It has long been recognised that only a small proportion of all developments contribute to costs of infrastructure through planning obligations. At present, infrastructure contributions are typically secured from major developments only. The current system is limited in the extent to which it is able to mitigate the cumulative impact of development on infrastructure, while the use of these powers by local planning authorities varies significantly. A new mechanism that properly deals with these concerns is long overdue.
It came as a relief to the property industry last month when chancellor Alistair Darling announced in his pre-budget report that ministers have decided not to proceed with the planning gain supplement (PGS). Instead, the government intends to legislate in a forthcoming planning reform bill for a statutory planning charge to enable councils to "capture greater levels of planning gain to support new infrastructure and housing" (Planning, 12 October, p1).
Government pushes for planning charge
In ditching the PGS, the government has bowed to criticism from the property industry that the supplement would not work in the form proposed. Some critics accept that the principle behind the levy is sound and society should benefit from the uplift in value gained when land is granted planning permission. But the proposed method of tax assessment, based upon pre-development values, appeared difficult to quantify and designed to cause uncertainty and disputes.
The PGS was seen as unfair because it would have required developers to pay tax based on a hypothetical value of an unrealised gain. It took no account of emerging good practice in infrastructure planning, such as contributions policies, tariffs and roof taxes. Many consultees on the PGS, such as the RTPI, took the view that any charge should be directly linked to meeting the infrastructure needs of a development.
This is the route that the government now proposes to take. A consultation paper providing further details is due to be published shortly. However, in a statement last month, housing and planning minister Yvette Cooper outlined the main features of the statutory planning charge:
- Charges will be imposed on both residential and commercial developments, subject to as yet unspecified minimum thresholds.
- Where appropriate, local authorities will be able to require a negotiated agreement in addition to planning charges.
- Charges will be based on a costed assessment of infrastructure requirements arising from the level of development in an area proposed in the regional spatial strategy and local development framework (LDF), taking account of land values.
- Charges should include contributions to the cost of sub-regionally and regionally important infrastructure outlined in development plans.
- Policies on planning charges will be tested through the development plan process, in consultation with developers, stakeholders and the community, to ensure that they support the viability of development and housing required.
Cooper made it clear that negotiated agreements will still be necessary to secure affordable housing and deal with costs related to the specific development site. It can be assumed that this will cover other matters such as open space provision. At this stage, the property industry expects that the planning charge will be based on the Milton Keynes infrastructure tariff (see panel).
Latest proposals outline a fairer system
Cooper is right to conclude that compared with the current system, the proposals for a statutory planning charge will capture more planning gain to finance additional investment in local and strategic infrastructure, while still preserving incentives to develop. As she says, the process of setting charges should become simpler and more certain, providing a clear basis on which to support the delivery of planned infrastructure.
The proposals offer a fairer means of securing contributions for infrastructure from developers. We must not forget the role of the regions in planning for housing and economic growth and the infrastructure needed to deliver it. The property industry is willing to support the proposals and make them work. However, it remains to be seen how quickly local planning authorities will be able to get the system up and running.
The consultation proposals for the operation of PGS suggested that the system was likely to prove bureaucratic, centralised, uncertain in timing and effect and costly to administer. Planning charges, by contrast, have the advantages of being relatively easy to calculate and less likely to be subject to disputes over calculations.
The timing of payments for planning charges must not expose developers to undue risk and uncertainty in the financing and delivery of their proposals. Staggered payment schedules such as those adopted in Milton Keynes would reduce the need for developers to borrow funds to pay for infrastructure upfront. This should make the integrated delivery of infrastructure and development easier than it is now.
The statutory planning charge is designed to capture uplift in land value when planning permission is granted and will be used to provide the funding for much-needed infrastructure to back new homes. A charge based on local infrastructure plans contained in local development frameworks makes clear sense.
However, there will be inherent delays following the introduction of the legislation while planning departments scramble to assess local infrastructure requirements, prepare draft plans and consult communities through LDFs. There will be yet further delays if infrastructure plans and tariffs are challenged in the courts.
We need to improve infrastructure to support sustainable communities and housing growth. Infrastructure projects take a long time to plan. Without certainty about the planning and funding process, it is likely that much-needed facilities and services will not be properly planned and may be delayed or not built at all.
The latest proposals are still unclear about how funds will be distributed between local government, regional bodies and infrastructure providers. What is clear is that having decided on the way forward, the government needs to act quickly. Construction without adequate infrastructure is unsustainable, but this is what will happen if sound proposals are not put in place.
Failure to improve public transport provision will exacerbate environmental damage as commuters continue to travel by car. With delays in introducing the legislation and taking infrastructure plans and tariffs through the LDF process, it is difficult to envisage local planning authorities being ready or able to impose statutory planning charges much before spring 2009.
- Catherine Davey is a partner in the environment and planning team at Stevens & Bolton LLP.
MILTON KEYNES: TARIFF MODEL SHOWS WAY FORWARD
The Milton Keynes infrastructure tariff launched in March has been described as a pioneering legal mechanism to deliver forward funding for the infrastructure and services needed to support expansion plans for the new city up to 2016.
Two local planning authorities operate in Milton Keynes. Milton Keynes Council exercises planning responsibilities for the built-up area and surrounding towns, villages and rural areas and smaller developments in the expansion areas.
The Milton Keynes Partnership (MKP) covers the northern, western and eastern growth areas and development sites in Oxley Park, Tattenhoe Park and Kingsmead. It is the local planning authority for Eagle Farm and Glebe Farm, which have been identified as strategic reserve sites.
Planning applications submitted to MKP are determined by its sub-committee, which meets on a monthly basis. This includes representatives from Milton Keynes Council, English Partnerships, the local strategic partnership and a number of independent members.
MKP gained its powers in 2004 under the Milton Keynes (Urban Area and Planning Functions Order) 2004. It has worked with landowners and developers in the eastern and western growth areas to develop an over-arching section 106 agreement, known as the infrastructure tariff. The tariff scheme sets out agreed principles for the provision of infrastructure and funding, which will be carried forward and incorporated into site-specific agreements. The plan outlines obligations on developers and landowners in the tariffed areas, where 15,000 dwellings are expected to be accommodated. These include:
- The timing of reserved matters applications to prevent land banking once outline planning permission is granted.
- Long-stop dates on which outstanding payments will be due if development has not been completed within the agreed time frame.
- Application of design codes to control quality.
- Plans for reserve sites for community use.
- The application of construction and environmental standards for developments.
The site-specific agreements require developers to pay £18,500 to MKP for each new house, around £67 for every square metre of commercial floor space or £260,000 per hectare of employment provision. The proceeds are used to fund community facilities and infrastructure.
Within MKP's planning area, the schedule for payment of the tariff on commercial projects is 25 per cent when the project starts on site, a further 25 per cent before completion of each unit and 50 per cent prior to occupation. There is a long-stop date by which the tariff balance is due, whether or not the scheme is complete.