Planning Gain Supplement Briefing
1.0Introduction
In response to recommendations made in the Barker Review of Housing Supply (March 2004), the Treasury has launched a public consultation on the introduction of a Planning Gain Supplement (PGS). PSG is the value a property gains when permission is given to change its use – usually from agricultural land to residential. When planning permission is given to convert agricultural land to residential use the value of the land increase from about £9,000 per hectare to almost £2.5m per hectare.
The Government is keen to claw-back some of this huge uplift in value so that local authorities can use it to provide the services and facilities that the new development will require and to benefit the local community in which the development is taking place.
When PGS was proposed, it was put forward as only applying to residential developments. However, the consultation document states that PGS will also be applied to non-residential development and, therefore, there could be considerable impact on the tourism industry
2.0Main Points of PGS Proposal
The following is a summary of the main points of the consultation paper.
-PGS would capture a modest portion of the value uplift arising on land for which planning permission has been granted.
-PGS would apply both to non-residential and residential development land.
-Home improvements would be exempt, and a lower levy rate might apply to brownfield land.
The process by which PGS would be measured, collected and redistributed is not entirely clear, but:
-PGS would be administered by a self-assessment regime administered by HMRC.
-Payment would not be required until commencement of the development.
-A development start notice would identify a chargeable person before commencement of development.
-The existing planning obligations regime would be scaled back to matters relevant to the environment of the development site and affordable housing.
-PGS revenues would be dedicated to local communities and the provision of infrastructure.
-PGS might be treated as an allowable business expense for tax purposes.
-PGS would not be implemented before 2008.
3.0Issues
As the proposal currently stands, a proportion of PGS would be redirected into the local area for the provision of local authority services, which could benefit the tourism industry. However, there is a risk that the PGS could act as a disincentive for growth in the tourism sector. The scale of this possible impact will be determined by several factors.
- The Rate of PGS Applied
While the consultation paper recognises that the rate of PGS applied must be ‘modest’ so as not to disincentivise development, there is little indication of what level is proposed. Unlike residential developments which are highly profitable, many tourism related businesses are land intensive and have a lot lower return on investment. Therefore, a rate of PGS that would be acceptable to the housing industry may well be detrimental to the tourism industry.
One of the options being considered in the consultation is a reduced rate for developments on brownfield sites. While this approach is commendable, there is the problem that, in many cases, housing development is more suited to brownfield sites than tourism development.
- Measurement of Value Uplift
One of the main issues will be the determination of Value Uplift. Value Uplift is the difference in the value of a property before and after planning permission has been granted. The consultation document proposes two ways in which it might be measured:
- Actual valuation – based on individual appraisal of the property value with and without planning permission.
If this is the case, then consideration will have to be made as to whether the appraisal is made by the local authority or an independent surveyor.
- Average valuation – based on the average value of land of a similar type in a similar area.
Using average valuation would be problematic for tourism businesses (especially attractions) which tend to be unique to their location. It would also require a significant number of sub-categories to adequately compare like-for-like businesses.
- Approval based on Value to Local Authority
One of the problems with such a proposal is that it provides an incentive for local authorities to grant planning permission for those developments with the greatest value uplift so that they can gain the maximum revenue. With local authorities being under pressure to fund local services and facilities, the incentive will be for them to grant permission to residential developments so as to maximise funding. This approach would have a detrimental impact on tourism development, especially if there was competition for the same land resource.
- Use of Revenue Gained
The consultation document gives little indication of how exactly the revenue would be used although the inference is that it would be for the provision of services and facilities that the new development requires. It is unclear as to what extent commercial businesses would benefit from the use of this funding and if there would be any degree of hypothecation. Businesses would be more accepting of PGS if they could see a tangible benefit from it rather than it being used to fund projects elsewhere or of little relevance to their business.
- Application of PGS to property enhancements
The consultation paper states that home improvements will be exempt from PGS and recognises that it needs to “consider how to treat small-scale improvements on non-residential property so as not to discourage their enhancement.” However, it is unclear as to what extent this exemption would apply to tourism developments.
Also, the intention of the original proposal was to PGS to apply to the use of rural and semi-rural land for residential develop. However, with the consultation document being very open, it is unclear as to whether it is intended to apply PGS in an urban context when changes of use are granted such as turning an industrial building into a hotel. If this is the case than the impact on the tourism industry could be considerable.
4.0Summary
The idea of PGS as a means of using some of the profits generated by councils granting planning permission to housing developers to fund the provision of public services and facilities is essentially a reasonable one. However, in the consultation document is seems that this focused sector specific idea has been applied across the board and, as a result, will have unintended consequences on other sectors.
As a result, there are considerable potential implications for the tourism industry whose land use needs are substantially different to the housing sector or commercial and industrial development. These need to be worked through and resolved before PGS is implemented.
President: Sir Digby Jones
Chairman: Brigid Simmonds
Policy Director: Kurt Janson
Email:
Telephone: 020 7395 8246 Fax: 020 7395 8178 Mobile: 07964428123
Website:
Tourism Alliance: Centre Point, 103 New Oxford Street, London, WC1A 1DU