Property development - new planning gain supplement

Citation

Krieger, A. (2006), "Property development - new planning gain supplement", Strategic Direction, Vol. 22 No. 10. https://doi.org/10.1108/sd.2006.05622jab.002

Property development - new planning gain supplement

Property development - new planning gain supplement

The UK Government is currently considering responses to its consultation paper on the proposed introduction of a Planning Gain Supplement (PGS). The reason for the possible new charging structure is because there is a shortage of housing in the UK and the PGS is being seen as a way to help fund the infrastructure, e.g. schools, health centres, etc. Estimates show that around 200,000 new houses are needed in the UK each year and the cost of providing infrastructure support for these is considerable. After considering the responses to the consultation paper, the Government will formulate policy and it is envisaged details of this will be published before the end of the year The Planning Gain Supplement will, if introduced, be in addition to planning obligations.

So what exactly is the PGS? Well it is intended to be a form of tax which will be self-assessed and administered by HM Revenue & Customs. The payment will not be required until commencement of the development and is to be paid by a “chargeable person”, i.e. the Developer. The tax is based on “a modest proportion of the uplift arising on land for which full planning permission has been granted”.

What developments will the PGS apply to? At present it is intended that the PGS will apply to all development of land, both residential and non-residential although there is a possibility that a lower rate for brown field land will be applied. Green field sites are expected to be particularly hard hit by the proposals. Individual home improvements will not attract the PGS charge and there is also some suggestion that smaller developments may also be excluded from paying the tax although this remains to be seen.

What about the money raised from the PGS? Who will it go to and what will it be for? Discussions currently indicate that monies levied will be given to local communities to be used for the provision of infrastructure in the area that the development is ongoing. However, this in itself may cause difficulties as some areas have more development opportunities than others and so a disproportionate spend on infrastructure may occur without additional Government intervention.

The PGS is being discussed as taking effect from around 2008 but in the lead up to this we are already seeing signs of it being implemented through alternative routes. For example, any development currently has to comply with a Section 106 Agreement. In the run up to the PGS we are seeing evidence of a “standard charge” being applied to Section 106 agreements which co-relates to infrastructure charges. In Milton Keynes, for example, a prospectus has been prepared which identifies infrastructure costs for a particular area. This has been translated into a Section 106 “charge” of £18,500 per dwelling for social infrastructure and land.

Commentary on the Consultation Draft has raised a number of concerns, particularly:

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  How will PGS affect the cash flow of a development?

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  What happens in the case of multiple permissions?

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  How are disputed levies dealt with?

It is anticipated that Section 106 Agreements will be scaled back to deal with issues relevant to the environment of the development site and affordable housing. An example of the types of matters included within Section 106 will be:

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  on-site landscaping;

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  on-site roads and traffic calming;

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  access road;

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  open space;

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  mix of uses;

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  mix of housing types;

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  flood defence;

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  street lighting;

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  phasing and timing of development;

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  landscaping;

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  design coding;

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  environmental improvements; and

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  operational effectiveness.

It is difficult to see how the Planning Gain Supplement in its current form will stimulate the development which is required to meet the chronic shortage of housing. It is already my experience that developers are pursuing applications in an attempt to avoid the incoming Planning Gain Supplement. What incentive is there for them to develop with profits being reduced by reportedly 20 percent? In addition, the system which at the moment has been identified to provide the infrastructure will only place further strain on already over burdened Local Authorities. These two items together will actually frustrate the aims of the Government to produce housing and also the infrastructure to service that housing.

We can but wait and see how the Government will respond to the outcries which have been continuous since the consultation period has expired calling for the abolition of the PGS before it is even introduced and await their comments on the consultation procedure.

Ann Krieger is a partner specialising in Planning Law at Gordons LLP