Gordon Brown's development levy comes under attack

Treasury proposals for a development levy would not benefit the government financially but would hit smaller developers, a coalition of business and property groups will warn chancellor Gordon Brown next week, writes David Blackman.

One of the central findings of the report, which is to be published next week, is that the Treasury’s proposed planning gain supplement would not raise any more money for infrastructure investment than the present system.

Property agent Knight Frank examined the impact that the PGS would have on 18 developments, including nine residential and seven mixed-use schemes.

Researchers compared the amount of planning gain that the developers paid on these schemes and what they would contribute under PGS, which is designed to tax windfall profits made by developers when they secure planning permission for such schemes.

The study found that if the PGS was set at 10%, the system would raise £195m, just under half the £375m negotiated through section 106 agreements on the 18 schemes.

Only by setting PGS at 30% would it be possible to raise nearly as much revenue as under the present system. Sources at the former ODPM had indicated that the Treasury was considering a rate of 20-25%.

The study says: “PGS and a scaled back section 106 system may not result in the necessary additional funds for local and strategic infrastructure to support housing growth, as envisaged in the PGS consultation document.”

It also concluded that the introduction of the PGS would hit smaller developments disproportionately hard. “The largest impact of PGS is likely to be on relatively small-scale development proposals compared with the current arrangements,” it says.

The Knight Frank study concludes that large town centre and big greenfield housing schemes, which require the most infrastructure investment, are likely to contribute “significantly less” planning gain through the PGS.

However, it says developers will lose control over how the money is spent because PGS will be set by central government instead of being negotiated with the local council.

The report was commissioned by the British Property Federation, the CBI, the Home Builders Federation and the RICS. The criticism contained in it will increase pressure on the Treasury to scrap the levy.