In a nutshell: the Planning Gain Supplement

The government this week signalled its support for some of Kate Barker's key recommendations and launched a consultation on a so-called planning-gain supplement (PGS).

Ministers believe that their proposals represent "a fair, efficient and transparent levy".

John Healey, financial secretary to the Treasury and planning minister Yvette Cooper have insisted that "combined with reforms to the planning obligation system, this represents a principled approach to funding the infrastructure that makes growth possible and acceptable".

They added: "As planning reforms enable more land to be approved for housing, a portion of the wealth created by the planning system should be released for the benefit of the wider community. In this sense, PGS will be largely a local measure, its proceeds recycled to the local level for local priorities and for the vital strategic infrastructure needed for new development."

The main elements of the proposed PGS regime are now clear. It would not be implemented before 2008, it would capture what ministers are saying would be "a modest portion of the value uplift arising on land for which full planning permission has been granted".

PGS would be payable under a self-assessment regime administered by HM Revenue and Customs and payment would not be required until the commencement of development. However, the issue of exactly when the levy would come liable and the exact mechanisms of the new regime are all matters yet to be settled.

The new levy would apply to non-residential as well as residential developments (but not home improvements). Very much under review is whether a lower rate of PGS should be applied to brownfield land and if there should be PGS threshold to exclude small-scale development.

Crucially, PGS revenues would be dedicated to local communities and the provision of infrastructure. At this stage ministers are insisting that the "significant majority" of the money raised would be spent locally, though with the caveat that some money could go on regional or sub-regional infrastructure.

The PGS consultation highlights two options for recycling PGS revenues but the government has said it is open to persuasion on others. It has also signalled that an expanded and revised Community Infrastructure Fund could play a key role in how regional or sub regional infrastructure needs are handled.

Very importantly, the government has stated that PGS would apply across the whole of the United Kingdom. It won't just apply to England and will need primary legislation.

As a consequence of the new arrangements, the government has made it clear that planning obligations would be scaled back to matters relevant to the environment of the development site and affordable housing.

The Office of the Deputy Prime Minister has detailed what it thinks should be included in the new development-site environment approach to planning obligations. Included in the new scope would be the following:

• on-site landscaping
• on-site roads and traffic calming
• access road
• open space
• mix of uses
• mix of housing types
• flood defence
• street lighting
• phasing and timing of development
• landscaping
• design coding
• environmental improvements
• operational effectiveness

Outside the scope would be such items as: education and health provision; community centres, bus services, fire stations, employment and training, labour initiatives, town centre management, cultural facilities and leisure facilities.

The ODPM has sketched in the principles for matters to be included in new "development-site environment". These fall into three areas.

First, the provision of affordable housing, making it necessary to contribute to the securing of the relevant proportion of affordable housing in a residential or mixed-use development, as required by the application of the Local Development Framework (LDF) policy to the site.

Second, issues around direct replacement/substitution, making it necessary to replace/substitute directly for the loss or damage to a facility or amenity caused by the development.

Finally, there is what the ODPM calls development-site acceptability. This is what is necessary to make the development-site acceptable in terms of such things as:

• connectivity to access points
• physical safety
• environmental quality
• biodiversity
• design or landscaping
• archaeological protection
• mix of uses
• operational effectiveness (of the site and others functionally linked to it)

The ODPM has made the point that the exact nature and scale of the obligation requirements would still be governed by the existing tests of: relevance to planning; direct relationship to the development; reasonableness; and proportionality.

In the run-up to the introduction of the PGS, the government will be encouraging more local planning authorities to make use of formulaic and standard charge approaches to planning obligations.

The best known is regime established in Milton Keynes where joint working between the LPA, English Partnerships (EP) and local landowners and developers have established a prospectus identifying the infrastructure needed to deliver some 15,000 new homes in the area's "expansion flanks" up to 2016.

This has been converted into a s106 contribution that developers are expected to make which amounts to £18,500 per dwelling plus land for social infrastructure and affordable housing.

In order to overcome any problem with timing differences between expenditure on infrastructure (frontloading) and receipts from developers, EP has agreed to forward-fund the infrastructure and recoup the outlay from developers.

Reponses to the plan so far has been mixed and the government has a challenge on its hands persuading planners, environmentalists, councillors and the development community at large that these new arrangements will do what the administration believes it will.

Key issues to be resolved are whether the scheme is "workable", whether it would accentuate the north-south "divide", whether developers might 'landbank' hoping for a change of government and the disappearance of the levy and whether the new regime would actually increase the amount of affordable housing built and if it might impact adversely on urban regeneration schemes.

Ministers are confident that these objections and concerns can be met and overcome.

View the PGS consultation here (PDF 449 KB).

In Focus: Response to the Barker review.

Roger Milne

9 December 2005