Planning gain

Planning gain refers primarily to the increase in the value of land which results from planning permission being granted for that land. This increase in land value mainly accrues to the owner of the land, but a levy or tax may be applied to divert some of the planning gain to the public sector. In England and Wales, such arrangements are currently negotiated between the developer and the council, and take place under the terms of Section 106 of the Town and Country Planning Act 1990. In Scotland the equivalent is a Section 75 planning obligation (Section 75 of the Town and Country Planning (Scotland) Act 1997).

Reception of Section 106 Agreements

The planning obligations agreed with developers through Section 106 agreements are sometimes criticised for:

• inconsistency
• unfairness
• lack of transparency
• length of time to negotiate
• some obligations being unlawful
• obligations not actually within Section 106 of the Act
• better alternative

Better Alternative: Experience shows that S106 negotiations delay the planning process and is costly to both the developer in legal/planning advice and costly to the planning authority in terms of professional officer time. An annual Land Value Tax is a much more effective alternative which does not incur these costs and delays.

Obligations may be created that are more than the developer would consider a bare minimum, with local authorities seeking contributions from developers that go beyond the definition originally given in Department for Communities and Local Government (DCLG) Circular 1/97. and later in Circular 5/05.

Section 106 agreements are often used by planning authorities to provide new public realm development or affordable housing in England and Wales.

In Wales, these agreements are used on whole sites or single self-build homes; this causes problems with finance, and almost all lenders are unwilling to consider a mortgage on these dwellings. Increasingly, the planning inspector is finding in favour of applicants who wish to modify or discharge the obligations.

Typically, a new housing development over a given threshold size (commonly 15 dwellings in many local authorities) would be required to provide a pre-determined proportion of affordable housing - see DCLG Circular 05/2005. This is a source of friction between developers and local planning authorities, because the developers attempt to maximise revenue while the councils attempt to maximise the amount of affordable housing. Many councils have a loosely worded Development or Local Plan to reflect s 54A of the Act, which requires any decision to be reached in accordance with the terms of the Plan unless material considerations indicate otherwise. Circular 6/98 states affordable housing itself is just one material planning consideration, therefore simply meeting a requirement for affordable housing provides no guarantee that other issues may need to be addressed.

One of the reasons that 106 agreements are unpopular with developers is that, at present, the government makes more money from the sale of affordable rented housing (about £5 billion a year) than it spends (about £3.5 billion a year) and it is arguable that the main cause of these proceeds is not ongoing government investment but private sector (developer) investment.

A counter-argument would run that developers seek to maximise revenue and would neither provide services for housing at a subsidised rate, nor subsidised rents for the vulnerable, unless such a provision forced them to do so.

The practice of bargaining for Planning Gain precedes the 1990 Act and a 1981 report by the Property Advisory Group concluded that:

"(with limited exceptions) the practice of bargaining for planning gain is unacceptable and should be firmly discouraged."

However, the report was not acted upon.

A recent EU Court decision may impact upon the use of Section 106 to restrict occupancy, price and tenure. The case is CJE/13/57 and the issues were restrictions going way beyond what is necessary and what constitutes a "public works contract".

Initial attempts at reform: proposals for a standard tariff

In early 2002, Stephen Byers, Secretary of State at the Department of Transport, Local Government and the Regions (DTLR, now DCLG) published a consultation document proposing the replacement of s106 agreements with standardized tariffs set by local authorities. The proposals were heavily criticized and in July 2002 the new Secretary of State, John Prescott, announced that he would not be proceeding with the Byers proposal. However, the opportunity presented by Prescott's forthcoming Planning & Compulsory Purchase Bill (now the Planning & Compulsory Purchase Act 2004) proved impossible to resist, and in Autumn 2003 his Planning Minister Keith Hill MP announced that he was in fact proposing to introduce an Optional Planning Charge as a partial replacement for s106 agreements. OPC was modelled at least partly on the earlier Byers proposals. The 2004 Act contained enabling legislation allowing OPC to be implemented.

Planning Gain Supplement

Meanwhile, a report for the Government by eminent economist Kate Barker on increasing housing supply was being prepared. The Barker report was published in March 2004 while the OPC provisions were being debated in Parliament. Barker's report cast doubt on the future of OPC, as the report instead proposed a tax on planning gain, to be known as the Planning Gain Supplement (PGS). The Barker review of land use planning recommended that higher authorities should seek an additional portion of s106 "revenues" for themselves in order to fund public realm improvement in the local area. HM Treasury accepted Barker's recommendation and began consultations on detailed proposals for implementing PGS. Although the Planning-gain Supplement (Preparations) Act 2007 permitted preliminary preparations for the introduction of PGS, it was never implemented owing to fierce criticism of the design of PGS by developers, and a lack of support from the local councils who would have been its main beneficiaries.

The 2007 Consultation Paper "Changes to Planning Obligations" proposed reducing the types of contributions contained in s 106 Agreements, with instead creating a perhaps uniform or perhaps more open to review system of Planning Gain Supplements.

The Community Infrastructure Levy

After extended debate on the merits of PGS, including a fresh consultation in July 2007 comparing PGS with alternative tariff-style alternatives, the Government announced in October 2007 that a new Community Infrastructure Levy (CIL) was its preferred method of securing generalised contributions from developers. The Government legislated for CIL in the 2008 Planning Act. Implementing Regulations followed, and CIL came into force in England and Wales on 6 April 2010. However by that stage its future was already in doubt because a Conservative Party Green Paper of February 2010 indicated that were they to come to power they would scrap it in favour of a different mechanism (though many commentators indicated that they could not see much difference). By April 2010 the UK General Election was less than a month away; so few local authorities took steps to implement CIL until the new Government's intentions became clear.

On 18 November 2010 the new UK Coalition Government indicated that it would in fact be retaining CIL. However, the Government proposed a number of reforms to the instrument that they had inherited. The reforms included a number of selected changes to the primary legislation implementing CIL (the Planning Act 2008) through the vehicle of the Localism Bill, introduced into the UK Parliament in December 2010. The key changes proposed relate to a requirement to be placed on CIL charging authorities to pass money to other bodies (the stated policy intention being to pass money to neighbourhood groups), a clarification of the purposes to which monies raised may be put, and a reduction in the powers of the independent person appointed by the charging authority to advise on whether the proposed charges are appropriate. The Bill received Royal Assent as the Localism Act in November 2011.

A number of the smaller changes proposed by the new Government were implemented in a set of amending Regulations brought into force in April 2011. Consultation on the detail of the more significant proposals followed once the Localism Act had been passed and a further set of amending Regulations completed the changes.

A number of local authorities have now implemented CIL, including Newark and Sherwood District Council, which was the first in England to publish a preliminary draft charging schedule, in November 2010. Others followed, and on 1 January 2012 the London Borough of Redbridge became the first local authority to bring CIL into legal force in its area. The most significant proposal to date has been that of the Mayor of London to charge CIL across the whole of London, a power which only exists in the capital city. The Mayor's CIL is specifically intended to assist in the funding of the Crossrail project. Many other local authorities are now proceeding to develop charging schedules.

Reception

The Community Infrastructure Levy is not universally popular. For example, Richard Benyon MP for Newbury has expressed concern that it will raise less money for West Berkshire Council than the existing regime.

See also

• Town and country planning in the United Kingdom
• Planning and Compulsory Purchase Act 2004
• Planning Policy Guidance Notes
• Grampian condition
• Planning Act 2008
• Localism Bill
• Land Value Tax

External links

• Town and Country Planning Act 1990 on Office of Public Sector Information website
• Section 106 application to modify or discharge