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We will be keen to work with your officials in gaining a greater understanding of the full implications of potential costs of this proposal in the devolved contextits practical workability, the costs to be incurred, the effect of differing planning systems and other policies and ensuring the effectiveness of the investment funded throughout the UK.
In response to the hon. Member for Edinburgh, North and Leith (Mark Lazarowicz), the Scottish Executive did not formally ask us to table the new clause, but in their response to the consultation they certainly asked for much greater clarification, so we have in a sense responded to their request in spirit, if not entirely by the letter.
Stewart Hosie (Dundee, East) (SNP): The hon. Gentleman mentions the Scottish Executives response, which contained concerns about the difficulty now, and potential difficulty in future, of providing more affordable housing as land prices may be driven up by the proposals. The hon. Gentleman also referred to section 75 of the Town and Country Planning (Scotland) Act 1997, which states:
A planning authority may enter into an agreement with a person interested in land
may contain... incidental and consequential provisions (including financial ones)
obviously, in respect of planning gain. What assessment has the hon. Gentleman made of the impact on land available for affordable housing? Is there any further information from the Scottish Executive to flesh out some of the concerns that were set out earlier?
Mr. Francois: One of the concerns raised by the Scottish Executive in their response to the consultation was that implementation of the planning gain supplement might actually restrict rather than encourage the bringing forward of land for affordable housing. They have already commented on that particular point. When we come to Third Reading, I have some wider points to raise about that. I hope that the hon. Gentleman will be kind enough to follow me when I reach that point. It is true to say that the Scottish Executive expressed some reservations.
It is not just the devolved Government in Scotland that have expressed reservations about how the PGS might operate north of the border. The Scottish Property Federation, the representative voice of the commercial property industry in Scotland, has also stated its opposition to the introduction of the planning gain supplement in Scotland. In a letter written to me only yesterday, Mr. David Melhuish, the director of the Scottish Property Federation, states:
The SPF opposes the introduction of the PGS in principle. We perceive PGS to be a tax that has been tried and failed on a number of occasions in the last 40 years and we believe it will add costs, complications and delay to the planning and development process. Neither does the SPF agree that the PGS will achieve the Governments declared objectives of bringing forward the supply of land for either residential or commercial development.
On behalf of the Scottish Property Federation I write to express our support for your proposed New Clause intended to delay the enactment of the planning gain supplement until a proper evaluation has been made of the relationship of the new tax to the existing Section 75 process in Scotland.
The letter goes on to point out that the Scottish Executive have not committed themselves to scaling back section 75 agreements in line with the at least indicative commitment from the Treasury in England. Scottish developers are therefore concerned that they could face the double whammy of PGS plus being asked to provide money for unreformed section 75 agreements as well.
In Scotland we do not know how PGS will function at all alongside Section 75 agreementswhether for example they will be additional to Section 75 agreements or if we will see section 75s scaled back as with section 106 agreements in England.
Even if we get scaled back Section 75 agreements, we still have the potential for PGS to blunt rather than promote economic development. Instead of a developer agreeing and quickly delivering infrastructure appropriate to a particular development, we will have an uncertain sum paid to the Treasury, who will then recycle the same sum to the Scottish executive, who will in turn recycle an uncertain amount to local authoritieswho, after all this process, are left with the task of delivering the infrastructure. This can only add delay, uncertainty and cost to the development process and this will only reduce the prospects for economic growth in Scotland.
Mr. Redwood: Is my hon. Friend aware that when Ministers are asked why the supply of land will not dry up with the introduction of the tax, as happened before, they answer that the rate will be lower? Does not that show that the tax will still slow up the process somewhat, and that the only rate that would guarantee no slow-up is a zero rate?
Mr. Francois: My right hon. Friend pushes me on the rate, and perhaps we should push the Minister on that question today. Throughout this process, the Government have not said, unless I have missed it, what the rate of the PGS would be. There is certainly no such commitment in the Bill. Perhaps the Minister will take this opportunity to enlighten us about the level at which the PGS will be levied, so that we can make a more accurate assessment. Thus far, however, there has been a deafening silence from the Treasury on the question that my right hon. Friend has just raised.
It is not only the Scottish Executive and the Scottish Property Federation that have outlined their opposition to the imposition of the planning gain supplement in Scotland. Scottish Labour Back Benchers in this House have also expressed their misgivings about the Governments proposals. During the debate on the Bill in Committee, the hon. Member for Linlithgow and East Falkirk (Michael Connarty) expressed doubts about how the proposals would operate in practice. He pressed the Minister on how effectively any money raised would be recycled to the area of development in question, and on whether some
of it might be diverted along the waya process that he described as filtration. He said that
if the Scottish Executive were to absorb some of the funds for their projects, the sum that goes to local authorities will be less than that under a simple section 75 agreement. I am concerned about that filtration system.
I understand that the hon. Gentleman and his colleague, the hon. Member for Livingston (Mr. Devine), asked for a meeting with the Financial Secretary to the Treasury in order to express their concerns about the system and the effect of growth in Edinburgh on the areas of Falkirk and West Lothian. In Committee, the hon. Member for Linlithgow and East Falkirk went on to say that
those councils would need to provide social services and education for the people who would live in the houses that those areas are going to absorb, because of the pressure on Edinburgh. If there is any question of the designation or use of the money being wrong in terms of the priorities for the local authority, there will be a major problem with the measure being accepted in Scotland. [Official Report, Planning-gain Supplement (Preparations) Public Bill Committee, 30 January 2007; c. 42-43.]
It is evident from all this that, in Scotland, it is not clear how the planning gain supplement that the Bill seeks to facilitate will operate in practice. The Scottish Property Federation, the Labour-led Scottish Executive and even Labour Back Benchers in this placeincluding, it should be noted, the successor to the originator of the West Lothian questionhave expressed reservations about how the measure will operate north of the border. In the light of that, our new clause seeks to ensure that the Bill cannot effectively be implemented until the Treasury and the Scottish Executive have worked out between them in detail how it will operate on the ground and, specifically, how the well established Scottish section 75 procedure will be affected as a result.
Mark Lazarowicz: As I said, I am glad to have the opportunity to express some concerns about the preparations that will be authorised by the Bill. I see no objection to trying to introduce a more systematic way of ensuring that the windfall gains from development are used to provide resources and infrastructure for the local communities that must bear the extra costs or consequences of such development. From my experience in Edinburgh, and from observing other authorities in Scotlandno doubt this is also the case in England and Waleslocal authorities often do not benefit from the section 75 process as they ought to. Some local authorities are good at negotiating with developers to ensure that they do benefit; others are not. There are certainly arguments for a more systematic approach, and I do not see any problem with trying to introduce such a system. I hope that certain issues can be addressed when the proposed legislation finally comes forward as a substantive Bill.
As I indicated on Second Reading and in my earlier intervention on the hon. Member for Rayleigh (Mr. Francois), I am concerned that we so far have little idea of how the Bill will work in Scotland. In England, and, I think, Wales, most of the sum
raised70 per cent.would go back to the local authorities concerned. There is no such provision for Scotland; indeed, it has been made absolutely clear that it is intended that the sums should go to the Scottish Executive to spend as it sees fitnot necessarily to support infrastructure in any local authority, but to support any other project that it has in mind. The Scottish Executive may have expressed reservations about the proposal, but I suspect that were it to be given an additional financial windfall, it would not rush to hand it out to local authorities. The experience in my area is that the Scottish Executive has a more centralising approach to the redistribution of funds raised at local level than is the case south of the border.
As Edinburgh has provided some attractive opportunities for development in the pastand will no doubt do so in futurethe potential financial take from planning gain supplement tax could be substantial. My concern is therefore that sums might be recycled out of Edinburgh and perhaps spent in the constituency of the hon. Member for Dundee, East (Stewart Hosie), in Aberdeen or even further north, or on something entirely different. But that is not just a concern for a city such as Edinburgh; it was interesting that my hon. Friend the Member for Linlithgow and East Falkirk (Michael Connarty) raised such issues in Committee. Because of the way in which development has spilled out from Edinburgh, I suspect that areas such as his might have even greater potential for planning gain, and for money to be raised from planning gain supplement. Similar concerns have also been expressed in relation to Glasgow, and probably all cities. Inevitably, in cities and the areas around them, there will be more potential for sums to be raised and then centralised at the Scottish Executive level.
Mr. Mark Field: If the idea is to ensure that windfall gains to developers are put into place, does the hon. Gentleman accept that it is much more desirable to do that over a period of time through a rate than on a one-off basis? His concerns go to the heart of the matter, as there must be a sense of transparency, which can only be at the most local level. In Edinburgh, as he knows, and in central London, as I know, there is often a desire for section 106 or section 75 expenditure to be dealt with on a ward-by-ward basis, let alone within a particular local authority. What are his views on that matter?
Mark Lazarowicz: I think that if I were to answer that intervention in detail I would stray from the subject of the new clause. I will try to avoid doing that. The hon. Gentleman gives an example of the wish to break down expenditure on a localised basis. That is perhaps an illustration of why there needs to be a more systematic approach to deal with the matter at a global level, rather than too local a level. There is always an attempt to break down the benefits and to benefit the local community most directly involved, but that does not allow that benefit to be expended on projects which will be required to make a development work properly and which cannot be immediately attributed to local communities. There is a strong case for having some centralised system, but that is a debate for another day, which we can have if a Bill on the substance of this matter is eventually introduced.
As I have said, I am concerned that we do not know how the provisions will work in Scotland. I understand that Ministers have taken the line that the issue is to do with devolution, and it is up to the Scottish Executive to decide how such funds should be allocated if they are raised. I agree with that as a matter of principle, as a strong, consistent supporter of a Scottish Parliament and devolution. However, this proposal deals with a reserved matter: the raising of taxation. Therefore, it seems a little disingenuous to suggest that we can decide to raise the tax at UK level but have no view on how it will be spent at the Scottish level.
We are proposing the measure at UK level. We could have an anomalous situation whereby we passed legislation here that effectively gave a new tax to the Scottish Executive, but the Scottish Parliament was not involved in the discussion about how that tax was going to apply in practice. If the Scottish Parliament is not going to have a discussion on the matter of principle, surely we should have it here, and be satisfied with the details of the proposals in so far as they will apply to Scotland.
It would be extremely helpful to get some indication of how my hon. Friend the Minister sees the provision working in Scotland. I ask him to give us some more indication of the discussions that have taken place with the Executive, and to give some assurances that it is the Government's expectation that if the measure goes further, the financial benefits from the new tax will be allocated to the local authority or authorities most immediately affected by the development, and that the Government, or indeed the Executive, do not intend that such money should be centralised, as the present proposals in the Bill would allow.
Mr. Redwood: The hon. Gentleman is making an interesting case about the community sharing in the benefits. What level of tax would he think represented a fair balance between the developer who is putting in work and effort and taking a risk, and the community, bearing in mind that the developer could put in a lot of effort, be turned down and lose money?
Mark Lazarowicz: It is difficult to answer that point because, as has been suggested in the debate, the relationship between the section 75 procedure and the sums that will be raised from the planning gain supplement has not been clarified at this stage. An indication has been given of how a relationship may apply between the section 106 procedure in England and the tax raised by developments in England. I cannot answer the question, because I do not know what the consequence of the measure would be for the section 75 procedure that currently operates.
For all those reasons, we need to have clarification of how the measure would apply in Scotland. We cannot simply leave it entirely up to the Scottish Executive to decide and the Scottish Parliament in due course to discuss. We are today taking the first steps in authorising a new tax that would apply in Scotland, as it would in England, but in Scotland we do not know what effect it would have on the ground in terms of particular allocation of resources. We have to have some reassurance on those points, and some more information. I hope that if the Minister cannot provide the detailed answers today, he will at least assure me
that the Government intend to make those points clear during the passage of any substantive legislation to take the proposals forward.
Dr. Vincent Cable (Twickenham) (LD): I shall speak briefly in support of the new clause that the hon. Member for Rayleigh (Mr. Francois) moved and set out clearly. I moved an amendment in Committee that sought to ensure that 100 per cent. of planning gain supplement proceeds accrued to the local planning authority in order to maintain the principle of local accountability and local benefit, and the Minister argued strongly against it on the grounds that a share of the revenue would be needed for spillovers and surrounding regional projects, but he reassured the Committee that a substantial majority of the revenue would none the less accrue to the local community. That was the basis on which the Government sustained their argument, but we now discover that that argument will not necessarily apply in Scotland. The Government have a little explaining to do as to how they will extricate themselves from that difficult and anomalous situation.
Another question is raised. Devolution is an evolutionary process; it is not fixed, and powers change over time. I am struck by the fact that the Mayor of London has recently acquired planning powers that are not greatly dissimilar to those of the Scottish Executive. I raise the questionand perhaps the Minister can answer itof whether Mayor Livingstone might seek to invoke the Scottish precedent in arguing that the receipts from the planning gain supplement should go to him, rather than to London local authorities. There might well be a simple legal answer to that, but it is a question that is prompted by this problem and I am sure that the Minister can give a clear answer to it.
The hon. Member for Rayleigh raised a second issue, which he put very well so I do not have a great deal to add to what he said. It is that an anomaly in the devolutionary process is being created because there will be one instrumentthe planning gain supplementwhich will be a UK-level power, and a partly alternative and partly additional mechanism which is a section 106, or section 75, power, and which is devolved. In introducing the measure, the assumption has been that as planning gain supplement is introduced and expands, the section 106 role will contract; it will be confined to local infrastructure and affordable housing. However, it has never been clearly explained how that contraction will happen, and whether consequential legislation will be needed; it would presumably have to be introduced to limit the role of section 106 powers.
Again, we have an anomaly in terms of Scotland; as the hon. Member for Rayleigh has explained, the Scottish Executive might well take a totally different view and might wish to expand the role of section 75 to have enhanced, rather than reduced, planning gain. If that happens, there will be a clear conflict between United Kingdom and Scottish functions. It is not at all clear that the Government anticipated that problem, or that they have an answer to it. I await the Ministers reply with interest.
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