A proposed new tax on windfall development gains known as the Planning Gain Supplement (PGS) currently being considered by the Treasury would be 'seriously flawed' according to new independent research commissioned by the Royal Institution of Chartered Surveyors (RICS).
The Planning Gain Supplement, advocated by Kate Barker in her report for government on housing supply, is seen as a means of funding infrastructure requirements. However, the new RICS work says it is based on a misunderstanding of how land is valued, how planning gains arise and how the property market operates.
The key problem with the proposals is that planning permission is only one stage of development and the tax would be paid when the permission is granted, rather than on the actual and eventual gain in value.
The Government's proposals would have to be radically altered if PGS were to be introduced as it would involve the introduction of valuations for all affected sites and complex computations that would make it more akin to failed previous attempts to tax gains such as development land tax or betterment levy.
The RICS report considers a variety of alternative approaches including wider use of planning tariffs, a system already operated by some local authorities under which those granted planning consents for significant development pay a fixed scale of charges to meet future infrastructure requirements.
Louis Armstrong, RICS Chief Executive, commented:'Changes of this kind must be evidence-based. RICS has supported previous attempts to capture development gains for the public benefit. However, despite the fact that its introduction would be a bonanza for Chartered Surveyor valuers, the proposed PGS looks unlikely to help in easing the supply of land for housing. Moreover, without a political consensus over such a tax it would encounter the same problems that crippled previous attempts to tax development gains.
'The planning tariff approach looks a better bet, though operating such a system in Hackney or Tower Hamlets would be a great deal more complex than doing so in places such as Milton Keynes where it is already working.'
The RICS research was carried out by Professor Tony Johnson, a leading authority on land development taxes and author of standard works on Development Land Tax, and by Chris Hart, a taxation expert with experience both within Government and the private sector.