The 1947 Town and Country Planning Act (TCPA) provided a mechanism for value capture which was short lived and that was soon abandoned. The issue being that the gearing of that mechanism was akin to the nationalisation of land and the net effect was that landowners withdrew from the market.
The abandonment of 'betterment' in the post-war period was not fatal because the majority of housing was public sector led, a large proportion of housing land was held by local authorities and infrastructure provision was still very much a state function.
These arrangements began to unravel following the Conservative election in 1978 and it was in the course of the following 10 years that s52 Agreements (the precursor to s106 Agreements) started to bring forward necessary infrastructure in conjunction with the delivery of development.
My own career has mapped the progression of this informal system from my first scheme (some 8,000 units at Thorpe Astley, Leicester) which had a single obligation for a roundabout junction to my current scheme (8,000 units at Ebbsfleet) which deals with everything from a new school campus to peripheral issues such as ambulance parking bays.
The reality of these arrangements is that the system has been flawed since its inception and the course of the past 40 years has seen the administration of town planning in England and Wales take incremental and inadequate steps to remedy this inherent weakness. This can be seen through the progressive and annual increase in s106 obligations which are extraordinarily wide ranging and are now common to almost all forms of development. It can also be seen in the now established, explicit and largely unquestioned land value capture which relates to the provision of affordable housing. This is a provision that isn’t linked to the mitigation of the impact of development and has a direct and substantive impact on value for the housing industry.
We have also seen the more recent introduction of Community Infrastructure Levy (CIL), which again has been accepted by the development industry without too much resistance. The only fly in the ointment, has been the increased prevalence of viability arguments and associated review mechanisms which are now also commonly imbedded in s106 Agreements.
The reason for the increased prevalence of viability arguments is threefold; they are a product of commercial dealing constrained by the uncertainty of the planning system; they are developments creaking under an array of demands (high affordable percentages and no grant funding, excessive CIL charges, upfront major infrastructure demands and kitchen sink obligations); and, in some cases they are the product of simple opportunism.
The use of s106 Agreements was examined in detail before the introduction of CIL and those findings made clear that the system was unfair, uncertain and disproportionate. These features persist and the introduction of CIL, rather than curing the problem, has simply compounded the issue.
This fundamental structural problem in the UK planning system will not be cured by the introduction of another tax. That strategy will simply kill development in those parts of the country that badly need new housing and regeneration and will force local authorities into further complex, time consuming and uncomfortable discussions around the economics of development.
The unhappy answer is that we need to go back to first principles and recover a system of 'betterment' that works. This requires the removal of CIL and either the reconstitution of s106 obligations (see below) or the metering back of this mechanism to key infrastructure provision.
In my view, the provision of any development land tax system has to be clear, effective and transparent to capture value to provide necessary infrastructure. It also needs to be practical enough to allow a developer to off-set tax payments by in lieu provision and these arrangements need to include for the funding cost of undertaking advanced works.
Ironically, this form of planning system would allow the public to see the direct benefit of development in the clear commitment to improve and add to available local facilities and might just start to convince local residents and businesses that new housing is a good thing. You may feel that this is a romantic notion, but the clear relationship between new development and social improvement is a reality in other parts of Europe where new housing is often welcomed by existing communities.
As to the practicalities, the best solution would be to re-write the planning act for the 21st century, but as this will never happen it is worth looking at the currently available tools. It is already the case that s106 of the TCPA 1990 provides a very flexible and comprehensive system for the taxation of development by reference to national policy requirements. This is keenly reflected in the provision of affordable housing on all forms of residential schemes (subject to thresholds) regardless of the impact of development upon the local market.
It would not be too difficult to introduce policy requirements seeking to capture development value arising from the grant of planning permission and to secure the release of funds to meet local infrastructure requirements. As detailed above, the actual mechanism would need to provide some flexibility for larger schemes to consume their own smoke and some acknowledgement of the cost in the provision of advanced infrastructure. There would need to be some model drafting (which need not be too complex) for s106 purposes and provided this is linked to the withdrawal of CIL and the metering back of other s106 obligations, it is not impossible to conceive of a relatively simple system which could be secured using existing legislation.
What we can be confident of is the limited prospect that an entirely new system of development taxation would be much better than this suggestion. We need only look at the output of the Barker Review, the various failed iterations of a faltering development land taxation system and the car-crash that is the current CIL system to prove this point.
Eversheds Sutherland (International) LLP
6 February 2018
MPs launch inquiry into land value capture