald: On the general point, but then I am sure Professor Hennebury will want to come in, it is not necessarily that the overall scheme is impractical in itself, but there are a number of barriers that we see embodied in the scheme as it is set out. That makes it doubtful as to how much extra revenue will be raised. We have set these out in our evidence but they include the difficulties of establishing the uplift in value against which you set the tax. They include the fact that naturally developers will be pessimistic about the eventual value of the scheme, quite rightly, when you have got a time gap of up to three years between the point at which the value is set and the point at which the tax is taken.

Professor Hennebury: I want to suggest a slight alteration in the question because the short answer is that there is considerable potential for getting income greater than the existing take from planning obligations but it could be done in at least two ways. One of them is to improve the way that the current planning obligation system works, and from previous research we know there is an enormous variation in local practice, so you can get two local authorities which are very similar in all other ways and one of them is achieving ten times as much income in planning obligations as the other, so that just by improving the way that the current system operates, whether that is through standard charging or through tariff systems or whatever, you would considerably increase the take. Comparing the current system with Planning Gain Supplement, you need to compare Planning Gain Supplement with what the current system might achieve if it was improved.

Q6 Alison Seabeck: Very quickly on the back of that, one of the criticisms of section 106 is that it does not bite into particularly very small sites, and one of the advantages of the PGS is that it potentially could if they take it down to one property, and also that there is value sharing between sites and therefore that is one of the justifications for PGS. What would be your arguments on both those counts?

Mr MacDonald: Certainly we welcome the fact that PGS potentially does go beyond the thresholds. We feel that the thresholds at the moment are fairly artificial anyway, so we do welcome that aspect of PGS, that it does have the potential to bite below the thresholds.

Professor Hennebury: Over time the threshold that some local authorities have introduced as the minimum before they seek planning obligation benefit has lowered and some authorities are operating at the level of a handful of housing units. Again, there is a huge variation between authorities as to what their threshold is and so it is very difficult to know the implications of that. Clearly, an automatic low threshold will increase take and reduce administrative cost.

Q7 Martin Horwood: RTPI suggests that the proposed scheme seems to have been written with a greenfield development model in mind. In fact, you could say that since the majority of the value uplift would be on the greenfield sites and therefore the majority of the tax would be from greenfield sites, you might be worried about discouraging developers, but you might also be worried that this is a huge financial incentive to the Treasury and to local authorities to encourage development on greenfield sites because that is where they will raise the most money. Which are you more worried about?

Mr MacDonald: Both in a way. Past experience has shown that there may be a tendency under some of the previous systems for local authorities to be better inclined to give permission on greenfield sites if they can see the link between that permission and revenue accruing back to that local authority. I speak from some experience of working in the DoE when the community land tax was in operation, so there is that fear, but that to us is not a main fear. The point we are making about being based on a greenfield system is that this is not the way that the majority of development takes place, certainly the way that the majority of housing development, and therefore we are worried for the Government that they may not achieve what they seek to achieve because they are basing it on just one part of the market.

Q8 Martin Horwood: So if we are talking about brownfield sites would you, for instance, be in favour of a zero rate for brownfield sites which might encourage development on urban areas?

Mr Amos: To some extent the perverse incentive, if that is what it is, is really that, because the land value increases are that much greater on greenfield sites already. By and large I think we would argue that local authorities do not prioritise raising revenue from section 106 over resisting greenfield development. It seems to us that a number of authorities are quite able to resist that temptation in the current system and they should be able to resist the temptation in the new system. In terms of a differential rate, as you said in the introduction to your question, the yield would normally be much bigger on greenfield anyway because of the land value differences. The TCPA does believe it would be worth prioritising brownfield but through how the revenue is spent in terms of cleaning up more contaminated land and bringing forward more brownfield sites that currently are unsuitable for development.

Q9 Martin Horwood: But surely that will hit the exact areas that the RTPI is talking about which are in need of investment and development, will it not, because there will still be a financial disincentive even if there is infrastructure promise?

Mr Amos: If the tax was levied on brownfield sites?

Q10 Martin Horwood: Yes.

Mr Amos: If there is no profit with a percentage tax there is no tax to be paid, so tax is relative to the profit being made. There are sites in Mayfair which will be brownfield sites. The question is, do you really want to exempt those because they are brownfield even though the profit would be very large?

Q11 Mr Olner: How much more revenue for infrastructure and affordable housing can be raised from developers without causing land banking? If we go back to the Community Land Act, and I can remember that well, is this Community Land Act II?

Professor Hennebury: The way that it is designed, I suppose the short answer is no, not least because the original levy under the Community Land Act was 80 per cent and the proposals here are for a very modest level. There is not an exact figure but it has been suggested to be no more than 20 per cent. The principle is not dissimilar, as with all taxes on development value.

Q12 Mr Olner: How do you propose dealing with the very thorny issue of when does a piece of developed land become brownfield? I am talking about perhaps an old commercial usage that is now no longer appropriate to being in commercial usage and perhaps should be a residential one? Is there anything in the system that makes a difference in this or gives any guidance as to how it should be treated?

Professor Hennebury: The short answer is no. If we are assuming that the level of the tax set is the same for any land (and this was referred to in the previous question), that we are setting the same rate for brownfield and greenfield, the tax will be relative to the development value uplift which is achieved, so if you are talking about, for example, an urban site which is in former industrial use, with the decline in manufacturing that is worth very little now.

Q13 Mr Olner: I said commercial use.

Professor Hennebury: If you move from, say, low quality office to high quality apartments you are going to get a value uplift and that can be taxable, so the principle will apply in all circumstances.

Q14 Mr Olner: Do you think there is no problem about land banking being caused?

Mr Amos: From the TCPA point of view I think we would argue that the rate that has been talked about, so it is in the region of 20 per cent, is a lot less than the development land tax. According to parliamentary written answers from that time, when it was abolished in 1985 it was raising what in today's terms would be between £50 million and £100 million. By the mid eighties there was little evidence that this was holding back development by that stage, but my colleague, Nick Freer, from the commercial world may have another take on it.

Mr Freer: I have not seen research which identifies the particular figures and it is probably difficult for them to undertake that research. One of the key things for the development industry is whether whatever level of tax is put in place does deliver the investment that they see on occasion holding up development, whether it is from additional money for the housing corporation to allow their affordable housing to come forward or whether it is funding for the infrastructure, which at the moment is part of either a bidding process or an allocation process, rather than the money being immediately available to free up the development. I think those are going to be some of the key tests, that if some of those barriers are removed then that will be one of the implications on which the development industry will judge whether or not it is worth bringing forward their sites.

Mr Olner: I would suggest that the Community Land Act was scrapped for political motives.

Chair: There is no answer to that.

Q15 Mr Olner: One of the things that it started to find, however, was the number of exemptions that were put on the land. Do you say categorically that this will not work if there are exemptions? Are you saying to us in giving evidence that there should be no exemptions, that every developer should pay?

Mr Amos: I think, Chair, that we are all a little anxious to see some more detail from the Treasury. Certainly the TCPA is sympathetic to Planning Gain Supplement and we want to see a move forward to the next stage, but we are not giving it our unreserved support until we know what the rates are, what the exemptions might be. Until we receive that information it is very difficult to make pronouncements on where the exceptions should be and so forth.

Mr MacDonald: And certainly we would say that there should be exemptions but again we would agree with the TCPA that we will want to know what. Just a simple greenfield/brownfield exemption is not sophisticated enough. If we are going into exemptions we need a far more sophisticated approach which maybe looks at the need for remediation, for example, of land, or maybe looks at particular uses that you need to bring into an area if you are going to create these things called sustainable communities.

Q16 Mr Betts: The RTPI have expressed some concerns about the possible effects of excluding affordable housing from the PGS and instead leaving that under section 106 arrangements. The Government say on the other hand that section 106 will continue to work for affordable housing as it always has done so there should not be any impact. What adverse effects do you perceive?

Mr MacDonald: Two, I suppose, initially: first, that we are coming into the realm of certainty or uncertainty for the development industry. If this scheme is to work then one of its attributes must be certainty for the development industry to help the development industry not to bank land and withdraw land. If a fairly significant part of a development is still subject to negotiation through section 106 then that certainty will not be there in the system. Secondly, and perhaps more importantly, there is no certainty from the consultation document that affordable housing will benefit from any of the revenues accruing from Planning Gain Supplement. We do not know how it is going to be redistributed. We do not know, for example, in this case whether the housing corporation will be a beneficiary of the revenues of Planning Gain Supplement but if it is not then one part of the equation, affordable housing, remains static, subject to negotiation with, as Professor Hennebury has said, local authorities not necessarily gaining the most value that they could through these negotiations while other bits may benefit from any increased revenue that does come from Planning Gain Supplement.

Q17 Chair: Can I just pick you up on something you said there? You said that essentially you were not keen on more being open to negotiation, that you wanted the system as clear as possible, and yet you are suggesting that section 106, which essentially is entirely negotiation, should be modified instead of the PGS which is non-negotiable. Can you square the circle?

Mr MacDonald: Just about, I hope. What we are trying to do is look at the Government's intentions behind this particular scheme, Planning Gain Supplement, and one of the intentions is to bring more certainty into the system. We are saying that that certainty will not necessarily be brought into the system but at the same time we are saying that within the existing system there is a lot of scope for improvement if you do not go down the PGS path. There is still an awful lot of scope for improvement.

Q18 Mr Betts: I am still a little bit lost by that. Both organisations seems to be saying that there should be some benefit to affordable housing from PGS, but there is going to be a finite amount of money you can get in the end from any site. Is not one of the advantages of section 106 precisely that, that on each side there can be a look at the particular requirements and nature of that site and an ability to get some mix of tenure on the site by negotiation? One of the worries some of us have if you went down the road of PGS being the way forward for affordable housing is that many developers are going to be very happy. They just pay a sum of money over, they build their executive houses on the site, and the local authority can go and build its rented houses somewhere else well away where they will not depress the values of those houses.

Mr Amos: We are very concerned about that as well. I do not think we are suggesting that housing should be funded any other way than through 106 because you have to get that mix on site. If the Government did take a small proportion of redistribution of the revenues and decide to put some of that into housing corporation then that would be some extra, but the TCPA is saying that we want to see generally affordable housing agreed on site through section 106.

Professor Hennebury: The evidence from the work that some of my colleagues have done on affordable housing for ODPM and Joseph Rowntree is precisely in support of those two points, that local authorities overwhelmingly prefer to obtain affordable housing through in-kind contribution on site, because if they get a cash contribution instead they are bidding in the local land market and often are not able to find sites themselves simply because of the availability of land, and that private sector house builders, quite understandably, have bought in most of the land available, so it is extremely difficult for them to achieve affordable housing development unless it is delivered through section 106 agreements and in-kind contribution.

Q19 Anne Main: The TCPA stress the need to ensure that the proposed systems raise significant revenue. Do you have any practical examples of similar systems working that the Government can encouraged to investigate? You also say that you would like to see a close link between the places where funds are generated and where they are spent. I would like you to expand on that a bit further please because I am still getting a lot of messages about brownfield sites possibly being exempt or even being helped to become ready for development and they already have infrastructure deficits in those areas. How do you propose those would be dealt with? How far do you see revenue being generated in another area being moved?

Mr Amos: We tried to answer that at the beginning, saying that in the region of 70-80 per cent of the revenues raised should be returned to the local authority where they are raised, which would leave a much smaller proportion for redistribution. That redistribution could and should go into prioritising brownfield site clean-up to bring forward more brownfield land in local authority areas where they may not be likely to receive much planning gain generally. There would be that proportion available to central and regional government to redistribute but we are suggesting that something in the region of 70-80 per cent of all revenues should go directly back to the local authority.

Q20 Anne Main: Do you believe there is a model somewhere that the Government should be looking at? I notice you said 70 per cent, 30 per cent going to central government in there. I presume you are thinking there will be a bidding pot that people go for and so can you see a model you can suggest to us and how would you not have a bidding scramble for this 30 per cent that would be centrally located?

Mr Freer: One slight concern about how you deal with that is straightforward, through a bidding process. The suggestion in the paper is that it goes into the community infrastructure fund and at the moment that is a sort of bidding process and there is uncertainty for the industry as to whether or not you receive that money or you do not. It is part of a bidding process, so I think it would probably be helpful as part of the introduction of a system to have more certainty in the allocation of funding for particular requirements if they be in the areas which you would identify as having an infrastructure deficit and the identification of funds particularly for remediation or otherwise to help to deliver that.

Q21 Chair: Who would identify those needs? Would it be local government, central government?

Mr Freer: At the moment some of those investment funds are being identified through regional frameworks and the various sub-regional studies and efforts that are being identified as part of that process.

Q22 Alison Seabeck: The RTPI highlighted the problems that could be caused by breaking the direct link between payments and the provision of infrastructure, but at the same time you are in favour of some level of redistribution. Are those two objectives compatible?

Mr MacDonald: We feel so. We do think first that this break is very important. The TCPA has talked about payment for gain for the pain and we would support them in this. Local authorities at the moment in effect and sometimes in fact have a contract with the developer to deliver certain benefits - pieces of infrastructure, a health centre, whatever, as part of the development, and this must be part of the Government's drive to creating sustainable communities. If the uplift in value of the revenue disappears somewhere through the Treasury or through the revenue department then that contract is broken and we fail to see how a local authority can require, for example, the staging of a development until certain things have been provided if that link has been broken. We see the need for that link but we do not see that as being incompatible with some degree of redistribution at national level with the local authority perhaps, and one thing we suggest, coming back to the previous question, is far more explicit investment plans by local authorities and then at regional level, and then in fact a national spatial investment plan.

Q23 Alison Seabeck: That starts getting to the complexities of how PGS once levied will be spent in terms of managing up-front infrastructure development. Some of these decisions need to be taken nationally, regionally and some locally. You have got local authorities trying to levy this at a fixed point. Do you have a view as to whether or not the fixed point which is currently being proposed for levy of this will enable infrastructure to be brought on stream and started prior to developments in a way that is physically workable? You could, for example, have a big housing scheme that required a new road, which may have implications at regional level as well, but the funding, of course, will not come until the final phase there, so you are very reliant on negotiations through the pot that hopefully will have developed over time, and I think we all have worries about how those negotiations will be managed and how these projects will be prioritised. Your views on that would be helpful.

Mr Amos: We would want to see gap funding as one of the key requirements to enable the PGS to go forward. In other words, if PGS was brought in in 2008, it would not be good enough to wait until 2010 for the first bit of infrastructure to come on stream and therefore the Government would have to make provision for forward funding infrastructure schemes that is going to unlock housing supply, and the Government needs to have planned for that introduction process. Otherwise the risk is that the impact on the development industry will be to slow it down and to slow down the supply of housing, which is one of the key factors, we believe, that this scheme will be judged on.

Q24 Alison Seabeck: So gap funding is obviously vital because otherwise it potentially could grind to a halt. Has anybody done any work on what that level of gap funding ought to be? Has anybody done any assessment, if you take a fixed point like now, on projects that are in hand prior to other proposals? Has anybody done any work, do you know?

Professor Hennebury: No. I was involved in some research for the then DoE in 1993 on the introduction of impact fees into the British planning system, which has raised many similar principles, and one of the major problems we had was that the requirements for infrastructure and the cost of its provision varied so much by site that it is virtually impossible to come up with any reliable estimate other than some gross average, which may not be particularly helpful in a scheme like this where you have huge local and regional variations.

Q25 Mr Olner: Just a quick supplementary on that. These things can get out of sync, can they not? Usually, talking from the shire counties' point of view, the district authority is usually the planning authority. The district runs the infrastructure improvement. It starts that bidding process three or four years earlier and the infrastructure - and I am talking about highway infrastructure in particular - gets ramped through the regional office and then through the county council. How on earth can we use the Planning Gain Supplement to effect that sort of infrastructure if granting the planning permission is some way down the line?

Mr Freer: Perhaps one of the things that helps a little bit in that debate is that there are one or two examples now around the country where we are beginning to move towards revolving infrastructure funds which identify pots of money that will forward-fund infrastructure and investment, and that at the moment is being identified by some of the regional bodies as a requirement which then allows development that would otherwise have to wait for infrastructure to be delivered to come forward on the basis of this pot of regional investment fund that is available. As development PGS contributions are fed into that progressively over time, and the ODPM has already raised the point about the gap funding in the short term and the transitional arrangements, then there is funding that does potentially free up the development prior to that development having made its contributions through the system. It is a sort of fund that would enable individual development schemes and individual proposals to be drawn down to allow them to go ahead.

Q26 Mr Olner: Yes, but very often what you think the infrastructure is going to cost now some ten years down the road will be completely different and there is a shortage of funds to fill that gap. How is that going to work in the system? I am showing my age by coming back to the old Community Land Act. It was to provide social amenities and not so much for infrastructure. The infrastructure was a very difficult kettle of fish for us to move forward together with.

Mr Amos: I gather you are hearing from the Milton Keynes Borough Council in due course and they may be able to give you more information about figures and the amount of money in terms of gap funding and forward funding that is needed. Certainly, we have been active in supporting that development of the tariff, the super 106 approach. We believe that it is important to bring forward these other mechanisms notwithstanding the fact that there is a consultation paper on Planning Gain Supplements being debated.

Q27 John Cummings: In a nutshell, could you tell the Committee how well the current section 106 arrangements have worked in order to provide infrastructure in an efficient and timely manner.

Mr Amos: The words "nutshell" and "section 106 agreement" do not usually go together.

Q28 John Cummings: Why are you all laughing? It is not a trick question.

Mr Amos: I think Professor Hennebury mentioned that various studies have shown how variable section 106 practice is. In some authorities there are well experienced negotiators with good experience of section 106 and the system works well.

Q29 John Cummings: I understand that, that has been said. Should I assume it has not worked well, it does not work well, or it can never work well?

Mr Amos: We believe that it presents serious delays to the system and we do not think it works well.

Q30 John Cummings: Any application causes delays. It is quite a simple question. Do you believe it is working well?

Mr Amos: No, we do not believe it is working well.

Q31 John Cummings: Why?

Mr Amos: We want to see improvements. We believe this could be one improvement to PGS but also, as I mentioned a bit earlier, the Milton Keynes tariff would be another improvement. Essentially, we are saying that the current 106 system does cause delays, it needs to be looked at seriously, there must be ways to find improvement. PGS is one and Milton Keynes is another.

Q32 John Cummings: Very briefly, what would you do to improve it?

Mr Amos: We would look at the Milton Keynes tariff system.

Q33 John Cummings: Without looking at anything, not Milton Keynes but what is your idea?

Mr Amos: We would roll out that scheme. We believe that is a good scheme and we would roll that out much more widely.

Q34 John Cummings: You have not got a better one yourselves?

Mr Amos: We helped to come up with that scheme.

Chair: A TCPA tariff.

Q35 Martin Horwood: We are facing the prospect here of having two systems running concurrently, section 106 and PGS, of having a whole new system of valuations and more centralisation. Does either of you think this is going to be a cost-effective and confidence-inspiring alternative to the current system?

Mr MacDonald: First can I say that anything we have said to this Committee, and in our evidence, is not to say that we do not support the principle and we do not see the desperate need for more funding in infrastructure. If we can have a Planning Gain Supplement system that can be made to work, then we would whole-heartedly welcome it because there is the need for this investment. We are saying that upfront.

Q36 Martin Horwood: Is this proposal what you have got?

Mr MacDonald: We believe this system has a number of deficits and defects within it and I think the Government would be hard pressed to achieve its own objectives through the system that it has set out.

Q37 Anne Main: Without going down a whole list of the deficits, do you think there is a risk that the PGS will turn planners into tax collectors? As you say, some parts of land would look immensely attractive in terms of if you could see yourself with a bit of a deficit in terms of a hospital, or a road, or whatever it is. Will that pervert their role in development? Will that mean that they are looking at the purse rather than what is best for the community?

Mr MacDonald: We would be certain, of course, as the RTPI, the professional body, that planners would fulfil their professional obligations. We have long argued, even with section 106, that the revenue generating function needs to be separated from the planning function. I will go back to a previous question, very briefly, about the ability to deliver affordable housing and the necessity to do it on site. One of the ways of doing that is through very strong policy guidelines, not only the funding guidelines, but very strong policy guidelines. We are meant to be creating sustainable communities, which means a sustainable community on a site. We need to strengthen the policy guidelines as well as doing this through a funding mechanism.

Q38 Anne Main: You said the revenue function is separate from the planning function. Are you envisaging a whole new tier of inspectors or people who are going to administer this? Is this a whole new subsection of Government?

Mr MacDonald: I think that is inevitable in any new taxation system even though it is self-assessment. We know within the normal taxation system, a large part of that is self-assessment but we still have a significant number of civil servants dealing with the existing taxation system.

Mr Amos: In the 1980s when town and land tax came to an end, the estimated collection cost was between five and ten per cent of revenue, so although it is serious, it is still a relatively small percentage. I think the separation of policy functions and the tax collection functions are probably best handled by the Valuation Office Agency that already have this land valuation expertise in handling the collection rather than local authorities. The consultation paper is seriously defective in not giving local authorities that reassurance about what happens to the revenue. We do not see the need for local authorities to be collecting the Planning Gain Supplement but we think the consultation is defective in not giving assurances about what local authorities would gain by way of revenues.

Q39 Anne Main: Is it centrally collected and honestly given back 70 per cent of it?

Mr Amos: Yes.

Q40 Mr Betts: There is one further issue which I am concerned about, and this is the issue of trying to determine what the value of the land is before it gets its uplift so it is going to be taxed. There are two issues. It is difficult enough to determine what the value of land is before permission is given but if there is, as I understand there is, a serious intention to take that value to include hope value, is that not going to be a very difficult mechanism to deal with? Secondly, is it not the case that in looking at the value of land before the public authority changes the potential value, it is not the giving of the permission for the individual site that is the important stage - and that is where I understand the current value is going to be determined - but say at the strategic development framework stage where the zoning of land may be changed from industrial or agricultural to residential, that is the real point where the uplift takes place and that is not going to get taxed under the system, is it?

Professor Hennebury: I must admit reading the consultation I was not clear. It depends on the statutory definition of existing value and planning value which I was uneasy about myself for precisely the reasons you say.

Q41 Chair: If you are saying the definition in the consultation paper is not clear, what would you suggest the definition should be, notwithstanding the fact that you are not in favour of it anyway.

Professor Hennebury: It depends what you want to do, if you want tax development value, that is defined normally as the difference between existing use value. If it is agricultural land, for agricultural use and a new alternative use for which planning permission is granted, such as housing, the issue of hope value would not come into it if that is how you define it.

Q42 Chair: Can I clarify the example that Mr Betts was giving, if you have got agricultural land which is designated in the local plan to be suitable for residential development and then, subsequently, a planning application is put in. At which point do you think the value should be captured? Where should the start point be?

Professor Hennebury: I cannot say. The point that you choose depends upon the objective which you have.

Q43 Chair: Which would you choose?

Professor Hennebury: If you want to maximise revenue then you would define the start point for the uplift to be "existing use value". You create all sorts of problems by that because people will be trading in land on hope values, for example, which will be considerably higher but there may not be any permission or zoning. People will trade white land, which is land with no planning allocation, with considerably higher values than existing use value if they think there is a chance of being allocated. It is an absolute minefield.

Q44 Chair: Do they not do that already?

Professor Hennebury: Indeed, yes but, of course, now because there is no tax developers are doing this on the basis that they factor in the risk of not achieving planning permission which affects the price they bid.

Q45 Chair: Does the TCPA want to comment on that particular question?

Mr Amos: Only that these valuations, yes of course they are complicated but they are carried out on a regular basis already by surveyors and so forth. In the past that did not seem to be a show-stopper in terms of the operation of this kind of taxation.

Chair: Thank you very much indeed.

Witnesses: Ms Liz Peace, Chief Executive, Mr Mike Gunston, Director and Chief Surveyor, British Land Corporation Ltd, British Property Federation, Mr Louis Armstrong, Chief Executive, Mr Chris Hart, Vice-chair, RICS Taxation Policy Panel and Mr Ted Westlake, Chartered Surveyor, Edwin Hill Chartered Surveyors, Royal Institution of Chartered Surveyors, gave evidence.

Q46 Chair: Can we start off by you briefly explaining who you are starting from my right?

Mr Gunston: Good afternoon. I am Michael Gunston from the British Land Corporation helping with the BPF today.

Ms Peace: I am Liz Peace. I am the Chief Executive of the British Property Federation which represents the commercial property industry.

Mr Armstrong: I am Louis Armstong. I am Chief Executive of the Royal Institution of Chartered Surveyors which represents all sections of land property construction with 110, 000 members in every aspect of public and private real estate.

Mr Hart: I am Chris Hart. I am a fellow of the Royal Institution of Chartered Surveyors.

Mr Westlake: I am Ted Westlake. I am also a fellow of the Royal Institution of Chartered Surveyors.

Q47 Martin Horwood: Can I ask you to start by expanding on how you think the proposals for Planning Gain Supplement are going to impact on different kinds of development and I draw you specifically to brownfield against greenfield and commercial against residential.

Mr Armstrong: May I start with that. The general view is that we would find every aspect of the Government's proposals to fund infrastructure through some form of tax to be a very good thing for society. The difficulty is in the detail. I think as far as greenfield is concerned, the classic case of a farmer selling land and the uplift being something that should be taxed is not as simple as it sounds. I am going to ask one of my colleagues to address that point. As far as brownfield is concerned, it sounds attractive to have encouragement for brownfield development by some form of differentiation of any taxation on brownfield but, again, it is not as simple as it sounds and I am going to refer that to the expert. The same is the case when we are trying to find out ways in which we can deliver the Government's objectives through some form of tariff arrangement or some form of supplement which would generate the infrastructure needed to go with development.

Q48 Martin Horwood: Precisely on the differential rate, given that the differential rate for brownfield sites presumably is at a lower rate, would that mean that you would get less revenue and, therefore, it would become more and more a greenfield scheme?

Mr Armstrong: I think the risk is that you would have unviable brownfield schemes so that it would not get done at all because the viability is marginal at best and if there were not some form of differential treatment, you might find you would get no revenue because there would be no development.

Q49 Martin Horwood: Surely if it is a percentage uplift tax, marginal sites would have very little uplift and therefore very little tax, is that not the argument against that? The main problem is that effectively it would have no revenue value so there is a financial incentive to develop greenfield sites both for the Treasury and the local authority that was going to benefit from this.

Mr Armstrong: That is certainly the risk. There is a real risk that the Government's objective of generating more housing on brownfield sites would be hindered rather than helped by a Planning Gain Supplement. There is no doubt about that in our view.

Q50 Chair: Is that the BPF's view as well?

Ms Peace: I should say our members, on the whole, do not do wide scale development on greenfield sites and the original Kate Barker proposal looking at housing development on greenfield was something that we did not see as being hugely applicable. What we now have is a proposal which it is suggested will apply across the board to all development including the sorts of things that commercial developers do, which tends to be buying a site with a building on it, knocking it down and building a better building that will yield a bigger income. When you try and apply this concept of a Planning Gain Supplement based upon an uplift in value to that sort of development, in our view it becomes hugely complicated. We think it will bog the process down in complexity around the issues of valuation, that you will end up with delaying payment from the site, if you ever get it at all, it may reduce it in some cases and it will not facilitate the provision or the necessary infrastructure.

Q51 Martin Horwood: We will come back to those detailed questions but can I draw you back to the original question which was about the impact on greenfield and brownfield and also residential against commercial.

Ms Peace: In terms of an impact, I have no doubt that this will, if you apply it to a commercial development, deter an element of commercial development. People will find it disadvantageous to be dragged into the whole PGS system when they are looking at doing a commercial development. What we will see is a slowdown in the sorts of development we want to see from our members' perspective in urban areas. British Land will be put off doing developments like this.

Mr Gunston: It is absolutely feasible and it will certainly slow down the process. That is the issue that one has to be concerned about.

Q52 Anne Main: You mentioned the differential between the valuation of the site with the old building on and the site with the new building on. Who do you envisage will be doing the valuation?

Ms Peace: I am going to defer to our valuation experts on the right. Effectively, the current owner under the system being proposed has to work out what that number is going to be and have it certificated by his valuer and put it forward. This is not a precise science and you said you wanted to come on to that later, but the scope for disagreement around that is huge.

Q53 Anne Main: I want to park that a bit. Talking about the differential between the sites, if the Government does treat brownfield sites differently would you like to give us a definition of what you think a brownfield site should be considered to be and, after that, can I ask you to consider should there be a difference between brownfield and contaminated land? If there was, do you think there would be even more hurdles being introduced into the system?

Mr Westlake: The first question is a widening of the definition of brownfield.

Q54 Anne Main: What would you consider to be an acceptable definition of brownfield? Do you think there should be a differentiation between that and contaminated?

Mr Westlake: Obviously we take brownfield to be synonymous in the Green Paper with previously developed land, i.e. land which has previously or actually has a building or permanent structure on it.

Q55 Anne Main: And its curtilage?

Mr Westlake: Yes, indeed, its immediate curtilage. It would not necessarily be the whole area that you would want to develop. It needs to be wider than that because there are all sorts of moribund tracts of land in this country, old mineral workings, waste tips and so forth, that have not been remediated as such and look pretty bad. We call them brownfield but they are not technically brownfield. I think they would need to be swept into that particular pot, that is point number one. Should there be a differential, is that what you are saying?

Q56 Anne Main: Should you differentiate between brownfield and contaminated? If so, what would you suggest should be done but then would that make more hurdles and more complexity?

Mr Hart: It is difficult to differentiate what you mean as contaminated. We already have land remediation relief which relates to a tax break on land which has to have remediation to make it developable so long as the work carried out on the land is not work that we carried out as part of the development as a whole. A classic case here is the removal of asbestos in an existing building. The way you have to remove asbestos, take it off site and dump it on hazardous waste sites, is something on which you can already get land remediation relief. It is quite hard to draw the point at which you say something is contaminated and is not contaminated. We know when something is sufficiently contaminated to predicate against a particular form of development but trying to draw a differentiation between brownfield and land that was then contaminated on brownfield would be pretty difficult.

Mr Westlake: Basically, I think the point is the purpose of that is presumably you are saying you want something that will help encourage brownfield development.

Q57 Anne Main: I am not saying anything. I want to know what you want.

Mr Westlake: Fair enough.

Q58 Martin Horwood: There is a site in my constituency which has large gas bullets in which are removing from possible development use a large area within an urban area which otherwise would be very good for both housing and commercial development. It is not exactly contaminated but certainly it is not appropriate for residential development at the moment. Is that the kind of area that you think would be appropriate for PGS revenue to be used in remediation work if that can be converted?

Mr Hart: The way that we understand, it is proposed to calculate PGS revenue would be on the uplift of the value of the site at the point of the gaining of planning consent. When you ascertain that value you would take into account the development cost of the site. If you had to remediate the site or remove contaminated material, those would be taken into the costs. The bigger the costs of development, the more difficult the development and the lower the uplift. It is, to a certain extent, self-balancing. There is a lot of land in the UK which is redeveloped using central Government or EU grants where the basic concept is that the land value does not increase as a function of the planning consent.

Q59 Martin Horwood: It would be a very brave developer who took on that kind of site in its current state.

Mr Hart: Places like Tyne Valley in Newcastle are ones where this happens but supported by EU grant.

Mr Westlake: The big difficulty of that is a brownfield site such as that may well not have a very high value for development, it may have a very low uplift, it may even be "negligible" therefore it is not going to be self-sustaining on financing in terms of providing money for its own infrastructure, that money under the PGS system is going to have to come from the central pot. The big problem is, and it is really the cardinal concern that we have, if central Government is collecting the money and redistributing it, how, when, why and where will it be spent? Your brownfield site might be waiting an awful long time because it is not self-sustaining in its own PGS. That is your big problem. With the greatest respect, this is not a political case for one second but there is a concern that public sector provision and control over infrastructure provision could well lead to uncertainty and delay more so than when the private sector is able to do it and seek to provide it. That is the big problem for brownfield land; any major development land but particularly brownfield if that is what you are asking about.

Q60 Mr Olner: Just a quick supplementary connected to a question that I asked the group giving evidence before. Do you favour any exemptions for the quarrying industry, for the minerals industry or for the sports industry? The Barker Report only spoke about housing but this planning thing is going to be all-embracing. Do you think we ought to stick to housing?

Mr Westlake: Anything that is an exemption for any category of property or development spells distortion in the market, it spells favouritism of one type of development over another. We do not think that is particularly desirable.

Q61 Mr Olner: A simple yes or no to stick the Planning Gains Supplement to housing only.

Mr Westlake: It would be a nice idea in one way but you then have problems in mixed use development. Where does your housing begin or end in apportioning values, et cetera. It is rather uncertain and airy fairy, I am afraid.

Mr Hart: I think the answer as far as I would be concerned would be no because a lot of development now is mixed, particularly in the areas you are talking about, for example sports development. A sports stadium will often have a great deal of infrastructure around it. It may have residential but it usually needs commercial to make it pay for itself. Once you get into composite development it is very hard to split out what is and what is not exempt. As a generality, I would say the answer to the question would be no.

Q62 Chair: Ms Peace, firstly, to pick up on something you said before, which was you seemed to be suggesting that land values would be extremely difficult to value, although my understanding is valuers are doing it all the time on complex sites, why did you think that would be so complicated for commercial brownfield sites? Secondly, I understand your position that you would prefer commercial sites not to be within this at all but if they are going to be covered by PGS, how does PGS disadvantage commercial development when it would be taken into account in the land price and how do you think the proposals should be modified in order to ensure that commercial development is not unduly disadvantaged?

Ms Peace: In terms of commercial development quite often you would not be looking at a purchase, you would be looking at a developer who has owned a site for a length of time and decides at some point in his ownership of it to redevelop it. In the whole development process you would then, through a PGS system, be taking quite a large chunk of money out of the site just at the time when it was probably not very helpful to the viability of the actual development. Mike will expand on a typical type of development site. We do not think PGS is the sensible way to extract the contribution for infrastructure, it fundamentally misunderstands the stages at which value is added to development in commercial development sites and there are other better ways of extracting the contribution to infrastructure, which I would have to stress we do not dispute. We accept that development needs to make a contribution but we feel that PGS is the wrong way to do it. I am sorry, I have forgotten your first question.

Q63 Chair: Why you thought that valuers would have such a problem in valuing property when they do it all the time.

Ms Peace: Can I defer that to one of our valuation experts here because of the technicalities, a quick survey.

Mr Hart: One of the real sticking points from a valuation perspective is an assumption to be made that everybody is freehold with vacant possession. That is a major sticking point because we are not valuing what is there, we are not valuing the leasehold interest, the interlocking interest, the marriage value between the various leasehold interests available to the freehold, we are valuing on a presumption that it is freehold with vacant possession. An extreme example of where this would predicate against the potential developer would be a farmer looking to diversify who might have a three-year tenancy, he might be half way through a rolling three-year tenancy and he wants to redevelop some outbuildings for offices or for holiday homes or cottages. He does not have a freehold interest with vacant possession. Therefore, PGS applied to the small-medium sized enterprise which had a leasehold occupation could prevent development because of the presumption in valuation that you have a profit which you can grasp. On the other three year farming tenancy you do not have a freehold, you could never realise the freehold value.

Q64 Chair: Mr Gunston, would you like to give an example of how a complex commercial development works?

Mr Gunston: I was going to say that there is another twist to that as well. The presumption in the consultation paper is that the granted planning consent will lift the value but you may not have the frontage of the site or whatever, you may still have to acquire it, so there will be a lot of value tucked away in that particular interest still to be acquired. There is somewhat of a presumption in the proposals as set down so far. It is true also that we do not necessarily go out as an industry and buy buildings every time. Quite often they are within a portfolio for an established period. We have examples in our organisation where we have developed after 30-odd years gradually acquiring interests. If you have got to that stage, the addition of PGS might distort the equation, the risk factors may not have been included in that example.

Mr Armstrong: If I can interject before I come back to the residential point that Martin Horwood made. Ted Westlake, who has written a book on development land tax based on the previous 50 years' experience, could demonstrate, and we are happy to submit more evidence on this, how difficult it is in practice and how previous attempts at some form of capture of uplift in value have failed partly because it did not have all-party consent and partly because of the difficulties and long lengthy process of advisers conspiring with each other over these sorts of issues, valuation in this case being more an art than a science. Might I come back to Mr Horwood's point on residential. Although Kate Barker had hoped that there would be much more development land coming forward for housing, and affordable housing would be made easier and there would be more of it, everything we hoped for, in practice the RICS's view is that there would be disincentives to bring forward land and the extra costs of PGS that would not otherwise have been paid under the existing regime where so many smaller developments are below the threshold for section 106 tariffs, would then have to add the cost to the housing. Therefore, not only would you not get a lot of land coming forward, as Kate Barker had hoped, but you would also run the risk that housing itself would be more expensive because of the additional cost of the tax, so it would not seem to the RICS to be a natural way of achieving that particular residential objective.

Chair: If you want to provide additional evidence can I suggest that more helpful than a detailed history of the debate would be some positive suggestions as to how the PGS could be improved.

Q65 Lyn Brown: Can I ask why you think it is so important to retain the link between the developers' contributions and the provision of infrastructure at a local level, and can I also ask what you think would be a reasonable or acceptable amount for the Government to obtain to invest in national infrastructure projects?

Ms Peace: Shall I kick off on activity and then again I will ask Mike to come in with specific examples? This is speaking now very much from the commercial perspective. When a commercial developer or a commercial landlord wants to do a development he almost inevitably meets a degree of opposition in the area in which he wants to do it. After prolonged negotiation usually a deal is reached and as part of that deal there is a section 106 payment which brings some amelioration of the impact of the development to the local authority, so that the local authority which is going to feel the effects of the development also gets the benefits of the development and the developer himself will almost certainly have a hand in providing that degree of mitigation and that infrastructure. The whole thing means that at the end of the process - and not everyone is perfect, I hasten to add - there is a degree of win/win: the developer gets his development, the local authority get the amelioration and it is done within a timescale that both parties can agree. Then a few years later the developer comes back again for another tranche of development and the inclination of the local authority is to think that this chap means well, he is okay, he has got the local interests at heart, so you create a sort of community of interest between developer and local authority. If you break that link, if local authorities cease to receive back the full benefit arising from the development that has been done, they are going to be less inclined to favour the development and we certainly envisage from the commercial development perspective a lot more contested developments, a lot less development, a lot less rebuilding of our somewhat derelict town centres and also a delay in the provision of any infrastructure that is agreed because it is all going through this loop through central taxation.

Mr Gunston: There is an undoubted nexus between the development company and the individuals, the local people, where the development might be situated. There are undoubtedly out of that discussion all sorts of advantages that the community might extract out of the scheme have a degree of appeal and I think, as Liz Peace says, that there are extensions. We have ten-acre sites, we have larger sites, but there is frequently the question of going back to renegotiate a new scheme, an additional scheme, for an extension or whatever, and I think that out of that relationship it is undoubtedly much smoother. If that debate is removed, or largely removed, I do really see that the process will be slowed down. I guess above all the biggest concern is that if there is this central pot of money the recirculation of it to that community has commercial ramifications as well largely because, if it is being negotiated at the locality within the scheme, often a lot of those improvements that have been negotiated will be undertaken by the developer. If the funds are coming out of a central pot and then getting redistributed there is a question of timing as to when those items are delivered and it could have a very serious slowing down effect on the development process going forward.

Q66 Chair: Evidence that we have received before you got here, from the Treasury, is the absolute opposite, that the national infrastructure fund could precisely forward-fund and that the difficulty with section 106 is that the development has to be complete before the infrastructure can be funded. Would you not accept that that is as likely as your experience?

Mr Gunston: If the process was pump-primed and there was a substantial amount of money therein going forward which could be then utilised straightaway, that undoubtedly would be of assistance and would overcome a degree of the timing issues, the commercial issues.

Q67 Lyn Brown: You did not tell me what percentage you thought would be reasonable to take out of the Planning Gain Supplement and put into national projects, but the second thing I think I heard you say was that you fear that commercially there will be less profit for the developer because the infrastructure that might be accrued by the Planning Gain Supplement would not be undertaken by that specific developer but the business might go elsewhere.

Mr Gunston: I apologise if I gave you the impression I was even alluding to profits. That was furthest from my thoughts. It was purely the deliverability: if you had got a scheme that was dependent on a piece of infrastructure, a new roadway or something that had to go in before the scheme was built, and if that roadway was not delivered, whereas the developer in the present situation would probably build a road as a preliminary and then move forward. What I am suggesting is that under the proposals, as I understand them, that may not be the case and the timing is not spelt out in the paper as to when it might become the case.

Q68 Lyn Brown: A percentage is an answer that I would like to hear, but the second question is, you have talked about how important it is to have local relationships, local partnerships for ongoing projects for speed and ease when the project is on the table. Do you think that could be in any way constrained or made more difficult by the money going to the regional authority rather than the local authority?

Ms Peace: Yes. For as long as the local authority are the planning authority and decide the planning applications they will find it equally difficult if the money is hauled back into the regional level. There is not a great deal of commonality of interest between the tip of Cornwall and what is happening in the suburbs of Bristol, for example.

Q69 Mr Olner: You are absolutely right but it has taken several years to get section 106 arrangements into some sort of order and some sort of recognition. Is it going to take as long to get the new arrangements into order?

Ms Peace: We would rather we did not proceed with the new arrangements.

Q70 Mr Olner: So you do not want the new order to go forward at all?

Ms Peace: We do not want Planning Gain Supplement at all. We would like to see an amalgamation of building on the improvements that have started to be put in place of section 106, and they have barely had any time to take root, together with, where appropriate, the development of a tariff based option, so we would rather not have PGS at all.

Q71 Chair: Is that predicated on the basis that PGS would not raise any more money than 106?

Mr Westlake: It would have to.

Q72 Chair: Is your view predicated on -----

Ms Peace: It is predicated on the basis that it would take a lot longer and be more difficult to raise a sum equivalent to or even bigger than section 106, and therefore the development process, for instance, would be slowed down.

Q73 Chair: What is the evidence for that?

Ms Peace: The simple practicalities of how this scheme, that we have seen only very roughly outlined in the consultation document, would work in practice and the knowledge of how difficult it is to arrive at an agreed valuation. It does not have to be done at the moment.

Mr Westlake: In terms of the valuation process and why I do not think there can be a fixed proportion, to go back to your question, you will not know for several years if the scheme comes what your tax take is going to be and what your infrastructure costs are going to be. You could have quite a lot of development which, taking the brownfield site, is not self-sustaining off its own bat in PGS terms, and therefore it will be several years before you know that you could have deficits in certain areas and you could have surpluses in certain areas. To give a very quick example, if you are planning a tax take based on largish schemes as being the prime sources of revenue, take, say, King's Cross, the London Olympic site, when that starts development how are you going to value that if that comes under the new regime? It is very uncertain what the tax take is going to be, and however they work their figures the fact that the Treasury is working on a valuation based scheme rather than anything related to actual sales or disposals where money changes hands and you know what values and prices are is where you get your big difficulty.

Q74 Mr Betts: This almost makes an assumption that everything is fine now, is it not? There is no problem with section 106 agreements. Developers never ever complain about the delays that happen with them. Is that not one of the reasons this is happening, because of all the complaints about 106 agreements and the amount of time and the inconsistency between one authority and another?

Mr Armstrong: I think there are special solutions. If one is looking for a better way of funding infrastructure, which we all agree is needed to provide the houses we all agree are needed, using methods to make it as certain and transparent and fair and quick as possible, we believe, and I think the BPF do as well, that it would be better to have a closer look at further improving the section 106 agreements, helping the local authorities who do not have experience in making a really successful 106 agreement with developers, extending perhaps the 106 remit a bit more widely, and then you have a direct relationship between the infrastructure needed and the money being provided locally to provide that infrastructure. PGS will have no direct link between the money raised and the cost of the infrastructure, and whilst the Treasury can be optimistic at its ability to hypothecate, ring-fence and distribute quickly centrally, regionally and locally, I do not think those in the market place with previous experience of the way the funding of infrastructure has worked will think that that is a likely runner. It is not a better solution. The better solution would appear to be to allow further consultation on 106 and the Treasury in its consultation paper has not allowed for that possibility, to see whether, with more detailed modelling, that could be made to work to satisfy local authorities that they will get the infrastructure directly funded within their remit - and the nexus point is important - and to try and make sure the Treasury do not take an over-optimistic view of the realities of providing the funding through the mechanism that they have raised.

Q75 Mr Betts: Let me just come back on that. I suppose the argument might be that just having a tax, paying a sum of money out, might actually be easier for developers and not having a minute to argue about how much contribution they make to a 106 but the nature of it. We do not think things can get bogged down in those sorts of detail. Just coming back further on what you have just said, is the implication there that by improving section 106 we can get more contributions from developers out of it and, if it is, that is probably a slightly different view than the BPF would have of the situation.

Ms Peace: If I can pick up both that and your earlier point, yes, indeed, it is true the industry has complained extensively about the way section 106s are handled, but there is a huge amount of difference between local authorities who handle it well and local authorities who handle it badly and a great raft of local authorities who do not do it at all, so there are quite a lot of developments that are probably of a size such that there could legitimately be some degree of section 106 where it simply does not happen. I believe there is a study that has been commissioned by the Government looking at the scope of section 106. We did one of our own about five years ago so it is substantially out of date, and I think we found that there were only about ten per cent of developments that actually did attract a section 106 negotiation and settlement. I think there is scope for huge improvement. I think also the reforms that have been introduced to the planning system through the Planning and Compulsory Purchase Act facilitate that by requiring a greater degree of strategic planning and thinking up front when you are planning for development in an area. If indeed you are going to do that and a local authority is going to do it well that makes it a lot easier to start thinking strategically also about the infrastructure you need and how you can then allocate the costs of that infrastructure, thereby turning your section 106 effectively into a form of tariff, but I would stress a very flexible form of tariff; I do not think we want a rigid five pounds per square foot across the country. That would not work. It has to be tied to local circumstances, local strategic planning, local development, local infrastructure needs, so I think basically what we are saying is that you carry on with the improvements to section 106 and perhaps accelerate those improvements and look at imposing a greater degree of strategy on how it is developed.

Q76 Mr Betts: But again we come back to the point: does that mean getting more value for the taxpayer for local authorities out of that system? Presumably we are not suggesting that the authorities that do 106 well should get less money in the future and those that are not doing it should get more?

Ms Peace: Absolutely. There is capacity for more to be negotiated out of the system, yes.

Q77 Chair: Can I ask a very specific question on one of the RICS proposals? You suggest on PGS that it should be assessed at the difference between planning permission value and 120 per cent of current use value rather than 100 per cent. Can you briefly explain the rationale for that?

Mr Hart: Yes indeed. This in fact is one way of imposing a de minimis provision, by uplifting the CUV. This was the way it was done for DLT and other taxes of that nature. It allows the marginal schemes to drop out. We talked about brownfield land earlier; heavily contaminated brownfield land could be the point. As long as there is a sensible de minimis limit then it would be a lot easier to work the tax. There are a number of ways of doing it but one is to take 120 per cent of CUV or a similar figure, and another one is to have a tax based de minimis limit, to say that if the tax payable is less than a figure then it falls out of PGS, because you get into valuation margins where it becomes very hard to prove whether or not some of the uplift is taxable or not. The valuation margins should be probably on a situation like this plus or minus ten per cent, and valuations done on the basis for taxation valuation generally used by the Valuation Office Agency on big and complex estates can be plus or minus 30 per cent, and this was discussed during consultations in 2000.

Q78 Anne Main: Just on that point, the de minimis, we were given advice earlier on that the de minimis level being considered possibly was down to a single unit. You could possibly be even thinking of a large extension. I do not know if that would be captured by a single unit, transforming a two-bedroomed house into a four-bedroomed house. Do you have a view whether that would cause more chaos to the system if we did go down to a de minimis unit or even large extensions on individual units?

Mr Hart: We found during the consultation process that the position was changing all the time. Originally it was small home improvements that would be omitted and then it got to be all residential improvements would be omitted. It is very difficult when you get into small valuations to make them stick. If somebody had a house, for example, worth £500,000 with a single garage, and they demolished the single garage and put a very splendid double garage there, reworked around the front of the house, put in new parking areas, generally speaking smartened the place up and spent £50,000, they would need the planning consent to put the double garage up. They have spent £50,000 in expenditure. The house is now worth £575,000. Is that £25,000 gain due to the planning consent or the expenditure and works that have been carried out? You have got an immediate argument. If you are too tight on the uplift for planning gain it will be very hard to sustain the valuation argument.

Anne Main: Yes, I can see that.

Chair: We are really running up against time. There is one more major question.

Q79 Mr Betts: Looking at the issue of current use value, and we have been told before that that is going to include an element of hope value, is that not going to be incredibly complicated?

Mr Westlake: We assume you are actually not going to include hope value in current use value as drafted.

Q80 Mr Betts: This is not the information we have been given.

Mr Westlake: The way it is drafted it says no.

Q81 Mr Betts: Right, but if there were to be an element of hope value included would that be a big complication?

Mr Westlake: It would be a valuation complication, yes, a large one.

Mr Hart: It would not be a large complication. It would just make the arguments rather more drawn out.

Q82 Martin Horwood: I feel I need to declare an interest because I have just had my garage demolished. I have a question about the timing of the valuation. Mr Westgate seemed to be suggesting that any system that was not based on real sale values but on valuations was problematic, but the RICS position seems to be that you want the liability for PGS to be established well before development commences. Our information is that the valuation is likely to take place at planning permission stage. Is that something you are in favour of or would you prefer it to be closer to the actual sale?

Mr Hart: It depends what you mean by planning permission stage, because this is something else that came out during the consultation process. As drafted, it suggests that it is a full planning consent, which will be that all reserve matters have been agreed. Reserve matters can often not be agreed until the end of a development, or ever in some cases, so on the basis of how it was originally drafted we took the view that we had to have a point and we were getting the impression during the consultation that we had now moved to a point where the valuation date would be when sufficient planning consent had been achieved in order for development to commence, which is a different ball game.

Q83 Chair: Would that be acceptable? Would you prefer that?

Mr Hart: As we pointed out, if you had to wait until complete planning consent was achieved it might be after the development had occurred, in which case there would be no planning application.

Q84 Chair: So you would prefer it?

Mr Hart: We pointed out that it would not work in the way drafted.

Mr Westlake: In other words, I think what we are saying is that you should have several tax points, not just one tax point, not just when you start development as your date for due payment with a retroactive valuation date to when you had planning permission. It should be at the time of sale or disposal by the landowner to the developer and then onwards.

Q85 Martin Horwood: This seems to be so likely to create a lot of work for chartered surveyors that I think you ought to be available.

Mr Armstrong: It is a planning interest, not necessarily of any particular sector.

Q86 Martin Horwood: If we link it to the commencement of work, as Mr Hart just said, what if you do not commence the work? What if you just get planning permission and sell the plot with planning permission?

Mr Hart: As drafted, you value at the point the planning consent is achieved and then, a bit like the way stamp duty and land tax now work, you effectively buy a development certificate by paying the tax at the point of development, which is something we do not agree with, by the way, because it means that you would go into the commencement of the development with having an uncertain tax liability, which the bankers would not fund. Yes, we have been commenting on the way it is drafted, not necessarily the way we suggest it would be done.

Chair: I am conscious that we could go on and on for hours but we cannot because we have another evidence session. Thank you very much indeed.

Memoranda submitted by Milton Keynes Council, the South East Regional Assembly and Nottinghamshire County Council

Examination of Witnesses

Witnesses: Mr John Best, Chief Executive, and Ms Jane Hamilton, Chief Operating Officer, MK Partnership, Milton Keynes Council, Councillor Keith Mitchell, Chairman of the Assembly, and Mr Martin Tugwell, Planning Implementation Director, South East England Regional Assembly (SEERA), and Ms Natalie Dear, Policy, Performance and Development, Nottinghamshire County Council, gave evidence.

Q87 Chair: I am sorry for the slippage in time but, as you will have seen if you were in the evidence session, we were enjoying ourselves. Could we start off this session as before, if you would not mind saying who you are?

Ms Dear: I am Natalie Dear, Nottinghamshire County Council Strategic Planning.

Ms Hamilton: I am Jane Hamilton. I am the Chief Operating Officer for Milton Keynes Partnership Committee.

Mr Best: John Best, Chief Executive of Milton Keynes Council.

Councillor Mitchell: Keith Mitchell, Chairman of South East England Regional Assembly and Leader of Oxfordshire County Council.

Mr Tugwell: I am Martin Tugwell, Planning Implementation Director with the South East England Regional Assembly.

Q88 Chair: Do not all feel obliged to answer every question; otherwise we will never get down the list. To what extent do you feel that the Government's consultation on the PGS proposals has been undermined by the fact that no proposal has been made for the rate at which it would be levied?

Councillor Mitchell: I think, Chair, that gives us an opportunity to make some suggestions and so I am not entirely unhappy about that. It makes one feel that there is some flexibility. I have listened to the rumour mill and I have an idea of what the rumour mill says it might be and that sounds a fairly sensible level, so I think we need to keep it low. The figure I have heard bandied about, the VAT rate, up to 20 per cent, feels as if it might work because there is history here when high rates have led to subsequent abolition and I think we need to remember history if we are going to take this Planning Gain Supplement seriously.

Q89 Chair: Is that based on research that SEERA have done that you are suggesting 20 per cent?

Councillor Mitchell: No, I am sorry. That is the Westminster rumour mill.

Chair: The Westminster rumour mill; okay.

Q90 Martin Horwood: Twenty per cent is a low rating.

Councillor Mitchell: It is compared with previous attempts to introduce development land tax, as I understand it.

Q91 Chair: It was 100 per cent. Is that generally speaking the view of the rest of you?

Mr Best: Chair, could I offer a Milton Keynes view, which is that we are against the principle of the Planning Gain Supplement because we think that the tariff that we worked up jointly with Milton Keynes Partnership is a much more effective mechanism, so our preferred rate would be zero, for reasons that we can go into in the context of how the tariff would work.

Q92 Chair: We will come later if we may to why you think the tariff is great and I am not going to ask it; somebody else is, so can we put that to one side?

Ms Hamilton: Chair, I think the extent to which there is no predetermined rate does cause some difficulties in terms of certainty in the system. Certainly in talking with developers that we are working with at the moment that is one of the main concerns, that it is very difficult to make any comparisons with any alternatives, whether it is a tariff or whether it is existing section 106, in the absence of any clear information on the level of the rate that might be set.

Q93 Mr Betts: Have you got a view when you come to collect Planning Gain Supplement as to what proportion should be retained locally if that is the sort of system we are going to end up with and what should be distributed through the national pot? There is some nodding of heads that someone wants to contribute to the debate.

Councillor Mitchell: The Regional Assembly has given a cautious welcome to this consultation and it is on the basis that 100 per cent will be distributed locally; none will be taken by the Treasury, and our view is very clear, that this should be a low tax and a local tax. I am going to give you some mnemonics during this discussion and the first mnemonic is KILL: keep it low and local.

Q94 Chair: What do you mean by "local"?

Councillor Mitchell: I think it should be collected by the authority that issues the planning application and section 106 works very well in two-tier areas - well, it does in the ones I know - in terms of the distribution and the negotiations between the county council and the district council because the district council grants planning application, the county council take most of it for its schools and highways, and I believe if the section 106 can work in terms of the allocation then a Planning Gain Supplement can. There is incentivisation here. If planning permission is seen as getting funding there is strong incentivisation for the local authority and, given where I come from, my party's national stance on Planning Gain Supplement is not the same as mine, one of my views is around the incentivisation that it brings.

Q95 Martin Horwood: Is there not then a huge problem that some areas with overwhelmingly greenfield sites with large amounts of uplift and therefore large amounts of revenue will raise pots of money for this and local authorities which have predominantly brownfield sites with little uplift will raise almost nothing?

Mr Best: That is a very good point and I think you can probably test it, although not yet, in Milton Keynes because Milton Keynes has got a much higher proportion of greenfield than elsewhere.

Q96 Martin Horwood: Does your tariff distinguish between -----

Mr Best: The tariff is applied, and Jane Hamilton may be able to go into more detail, as devised so far is applied to greenfield areas where basically there is a very simple proposition to say that it is a blank canvas with no infrastructure, we there are already, there is nothing to clear away, no community to negotiate or wrestle with, no existing organisations to manage its greenfield. Even in that environment, where we have, through the tariff, increased roughly three-fold the amount of contribution from development, the contribution is not sufficient to cover the costs of infrastructure that would be required to support the level of housing growth. Even in that most favourable of circumstances the tariff and the sorts of levels that we are pitching it at, and we believe we have got as far as the market will bear before starting to discourage development, which would be counter-productive, there is still not enough. I do not have an answer to your point because in all the areas that I can see, not only the greenfields in Milton Keynes but also the brownfields in Milton Keynes and, I would say there is a third category which is existing estates, which do not really count as despoiled brownfield or contaminated land but nonetheless come with a very different mix of costs and liabilities to them, in no case is a tariff or an equivalent level through Planning Gain Supplement plus section 106 going to be sufficient to meet the needs for infrastructure.

Q97 Martin Horwood: Does the tariff differentiate between brownfield and greenfield sites or is it flat?

Ms Hamilton: The way in which the tariff is set up at the moment it only applies to defined expansion areas in Milton Keynes, of which I think I am right in saying there are no brownfield elements at the moment. It does have a remnant of some existing communities but all of the areas covered by the tariff are greenfield. It is set up under the planning powers of Milton Keynes Partnership and our planning powers do not extend to any existing communities and therefore it does not hit on any defined brownfield sites.

Q98 Martin Horwood: So if you demolish something and replace it on a brownfield site there is no tariff whereas if you build an extra building on a brownfield site there would be a tariff in theory even though there are not many locally, you are saying?

Ms Hamilton: The tariff applies outside of the existing area within Milton Keynes, the existing built-up area. In fact, English Partnerships itself is carrying out various regeneration projects within the built-up area of Milton Keynes, but the tariff does not apply there because the partnership committee is not the planning authority there; the council is the planning authority, and so the tariff which has been quoted a lot is really a broad section 106 agreement but only under Milton Keynes Partnership's planning powers which are in a very clearly defined greenfield area and therefore the question of whether or not this tariff applies to brownfield or to other sorts of projects simply is not there.

Martin Horwood: Would you like it to be?

Chair: Since we have got on to this can we deal with this now? Lyn, would you like to ask the questions about how the Milton Keynes model might or might not apply elsewhere?

Q99 Lyn Brown: Is there anything more you would like to say about the Milton Keynes model that you have not so far covered and, if so, can you do it now? The second bit is can you tell me if you think it would easily apply to other bits of the country and, if so, why?

Ms Hamilton: It is something that I have not covered. It covers a defined area. That area will include about 15,000 homes and about 500,000 square metres of commercial development. The tariff itself is set at a level which has been quoted at £18,500 per dwelling or about £66 per square metre of commercial floor space. What it does not include, in addition to that, and this is quite relevant in relation to some of the issues you have been discussing, is provision for affordable housing so affordable housing must be provided on top of any payment of tariffs and also free land for schools, open spaces and community purposes must also be provided on top of any tariff payments, so the real cost is around about £35,000-£40,000 per dwelling. It does apply within a defined area. It is very much a broad strategic section 106 payment and it is set against very clearly defined master plans that could be costed up so it is set against a pre-defined planning agenda in Milton Keynes where the costs of growth can be clearly set out. When the monies are to be applied back in to the locality they are divided 50/50 between what is loosely called strategic and local facilities. The local facilities are the normal ones that you would expect under a section 106 payment, such as schools, open spaces, community facilities, and those are facilities within the areas from where the tariff is drawn. The strategic facilities are ones such as higher level strategic transport, higher education, further education and health, the payments that would feed into facilities that operate at the city or town level rather than just within the localities from where the payments are drawn.

Q100 Lyn Brown: Can I ask you if you have done comparators with other authorities and what they are getting out of section 106 to see whether or not you are doing well with that investment.

Ms Hamilton: We have done some comparative analysis. It is difficult, I think largely because the level of affordable housing, and in particular the level of social rent housing, varies from area to area and that has a major impact on the costs of development. We have done some comparators and in our view what has been achieved in Milton Keynes probably is a very good level of payment. I think it partly depends on one last point I wanted to add which is the fact that Milton Keynes Partnership is a sub-committee of English Partnerships and via English Partnerships we have secured approval from Treasury and ODPM to provide an element of forward funding which a normal section 106 agreement, via local authority, could not do and that is a big difference between a normal section 106 at whatever level and the way in which the tariff has been set up in Milton Keynes.

Q101 Chair: I think the key question is how far that approach can be applied elsewhere in the country as an alternative PGS. One of the witnesses that we had before was sort of suggesting that they would prefer the tariff approach across the whole country so if either Jane, John or Martin can clarify that.

Mr Best: I wanted to clarify the question that Martin Horwood answered before about whether it is transferrable to brownfields, also clarifying Jane's answer about it only applies on greenfield. Outside the greenfield areas where we have the two types of previously used land that I mentioned, we do start from the same figure that the tariff prescribes but we interpret it in the light of particular local circumstances on that site. There is a particular site that I have in mind where we started at 18,500 and we have ended up, because it has got contaminated land and heritage buildings that need to be restored, achieving nothing unless the income received by the developer on that site proves to be above the threshold.

Q102 Martin Horwood: You effectively discount the tariff for heritage and for contamination?

Mr Best: You discount for extra over costs.

Q103 Chair: That was under your section 106 powers especially?

Mr Best: Yes, it is the same powers. The tariff is under section 106 powers within the MKP area and elsewhere the local authority, Milton Keynes Council, has full planning powers.

Q104 Chair: Without the forward funding?

Mr Best: Without the forward funding, although in that specific case it did have sustainable communities plan funding in order to get it off the ground because of its involvement strategically.

Mr Tugwell: I think our view is the circumstances in Milton Keynes are quite unique. You have primarily one single landowner and a very clear mechanism within which to operate. The progress that has been made with Milton Keynes and its tariff is very commendable. Whatever happens in terms of Planning Gain Supplement should take allowance of the fact that there is a tariff system already in place and should not undermine the work that has already been done within Milton Keynes to develop that. Having said that, as I say, the circumstances there are quite unique. If you look at other locations around the region, you are often talking about areas where there is growth, where there is a multiple number of landowners, a number of deals are going to have to be brought together and that does complicate the situation. Also, there is not the vehicle, if you like, that you have within Milton Keynes where you have a single body that is able to forward fund. That is why within the regional funding allocation document that the regions submitted earlier this year, we identified the crucial part that a Regional Infrastructure Fund would play in allowing the public sector to act as a catalyst to forward fund investment in infrastructure that enables development to come forward that can then be recovered partly in cost terms through a Planning Gain Supplement. I think you need to think about Planning Gains Supplement very much as part of a wider process, one that involves setting up this type of Regional Infrastructure Fund. It also means recognising that it sits within the planning system and, going back to your point about brownfield sites, greenfield sites and recognising that planning is looking at areas much bigger than one individual local authority because we do live and work in different areas. Within regional planning now, you have sub-regional strategies looking at the needs and the issues in a particular sub-regional area and looking to understand what the infrastructure requirements are. It may be, and we have the examples within our region where there are some major greenfield sites potentially going to come on-stream as part of a sub-regional strategy which may indeed generate a substantial amount of uplift but that may need to be used to fund investment and infrastructure in other parts of that sub-region.

Q105 Chair: Can you give an example?

Mr Tugwell: The example I am thinking about is what we call the South Hampshire sub-region where we have proposals as part of the South East Plan for two major strategic development areas that are programmed to come on-stream towards the middle part of the plan. These are quite substantial greenfield sites. They will, if you had a PGS system in place, generate potentially quite significant sums of money. Equally there are needs for investment in infrastructure and in support of the urban areas where there is a re-generation agenda where the uplift will not be as great as it would be on the plan on the greenfield sites. You have a strong sub-regional partnership in the South Hampshire area under the name of PUSH - the Partnership for Urban South Hampshire - which is starting to provide a sub-regional delivery vehicle that can work together across regions and local authority boundaries to deliver growth in a sustainable way.

Q106 Chair: Can I clarify, do you have further documentation of this idea of a Regional Infrastructure Fund that you can provide us with?

Mr Tugwell: I have brought along copies of some work that we had commissioned by consultants looking at the scale that might arise as a consequence of PGS. In broad terms the work that was undertaken indicated that making some reasonable assumptions you could look at a PGS system in South East England generating something in the order of about £4 billion over the 20-year period covered by the South East Plan. In comparison, the consultants estimated that a section 106 approach may generate about £1 billion, so there is about a four to one difference there. We have also got some additional work under way at the moment looking at the relative merits of local versus central collection of a PGS system. That work is under way at the moment, it is scheduled to report by the middle of May. We can make that available to the Committee as well if it so wishes.

Chair: Can I ask that you leave that document with the clerk and that we get a copy of the other report when it comes through.

Q107 Lyn Brown: I have heard from Mr Tugwell what he thinks about the transferability of the Milton Keynes Programme. I would like to hear from Milton Keynes whether or not they think that their programme is, in fact, transferable to other areas?

Ms Hamilton: I think there are two fundamental differences in terms of transferability elsewhere. One is that we are working with a number of landowners, not just one but a consortium and they are a known quantity, they have been working with us very positively. The difference in trying to apply it to other areas where there could be much more of a patchwork quilt approach is it would be very difficult to identify all the landowners, all the various partners and all the various development interests who might be able to contribute to a tariff. It would be quite difficult if you had not got a straight greenfield site or a very big site to develop a tariff approach if you were working with a whole range of very small sites. I think the second one is this whole issue of discounting against abnormal costs associated with regeneration and contamination as compared with greenfield. I would have thought that a tariff elsewhere would need to discount and would probably need to discount if you were dealing with smaller infill sites where, for example, some of the facilities were already there. It could work but it would need to be a lot more complex and it would need to be embedded in the local planning policy in some form so that there was a high degree of transparency and certainty associated with it.

Ms Dear: Can I start by making a point in relation to the Milton Keynes tariff and the transferability. As a county council we did not support a tariff-type approach because we think that, certainly within our county, there are so many differences between the different local authority areas and even within the different local authority areas that to have one tariff even across the county would not be able to work in practice because there are too many factors to take into account. What we have been trying to work on is producing a clear formulaic approach, if you like, but even across our county, the Nottinghamshire County Council, we have developed a tariff in relation to integrated transport measures where we collect monies for things like the bus service and improving walking and accessibility. Even then we have got seven different levels of tariff depending on exactly the area and exactly where the development is in relation to, say, the town centre. Even on that one particular issue we have a number of different levels. I wondered also if I might be able to come back to the point about how much of the funding should be retained locally or kept centrally. Obviously on the premise that we would not support the PGS if it was to go ahead, in terms of any monies that were to go back to the local level, we would feel that it would have to at least cover the section 106 monies that we would have been able to achieve had the PGS not been in place. We would not want to be in a position where the infrastructure and the services that we could provide at the moment through section 106 we were not able to do because the funding was not coming back to us.

Q108 Mr Betts: I am sure there would not be lot of folk in the country who would want to see themselves with less money coming out of the new system then they have now. The presumption, therefore, is that if there is going to be some central money to distribute looking at national and regional priorities for infrastructure, the total take for the new scheme is going to be higher. Is that the general presumption most people are working on?

Mr Best: I would not assume that because generally I would expect that the section 106 process should, and I think it does in Milton Keynes, extract as much out of the development value as is consistent with the development going ahead. It may be that is an optimistic assessment and we could get more out. I think if we were able to get more out we could do that through section 106 and it does not follow that a Planning Gain Supplement will necessarily get more out. If there is more to be got out, section 106 should be able to abstract it. The pre-condition of that is whether there are too many thresholds and hurdles in the section 106 process that could be liberalised or eased, and there are some fairly precise rules about what is an acceptable principle of abstracting planning gain, it has got to be relevant, proportionate and so on. If there could be a reconfiguration of that so the local planning authority is able to abstract up to the threshold beyond which the development is no longer viable in order to further the general well-being of the area, possibly in terms of the power of general well-being rather than the more limited criteria that are applied currently through section 106, then there should be no difference with what can be got from section 106 and what might be abstracted through planning gain and so on.

Q109 Mr Betts: Is there not a danger that there will be a change of approach, a change of climate, with Planning Gain Supplement, that authorities which now do negotiate section 106 on the basis of the particular needs and requirements that are made of them by that particular development will in the future start to look at planning permissions being given as a way of putting money into their coffers and maybe funding the deficits from their pool, keeping the council tax down that year as opposed to particular planning requirements that are there as part of the development?

Ms Dear: I do not think that would be the case. I think our concern is that because the link is being broken between the impact of the development and the services and infrastructure that could be achieved through section 106 there is a danger that planning permissions will be granted which would be refused at the moment because if you had a planning permission for a development that would cause an impact, be it a need for more school places or it might even have an impact on a nature conservation site because mitigation and proposition measures can be achieved through section 106 in relation to that too, is that because you are not able to secure those particular issues through section 106 in the new proposals? Is it that you either get planning permission being refused for something that at the moment could be achieved or are you going to be getting planning permission for something that is causing an impact and you have this hope that you will get some Planning Gain Supplement monies back, because there is no guarantee in the consultation paper as to how that is going to be recycled, in the hope that you can mitigate and offset the impacts? Because the link has been broken, it is based on a hope rather than on anything concrete.

Q110 Anne Main: On that very point, do you think you would have to bid again into wherever the central pot is, there is that worry that you might have to make the case a second time? So you make the case the first time with the developer and he gives over the money, but not to you, and then you have to make the case strongly a second time and you may not get all the money that you would have got under the 106, is that your concern?

Ms Dear: Very much so. That is exactly the concern.

Cllr Mitchell: The danger here is that you are thinking of Planning Gain Supplement as the only source of infrastructure funding. You are approaching it as if everything else is going to be abolished and that will be the sole source, it will not be. You will have section 106 for affordable housing and for site specific. You will have central Government funding, some I hope, for infrastructure. This is another bit to add on to those. That is why I am inclined to welcome it. On the particular question, I think if the electorate got the feel that they were seeing huge development everywhere because the council was pouring money into its revenue base, I think they might be punished. On the other hand, there is a serious and growing issue around the acceptability of the planning system among the public and their feeling of being divorced from it. I think if they believe that planning is being connected back to the delivery of infrastructure locally through this funding mechanism, there is a chance that we might get a slightly less anti development society than we currently are. I think that is a very serious issue that makes Planning Gain Supplement worth considering.

Q111 Mr Betts: Can I pick up on an issue there and if you want come in on that general point. Is there not a danger that if an authority is faced with a planning application and it has a choice of insisting on a reasonably high level of affordable housing on the site, that reduces the potential increase in the development value of the land and, therefore, the Planning Gain Supplement is less. If there is a system where the Planning Gain Supplement, say a proportion of it, maybe 80 per cent, is going to be directed to that particular authority and that permission, there will be a feeling in that authority if we do not require affordable housing on the site we are going to get more Planning Gain Supplements and if we have not got a problem on the revenue budget this year, that is a way of solving it?

Cllr Mitchell: I have a serious issue with the linking of section 106 with affordable housing because levels of affordable housing are rising generally in the planning process and if that pre-empts so much planning gain from the beginning then, yes, there is less left to provide the Planning Gain Supplement levy for infrastructure. I have always had a worry about the apparent pre-empting of affordable housing through the section 106.

Q112 Mr Betts: That is the proposal.

Cllr Mitchell: It is and it worries me. I think it needs to be addressed. It may be in terms of a maximum proportion of affordable housing there is that pre-emption otherwise the higher the level rises, the less there is available for infrastructure generally.

Mr Tugwell: Just to echo Councillor Mitchell's point and a point that John Best made earlier. This is not going to solve the infrastructure gap and the funding of infrastructure because we need within the South East to deliver affordable housing, we need to deliver in the South East the infrastructure that supports that affordable housing and other types of housing development within the region. You are not going to get away without the need to invest in either one of those just because you have a different way of collecting a contribution from the private sector. As we have made clear in the contribution to this debate, PGS does add value and it does add, we believe, additional resources to the pot but it is only part of a wider pot and there is still the problem, we believe, that there is the issue of how do you fund the transport infrastructure that supports all of this because I think that is one of our greatest concerns within the consultation document, it really is quite silent on how we address that particular funding issue.

Q113 Alison Seabeck: Are those parts of section 106 arrangements which the Government proposes to retain adequate to address all the environmental impacts which a development could have on a site? On the back of that, I have got a niggling query in my head about flood plain development and whether or not the guidance under PPG 25, which a developer has to consider in terms of protecting whatever he is building on a particular site, is remedial work because of the nature of the site, or is it something which ought to be addressed by the national infrastructure pot because it is usually a much bigger picture if you start tinkering with a bit of drainage, or river, or whatever? You invariably have a knock-on effect further down or upstream which needs further protection and works. Do you have a view on that?

Mr Tugwell: If I may I am going back to a point I made earlier that you need to think about the infrastructure needs to support development in the context of the planning system that we now have established. We have, within the South East Plan, a draft of an implementation plan which for the first time is trying to pool together not just the transport infrastructure but all the other forms of infrastructure necessary to support and deliver sustainable communities. That, for the first time, is starting to look at issues about water resources, water quality, flooding, issues of utility provision and health provision in a way that we have not been able to look at before. There is a long way to go with that and we need to work carefully with the delivery agencies themselves to understand the size of the investment that needs to be made and, more importantly, the timing of that investment. It re-enforces the point that PGS is not the solution to all the problems, it is part of a mechanism. If you combine it, as I said earlier, with this idea of a Regional Infrastructure Fund, you may find it will be able to act as a catalyst to allow some of these remedial works off-site that have been identified in the planning system to be delivered to allow the development then to take place and some of the costs of that to be recovered through the contributions made by PGS.

Ms Dear: I think our concern in relation to reliance on the development plan process is in relation to smaller scale developments which might have environmental or other impacts off-site. Whilst the major impacts can certainly be highlighted in local development documents, or even at regional level if the developments are of that scale, certainly smaller developments and the incremental impact of a number of smaller developments cannot be anticipated in the development plan process. It is not geared up to be that swift to turn around documents that quickly and be that sensitive. It cannot foresee all of the eventualities. Because the scope of the new section 106 is proposed to be limited to on site environmental impacts, again it goes back to what I was saying previously, you might have an instance where you could grant planning permission at the moment subject to a number of off-site mitigational compensation measures because you are not able to do the off-site measures under the new section 106 proposals that planning permission would either have to be refused or you would get grant damaging permission in the hope that the money would come back through the PGS funding.

Q114 Alison Seabeck: There are flaws in the current system but clearly flaws in the proposed system which we need to look at and take forward. I assume they fall on the basis of Mr Tugwell's comments that you would have worries about the removal of public transport implications from 106 obligation?

Mr Tugwell: There is an outstanding issue about how revenue funded schemes are delivered which, again, goes beyond the debate about PGS and looks at the costs and the balance, if you like, of funding for infrastructure provision in the round rather than just any one particular system.

Mr Best: The origin of PGS is around a review of the housing market and it is geared around generating more homes in the UK and particularly in the South East. I think the reality in a place like Milton Keynes is that even in Milton Keynes there is quite a lot of equivocation about growth because there is nervousness that there might not be enough of the related infrastructure to make the communities that result truly sustainable. Picking up Alison Seabeck's question about is what is proposed to remain within section 106 sufficient I think if you reduced the remit of section 106, which is the primarily local mechanism, you would reduce the confidence that the community would have that, yes, the infrastructure is likely to be developed. You would also by the process of only part of what was being taken through Planning Gain Supplement being returned, albeit the majority but it is still not the entirety, into the local authority for the spend, reduce the confidence and the local process, which should be an integrated process whereby the community supports where it is going, would be undermined and diluted.

Chair: Can I return to the Regional Infrastructure Fund that the South East Assembly were talking about. Can you clarify, in the Regional Infrastructure Fund, who, if anybody, provides the initial pump-priming and how does it link in to the Regional Spatial Strategies and the Regional Economic Strategies?

Q115 Alison Seabeck: Can I link in the issue about public transport coming in, in advance of development because it does, in fact, depend on that pump-priming to an extent and how that works?

Mr Tugwell: The role of the Regional Infrastructure Fund we would see as being a catalyst, a way of forward funding. In the same way that you have within the specific locality of Milton Keynes, you would have English Partnerships, in effect, acting as a forward funder. The idea of the Regional Infrastructure Fund would be that it would act as a catalyst which would allow infrastructure investment to be made.

Q116 Chair: Is it the Treasury that would be forward funding because it is the Treasury that is doing it for EP?

Mr Tugwell: We would envisage it to be public sector led and it would be looking to see how interventions made by the public sector would allow the strategies set out in the Regional Spatial Strategy of the South East Plan and the Regional Economics Strategy to be delivered more effectively and more quickly. The cost of the revenue, as we said earlier, would be recycled by the revenues recovered through PGS. We have been promoting this and we are looking at how we can develop the structure to support that. Our colleagues in the South West have been doing a similar piece of work looking at how a Regional Infrastructure Fund might be established and I believe they are in a situation where they will have a potential financial model available for examination as to how that might work. There is a body of work, if you like, looking at the financial model of that being led by the South West, the Regional Development Agency and Assembly, and issues about the structure that might be associated with that which we have an interest in and colleagues in the East of England have also been looking at. There is an opportunity with PGS to act as a way of transforming the way in which we deliver and implement the plans.

Q117 Martin Horwood: Thank you for tipping me off that the South West Regional Assembly is planning a Regional Infrastructure Fund, I had not picked that up yet. On the whole idea of Regional Infrastructure Funds, you said earlier on that in unique areas like Milton Keynes, there were not the bodies at effectively sub-regional level to carry this kind of thing out. What on earth is wrong with unitary authorities, county councils and consortiums of local authorities? We do have a democratically elected structure at a more local level. Is that not a much better way of doing this kind of thing than a nationally or regionally centralised approach? Subsidiarity should apply, should it not?

Mr Tugwell: I do not believe I said that we do not have the structure. What I said was the situation was complicated in other locations because you have a multitude of landowners, you have a multitude of delivery agencies, potentially you have a multitude of authorities who have an interest in delivering the infrastructure because, taking the example from South Hampshire, the investment may be across a broader area reflecting the fact that people live, work and have other activities beyond any one particular boundary.

Q118 Martin Horwood: It is even more complicated at regional level, you have even more stakeholders and partners.

Mr Tugwell: What I highlighted was that within the South Hampshire area there is a strong partnership involving the local authorities, both unitary, district and county, who are working together to identify what the Spatial Strategy for that particular sub-region would be and the infrastructure requirements that are necessary to support and deliver it. In some respects they are following a model that is not dissimilar to the approach by Milton Keynes but, as I mentioned earlier, in terms of delivering, if you are going to capture the greater proportion of the contribution from the private sector then it is more difficult to establish the sorts of arrangements that you have in Milton Keynes simply by virtue of the fact that you have a larger number of landowners and a larger number of deals, if you like, that would have to be made to enable the tariff type approach to work within that area. It is simpler in that situation to have a Planning Gain Supplement situation being administered locally with, if you like, the priorities for investment being identified locally through the sub-regional work and being delivered locally through the local authorities working in partnership with the delivery agencies.

Q119 Martin Horwood: If it is being planned and delivered locally why do we need the regional infrastructure fund?

Mr Tugwell: Because there may be occasions where the timing issue is such that yes, you may get the funding from the Planning Gain Supplement but only once the development is in place, but to allow that development to take place you have to have the infrastructure and that is where the infrastructure fund could act as a catalyst to allow a planned development to take place. We have an example of it, as I say, within the South Hampshire Area, where it is clear that there is a need for investment in infrastructure to take place and for sites to come forward for planned levels of development, but until the development is actually on the ground and constructed you will not get the contribution from the private sector. The public sector, the regional infrastructure fund, could allow the infrastructure to be in place and allow the planned development to come forward.

Martin Horwood: I am still mystified as to why public sector infrastructure funding could not be generated bottom-up instead of trickled down from regional level, but perhaps we should leave that for another day.

Q120 Chair: It is not big enough. Mr Best, I think we probably should draw this to a close. It has been a marathon session.

Ms Hamilton: I was just going to make the point in terms of delivery vehicles. The Milton Keynes tariff is actually being delivered by a business plan which is cross-agency, so it is not just the local delivery vehicle which is handling everything. It is a matter of pulling together all the various sources of funding, of which the tariff is one. In terms of, say, transport programmes, for example, we would look for matched funding from the LTP or the SIF funding, so I think that is one point which is similar to a regional infrastructure fund. It is very much a multi-agency approach where Milton Keynes Partnerships is working with all the partners to put this programme together. The key issue that I feel is still important is that by far the major need for funding up front is in relation to transport infrastructure whereas some of the other aspects that are being funded out of the Milton Keynes tariff, such as schools, open space and so on, will only come on stream once development is there and can be funded more easily by a traditional section 106 arrangement. I think that is why it has been so critical that English Partnerships via Treasury and ODPM approval is able to forward-fund because there is simply not the mechanism to get any sort of rolling fund up and running in advance of development being on the ground, and even this year before there is any development on the ground in Milton Keynes English Partnerships is funding in the order of £8 million worth of infrastructure, I think the majority of which is transport and highways related, some of it public transport related.

Mr Best: I want to come back to the question about whether the Milton Keynes model is transferable elsewhere. Think the Milton Keynes proposition in general is not as simple and as simplistic as has been described. Part of it is around greenfields but it does, as I have explained, have an application, which we are evolving because we are in an early stage of it, for wider use. I think the sort of environment in which it could transfer is to those authorities or groups of authorities where there is a combination not only of the difficult brownfield regeneration challenges but also some greenfield and high value generators which I believe would apply to the South Hampshire area because they have that combination. What I think would be a problem would be trying to transfer it and apply it to an area where basically there was market failure and you were not generating the sorts of values that would allow development to proceed if it was being over-taxed, which is why I think the solution has to be clear assessment related to the circumstances of development in order not to frighten it away.

Councillor Mitchell: As the only politician on this side can I make one observation about the process, that is, if it is to go forward? If you do not know the history of past development land taxes get the briefing from the House of Commons library and see why they failed. They were repealed by a successive government. If it is going to work, and I think it is quite important that there are improvements to the current planning circumstances, I think it needs all-party support, because if something is put in and there is a commitment to abolish it at a later stage, as there was previously, then it will fail and development will dry up until it fails. I do think we need to look very seriously at getting cross-party support. I have heard George Osborne talking about something that is not a million miles away from Planning Gain Supplement, so I think there is some hope. If there was a willingness to look at this cross-party you might get something that would give us the ability to fund infrastructure better, to deliver things like the South East Plan that matter to us, and I think that is quite critical.

Chair: That is very helpful. As you know, we are a cross-party committee. Thank you all very much.