Legal report: Roof tax offers potential to ward off national levy

The housing green paper indicates that the planning gain supplement (PGS) remains the government's preferred means of securing further benefits from the planning system to support housing growth.

However, ministers are prepared to look at other options. In a nutshell, if a demonstrably better way can be found to ensure that local communities receive significantly more of the benefit from planning gain, including investment in necessary infrastructure and transport, the government is prepared to defer the introduction of a PGS.

Given the hostile reception that has met Kate Barker's proposed levy from a range of stakeholders, prime minister Gordon Brown has decided to place the onus for finding an alternative back on the development industry itself.

Of the four alternatives put forward in the green paper (Planning, 27 July, p2), it is the fourth that has drawn most attention. It suggests empowering local authorities to require that developers pay an average standard charge, based on the total cost of providing infrastructure for an area. This would take the form of a tariff or "roof tax" rather than the current system of negotiated section 106 planning obligations.

- Milton Keynes sets precedent

The theory is that by pooling revenue collected from the roof tax, local infrastructure could be delivered more efficiently and on a better-integrated basis. The much-publicised Milton Keynes roof tax model has been cited as a cutting-edge prototype that others will follow.

In many respects, however, Milton Keynes is unique. Land values across the area are similar, major landowners are prepared to co-operate closely and English Partnerships is able to act as both an honest broker and forward funder for infrastructure. Other approaches will be needed in less favoured areas.

In the absence of legislation, disparate landowners need another incentive to encourage co-operation. The most obvious mechanism is a planning policy imperative. But for most local authorities, many of which are just moving towards the adoption of their core strategies, such a policy is some way away.

Supplementary planning documents may provide a stopgap. But experience shows that these can take considerable time to be adopted. Where the subject matter may be seen as having the potential to impact on landowners' and developers' profits, the consultation process is likely to be protracted.

However, assuming that the principle of a roof tax is accepted by developers, several issues need to be tackled by planning authorities. They must consider the type and size of development to which the roof tax should apply. Should it be only residential development above a minimum threshold or, on the basis that every development will benefit in one way or another from infrastructure provided, all schemes?

- Liability matters to be settled

The roof tax liability per unit and its application also need careful handling. Should allowance be made for sites with difficult ground conditions or contamination so that they pay a lower rate? Should developers be allowed to set off works in kind against the value of their liability? Should allowance be made to adjust liability in circumstances where a PGS is brought into force?

Other matters that require consideration include:

- The extent of the area or sub-area to which the tax should apply, because infrastructure requirements are no respecters of administrative boundaries.

- The scope of the infrastructure to which the roof tax should contribute and its cost. The normal test for planning obligations in Circular 05/05 would still apply.

- Where infrastructure has a heavy upfront cost, roof tax receipts may not be received until the project is well under way or even complete, so provision may need to be made for forward funding.

- The need to put in place a legally enforceable planning agreement to regulate the receipt and expenditure of roof tax contributions.

Roof tax agreements will almost certainly gain greater currency. Their success will depend on local authorities' ability to persuade developers to co-operate, accurately identify the infrastructure to which they should contribute and fix a tariff at a level that does not destroy the financial viability of development. Even if they succeed, it remains to be seen whether this will be enough to stave off the threat of a PGS.


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