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British Property Federation - New Windfall Tax Shows Treasury's 'Fundamental Lack of Understanding

Gordon Brown's proposals for a windfall tax on the uplift in land value show a fundamental lack of understanding of the development process, claims the British Property Federation (BPF) today.
Schools, roads and community centres currently paid for by contributions from developers, made under section 106 agreements, would lose funding, with these local benefits taken over by central government. Land for development could be help back and house prices would rise further.
In yesterday's response to a government consultation on a planning gain-supplement (PGS), the voice of UK property states that the levy shows a basic misunderstanding of the ways in which value is calculated in commercial development.
A PGS would be applied on the change in land value once planning permission is received. It would have numerous negative effects that could harm regeneration and restrict the supply of land for development, holding up vital work and threatening major developments.
Liz Peace, BPF chief executive, said: "The BPF has maintained all along that PGS is not just unworkable but that it would negatively affect the economy. Our opposition is not based upon a reluctance of the property industry to pay its fair share for the provision of infrastructure, simply that we do not see PGS as a viable solution, due to the numerous negative consequences outlined in today's response.
"At a time where ministers are setting out numerous targets to improve the supply of housing and encourage sustainable development, it seems inconceivable that so much public money can be wasted consulting on a tax which successive Labour governments have tried and failed to introduce because of its impracticality."
The BPF's highlighted key reasons why PGS will not work:
Brownfield development (previously developed sites)
While it may be easy to apply PGS when a greenfield site is sold for housing development (as originally suggested by Kate Barker), PGS will discourage re-development within existing property ownership.
Delivering infrastructure
PGS would be centrally collected and redistributed back to local and regional areas. This creates two problems. Firstly, the vital link between a developer and the community is eroded. Secondly, developers and communities will have no certainty that development-critical infrastructure, currently provided by developers, will be delivered on time. Planning permission could be appealed against if supporting infrastructure detailed in an application fails to materialise. This would lead to higher costs and further delays.
Paying for infrastructure
There is no empirical evidence to show that PGS would provide the revenue required to finance development-critical infrastructure. Developers could be forced to pay twice for infrastructure simply in order to make their development viable.
Delays over valuation
Delays arising from disputes over self-assessment of PGS liability will delay regeneration projects across the country. Extra financial burdens will be placed on developers. Valuing land is not a precise science; this is likely to result in protracted legal proceedings challenging PGS valuations.
Crude valuation mechanism
PGS is designed to capture a proportion of land value uplift that occurs at the grant of full planning permission. But for some types of development, this is not the sole catalyst for the creation of value. The nature of the market means that land value can increase even before planning permission has been sought. However, due to the crude valuation mechanism which PGS will use, it is assumed
that the value uplift in land is solely created by planning permission.


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