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

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

Office of the deputy prime minister:

HOUSING, PLANNING, LOCAL GOVERNMENT & THE REGIONS COMMITTEE

PLANNING GAIN SUPPLEMENT

Tuesday 16 May 2006

MR STEWART BASELEY, MR JOHN STEWART and MR JOHN SLAUGHTER

MR CLIVE BATES and MR MARK SOUTHGATE

Evidence heard in Public Questions 208 - 278

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Office of the Deputy Prime Minister:

Housing, Planning, Local Government and the Regions Committee

on Tuesday 16 May 2006

Members present

Dr Phyllis Starkey, in the Chair

Sir Paul Beresford

Mr Clive Betts

John Cummings

Mr Greg Hands

Martin Horwood

John Pugh

________________

Memorandum submitted by The Home Builders' Federation

Examination of Witnesses

Witnesses: Mr Stewart Baseley, Executive Chairman, Mr John Stewart, Director of Economic Affairs, and Mr John Slaughter, Director of External Affairs, Home Builders' Federation, gave evidence.

Q208 Chair: Can I welcome you to this afternoon's session and ask you to introduce yourselves from the right? When we get into questions I will leave it entirely up to the three of you to decide which one of you responds to individual questions.

Mr Slaughter: I am John Slaughter, the Director of External Affairs for the Home Builders' Federation.

Mr Baseley: I am Stewart Baseley, Chairman of the Home Builders' Federation.

Mr Stewart: John Stewart, Director of Economic Affairs for the Home Builders' Federation.

Q209 Chair: Can I start by asking whether you would agree that the Planning Gain Supplement proposals are inherently fair in that every developer would pay the same proportion of land value uplift and that it would do away with the lottery of section 106 negotiations?

Mr Baseley: Perhaps I could answer that by saying that we do inherently agree that if we are going to increase the supply of new homes in the country, which is the Government's fairly ambitious agenda, we have to have an adequate infrastructure to enable those homes to go ahead. It is impossible for us to contemplate increasing house building rates from 150-200,000 homes a year without putting in place a properly thought through infrastructure that will adequately service the needs of the people who will live in those homes. The question you ask as to whether PGS is potentially fairer than the existing section 106 agreements is actually quite a difficult one to give you a completely straight "Yes" or "No" answer to. One of the problems that we have with the whole concept of PGS is whether or not raising revenue to provide infrastructure in a one-size-fits-all approach actually is possible. The reason that I say that is because development sites come in all shapes and sizes across the land with a variety of different issues that are attached to them. Greenfield sites, of which there are very few these days - as you know nearly 70 per cent of all construction that takes place in England is on brownfield land - typically speaking are much easier to figure out how to realise development gain from than some brownfield sites. I guess one of our fundamental concerns is that, as a house builder until just six months ago, so having recently come into this area of life, I know that my experiences were that actually a lot of brownfield sites are very complex, require a high degree of risk taking by the companies that are going to develop them and often, frankly, do not throw up a huge increase in value over their current use value, which can be quite high depending upon what that use is. One of the fundamental concerns we therefore have about this tax is the rate at which it gets potentially set. Our concern would be that if the rate is too high, and we can talk about that in a lot more detail perhaps, the reality is will the tax enable or help to facilitate an increase in the supply of land with planning permission to meet the Government's relatively ambitious house-building targets or is it likely to actually lead to a frustration, a reduction if you will, in the supply of land coming forth. Our own conclusions, as a result of the consultation exercise and the deliberations we went through before we submitted our views back in February, is that it is likely to lead to less land coming through rather than more and, therefore, will not actually assist the Government's housing programme.

Q210 Chair: Are you making the point that, unless certain changes are made to the detail of the Planning Gain Supplement, it would have those effects or that inherently it would have those effects?

Mr Baseley: I do not think we know enough about the detail to be able to answer that question honestly either. What we do know is that the current system, the section 106 agreement system which we have had in place for many years, fundamentally is not necessarily a bad system. What has happened over the last several years is that section 106 agreements and the use to which they were put to extract planning gain and development gain from development sites has extended, and the time attached to negotiating section 106 agreements has extended quite substantially. I repeat, I do not think that the section 106 system is necessarily a bad system. It can and does deliver Planning Gain Supplement for developments across the country at the moment. The problem with it is that, as I say, it has extended beyond its original remit.

Q211 Sir Paul Beresford: Along the same line, this tax is going to be collected nationally and redistributed. If you look at the Government's past performance and habits of redistribution, even the Audit Commission have been a bit concerned about this and the way in which they have taken capital receipts from some councils and distributed them elsewhere, do you have concerns that this sort of thing is not going to happen with this tax?

Mr Baseley: Yes, we do. Not because we have any particular reason to suppose that what the Government says will not happen, but just because at the moment one of the advantages of the section 106 system is that it is negotiated locally, it is negotiated between the developer and the local people through their representatives, be they officers or councillors in a particular district, and the people, of course, can touch and feel in a very real way the benefits that development might bring to their particular locality. I think we all know that building homes is not that popular amongst certain sections of the population, and there are concerns particularly in the south, about the rate and scale of home building that is being proposed. At the moment it is possible for local residents to identify real and tangible benefits that come from section 106 agreements and contributions that developers make. Clearly one of the concerns we have through the introduction of PGS is that the money, as we understand it, is going to be remitted to the Treasury. The Treasury is going to despatch the majority of it, but we are not quite sure what "the majority of it" actually means, whether that is 51 per cent or 91 per cent, back into the community. We do not know whether that will be back into the local community, back into the regional community or whether, ultimately, cross-subsidisation could occur as certain areas help other areas of the country.

Q212 Chair: Can we explore that point a bit more later on. Do you think that one effect of the Planning Gain Supplement might be to improve local planning authorities' understanding of "development economics", and would that be helpful?

Mr Baseley: I think it would always be helpful for local authorities or, indeed, anybody to understand better development economics. I cannot really see an instant answer - my colleagues may have a view on this - whether it is PGS, a tariff system or section 106 agreements that is necessarily going to help local authorities to understand the issues any clearer.

Mr Slaughter: I think it could possibly do in principle, in the sense that, if a system like Planning Gain Supplement was linked to transparency of information about what infrastructure requirements were and how those related to development, then there may be a case that that could assist with understanding development economics, but I do not think that area has been looked at in any depth so far. It could be an advantage, but I think it is one that probably will be a longer term advantage rather than an immediate one.

Q213 John Pugh: Seventy per cent of output is currently on brownfield sites, so an appreciable amount of development there. Does that not by itself indicate that there is plenty of profit in developing brownfield sites and that some of your conditions about its capacity to absorb PGS payments are a little overstressed?

Mr Baseley: I would not pretend for one moment there is not a profit to be made out of developing brownfield sites or greenfield sites or, in fact, other house building or development generally in the UK. It would be a foolish man who sat here and tried to persuade you otherwise. The real question is to what extent the land owner is going to be encouraged or discouraged to bring forward brownfield land, bearing in mind that, as a result of the intensification of brownfield land development over the last ten years, an awful lot of what you might call the simpler brownfield sites have now been built out and quite a few of the more complex ones, by definition, have been left further behind. I think what I foresee, and, indeed, I am already seeing in some parts of the country, is land owners very concerned about this potential tax, very concerned about the rate at which it could be struck and actually questioning in their own minds whether or not the whole exercise - getting planning permission on a piece of land can be very timely and very expensive, involving lots of consultants and experts that are required to facilitate the development - is actually worthwhile. I think it is a major concern that we have that it is creating uncertainty in the market. Of course the impact of that, potentially, is that already we are beginning to see certain land vendors sitting on their hands and not bringing their land forward whilst this process that we are now all involved in unfolds.

Mr Slaughter: I was going to add perhaps two other remarks. First, I think it is worth bearing in mind that the proposal the Government has put forward is to increase the overall amount of revenue coming from land uplift. We are talking about a qualitatively different situation in principle to what has existed up to now; so any consideration of the impact on brownfield needs to look at that. The second issue I think that we want to raise in discussing this area is that there is a problem with the volume of land coming through the planning system, it is actually tending to go down rather than increase, and the essential requirement here is that we find a mechanism that will enable the flow of land through the planning system to increase because without that we are not going to be able to meet the housing supply objectives that we share with the Government. I think on both counts one has to be very cautious about saying that there is a significant additional capacity for brownfield development to absorb additional taxation.

Mr Stewart: Chairman, could I add a comment to that? I think the key variable is the land value that is left there to be taxed, not the profit margin of the development, and that is where our concerns lie. You are quite right; development on brownfield land is profitable, as it is on Greenfield, in many cases. The issue is how much land value is there that can be taxed.

Q214 John Pugh: Is it quite hard to generalise about brownfield now. Brownfield can be anything from a back garden to a heavily contaminated site. Is that part of the problem, the fact that "brownfield site" is too global a term?

Mr Baseley: Sure, because back garden developments, frankly, are not terribly different to greenfield developments in lots of cases. They do not have nasty, horrible substances under the ground from factories that existed 150 years ago that have to be removed in a very safe manner, for obvious reasons.

Q215 John Pugh: Do you need recognition of that factor in how Planning Gain Supplement is pitched, whether or not it is a brownfield or a greenfield site we are talking about, the fact that sites themselves are intrinsically quite variable even though they have the same headline description?

Mr Baseley: That is one of the difficulties we had when we were producing our submission in deciding whether or not a one-size-fits-all approach was possible.

Q216 John Pugh: Do you have any other concerns about the operation of the Planning Gain Supplement on brownfield sites apart from the issue of definition and financial viability?

Mr Stewart: When you say "definition" you mean valuation.

Q217 John Pugh: Yes.

Mr Stewart: That is a very complex area. I am not a valuer, but when you talk to valuers and when you talk to the developers who do it day-to-day, it is an extremely complex area. One of the requirements that the Treasury had in mind when it drafted the tax was that it would be simple, and one suspects that when they were drafting it they had a picture in their mind of a greenfield site.

Q218 John Pugh: Is there anything you could suggest that would make it simpler and less complex?

Mr Stewart: If you were to adopt a valuation approach, you are going to need a very clear set of rules which are agreed by both the industry and the valuation office, or HMRC, whoever is going to levy the tax, because without an agreed set of rules you can see all sorts of problems, disputes, delays and delays is what we do not want because that will mean a sidestep coming on. The point you made a moment ago about brownfield sites varying is very valid - greenfield and brownfield - across the whole spectrum of sites. Some brownfield sites have a negative land owner and to actually make them develop there is a cost in getting them to that point, right through to some greenfield sites. The Milton Keynes example is an obvious one.

Q219 John Pugh: With some sites you are actually adding value by building on them?

Mr Stewart: Indeed, and even greenfield, there is a whole spectrum from a completely unencumbered extension of a settlement where very little infrastructure is required through to our Milton Keynes example, where there are enormous infrastructure costs involved; so it is very difficult to generalise.

Q220 Martin Horwood: In terms of the brownfield sites that are complex and difficult to develop, surely, by definition, there would not be much planning gain and therefore there would not be much Planning Gain Supplement. That is the thing that is being put to us by government.

Mr Baseley: I accept that in principle, but where I struggle to square the circle is that we have been told, I think fairly categorically, this has to be revenue raising. Seventy-two per cent of development, I think it is now, is on brownfield land and rising.

Q221 Martin Horwood: Overwhelmingly the income for this is clearly going to come from greenfield sites, is it not?

Mr Baseley: Is it? Is there going to be greenfield land released?

Q222 Martin Horwood: It is hardly going to raise anything from complex brownfield sites?

Mr Baseley: In which case, one imagines, there will have to be quite a substantial increase in the rate of greenfield land being released to generate more money than is currently being generated. I struggle economically to square that circle. John can tell you precise numbers on this - I am sorry, I do not have them exactly right in my head - but I think the amount of land that has actually been coming through the planning system over the last five years or so has been going down, despite the fact that housing numbers have been going up.

Q223 Chair: You would accept that not all brownfield land is the same, that there is complex, extremely expensive brownfield land and there is other brownfield land where there would be planning permission.

Mr Baseley: As there, frankly, are greenfield sites. It would be equally wrong to put all greenfield sites into one bucket, because quite often the infrastructure that is required to develop greenfield land is much more substantial and significant than the infrastructure required to develop brownfield land. By definition, greenfield sites are often extensions of towns or adjacent to towns and require a heavy commitment to services and roads, which, quite frankly, brownfield sites sometimes do not.

Q224 Sir Paul Beresford: I would have thought one of the advantages of the 106 is that you know where the money is going. If you are a developer and you have struggled, you have developed a brownfield site and you have been taxed and it just goes on and it comes back, at least in part, to the local authority to be used for one of your competitor's sites, et cetera, is it going to warm the cockles of the heart?

Mr Baseley: I think it is a very important point that we know where the money is going, and that helps us in our negotiations with local authorities in being able to demonstrate to the broader public in those areas the value of the scheme that ultimately people are going to be able to see take place, because, as you know, local councils typically make decisions for their own planning applications that are consented or refused. The broader point is also that some of the 106 negotiations that I have personally been involved with over the years can get extremely complex and often involve a very detailed agreement between the developer and the local authority about the time of payments in return for certain things being provided. Quite often, 30-40 per cent of the development takes place and then certain payments are made in return for which by that stage certain highway works have been put in place, or whatever it may be. The funding is transparent for everybody. The local authority can see it is getting the money at a certain stage, it knows therefore it can commit to spending the money on a roundabout. You know that the school can be provided for before there are more children than there are school spaces available, and that kind of thing. The fear I have is, as the money goes into the Treasury and comes back (the mechanism for that), how the local authority will know how much it is going to get and when it is going to get it, how we will know that we are not going to end up with a development stopped halfway through because highways improvement funding has not come through, the highways improvements have not happened and from a safety point of view, for whatever reason, the development has to stop at that point. It is a recipe for disaster.

Q225 Chair: The situation you have got at present in some developments with section 106 is precisely that, that the Highways Agency has put a stop to development because no money is coming through for the highways. Would not the PGS at least sort that out in that it also funds regional infrastructure, not simply local infrastructure directly related to individual developments?

Mr Baseley: It could do potentially if I could be satisfied, and I guess I am not at the moment, that the money will come back in a timely fashion in adequate numbers to make that happen. I totally accept the point that you make that the present system is not perfect. I should add, we have long been arguing to simplify and reform the 106 system, and Kate Barker's report, which is where the whole concept of PGS emerged from, was partly on the back of submissions or representations we made to her about the frustrations we have dealing with the lack of responsiveness, from a timing point of view, of existing planning systems. I am not advocating the 106 systems as a perfect system or as incapable of being significantly improved. The way we looked at this, just to step back, we would have quite liked to have been able to come forward and say the PGS is the perfect panacea to all our problems because, as we have been calling for change for a number of years, then it would be perfectly reasonable for us to do that. We looked at this long and hard but concluded, on balance, that it is not likely to increase the supply of land with planning permission coming through. Therefore, we struggle to see how it is going to help the Government attain its housing targets.

Q226 Sir Paul Beresford: You have also accepted there is going to be a top slice. You said 50 per cent or 96 per cent. Presumably you have accepted there is going to be a stealth tax on this?

Mr Baseley: If the word majority is used rather than totality, then by definition, I expect some of it is not coming back. If they had said it was all going to come back, that would be different to a majority.

Chair: Can we move on.

Q227 Mr Betts: You are saying that you want to see change. Presumably, therefore, in principle some form of simpler approach to taxing the operative value on land is not one you are opposed to; it is the way that this is proposed in detail to happen. I want to try and deal with some of the concerns you have raised. You have raised some concerns about option agreements and, effectively, where they have already taken place, that the PGS will be an unfair tax on those, but if we had a transition period and an exemption for those, would that not deal with the problem?

Mr Baseley: Potentially a transition period is going to be very important, without doubt, not just for option agreements but for historically held land. I think the option agreement point is an interesting one and one you might want to pick up on from a valuation perspective. My concern there is about double count really.

Mr Stewart: I will try and be simple. I am sure you all know what an option agreement is. If I agree to buy a portion of land from you, at some point in the future when I get planning permission, I will pay you, let us say, 85 per cent of the current value at the time of the planning permission. The discount is: can you offset that against the payment of the PGS? The developer incurs substantial costs when progressing a site through the planning system to be able to realise that value. Would those costs be offset against the PGS calculation? It appears at the moment they could not be. That was our main concern about options. You are quite right about transition arrangements: they would be extremely important.

Q228 Mr Betts: Could you explain how you think transition arrangements might work? You are saying you want them for more option agreements. Perhaps you could elaborate on that point as well and how long do you envisage a transition arrangement lasting for?

Mr Stewart: We have not come down on a hard and fast figure. You would have to have a cover point, but we had five years in mind for sites which were already in the ownership of the developer. I am not quite sure how it would work in practice. The concern is that you could end up double taxing sites, obviously, and a site which, let us say, got planning permission on section 106 and was signed a day before the new tax came in, clearly to impose the PGS on top of that would be onerous. Local authorities are not going to wind down their section 106 demands as we get up to the point at which the PGS comes in; they will carry on requiring them until the last day; so there would have to be a period and that period would have to cover the period to build-out the site, and that could be many years or it might be one year; it depends on the size of the site. There would have to be a period of many years to allow that to happen.

Mr Baseley: It is a difficult question to answer because options are put in place and sometimes take 15 to 20 years to come through the planning system. The way that they work is that the developer takes the risk of promoting the site which may or may not ever get planning permission, but typically options are used on land which is a long way in the future in terms of anybody's thinking, and it is part of the speculative risk of being a developer, which is totally understood by the development industry. The way it pays for that risk is through the discount it achieves on market value. In calculating market value, surveyors and advisers to vendors will very strictly define, within option agreements, the mechanism that is going to be used to define market value and the deductible items that the developer will have to take off. Section 106 costs, for example, would typically be a deductible item; so one would calculate the land value taking into account the fact that a million pounds, or whatever it might be, is going to be paid by the developer towards the section 106 agreement. Effectively, the land owner is paying for that. A lot of option agreements have tax either "get out" or deferment clauses in them such that, if the rate of the cost to the developer of actually bringing the land forward rises above a certain threshold (and individual sites will vary as to what that threshold will be) or the purchase price per acre falls below a certain number - that is another way of doing it (it has got a minimum price point put into the option) - then the option dies and the vendor is not obliged to sell. Unless transitional arrangements are put in place that circumnavigate that, the reality is that a lot of land would come through the system over the next five to ten years, and, if this is intended to raise more money than the current 106 system and, therefore, the burden on that site, bearing in mind options are most typically used on greenfield sites, is going to be greater than was envisaged when the option was entered into, it could well trigger either the minimum purchase price not being met or the cost of deductibles being exceeded because of the tax hit, which could lead to the vendor being able to withdraw from the sale and choosing to do so. It kind of brings me to another point which I should have made earlier, which is why we said in our submission that political consensus on this is so crucial; because what we see already at the moment in the market place is owners of complex sites, which may take many years come to fruition, simply sitting on their hands taking the view that, if there were to be a change in government and the Government was to change colour at that point, an incoming Tory Government would, as they did with development land tax in the past, simply repeal the tax. Therefore, you can understand why owners are saying, "If that is likely to be the case, we will wait until there is not a tax around and sell our land then."

Q229 Mr Betts: Having a transition period when you could deal with these option agreements but, say, after that time there would not be any specific rebate or concession for them would not encourage, in your view, those sites to come forward more quickly?

Mr Stewart: It could do, as long as the transition arrangements were sufficiently long.

Q230 Mr Betts: How long?

Mr Stewart: It could be five to 20 years. The longest site I have had under option taken through the planning system was 21 years.

Q231 Mr Betts: Moving on to the method of valuation, which is one of the issues, I think, you raised, you have got concerns about the calculations of CUV and PV as one of your fundamental concerns about the system. Presumably, therefore, you are even more opposed to using average valuations. I think one of the proposals that was floated, but rejected, in the consultation document was using added valuations on agricultural greenfield sites and other systems for other developments.

Mr Stewart: Yes, we did reject it ourselves as well. It was originally floated, I think, in Kate Barker's report, the idea that you could have an average across a district, but it is the point we discussed earlier that there is a whole spectrum of sites and, therefore, land values. Some have a substantial land value and some could have a negative land value; so to have an average applied to that would be clearly neither fair nor very sensible if you were trying to promote more land coming forward.

Q232 Mr Betts: What about the residual approach. Do you want to say anything about that: taking the 106 and then maybe a tax on the remainder?

Mr Stewart: Do you mean take out the section 106 and just have a very modest PGS?

Q233 Mr Betts: Yes.

Mr Stewart: That is a possibility, I suppose. We do not have a definitive answer as to what is the alternative. What we try to do is look at the pros and cons of all of it. The section 106 does have benefits, but over time the practice of the section 106 has become onerous.

Q234 Mr Betts: One of the things I am beginning to struggle with is that you do not like section 106, you want to change it, you think that the PGS is some form of taxation which is applicable across all sites and people can see they are being treated fairly and, similarly, might be the right way to go, but you cannot tell us how to do it.

Mr Slaughter: That is a fair point to raise, but perhaps it is worth explaining. One way that we have tried to look at this is if we go back to the brownfield issue and focus on that. I think you have to be clear about what the objective is here. If the objective is to raise more revenue overall in the current system, then there are certain fundamentals that you cannot buck, one of which would be the issues we have already discussed about brownfield. In that sense, at a very high level, you have got certain issues you have to deal with, whether it is a reformed version of section 106, whether it is a tariff approach or whether it is PGS. What we are saying is that we think there are certain generic issues, and there are certain generic criteria that should inform any system that we adopt. We can see the problem areas with the various options the Government put forward in December for consideration, but we have not yet been able to establish a whole set of positive proposals as to how we would solve the problems we are identifying. We can see some high level criteria that any system should apply about transparency, predictability, a rate that does not prevent brownfield sites coming forward, but, as we have already discussed, there is a stack of quite difficult technical, political and distributional issues that have to be worked through whether we go down any of the particular routes, and that is where we are at.

Q235 Mr Betts: One of the things that has been pointed out to me is that for Capital Gains Tax purposes the Valuation Office does, on a regular basis, make retrospective assessments of value. If they can do it for that tax, can we not do it for PGS?

Mr Baseley: Capital Gains is typically paid by owners directly on the gain from acquisition to sale and it is, therefore, based on the transaction value at the point at which you sell your piece of land. It is pretty black and white and pretty difficult for anybody to disagree what that number is. You sold that piece of land for two million pounds, you bought it for a million pounds, you have a gain of a million pounds, less any relief you are entitled to when you pay your tax. Market value is, frankly, very difficult and not a precise science. If you ever put a piece of land on the market, and I have done many, the range of offers that you receive for that piece of land can be huge. How do you determine the market value?

Q236 Mr Betts: Can you not use sale price? Is that not a possibility?

Mr Baseley: That would be one potential way of doing it, but that is not actually, I do not think, how it is set out at the moment.

Q237 Mr Betts: Could you actually develop a better way of doing it based on that?

Mr Baseley: We may be able to. We are working on that. We do not have an answer for you today on that, because one of the things we set out in our submission was a call for the time we have between now and 2008, which is the earliest this tax can be introduced, as I understand it, from what the Government has said, for us to work with valuation experts and others on some of these points that we had concern about, and we are doing that separately from here. We have convened what we call a coalition of the willing to sit down and see if we can come up with some answers to some of the questions that you have raised and discuss those and agree those with the Treasury. We are not valuation experts; nor are we tax experts in that sense; so we do not necessarily have, at this hour, cast iron solutions to some of the problems, but we can see some of the problems.

Mr Stewart: It is a fair point that you put to us, but there are some very detailed technical issues and there are some quite high level issues. I scribbled down the generic areas. The whole issue of valuation is a very technical area, and, having listened to valuers, it is quite an extraordinarily technical area that needs a whole set of rules. What would the rate be? We have no idea what the rate will be. Twenty per cent is being banded around, but we do not know whether that is what the Treasury is thinking on. There is the issue of infrastructure delivery. A key point about the tax is that it is a revenue raising instrument, but it says nothing about and it is not about delivery. Without the delivery you are merely talking about a tax on land, which will reduce the supply of land; so half the circle has not been addressed at all. There is the whole issue of scale-back to section 106, which in simple terms in the consultation document looks pretty straightforward, but, as soon as you start talking to developers, there are lots of complexities there. There is the whole issue of affordable housing and then there is the political consensus; so for us to come up and say: "Here is the definitive answer", it is a very complex area, and I can see why the Treasury are struggling with it.

Q238 Martin Horwood: One of the other plethora of difficulties that you see with Planning Gain Supplement is that those responsible - this is paragraph six of your submission - for checking and challenging self-assessed valuations have to be adequately qualified to understand, not just valuation but the nature of residential development, the difference between residual valuation of housing land, very different valuation processes involved in residential and non-residential. Is it really this complex? Surely these kinds of valuations are done every day of the week.

Mr Baseley: Not really, no. I wish they were some days, but, no, they are not, because as we started to think through those issues, the issues which we mentioned in paragraph six of our submission to you are the ones which spring to mind instantly which we can see causing grey areas. The concept of this is a self-assessment tax, as I understand this particular point. The valuation of land is carried out, obviously, in the market place on a regular basis by experts who are trained and have spent their life doing just that, valuing land, and they do understand the complexities of the valuation process, which can be quite vast. Our concern is whether the Revenue actually has the staff in place to be able to deal with that. Frankly, the process that could then unfold, I can see developers effectively swapping two years of uncertainty whilst they negotiate section 106 agreements for two years of uncertainty whilst they negotiate their tax payment.

Q239 Martin Horwood: Could they not employ the same kind of planning consultants that your members employ?

Mr Baseley: The Revenue or us?

Q240 Martin Horwood: The Revenue.

Mr Baseley: They could, but I do not think that is what is currently proposed because of the cost basis attached to it.

Mr Stewart: My understanding is that the Treasury and HMRC do not envisage any significant increase in the resources required, whereas our feeling is that, at least in the initial period while the development industry (not just residential but everyone) and officials in government get used to the system, there will be an enormous amount of uncertainty because you are learning a whole new set of rules, so there would be additional resources required. Then there is the issue of delay, which you have not touched on, which is extremely important. If the actual calculation of the payment is not agreed until the day you get the planning permission, most developers will want to get on site the following day, give or take. If there is uncertainty as to what exactly that is and then there is a period after which that could be appealed, you make your submission, your self-assessment submission, there could be a long period. How long would that be? Two or three months, during which time HMRC could come back and challenge that, and, if it was challenged, how long could it be before that was resolved? Could there be a six month delay just sorting out what the tax payment is?

Q241 Martin Horwood: I think HMRC are getting quite used to adapting to new rules under this Government. One of the other things you say is that there is a need for a pre-clearance system, because developers will not even start work until they know what their PGS liability would be. Why would the onset of a PGS liability be any more off-putting to developers than the current uncertainty over section 106 negotiations, which are even more complex surely?

Mr Slaughter: One point that has just been made on that is that effectively you are extending the period of uncertainty. As I said, the problem with section 106 is that it has to be resolved before you can actually go ahead with development, as things stand, and you are wrapping that up with the planning permission process, but the potential uncertainty that my colleague was just talking about stems beyond that point: because if there is not the certainty of evaluation, and that can affect the viability or nature of the development going forward, and that is open for a further period after planning permission is granted, you are effectively adding a further period of delay and uncertainty to what currently exists for developers.

Q242 Sir Paul Beresford: Mr Stewart, you mentioned concerns over the level of taxation. Are you going to be sitting chewing your fingernails with concern at every budget: because we do have a Chancellor who does seem to shift taxation around, particularly in his direction?

Mr Stewart: We do have concerns about what might happen in the future. The rate could be set modestly initially. If the tax is going to be there for five, ten or 15 years, certainly there is a worry that in the future it could be raised, a government ten years from now might be pretty strapped for cash and decide to raise the rate.

Sir Paul Beresford: It is strapped now. What about next year?

Q243 Chair: Presumably, if the tax is pushed too high, development does not occur, so a government has to make a choice between whether it wants the money or it wants the development?

Mr Stewart: Indeed.

Q244 Chair: Any government.

Mr Baseley: Absolutely.

Mr Stewart: Yes, of course, but there is always a residual fear, I guess, for anyone who pays the tax, that that tax could go up. There is another concern too, that by making it transparent how much each local authority is raising through the PGS rather than at the moment, which is a fairly opaque system, might a future Treasury decide to cut local authority grants by the same amount as is being raised through the PGS? I am not saying it would happen, but those kind of thoughts cannot help popping into your head.

Q245 Chair: What about a variable rate of tax, so that you have a higher rate the longer the time that the land actually sits in the land bank of the developer, which is certainly a criticism of some of your members, that you sit on land for a long period of time and do not actually develop it?

Mr Stewart: It is a criticism; it is not a valid criticism. We assembled a lot of evidence for Kate Barker and her team in the review and it is there in the Barker Report.

Mr Baseley: Business models just do not allow companies to sit on long land banks and not develop them. What you see in land banks is large sites being developed at a certain rate, because in any market there is a market level at which you can sell homes and, if you are a large company and you buy a site of 1,000 or 1,500 homes, by definition, you are not going to build and sell them all in one year, so what you see is longevity of sites. The mechanics of how the city operates the demands of shareholders for return on capital employed, particularly in the more benign economic of low interest rates, low inflation and, frankly, now low house price inflation as well, makes the concept of sitting on land not viable, and that is one of the reasons why developers use options rather than outright acquisition to promote longer term land.

Q246 Mr Hands: Looking at your submission in paragraph 30, you seem very critical of the way in which affordable housing provision is made with an existing 106 agreement. I am unclear as to whether you are suggesting that under Planning Gain Supplement affordable housing should not be retained within a scaled down 106 regime but funded from PGS revenue. How do you see affordable housing being funded in the future?

Mr Stewart: Our concern really was that, talking to the developers, there are major worries, or major concerns, about the current section 106 system, and if you try and delve into that and find out what are the major causes of those delays and uncertainties, affordable housing is probably the biggest single element within that, causing delay and uncertainty. What the Treasury has proposed is a PGS scaled back 106 but in a sense left behind unchanged the current major cause of problems. Our proposal here is you have actually only half, if that, addressed the problem. I appreciate that the issue is to raise additional money and fund infrastructure and so on, but if the issue is also to try and have a simpler, more efficient system, you also should address the issue of affordable housing, which is a major cause of delay and uncertainty at the moment.

Q247 Mr Hands: My question is that about 30,000 units of social housing a year is provided through section 106 agreements, which seems like quite a lot. Do you think a lot more could be realised through PGS?

Mr Slaughter: I think there is a wider issue here, which is what is the most efficient way to provide affordable housing. One of our concerns is also that we think the focus, when people talk about affordable housing, is too often just on social rented housing. What we prefer to talk about is affordable housing solutions, which include shared equity and low-cost market housing, and so on. When we talk about it, I think that is how we would look at it. There is a case for a different approach in thinking. Effectively, we are talking about subsidy in some form from the private sector and the developer, and the question is, if you take into account that subsidised element, however it is represented through the planning system, it is a question of how that ties up with other funding streams, what the total overall efficiency is. There is a case for looking at things differently, where you would effectively say, "We want a quantum, in broad terms, of affordable housing defined in its broadest sense", and the developer has more flexibility to tap into funding mechanisms, including the element that might come from the uplift in land value, but also other pots of government money, to provide the best overall result, including the low-cost housing, the low cost in market housing that they can provide. Part of the concern we have at the moment is that under the Government's proposal, as we understood it - this is part of the revenue raising aspect of it - you would have a tripartite take, you would have a residual section 106, a separate funding stream for affordable housing, however that should be interpreted, and then the Planning Gain Supplement. I think that is both complex and potentially worrying in terms of adding to the funding take without making it clear how you could gain more efficiency in terms of delivery and provision. Again, we have not got the full answers, but we would like to see a more flexible approach that gave the developer more scope to develop solutions and tap into available funding streams to deliver affordability objectives but not in too specific a fashion.

Mr Stewart: Our comment really was to undertake a thorough review. We think the Government should undertake a thorough review of how affordable housing is provided, because the current system, where you have grafted affordable housing provision onto the planning system, because affordable housing inherently has nothing to do with planning, it has been made so by government, which is fine, but it has created this enormously complex, slow, inefficient system. We are saying the current system is not working very well. You have proposed a reformed system, but you have left one of the biggest causes behind, so surely you should look at that as well?

Chair: I am conscious of the time. There are two or three other questions that we want to ask, but we will provide them in writing, if we may. Could you respond in writing? If there are additional points that you feel have not been brought up, we will be more than happy to receive an additional submission in writing from you.

Memorandum submitted by The Environment Agency

Examination of Witnesses

Witnesses: Mr Mark Southgate, Head of Planning and Local Government, and Mr Clive Bates, Head of Environmental Policy, Environment Agency, gave evidence.

Q248 Chair: In a minute, I will be asking Mr Cummings to ask the first question, but it is up to the two of you which one of you answers the questions. Before we start, could you introduce yourselves?

Mr Bates: I am Clive Bates, I am the Head of Environmental Policy at the Environment Agency.

Mr Southgate: I am Mark Southgate, the Head of Planning and Local Government at the Environment Agency.

Q249 John Cummings: You argue that the PGS revenue should be spent on environmental protection measures. Is that not a bit sly on your behalf? Why should developers and land owners pay for these measures?

Mr Bates: Our view is that the priorities for spending PGS revenue should be determined locally and include environmental expenditures, but it would be unrealistic, and we would not consider it desirable, that they were exclusively spent on environmental investments.

Q250 John Cummings: If we were to take your advice on board, or the Ministry was to take your advice on board, then surely this would be at the expense of strategic infrastructure, such as schools and transport.

Mr Bates: There is a case for spending on environmental improvements as part of the package surrounding a development, and providing green space, providing a good environment, in many cases, is inherent to developers' activity. It goes on at present - there are environmental expenditures made under planning obligations - so I do not think we would be venturing into a new area of principle by suggesting that part of the planning gain is captured and spent on improving the local environment. In fact, developers tend to like that because it improves the value of the development as well, it is a sensible recycling planning gain into improving the overall development.

Mr Southgate: It also depends on how you define infrastructure, and, of course, there are aspects of environmental protection that are key parts of infrastructure; so flood defence and flood reduction, treatment waste from large scale developments are a key part of the infrastructure necessary for those developments.

Q251 John Cummings: Can you tell the Committee how your demands for PGS revenue to support large scale environmental protection measures is consistent with your arguments that the majority of PGS revenue should be returned to the area in which it was generated?

Mr Bates: Our view is that the PGS should be seen as part of a bargain struck between the developer and the communities affected by development, and, therefore, that most of it should feel as though it is a kind of local tax on development, spent locally with priority to determine by local planning authorities consistent with local development frameworks. I guess we also say that on top of that there is a case - so that is the majority - for spending some of it on further afield, on wider infrastructure projects that benefit the development and that local community as well. Flood defence type expenditures that happen away from the precise location of the development would be an example of that.

Q252 John Cummings: Another example would be river and coastal restoration projects, contaminated land transfer, air quality monitoring and waste management. We have one very long shopping list?

Mr Bates: These are all important things to development and the community and can be part of the package, part of the bargain that is struck between the developer, or between the development and the local community, and there is nothing that says that those things are not important. There is nothing, our view, that says that they should be mandatory either.

Q253 Sir Paul Beresford: It all sounds nice, but the reality is that the money is going to be collected centrally and redistributed by the Government. This is a government that dictates to local authorities, etcetera. They are going to vary the money, the grants and the distribution according to their diktat; so the nice cosy work with the local authorities and the developers is not going to happen, is it?

Mr Bates: The consultation asks for views on how the money should be redistributed, according to a sort of needs-based formula, which is how local government finances are arranged at present.

Q254 Sir Paul Beresford: That has changed three times since this government has come in. The needs-basis has changed three times.

Mr Bates: That is right. We have erred much more towards the idea that it should be redistributed back to the community, or the community where the development is actually taking place; in other words it should be seen as part of a bargain between the development and the community affected by the development.

Q255 Sir Paul Beresford: All of it?

Mr Bates: Not necessarily all of it, but a high proportion. You could weight it. We have not been so precise and exact like that. You might want a different approach to distributing PGS revenue.

Sir Paul Beresford: If the Government were going to do that, they would not collect it centrally, would they?

Q256 Chair: Can we stick to questions that are within the remit of the Environment Agency to answer.

Mr Bates: They have put that forward as an option, so they are clearly considering it and they have asked for views on it. I think one of the reasons for organising it as a tax like this is, in a way, to take some of the heat out of planning obligation negotiations. There is only a certain amount of planning gain that can be extracted and turned to good works around a development. What this is saying is that a formula will be applied that taps a certain proportion of that. At the same time, the amount that can be tapped through planning obligations will be reduced and that should take some of the heat and complexity out of extracting planning gain, notwithstanding the comments about the complexity of making land valuations.

Q257 John Pugh: I do not have any problem with the principle of what you are suggesting, it is how it is going to work out in detail. If you have a tax value, it has been suggested a rate of about ten per cent, or something like that. Are you suggesting that you, the Environment Agency, get a fixed slice of that or would it vary from site to site or be site specific depending upon what were the environmental requirements of the development?

Mr Bates: Very much the latter. I do not think you could nail that down to a fixed proportion going particular agencies, and so on.

Q258 John Pugh: We are having difficulty trying to understand how you would be involved in the process. If you are allocating the funds what process are you going to go through?

Chair: We have got a division in the House of Commons, unfortunately. Could I suspend the Committee for ten minutes.

The Committee suspended from 5.30 pm to 5.40 pm for a division in the House

Q259 John Pugh: You argued for having a role in allocating PGS funds on the basis of clear infrastructure plans, obviously a very attractive role, and most people would welcome such a role. How do you think you are going to play it? What criteria are you going to use for disposing of all of this ill-gotten gain, as it were, or well-gotten gain?

Mr Southgate: We see that role very much within the wider planning system. PGS is part of the wider planning system in terms of the local definition of what they think PGS should be spent on. We see that as part of the local development framework. The Environment Agency is a statutory consultee on local development frameworks, regional spatial strategies and the sustainability appraisals which apply to those; so we see our role as being no more than an environmental adviser in those, arguing that some of the things we pointed to in terms of flood risk infrastructure should be part of that overall settlement. We do not think we should have a special place at the table, it is part of our statutory advisory role, and there will be others who will be making that same point, and so in that respect we are like any other lobbyist, if you like. We are merely arguing that those environmental aspects are important parts of the infrastructure for those developments and should be included.

Q260 John Pugh: It crosses my mind that planning gain will occur wherever and whenever, but infrastructure plans are often de-played, well-established, have timetables and all that kind of thing. You would need to have a sort of steady cash flow coming to you to be disposed of in a rational pattern, would you not?

Mr Southgate: Again, part of it is saying, "Yes", ultimately the planning gain will be realised when the sites come forward, but the whole point about changing the system is to try and get it into a context where it is the development plan which makes the decision about the locations and the planning gain is realised as part of the eventual planning application. The one thing we would not want to see is an application for planning permission perhaps being put forward by developers saying, "We need some flood infrastructure with this, and this will be a good use of planning gain", driving the decision about where that development should go, because that might be the wrong place. The plan should decide on where the right place for the development is and the debate about the planning gain which then arises from that and how it should be spent would be part of that plan process.

Q261 John Pugh: So a stable and not an opportunistic approach?

Mr Southgate: Absolutely. I think one of the arguments against the section 106 is that it is a bit ad hoc, it is not clear, there is lot not of community buy-in in terms of what gets settled, and if you do that through the local development framework process and equally at the RSS level, you can basically set out what is intended. The infrastructure plan would need to come with it, and in some cases that is not clearly available, so that would be key part of deciding what infrastructure is necessary, particularly in a places like the growth area where you could then decide what was necessary and how you would fund it.

Q262 Chair: Can I explore how what you have just said is consistent with your call for a higher rate of PGS to apply to developments in the floodplain? You seem to be suggesting that as a way of discouragement about this, and yet you have just pointed out that, as statutory consultees, you would advise against development on a floodplain. Could you explain?

Mr Bates: This is simply adding an economic instrument on top of the planning system's presumption against development in the floodplain. That presumption is not absolute and our advice is not always concurred with, often for reasonable reasons, but I think this would provide an additional incentive not to develop in the floodplain and it would also, in part, recover some of the additional external costs that arise when development does take place in the floodplain; in other words there are reliabilities incurred by others for building and maintaining flood defences associated with that development.

Q263 Chair: But elsewhere in your submission you have said that revenue allocation should not give perverse incentives to planning authorities to bring forward inappropriate land. If the planning gain was greater on land in floodplains, it would perversely incentivise local authorities to give planning permission in floodplains to get more money, despite the fact that you will be telling them that they should not be giving planning permission for developments in floodplains.

Mr Bates: Again, there are a couple of points to say about that. If that money was essentially hived off for flood defences, the position would be neutral, but remember, there is only a certain amount of planning gain in total. It can either be tapped through Planning Gain Supplement or through planning obligations; so the capacity to add planning obligations would be diminished by having a higher level of PGS for development in the floodplain.

Mr Southgate: The important point is, again, that the Planning Gain Supplement is operating within a planning system. You use the plan to identify where sites are and are not acceptable. There is strong central government guidance which says, in looking for development at flood risk, you go for the areas which are the lowest risk first and those which are highest risk last, and there are certain tests under the new proposals that you would have to do to get there. Should you have gone through all of that, then it seems ultimately reasonable that you might have to pay an additional element of Planning Gain Supplement to overcome the issues in terms of the flood defence which might be required, but generally the Agency's view that you do not want to defend in those areas would act both as an extra disincentive but also, if that is determined to be right way forward having gone through the policy loops, then you would actually get additional funding on the flood defence, because that is what is required. I think it is very important seeing the operation of the Planning Gain Supplement within that clear Government policy and that clear approach in the plan.

Q264 Chair: Can you say what proportion of proposals for development in flood risk areas the Environmental Agency is consulted on, how often do you advise against development and how often is your advice accepted?

Mr Southgate: I will do that. In some ways it is very difficult to know what you are not consulted on, so any calculation we are not consulted on is a bit ergo "finger in the wind". We did do some rough and ready calculations quite a number of years ago and probably prior to PPS25, PG25 (so in some ways a bit unhelpful), which indicate it may be as much as 40 per cent which we were not being consulted on. I do not think that is the case now, because the PPG on development and flood risk has made it very clear to local authorities that they do need to do that. However, from the experience of rolling out something called "flood risk standard advice" to local authorities, some of them were alerted to the fact they should have been consulting us on aspects related to the development of flood risk, which they were not; so there is clearly some of that going on. More important now is the area where they are not taking advice or evidence, and that has been a steady improving curve. In the last report we made, 92 per cent of the decision notices we received indicated that our advice had been taken on board, and that is a pretty good success rate, I would say, with only four per cent of appeals going against us. One of the issues there is that we only received about 66 per cent of the decision notices on those where we have objected; so you are talking about a two-thirds survey level effectively, but there is a growing trend. The issue is there are a few major cases coming through, and that is related to something which we may come on to, which is the "call-in direction" (?) which has been discussed by government.

Q265 John Pugh: We were having a discussion earlier on about how broad brush in a sense terms like brownfield site were. I feel that "floodplain" will be similarly interpreted and it needs to be more fine-grained than that, because obviously I think your way of looking at things can be anything from wrapping around your shoes to around your neck in times when rivers overflow. Is there not a danger that charging extra Planning Gain Supplement in floodplain areas will actually not reflect the real flood risks that exist in those areas, because technically a flood does not have to be anything very considerable?

Mr Southgate: Absolutely. "Floodplain" tends to be the shorthand which is used. Actually we tend to talk about flood risk and developments at flood risk, and there is as much flood risk to be received from overflowing drains or from development which in themselves would create flood risk downstream. So flood risk is not just a matter of those built in floodplain areas, but clearly there are mapped areas which are most likely to receive flooding from coastal floods and from river floods.

Q266 John Pugh: There is a difference, is there not, between areas like Carlisle where you get very dense floods, if one can put it like that, and areas like East Anglia where if you get a flood it spreads so diversely the impact will be far less?

Mr Southgate: Yes. The Agency does a national flood mapping programme which helps provide the zones I was talking about - I do not want to get technical, but zones one, two and three, which are the high risk, medium risk, low risk - but the Government's approach, and one which we support, is to then take that to what is now being called the "strategic flood risk assessment", which is to map, in those places where they are at most risk, what the flood pattern is likely to be. For example, Boston in Lincoln has looked at its flood risk purely because, if you look at our maps, 95 per cent of Boston is at high flood risk. As you go and understand that more locally, by doing local surveys, you realise there are some areas which are at more risk than others, and that is what is we are trying to differentiate in terms of development.

Q267 John Pugh: So the flood everywhere will be a one inch flood then?

Mr Southgate: That is the other issue. There are two issues. One is about the probability of flooding, and the second is about the consequence of flooding. Clearly the probability may be high, but if it is going to go to one inch and that does not even go into the property, then insurance damage is nothing. If it is very high and there is risk to life, then that is an entirely different issue. Flood risk is a combination of the likelihood of it happening but, more importantly, the consequence should it happen.

Q268 Chair: Can I take you back to the remarks I think you made at the beginning about the retained section 106 agreements being used to promote the site specific environmental issues and to have an approach which guarantees environmental quality. How do you suggest that the environmental quality of the proposed development should be measured?

Mr Bates: I think, again, it is a local decision. It is a matter for the local planning authority and the developers to determine how they want these places to look and feel. There have been attempts to measure environmental quality, but I do not think they really apply to the issues you are raising here. Essentially that question is about how a given development is embedded in the surroundings and that is what planners spend a lot of time on and devote a lot of expertise to.

Mr Southgate: One of the areas we called for potential spend of the Planning Gain Supplement was river restoration and coastal restoration. Clearly, if you have a series of developments happening in one of those areas, if you can link them up more effectively in terms of their contribution, you can get more bang for your buck in terms of making sure you have got a leading development going across the local authorities. That is one of the issues: if it is purely local, then one local authority might take one approach and one might take another. That is where you need a bit more strategic overview to see a river system in its entirety and you want to link these things up to make that restoration more attractive, as an example, but it is that need to think more than local in some circumstances.

Q269 Chair: Who would give this strategic overview then?

Mr Southgate: We think in those circumstances that would be a lead from the Regional Spatial Strategy.

Q270 Mr Betts: English Partnerships in their memorandum to us called for properties which achieve a five-star rating under the proposed Code for Sustainable Homes to be exempt from PGS. Is it a bit surprising, therefore, that your memorandum does not mention anything on this matter at all?

Mr Bates: First of all, we support very strongly the Code for Sustainable Homes and want to see it used as widely as possible. The question is: is this the right instrument to use to promote it and, given the objectives of keeping it fairly simple, there might be other ways to do it. We favoured the right of local planning authorities to insist on and essentially apply obligations to go to the highest levels of the Code. We thought that was a more flexible way of tapping into the available Planning Gain to fund the additional expenses that would be required to achieve those higher levels of the Code. We are open-minded about this proposal by the way, but our sense was that this would be better done simply by a direction from the planning authority saying, "We would like higher levels of the Code to be achieved". The developers were doing it anyway because they wanted to build that kind of development. There is not a particularly good reason to give some kind of tax break for it.

Mr Southgate: Just to give a context, that would be in the context of plans that would have to be argued on soundness in front of inspectors, and the local authority in doing that would have to say, "We think there are particular reasons in this area where we think the Code should apply because of certain issues". It would be for the local authorities to argue that and that to go in front of the inspector, but that is one way of making the Code bite a little bit more than it might otherwise do, for example.

Mr Bates: We are not standing here in opposition to English Partnerships' proposal; we just thought that the approach to getting a higher penetration of the use of the high levels of the Code could be done differently.

Q271 Mr Betts: In your view, if this system came in, where there was some form of exemption or reduced rate or whatever where homes achieved this particular standard, would there be any less demands on infrastructure, on the things were being paid for out of the Planning Gain Supplement or out of section 106 for that matter but by building homes this time?

Mr Bates: Yes. That is the idea of it in many ways.

Q272 Mr Betts: Could you elaborate a little more?

Mr Bates: If you build to the highest levels of the Code, you have a reduced water demand, a reduced energy demand and, potentially - it is a bit questionable - reduced waste requirements. Essentially the Code provides a very strong demand-side measure in reducing the demand on supporting infrastructure.

Q273 Mr Betts: Is it awkward to quantify that?

Mr Bates: Quantify it?

Q274 Mr Betts: Yes. Could you say, "This is how much less Planning Gain Supplement we would get. This is how much less demand on the infrastructure there would be because we are building homes to that particular standard"?

Mr Bates: You could certainly make an attempt to look at how much reduced water and energy demand you would have from each house built to the highest level of the Code and that would translate back into a reduced demand for water and energy infrastructure. In terms of how that would interact with PGS, that is a different question in a way. I think the proposal that they are floating, and you are putting to us, is the use of PGS as an incentive structure for getting a wider uptake of the highest levels of the Code. What we are arguing is that there may be other ways to do that which are a bit simpler, which is to insist on it as a planning obligation or a condition of planning permission.

Q275 Mr Betts: The public purse, for example, I do not think would want to see a developer ended up paying £100,000 less in PGS but the infrastructure demands from the particularly high standard development were reduced by £80,000; that would not seem a terribly good deal. Would it be possible for you to produce a further note showing these quantifications? Can you demonstrate them for us?

Mr Southgate: One thing we can quantify is water saving in relation to future household projections. We have done work with the South East Regional Assembly to look at how the reductions in water demand would enable the housing projections to come forward. Basically, we did various models, but take the 80 per cent reduction in water use, that means you have to provide less infrastructure in terms of reservoirs and, of course, in theory reservoirs take a long time to come on-stream in planning terms anyway. You can immediately see the advantage that you require less of that large-scale infrastructure to bring the balance of housing supply and water demand.

Q276 Mr Betts: Is it just water or are there other things as well?

Mr Southgate: Water is probably the clearest one from the Agency's responsibility. We mentioned waste, but there is a less clear relationship there, and energy obviously is another one as well.

Mr Bates: Where a development places a high infrastructure cost, it costs more to connect, we have tended to favour that cost being channelled through the charges that developers pay to connect to networks rather than through some other mechanism. If the developer then cannot sell the property for any more money, that extra cost, the connection charge or the developer charge, still has to be recovered from the available Planning Gain; it comes out of the profit that the developer would otherwise make on the land. That is another way of consuming the available Planning Gain, but it would be through that route of charging for the connection to infrastructure. You could vary that charge according to the quality of the building at the other end of the pipe, so if it was a high consuming household, they would pay more for it.

Q277 Mr Betts: Perhaps, on the possibility of measuring the savings, it might be helpful if you could do a further note for us.

Mr Bates: Yes.

Q278 Mr Betts: If we have this skew of some kind, some concession brought in for housing schemes, presumably we are going to have to have it for non‑housing schemes, for other types of development as well, otherwise you are going to skew the market in favour of one particular type of development over another.

Mr Bates: There is a kind of polluter pays-type argument behind this which is that when a development places a higher burden on the infrastructure the developer bears those costs. Conversely, if they are more efficient in the design of a house, or whatever the building is, and the water and energy requirements are lower, they pay a lower cost. That seems to me to be the best way of aligning the decisions about how big the burdens are and how big the demand is with the mechanism for cost recovery.

Chair: Has anybody got any further questions or have we covered everything? I think we have exhausted ourselves if not you. Thank you very much.