Another new tax? Bring it on!
Section 106 agreements are a pain in the rear. A thorn due to be withdrawn by government under proposals in the August ‘Planning for the Future’ White Paper. Protracted negotiations are to be replaced by easily ascertained sums, eventually collected as a percentage of the price achieved. This new Infrastructure Tax, which also banishes the Community Infrastructure Levy, (CIL) is therefore a stroke of genius.
The best political minds have tried and failed for a century to find a brook-no- argument mechanism to cream a fixed portion of the uplift in land values conferred by the state granting planning permission. One happy day (in the next year or so) you will be able to multiply the Gross Development Value by a (yet to be) set percentage, then drop that number into the expenditure side of the appraisal.
What are officially called ‘planning obligations’ have long been a nightmare for developers and a dream for high-charging planning consultants. Since Lloyd George introduced a land tax in 1909 every single attempt to impose a tithe has rested on a quicksand of fancy guesses, dressed-up as valuations. Developers guess low and seek loopholes. Councils guess high and seek government help to plug loopholes. Arguments begin. Time drags. Costs rise. Complexities grow. The tax is then abandoned. Time passes. History repeats itself.
In 2004, when editor of Estates Gazette, I was peripherally involved in the shaping of what was then called a Planning Gain Supplement (PGS) – which eventually morphed into CIL. The original aim was to replace – not add to – Section 106, believe it or not. Labour had fashioned PGS as a simple floorspace tariff – but, as ever, based upon valuation guesses.
At the time I was asked to edit a set of essays on land value capture for the Smith Institute, a think tank, with ties to the Chancellor, Gordon Brown. Labour was as convinced then as Boris Johnson is today that ‘fixing the planning system’ would magic up more homes from grumbling developers. Nonsense, of course. But that argument lies in a separate chapter of my new book, Broken Homes*. I introduced the Smith Institute monograph to 150 civil servants and politicians at Number 11 Downing Street. I began with a rant about PGS that went roughly like this; ‘for crying out loud. You cannot tax an opinion!’
This new levy taxes the transaction – and happily makes half a chapter of Broken Homes easy for the reader to skip; devoted as it is to the history of levies based upon opinions. That may be why I’ve become a bit overexcited. Try a test appraisal. Take whatever it is you had to stump up last time to the council – there is no promise of lower tithes. Shift the cost to the end of the project to see the impact on cash flow and interest charges. BUT, curb your enthusiasm. Councils will hate the idea of waiting for the money. An army of planning experts and lawyers will hate the idea of their ‘106’ skills becoming redundant. The fight could take a year – or maybe a lot longer. Labour mithered over PGS for years.
The consultation process remained open until the end of October. Plenty of objections have been lodged. I’ll make an even bet that if and when the levy makes that statute book it will a lot more complex than I’ve made out. But I’ve long been convinced that taxing a transaction is a damn sight easier than taxing an opinion. Still need convincing? I will spare the blushes of the legal expert who worries, “the system would completely remove the ability of either party to negotiate.” I rest my case.
*Peter Bill’s new book, Broken Homes: Britain’s Housing Crisis, Faults, Factoids and Fixes, with co-author, housing developer, Jackie Sadek, is published this month. Find out more here