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Comments from ACCA
February 2006

The basic premise put forward by the government for the introduction of the proposed planning gain supplement is that it would have the effect of increasing the housing supply.

When Kate Barker published her review of the housing supply, she suggested that a reform of the planning system would bring forward more land for development. She therefore took the view that there would be a strong case for Government to consider the use of a levy to allow the wider community to share more broadly in the development gains its actions would create.

There is no case for arguing that the imposition of a planning gain supplement will itself give rise to an increase in the housing supply. That increase, if any, has to be achieved by way of changes in planning requirements without such changes there is no justification for a tax on planning gain.

The Workability of Planning Gain Supplement

At 1.22. It is acknowledged that the workability of PGS is a key determinant in assessing the merits of the proposal, but it seems unlikely that any of the proposals in the consultation document would achieve the necessary simplicity.

Development Gains Taxes

Both development gains tax and development land tax were short lived. Our experience was that they were complex and expensive to administer and did not generate the expected funds.

Valuation and Self Assessment

Any valuation would have to be as simple as possible. Even then the likelihood of a workable self assessment system is remote.

Whilst most developers will have their finances in place at the commencement of a development cash flow is important and the earlier the tax has to be paid the greater the actual cost.

Brownfield Sites (4.4.)

It is accepted that brownfield regeneration is a desirable objective, but the present definition of a brownfield site includes existing houses and gardens. These should be excluded from the definition for PGS purposes.

Paying Planning Gain Supplement

The proposal is that PGS would be paid by developers which would probably have the effect of increasing housing costs.

It is suggested at 4.1. that developers would in fact discount the price they were prepared to pay for land to take account of their liability to PGS and if this were the case it would be necessary to take this discount into account in calculating the planning value. Since landowners will receive less the effect of PGS may be to discourage them from bringing land forward for development.

Minimum Thresholds

While the Government realises that the PGS being applied to the individual’s house, where improvements are made, is unfair at 4.6. It still clearly sees that individual’s will be brought in to its scope hence the mention of Inheritance Tax at 4.13. We presume individuals will be affected where an “office extension” is added or an improvement which is not attached to the main building, such as a granny house, or an improvement or planning gain relating to a second property or land. Further there is clearly an acceptance that no tax relief for any PGS suffered against IHT is necessary and double taxation is therefore not unreasonable. We find the whole concept of PGS ill thought through and something which should not be taken any further.

The Rate of Taxation

The consultative document refers to a “modest rate of tax” but gives no rate.
At 6.4. it states that “a significant majority of PGS revenues will be recycled directly to the local level for local priorities. Since not all of them will be recycled the implications are that either.

• Local authorities will be worse off, and/or
• Developers will pay more.

It seems unlikely that making housing development more expensive will generate more houses.

Planning Requirements

It is proposed that S106 obligations in respect of affordable housing should remain. (Surely this is the best way of achieving more houses). We can see from the table at 5.2, setting out the areas within the new planning regime, and those outside exactly how complex PGS is intended to be.

Conclusion

We do not consider that PGS should be introduced as it will:

i) have the opposite impact to help creating a landscape in which more houses will be built

ii) is likely to be highly complex and onerous for the taxpayer

iii) the revenue and expenditure is not ring fenced and will end up being purely another tax

iv) PGS is payable even though no income has been received

v) there is no intention to prevent certain instances of double taxation.

We will be happy to participate in any further consultation or discussion on this issue.

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