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Liz Peace
Photo: Julian Anderson

A teacosy in the shape of a Russian doll, a cellophane-wrapped pack of flowery-patterned placemats and a colourful picture book about St Petersburg are scattered across the meeting table in Liz Peace鈥檚 office. The chief executive of the British Property Federation has just had a meeting with a man from St Petersburg and the fact that he presented her with an armful of tourist trinkets has reduced Peace to giggles. It provides a moment of light relief from the planning gain supplement, REITS, and upward-only rent review of commercial leases, the BPF鈥檚 recent concerns.

At the very top of its agenda right now is economist Kate Barker鈥檚 proposal, put forward in her review of housing supply for the ODPM and the Treasury, that the government should levy a tax called the planning gain supplement on developers and landowners to fund the infrastructure needed to accompany property development and make housing growth areas like the Thames Gateway viable. Having launched a position paper on the subject in August outlining its opposition to Barker鈥檚 proposal and offering an alternative, the BPF is now campaigning hard to have its case heard by government, which is preparing a consultation paper on the subject, due for publication later this year.

The BPF is known as the trade body for the commercial property sector, but in taking on the planning gain supplement, it is crossing all development sectors. Its membership is actually a broader church than many people think, including residential developers, particularly those providing private sector rental housing, and the occasional housing association. Regeneration has figured increasingly prominently in its workload, not only in the guise of shiny city centre retail and office development but also in looking at what part members can play in the most deprived communities.

It even produced a regeneration manifesto in the run-up to the last general election, containing fine exhortations to government to commit to funding major infrastructure projects and to local authorities to strike a balance between engaging local people and progressing development. But the manifesto appears to have had little impact, something that Peace is sanguine about. 鈥淭he nub of the regeneration debate is how much you can push central and local government to put the right conditions in,鈥� she says.

Peace herself has a public sector background, having started her working career as a graduate trainee with the Ministry of Defence and later leading the transfer of the Defence Evaluation and Research Agency into the public/private partnership, QinetiQ, where she was company secretary. Ask her about working with the public sector, however, and Peace determinedly puts her members鈥� case: 鈥淲hen the public sector puts land into the pot, it is right that they should take their share of the uplift, but if the public sector wants to play, it has to behave commercially. I hear tales of private sector exasperation with local authorities.鈥� That is the determination that has won the BPF a reputation for punching above its weight, and for being able to talk pragmatic solutions with the ODPM.

All Peace鈥檚 skills may be needed to win the battle over the proposed planning gain supplement, which is basically a development land tax. With the government consultation paper due later this year, the BPF has got its arguments in early and is campaigning to have the tax transmuted into a tariff which it believes would be more workable.

Barker put forward the idea of a planning gain supplement as a nationally levied tax, payable by the landowner/developer on receipt of planning approval, and a proportion of which would be given directly to local authorities. By contrast, BPF wants a locally set tariff, which would mainly be spent locally by local authorities and which would, it believes, give developers more certainty.

Q&A

The public sector has to behave commercially. I hear tales of private sector exasperation with local authorities

I鈥檓 quite traditional, a historian by training, and I look back to a time when the state funded infrastructure and recouped it through the business rate. [But now] the Treasury has re-written its own rules so that state borrowing is no longer possible. This is a problem of the government鈥檚 making, though they inherited a serious backlog of infrastructure problems.

Gordon Brown and John Prescott have a gleam in their eye that the massive profits developers make can pay for infrastructure. But that presumes that: there is excessive profit; profit is definable and realisable; there is a willingness to pay; and there is not a way out by sitting on land. Those are all reasons why attempts to introduce a tax have failed in the past.

Will it work this time round?

We鈥檙e highly dubious. In a simple situation where a landowner has a huge increase in land value as a result of planning, you can see the logic of it, except that these guys are already paying 30% in capital gains tax.

But then there are the complexities of existing development. Say a company owns a brownfield site, where it has some income from low-grade uses, and it wants to develop a new building and let it. The land will be on the books at a certain value. It will go for planning permission and so the potential for investment income will increase 鈥� but how much of that is due to development, and how much to the quality of the architecture? Maybe there is a big clean-up cost for the site. And at the end of it the company is not selling the site 鈥� they are simply getting increased rental.

The planning gain supplement would work on some sites but not on others. However, the ODPM is saying that it will apply it across the board, as it won鈥檛 generate enough revenue if they limit it to greenfield development.

The government hasn鈥檛 focused on the difference between a landowner and a developer. A landowner has got the land and can choose to work it or not. A developer has a job to do for shareholders, and if it owns land it expects to make a return.

But you鈥檙e still advocating that developers and landowners pay a tariff, aren鈥檛 you?

We have to be realistic. We need infrastructure. Section 106s have been shambolic. They鈥檝e been stretched and stretched to cover all sorts of things. Developers pay in a quixotic, untransparent way. A tariff won鈥檛 solve all the problems, but we want to talk to ministers about it.

What problems could there be with a tariff?

Brown and Prescott have a gleam in their eye that the massive profits developers make can pay for infrastructure

One potential pitfall is that a local authority has to take a longer-term view, say 10 years. It needs to look at what infrastructure it needs, and take into account what will get funded anyway. Then it will have to prioritise its needs, cost them and spread that over 10 years. A drawback is that the money to pay for infrastructure will only flow in over 10 years, so there will have to be a 鈥渞ingmaster鈥� to borrow the money, raise bonds and whatever, to fund the infrastructure, and take in the tariff. In Milton Keynes [where a tariff is already coming into place] English Partnerships is playing that role, but again there are potential issues with public sector borrowing.

What about the most deprived areas of the country that cannot charge a high tariff but have big infrastructure needs?

The tariff would have to be top-sliced to allow some redistribution for that. But at least most of the money would stay local.

What鈥檚 next on the BPF鈥檚 agenda generally?

Planning remains a big concern 鈥� the fundamental problem is that the process is under-resourced. We have to accept that we are unlikely to see planning elevated in local authorities, so you have to look at the possibility of taking things out of the system, and then you have to make sure the remaining resources are used efficiently.

There is the issue of education of people within the planning process 鈥� few people have knowledge of development economics. That鈥檚 why we鈥檙e thinking about whether it would be possible to set up a cadre of independent advisers who could advise planning authorities on the economic viability of schemes.

We鈥檝e also started exploring how targets are driving perversity of behaviour. With the ODPM insisting that 60% of major applications are dealt with in 13 weeks, that means that 40% are not, and there is no target on when they should be dealt with. That could be as long as 35 weeks.

We have asked the ODPM to look at a tailor-made approach to applications, where the developer agrees the timescale with the local authority, and if the local authority meets that, then the target is considered to have been met. We call them planning timetable agreements. But we are being told that the No 10 Delivery Unit won鈥檛 go for that idea. There鈥檚 still more work for us to do on that.

Liz Peace
Photo: Julian Anderson