Brown May Shelve UK Planning Gain Supplement

by Robert Lee, Tax-News.com, London

13 July 2007

British Prime Minister Gordon Brown has signalled that he would be prepared to scrap the contentious Planning Gain Supplement (PGS) in the coming months if a new proposal more acceptable to the property development industry comes along in the meantime.

Announcing his draft legislative programme in the House of Commons on Wednesday, Brown said that the bill containing the PGS would only be introduced in provisional form and could be shelved completely if a "better alternative" could be found.

Brown told the Commons that the PGS would not go ahead "if prior to the pre-Budget report a better way is identified of ensuring local communities receive significantly more of the benefit planning gain to invest in necessary infrastructure including transport".

Chancellor Alistair Darling is due to announce the pre-Budget report in December.

First unveiled by the Treasury in December 2005, the PGS is a local planning levy on the value of land set aside for redevelopment, to be re-invested in the community. It would be payable by developers at the commencement of development. The tax was due to come into effect in 2008.

Brown's U-turn on the PGS has delighted the property industry, which has argued that the levy in its present form may not deliver the levels of funding sought for new local infrastructure, and could render some smaller developments unviable.

"The BPF is delighted that the Prime Minister has opened the door for real engagement on the alternatives to a deeply flawed policy proposal called the Planning Gain Supplement," Faraz Baber, the British Property Federation's director for planning and regeneration commented in response to Brown's announcement.

"The PGS tax is not supported by the property industry and has received lacklustre support amongst a wide range of stakeholders. It is now right that the government to look more seriously at ways to capture planning gain in a more sensible way. This will ensure local communities and the regions will prosper from economic development undertaken," Barber added.

Last year, a study was commissioned by the Confederation of British Industry (CBI), the BPF, the Home Builders Federation (HBF) and the Royal Institution of Chartered Surveyors (RICS), which comprised a comparative analysis of 18 case studies, and investigated the likely returns of implementing PGS at rates of 10%, 20% and 30% of the uplift in value due to the grant of planning permission. It concluded that the PGS would be unlikely to deliver the increased funding for investment in infrastructure and could reduce the supply of smaller development sites.

"The Prime Minister's commitment to housing growth is welcome but legislation to introduce a planning gain supplement would hinder rather than help these efforts as it would restrict the supply of land and slow down the rate of development," CBI Director-General Richard Lambert observed following Brown's announcement.

"So while the CBI opposes the PGS it welcomes the Prime Minister's implicit recognition that it may not be the best way forward. The Government should instead concentrate on streamlining the planning system, putting developers in a much better position to deliver the housing growth that this country needs," Lambert concluded.

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