Cabinet split over Treasury’s planning gain supplement

The government appears to be split over plans for the development land tax proposed by Treasury economist Kate Barker in the run-up to the pre-Budget report on Monday.

The Treasury is due to respond to the Barker report and put out proposals on the planning gain supplement to further consultation when Gordon Brown delivers his report. However, the ODPM, which handles most of the regeneration agenda, is thought to be against the idea.

The supplement, which would tax the rise in land value after a site wins planning permission, is appealing to the Treasury because it would add to general taxation.

The tax, which may be 20% of the increase in land value after planning permission, could raise £3bn a year. The Chancellor is expected to unveil a range of options for the tax so that it does not stifle new development. Some land could be excluded from the tax.

The Chancellor is also expected to propose that developers should be forced to reveal the size of their land holdings in order to shame them into building more homes.

The ODPM wants any money raised to be ploughed back into regenerations schemes in the same area. The model for this is the “roof tax” that will be levied at Milton Keynes.

It is also sceptical that the idea would be successful. Sources close to communities minister David Miliband have dismissed the idea as unworkable.

Senior regeneration figures are also known to be scornful of the PGS. One told Building this week that Miliband was waiting for the private sector to protest in order to have more leverage in arguing against it.

However, Michael Chambers, head of policy at the RICS, said the Treasury would proceed with the PGS despite the opposition.

He said: “Basically we think the Treasury is still wedded to the idea of the PGS. We think it’s flawed – it‘s hard to think of anyone with a good word to say about it.”

Michael Ankers, Construction Products Association chief executive, warned that without cross-party support, landowners would sit on their land and wait for a change of government.

Industry insiders were also predicting that Brown would fudge the issue of whether to engage with Barker’s calls for more housebuilding, by allowing more capital spending on infrastructure.

Observers will be keen to see if Brown heeds calls for the Sustainable Building Code, which is out on Tuesday, to be made more attractive to homebuyers by giving council tax discounts for homes that adhere to its requirements.

One source said: “The code will be a balancing act for Barker. If they’re going to build fewer houses then they need to say they will build them more sustainably.”

The code will be managed jointly by government and the BRE.

The report could also include comments on reforming PFI and lowering the 17.5% VAT on refurbishing houses. Insiders think that Brown could equalise VAT on new-build and refurbishment at 5%.