Planning Gain Supplement Briefing
1.0
Introduction
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
2.0
Main Points of PGS Proposal
The following is a summary of the main points of the consultation paper.
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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:
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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.
3.0
Issues
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.
a. 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.
b. 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:
i.
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.
ii.
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.
c. 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.
d. 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.
e. 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.
4.0
Summary
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: [email protected]
Telephone: 020 7395 8246 Fax: 020 7395 8178 Mobile: 07964428123
Website: W W W . T O U R I S M A L L I A N C E . C O M
Tourism Alliance: Centre Point, 103 New Oxford Street, London, WC1A 1DU