If PGS didn't fly, what's the Scots planning plan?

Published on Wednesday 4 June 2008 21:00

IN HIS pre-budget report in October 2007, Chancellor Alistair Darling said that legislation implementing the planning gain supplement (PGS) would not be introduced in the next parliamentary session.

Instead, he said, the government would legislate to empower local planning authorities in England and Wales to apply planning charges to developments, with negotiated contributions for site-specific matters.

As planning in Scotland is a devolved issue, this announcement allows Scotland to go its own way.

As we know, Westminster previously proposed a nationally set tax on the uplift in land value created by the grant of planning permission. The PGS would have been used to finance the infrastructure needed to support new housing and growth. This idea was first proposed in the Barker review.

The news was welcomed in Scotland – by both the Scottish Government and the property industry. Holyrood is now to review alternatives to PGS and is considering ideas from all key stakeholders.

Stewart Maxwell, the communities minister, said in April: "Now that PGS is off the agenda, we are free to pursue a solution that best meets the needs of sustainable economic growth. We are initiating a review and are open to all suggestions."

A government report, instructed by the previous Labour administration and published in the last few weeks, is likely to further the debate. Titled An Assessment of the Value of Planning Agreements in Scotland, the report indicated the level of funding already obtained from developers during the planning process to fund local infrastructure. It found that the annual value of developer contributions rose from 14.4million in 2004/05 to just over 52m in 2006/07. It is estimated that the total value of contributions over this period may have been 160m.

Three different forecasts were made of the sums that could be secured in the period to 2010, ranging from 91m to 167m.

The UK Government is already ahead of Scotland in the debate. In the UK Planning Bill, Westminster introduced a statutory planning tariff called the community infrastructure levy (CIL). The tariff will be set by local authorities in accordance with published structure plans and will be paid by landowners and developers. The value will depend on factors such as location and the type of development proposed. If an authority chooses to implement CIL, it must first identify what infrastructure is needed and how much it will cost, and then determine what contribution a development should make.

But what might Scotland do? It appears that the Scottish Government has five options:

&#149 Do nothing. This is unlikely, given what has already been said and done. The debate, however, should offer some articulation of why developers are to be expected to fund infrastructure improvements. There are a number of good reasons for the contributions that must be put forward.

&#149 Introduce a centrally set Scottish PGS. Again, this is unlikely, given what has already been said by Holyrood. History shows that a similar scheme has been attempted, without success, four times since the end of the war.

&#149 Introduce a Scottish CIL. The CIL has been well received in England and Wales and the fact that it is set locally is an important one. The Scottish Government argued against the PGS on the basis that it was to be set at a UK and not local level. Scottish developers might also support a CIL if it provided them with greater certainty as to their obligations in funding infrastructure improvements.

&#149 Reform of Section 75 contracts and other similar agreements. This option may include retaining a system of contribution for one-off projects such as the Edinburgh trams. It would be relatively easy to do and recent figures, which show how much value is received from such agreements, indicate that more effective use of them is already being made.

&#149 Combine a CIL with a restricted use of Section 75 and similar agreements, as is happening in England and Wales. This would be more complicated than simple reform and would result in two separate systems. Developers would want assurance that they would not have to pay twice.

Just as important as the choice of system is the consideration of what the funding is to be used for. Will funds go to Transport Scotland, Scottish Water, the newly proposed Scottish Futures Trust, or even to pay for the training and employment of more planning officials? Will funds be ring-fenced for affordable housing or flood prevention schemes?

We must also remember that only so much money can be extracted from a developer. We have to decide on priorities. If we don't, and attempt to extract too much as has happened in the past, the property market will be affected. In that case, no-one wins.

It will be interesting to see if some thought is given as to how the proposals will interact with the housing supply task force, the 2006 Planning (Scotland) Act and other forms of infrastructure funding whether from central or local government. Consideration must also be given to PFI schemes, not-for-profit trusts or the proposed Scottish Futures Trust.

If we are to solve the problem of funding infrastructure improvements, without preventing the development that the infrastructure is meant to serve, we must examine all of these issues.

&#149 James Aitken is a senior associate in private client and financial services, HBJ Gateley Wareing

LAND LEVY

THE planning gain supplement was proposed by the UK government as a way of capturing some of the increase in land value seen when a development site is granted planning permission.

The government argued that, because the planning system increased the value of a site, almost overnight, a levy should be paid on the developer's "unearned gains" to help fund benefits in the community.

In practice, this meant paying for infrastructure improvements required to complete the development as well as contributions for affordable housing and local schools.

In reality, developers already make contributions such as these during the planning process. Necessary improvements to water pipes, roads and utilities are paid for by them under negotiated agreements, and there is a requirement for each development to contain an affordable element or for a contribution to be made to fund affordable housing elsewhere. It remains to be seen how this issue will be tackled in Scotland. Now that Westminster has confirmed that planning is a devolved matter, the Scottish Government has begun a consultation and review.