New development tax proposals face an uphill struggle

The government is facing a challenge over its proposals for a new development tax on the lines advocated by Kate Barker, it has emerged.

Planning and development interests are either opposed or wary of the proposed Planning Gain Supplement (PGS), suggested by Kate Barker last year and now the subject of a consultation exercise.

The deadline for submissions to that consultation has just expired and ministers and officials are now marshalling the comments before making a decision on the PGS later this year. If ministers decide to run with PGS the present planning obligations system would be scaled back.

Local authorities are concerned that opting for PGS would reduce their ability to negotiate local community benefits. Councils have yet to be convinced that the most of the proceeds from the tax will be distributed by the Treasury to help the immediate area affected by the development.

Organisations like the Royal Town Planning Institute and the Town and Country Planning Association have welcomed the thinking behind the PGS but question its effect in practice.

TCPA director Gideon Amos said: "To be effective, any new development tax must raise sufficiently more money than the current system, without causing landowners to withhold land or jeopardising necessary development.

"The revenue should not be at the expense of affordable housing, and should be retained and used for the benefit of the local area."

He stressed that the PGS might be worth supporting once there is more detail about its implementation but said if it failed those tests then "additional funding streams" would have to be found to ensure community infrastructure is provided.

The Planning Officers Society (POS) is opposed to the PGS on the grounds it would be part of the national taxation system and not targeted enough at local requirements. The POS believes a tariff system is a better way of ensuring local infrastructure and community needs.

The Royal Town Planning Institute has warned of "a danger that those communities most in need of infrastructure investment, particularly those with failing markets, will lose out to those with development pressure – with a consequent 'overheating' of the local economy for the latter areas."

According the Royal Institution of Chartered Surveyors, the proposed land tax risked stifling housing and business development. Like much of the property and development sector it favours a tariff system and argues that if PGS is brought in it should only be for large-scale scheme with the section 106 system retained for smaller developments.

The Home Builders Federation claimed that the new tax would be "unworkable" but said it wanted to work with ministers to find a solution to the infrastructure issue. "This needs a delivery mechanism – PGS is just a tax," said a spokesman.

The British Property Federation (BPF) has voiced concern that the PGS is not suited for brownfield or previously developed sites and would probably prove unworkable on most commercial developments.

The BPF has argued the proposed tax would create a blockage in the planning system, would slow the pace of development and remove the linkage between the developer, the development and direct community benefit.

An ODPM spokesperson said: "We will consider all responses to the consultation carefully and respond in due course."

View the consultation document and further information here (the consultation period has ended).

Roger Milne

3 March 2006