Developers have won a famous battle with the government over the introduction of the PGS. But as infrastructure still has to be paid for, it looks like we’ll be moving to a system based on the Milton Keynes roof tax. David Parsley asks what this means

In July 2005 the industry appeared almost resigned to the introduction of a hated piece of legislation: the planning gain supplement. This was the development tax that the construction industry had dreaded ever since it was suggested by economist Kate Barker in her report into housing supply a year earlier.

At the time, the RICS said detailed plans for the tax – which many in the industry viewed as a draconian method of forcing developers to pay for infrastructure that should be centrally funded – would help the government reach its targets for affordable housing. It described the introduction of the PGS as “inevitable”. Oh really?

The RICS did not reckon on a rearguard action from the construction industry on a scale comparable to the turnaround in the England rugby team, which has seen one bunch of grumpy old men reach tomorrow’s World Cup final against South Africa.

During the course of the past few months the industry has gathered together its own group of grumps, to fight what David Orr, chief executive of the National Housing Federation, described as a “bureaucratic nightmare that would slow down the pace of development”. Together the British Property Federation (BPF), Home Builders Federation (HBF), London First and the Major Developers Association lobbied hard against the PGS during the Labour conference. They wanted to push a rival scheme for funding infrastructure: the so-called “roof tax” or “tariff” (see box).

They had some heavyweight and timely backing in the form of the high-profile tariff plan at Milton Keynes being given the green light. This came at the same time as Kent council and developers such as Countryside Properties and Land Securities struck a £175m deal at Kent Thameside. This brought to an end a long-running dispute with the Highways Agency over the ability of local roads to cope with the extra traffic set to be generated by the 26,000 homes slated to be built on the southern bank of the Thames Gateway.

As a result of this mounting pressure, deep in the text of last week’s pre-Budget report the government rolled over and admitted that legislation implementing the PGS would not, after all, be introduced in the next parliamentary session. Instead, it would, according to housing minister Yvette Cooper, “legislate in the Planning Reform Bill to empower local planning authorities in England to apply new planning charges to new development, alongside negotiated contributions for site-specific matters”.

Cue a massive back-slapping exercise in boardrooms around the country. However, the question facing the industry now is, what does it want from the tariff?

According to Cooper’s statement to parliament last week, the tariff system will build on the current section 106 approach, and the industry is preparing to thrash out the detail of the new proposals. However, John Stewart, director of economic affairs at the HBF, best captured developers’ feelings this week when he said: “In general we’re pleased [that the government has accepted the idea of a tariff] but the devil is in the detail.”

One of the key issues that needs to be answered is how the tariff will be collected. Alan Cherry, chairman of Countryside Properties, typifies the general demand among housebuilders that local authorities be given responsibility for the tariffs. “We never believed that the PGS would achieve its aims,” he says. “There was no certainty of delivery of the infrastructure that we’d have been paying for. Local tariffs that apply to local or sub-regional infrastructure issues are much more appropriate. This is the level at which infrastructure issues are more readily identified.”

He is adamant that tariffs should be used to help fund local infrastructure requirements and should not be expanded – as has been suggested in some quarters in the past week – to cover the whole of a region and fall under the control of the regional development agencies. “This simply wouldn’t be effective as that sort of region-wide infrastructure should come from central taxation,” he says.

Cherry is also adamant that a “tariff should only apply where the infrastructure to be paid for will benefit more than one site. If we don’t implement this tax in this sensible way then quite simply this country won’t see the number of homes built that it needs”.

Liz Peace, chief executive of the BPF, echoes Cherry’s views: “Provided the system is simple and straightforward, we are confident that local authorities will be more than capable of administering the system themselves. But there is some scope for ensuring their resources are supplemented, perhaps on a regional basis, by an expert group that could help them get the best out of their tariffs. This could be similar to the system that English Partnerships pioneered with their advice team on large applications.”

“Our main concern would be that the new system could be too complex and bureaucratic to the point where it didn’t yield the best results,” says Peace. “Our hope is that’s exactly what we’ll be able to have – one single, flexible system that ensures everybody who should, pays up.”

Roger Humber, strategic policy adviser at the Home Builders Association, doesn’t believe that a “single, flexible system” is what the government is planning. He says the industry should stop patting itself on the back and look at what the government is up to. He is particularly concerned by the phrase, “new planning charges to new development, alongside negotiated contributions for site-specific matters”.

Humber has a simple statement on this matter: “No, no, no. What the government is saying here is that is wants to introduce the new tariff and we’re fine with that. But it also allows for local authorities to then negotiate section 106 agreements on top of the tariff. The tariff should speed things up and be the only charge to pay. That should be the end of the negotiation between the developer and the local authority. To then have to negotiate a section 106 agreement on top of the tariff is something we cannot stand for.”

Humber also takes issue with the government’s next point that “charges should include contributions towards the costs of infrastructure of regional or sub-regional importance”. “Why should a developer be responsible for ‘regional’ infrastructure when their development only affects the local or, at most, the sub-regional area,” he says. “Again this is clearly unacceptable.”

Single-mindedness and determination has got the industry where it is today, but it will all be for nothing unless it can prevent the government bringing in a system that Humber for one considers even more damaging. For the English rugby team the battle ends tomorrow night. For the construction industry, there remain some tough months of lobbying ahead.

PGS vs Roof Tax

The planning gain supplement is a tax that would have been payable by developers at the point planning permission was granted to a development. The funds – likely to have been set at about 25% of the value of the land – would have been split between the local authority (70%) and central government (30%)

  • The funds would have been used to pay for infrastructure schemes around the UK that would have unlocked sites for housing
  • The PGS had the backing of the government and economist Kate Barker, but it was roundly hated across the property and housebuilding industries
  • The property industry feared that, having paid the PGS, there was no certainty that the local infrastructure it had paid for would be built
  • The PGS would have been in addition to the existing “planning gain” or section 106 system where developers receive planning permission in exchange for agreeing to provide local amenities
  • The roof tax or “tariff” is determined by the council and is paid by the developer. It is calculated by the council, which works out the cost of the infrastructure required to allow development. The council will then typically ask for a third of this figure from the developer involved
  • There are about 25 such schemes already in operation around the country. A well-known example is in Milton Keynes, where the Milton Keynes Partnership Committee is overseeing the construction of 15,000 new homes over the next 10-15 years. It is planning on levying £300m from developers to help cover the estimated £1bn cost of infrastructure.
  • The roof tax is widely liked by the property industry as it is administered by the local authority and so the infrastructure involved is much more likely to be built
  • There is a debate now around whether or not it should be paid alongside section 106 payments or should be rolled up with that process to make just one settlement.