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Government U-turn on Land tax

The property industry has won a major battle over the Government’s controversial land tax – Planning Gain Supplement (PGS). It has been scrapped in the Chancellor’s autumn statement and a new scheme is proposed.

This major policy u-turn has been made in the face of relentless opposition from many quarters including the CBI, Chartered Institute of Taxation, Royal Institution of Chartered Surveyors, British Chambers of Commerce and many other representative bodies.

The criticism ranged from “yet another tax on business” to grave doubts about the likelihood of the tax raised making its way back to the local communities where the individual developments would take place. Comparisons with previous abortive efforts to introduce a land development tax have been made.

While there is support for the notion that if the value of land increases signficantly the local community should benefit in some way, there were great concerns that the centralised PGS administered by the Revenue and Customs would not really benefit local communities. Currently section 106 agreements provide for developers to make a contribution when planning consent is given. The local authority has the right to negotiate infrastructure improvements. These can range from providing new road works to relieve any expected congeston to building a community centre.

The new scheme, to be announced in November, will set a tariff on proeprty developments which will be paid diretcly to the local authorities for planned regional infrastructure. It is promised that this will offer a more predictable cost structure to developers.

The Housing Minister Yvette Cooper said that there will be a “standard planning charges for all new development to support infrastructure delivery.” This new arrangeemnt raises a number of issues. For exmaple, she said that “where appropriate Local Authorities will be able to use planning charges to supplement a negotiated agreement. Negotiated agreements will still be necessary to secure affordable housing and to address costs related to the specific development site.”

Does this mean that dvelopers get a double whammy – a section 106 type agreement plus a planning charge?

How will the charge be levied? The Minister said: “Planning charges should be based on a costed assessment of the infrastructure requirements arising specifically out of the development contemplated by the development plan for the area (which comprises the regional spatial strategy and the local development framework), taking account of land values.”

As ever, the small print will reveal all, but at least commonsense has prevailed. The main concern with the rejected PGS tax was that it might actually reduce the flow of land and new developments aimed at meeting the Government’s ambitious new housing targets.

We shall know more by the end of this year.