I should inform the House that I have not selected the amendment in the name of the Leader of the Opposition.

I beg to move, That the Bill be now read a Second time.

This Bill is short and straightforward. It is a one-page, three-clause paving Bill. It has been prepared and introduced to ensure the regularity and propriety of Government expenditure in accordance with Government accounting rules. It therefore gives the Secretary of State for Communities and Local Government, Northern Ireland departments and the commissioners of Her Majesty’s Revenue and Customs authority to expend resources on preparations necessary for the potential introduction of a planning gain supplement.

Given the brevity of the Bill, it will be immediately apparent that it has nothing to say about the policy, nature or indeed operation of a planning gain supplement. If the Government decide to introduce a supplement, we will announce and legislate for it in the normal way, so there will be a substantial opportunity to debate and scrutinise the proposal. Since Kate Barker first recommended a planning gain supplement in March 2004 in her review of housing supply, there have been 40 parliamentary questions, four public consultation documents, a Select Committee inquiry report and a Government response. Along with the Minister for Housing and Planning, my hon. Friend the Member for Pontefract and Castleford (Yvette Cooper), I welcome this active parliamentary interest, because planning, development and housing affect all our constituencies.

As the Minister rightly points out, this matter affects all our constituencies. Does he agree that, as a general rule, if there is section 106 agreement—agreement under section 106 of the Town and Country Planning Act 1990—and there will be a planning gain, the local community in question should benefit entirely from that planning gain?

As the hon. Gentleman says, it is important that the benefits of development are delivered primarily to the local communities and local areas that are affected. It is also important that those communities see the benefits that come from that, and that sufficient—indeed, increased—resources are available to support the development of the infrastructure necessary for such developments in future. A proposal for a planning gain supplement could be designed to meet such objectives.

rose—

I am spoiled for choice; I give way to the right hon. Member for Wokingham (Mr. Redwood).

The Minister will save himself some time, and taxpayers some money, if he reads the history of two previous Labour Governments who introduced taxes on developments. That dried up the supply of development land and achieved the opposite of what he wishes to achieve. Why does he not just save us some money?

In fact, three arguably similar measures have been introduced in the past. I have been keen to make sure that we draw the lessons from experience. We have made it clear from the outset that any planning gain supplement introduced by this Government would be set at a modest level and that it would generate additional revenue to support specifically the infrastructure required to support developments. It is for those purposes that we are considering whether to introduce a planning gain supplement.

Early in his speech, the Minister said:

“If the Government decide”.

He has just now been conditional again. Should we conclude that the Government have not yet decided whether it would be right to introduce a planning gain supplement? If so, what are the outstanding questions that are preventing them from coming to a firm conclusion?

The right hon. Gentleman might not have studied the pre-Budget report of 6 December, in which we made it clear that a planning gain supplement is currently a lead option and that we had not yet made a final decision. We also published three public consultation documents. I suggest that the right hon. Gentleman look at them, because the responses we receive to them—the consultation on which closes on 28 February—will form a part of any final decision that the Government then take.

May I correct something that the Minister said? There have, in fact, been four previous attempts to establish such a tax by earlier Governments, and a major reason for their failure was that they levied the tax at a rate of between 52 per cent. and 110 per cent. I hope that the Government learn the lesson that any tax must be pitched at a reasonable level, instead of the earlier extortionate levels that were the major reason previous attempts failed.

My hon. Friend chairs the Communities and Local Government Committee and is something of an expert in this field; she chaired a very important Select Committee report into the area, and I recognise the point she makes. From the outset in 2004, when the Government confirmed that we would consider the possibility of a planning gain supplement, we have made it clear that it would be set not at the punitive levels that some have argued were set in the past and were part of the problem, but at a modest level that would generate additional investment for the infrastructure needed to support housing or business developments, and at a level that would preserve incentives to bring forward land for such developments. Judgments on that balance will be part of any final decision, and then any final design of a planning gain supplement—which is, of course, nothing to do with the Bill.

Let me take the Minister back to the answer that he gave to my hon. Friend the Member for North-West Norfolk (Mr. Bellingham). The view he expressed was echoed by the Minister for Housing and Planning in a written answer to me last year. She said:

“PGS would be an essentially local measure. A significant majority of PGS revenues would be recycled directly to the local level, for local priorities.”—[Official Report, 16 January 2006; Vol. 441, c. 964W.]

In a separate written answer, I was told that between 2006 and 2008, £494 million will be raised in, and removed from, Milton Keynes by English Partnerships, with just £200 million being put back in the same period. That is the recycling of just 40 per cent. Is that what the Minister refers to as “significant”?

Perhaps the hon. Gentleman should also study in some detail the pre-Budget report. We have said that at least 70 per cent. of any revenue raised in a local authority area through a planning gain supplement would be recycled to that local authority area, and that the remainder would then be available to regions for developing the strategic infrastructure necessary to support developments. The Government have made an unprecedented commitment to making available revenues raised from any planning gain supplement specifically for infrastructure to support such development.

rose—

I give way now to the hon. Member for Newbury (Mr. Benyon).

I am grateful to the Minister for giving way. Is he aware of schemes run by local authorities to get developers’ contributions to pay for local infrastructure? If so, will he look at the one introduced by West Berkshire council? It raised £8.5 million last year, all of which will be spent locally; indeed, the amount is assessed locally and it is an entirely local scheme. Why do the Government not trust local authorities to run their own schemes and, if necessary, extend best practice across the country in that respect?

I am indeed aware of the various schemes, planning obligations and alternatives to a planning gain supplement that many have proposed. However, the flaw with many of them is that their application, and the capacity of local authorities to apply them, is variable. The hon. Gentleman may be interested to know that only 7 per cent. of planning permissions granted in 2003-04 attracted any sort of planning obligation and, therefore, financial or other gain for local authorities and their communities as a result of that process. In principle, the planning gain supplement gives us scope for applying a much greater benefit to a much wider range of planning permissions.

I am grateful to the Minister for his courtesy in giving way. As we understand it from the associated consultation documents, which have at least in part fleshed out the Government’s concept of the planning gain supplement, in Scotland and Wales the devolved Administrations would decide how the money was to be recycled locally. However, the Government have said that, in England, at least a part of that money would go back to “the regions”. Does that mean that it will go back to the region in which the development in question was taking place, or could it go to some other region? In other words, could a development take place in the south-east, but the regional component be recycled to the north-east? Which is it?

The sole point of any planning gain supplement would be to raise additional revenue available for infrastructure to support development. I said that at least 70 per cent. would go to the local authority area. Any remainder would not come to central Government, but would go to the region in question to support infrastructure, and I would expect that principally to be the region within which the local authority area was sited. [Interruption.] Well, some Opposition Members present will represent constituencies in local authority areas that border other regions, and it may well be that the infrastructure needed to support a particular development will require investment in a region in which the given local authority area does not happen to reside.

I am grateful to my hon. Friend for giving way. He rightly highlighted local authorities’ variable implementation of section 106, but will he recognise that under the Government’s proposals, a continued—albeit reduced—role will still be there for section 106? Does he also agree that a key priority must be to ensure a greater spread of expertise among local authorities, to make sure that all come up to the standards of the best in delivering and negotiating section 106 agreements?

My right hon. Friend is right, and he did more than many Ministers to try to ensure that the capacity of local authorities to discharge their functions and to plan strategically through the planning process was brought up to scratch. He is right: in relation to a modest level of planning gain supplement, we propose to scale back the planning obligations and the scope for section 106. It is essential that even though such scope, and the process for section 106 permissions, would be simpler and more concentrated, more local authority planning departments have the capacity to negotiate and deliver them effectively.

I am impressed by the Financial Secretary’s courtesy and mastery of his brief, but I am also a little perplexed. He has informed the House that the Government have not finally made up their mind—and that is proper, because the consultation period will not end until 28 February—so why are we considering the Bill today?

My prepared remarks deal with that point, because it is a central point and a fair question. However, I have not managed to make as much progress with my speech as I had planned by this point. I will address that point, if the hon. Gentleman will bear with me, and if he feels that I do not answer his pertinent question, I hope that he will intervene again.

Given that Aylesbury Vale is a designated expansion area, which will be home to a significant increase in new housing over the next 20 years, I can tell the Financial Secretary that my constituents will expect to be not the principal or the primary beneficiaries of the proceeds of a tax on development, but the exclusive beneficiaries. He will not be a popular figure in my constituency if he fails to satisfy that legitimate expectation.

Being a popular figure in the hon. Gentleman’s constituency is not one of my objectives for this Bill, but I am concerned to ensure that we achieve the increase in investment that is required for infrastructure generally in the fairest and simplest possible way.

The House will welcome the comprehensive consultation arrangements that were undertaken before the Bill was introduced. Surely the important feature is that, with the increasing level of activity countrywide, the problem of infrastructure development becomes crucial. Is not the Bill primarily meant to improve this country’s infrastructure?

It is indeed. It is not only the level of investment available to support the infrastructure required that is important, but the timing of the investment and the delivery of the infrastructure, be it roads, other transport links, sewerage, schools, hospitals or other services. That is one of the reasons the comprehensive spending review and much of the work that we are doing in preparation include the specific aim of deciding what we need to increase to support the greater level of housing supply.

Will any future planning gain supplement take account of extraordinary planning and development costs, such as are imposed by the Environment Agency on developments within the flood plain in the south-east of England?

Although we have made it clear that any planning gain supplement would apply to residential and non-residential development, we are still considering whether there should be thresholds for small scale non-residential development. We are also still considering the application of any planning gain supplement—alongside a revised planning obligation system—to major infrastructure projects, public sector works, minerals and waste consents and any of the non-Town and Country Planning Act permissions. Those are the sorts of permissions about which the hon. Gentleman is rightly concerned.

Will the Government ensure that arrangements are in place so that constituents affected by the initial planning applications are consulted about the means and nature of planning gain? Is the Minister aware of the Sheffield Hallam university report, which showed that much of the section 106 gain was not collected? Will he ensure that the gains from any system that we put in place here are collected and used for infrastructure in accordance with the proper purpose?

The principle and potential of the PGS meets both my hon. Friend’s concerns. First, it is likely to be simpler and more transparent, so local residents will be much clearer about the gain to their local areas from the consent given to any planning development. At present, the operation of section 106 is unclear and inconsistent. Certainly for residents of local authority areas, it is almost always unclear what deal the local authorities that negotiate these agreements have been able to strike.

One of the preparations that will have to be undertaken is consideration of the Bill’s impact on the devolved Administrations. It appears that the intention is for funds raised through the planning gain supplement to be allocated directly to the devolved Administrations. Does my hon. Friend agree that the principle that funds raised are designed primarily for local infrastructure, which the Government appear to accept for England, should apply to the devolved Administrations? It would not be popular, to put it mildly, if a planning gain supplement raised in my area were allocated to a well deserving cause in, shall we say, the Shetlands or Western Isles.

I recognise my hon. Friend’s concern. Given the devolved functions of the Scottish Executive, the use of any PGS funds in Scotland would ultimately be for the devolved Administration to determine. However, we are looking at and may propose a planning gain supplement specifically to recognise the windfall gain in land values that often comes with planning permission, and to generate the funds required to help support and fund the development of infrastructure. I can confirm that all planning gain supplement revenues that were generated in Scotland would be returned in full to Scotland for the Executive to make such decisions. The PGS would apply across the UK, but planning itself is clearly a devolved function.

Recommendation 37 of the Select Committee’s report reveals that at least 70 per cent. responded that planning gain supplement revenues had come back, but it refers to the local authority area. Will the Minister clarify whether it is the local authority area that is granted planning permission, which might mean it applying at district level, or is it another area?

I do not think that we could have been clearer: it is the local authority area in which the planning permission has been granted and the development is likely to take place.

On a slightly different note, I know that the Government, in preparing the Bill, cited the possibility of small-scale residential developments being excluded from the charge, but is the Minister prepared to consider a similar exclusion for small-scale commercial developments—in other words, to help smaller businesses? Frankly, it is just as much a matter of concern to those enterprises as it is to home owners.

I think that the hon. Gentleman might have misheard me. If he checks the record, he will find that I said that we are currently considering whether a threshold for small-scale non-residential developments may be warranted, which is the hon. Gentleman’s concern. In fact, home improvements would not be covered by a planning gain supplement, but smaller scale residential developments, which often may not be captured by planning obligations and section 106 agreements at present, would be covered by the PGS. That is one of the principal points in favour of the potential planning gain supplement: its potential application may be much wider than the current obligations allow.

I am sure that my Friend will not be surprised to learn that, when the Select Committee took evidence, quite a lot of it related to individuals and organisations seeking exclusions and exemptions for particular types of development, whether due to their nature, permanence or scale, or the business activity involved. Does he agree that the more exemptions and exclusions that are allowed, the more complicated the tax becomes and—this is something that might interest the Opposition—the more market distortions there will be, favouring particular types of development over others, simply because of the implications of the tax?

My hon. Friend has great expertise in this area, not just from his membership of the Communities and Local Government Committee, but from his experience as a leader of a major local authority before he joined the House. He is right and the Select Committee is right in its assessment. He will know that, when the Government were able to respond to the Select Committee report last month, we recognised the point that it made on that issue.

One thing that has struck me about this territory is that, although there may be differing views on precisely how to do things—what instruments and policy to use—there is general agreement on a number of important points. There is general agreement that it is right and important that we have a policy, planning and fiscal framework that, in a strong economy, meets the need for more business development and more housing.

There is also general agreement that it is right and reasonable to extract some of the windfall gain in the value of land that has been granted planning permission. Some of those windfall gains are considerable. Alongside the pre-Budget report in 2005, we published an assessment of the increase in the value per hectare of land in general agricultural use when planning permission was gained. When planning permission is granted in England for land for housing development, there can be an average uplift of 250 times. That is not through any investment from the owner of that land, but just because they happen to own it. It is public policy—in other words, the application of a planning consent—that is the source of that significant rise. The typical uplift is similar, although lower, for industrial and warehousing use. The increase in land value can be about 70 times, on average. For general business use, it might be 80 times.

Without wishing to appear a pedant, I want to clarify the basis on which those valuations are made. The Minister has referred to the uplift in values. I entirely agree that the uplift is substantial in many instances, but can he tell me the basis on which the Government make those assessments? Are they based on an open-market valuation or are they done on a discounted cash-flow basis?

I know that the hon. Gentleman follows these things well. If he looks at the Valuation Office Agency’s market report, he will find not just the figures that I set out, which date from 2005, but more up-to-date ones, and a summary of the way in which the agency goes about that.

There are two further areas of important agreement in this territory. There is agreement—it is quite widespread and I hope that it applies in the House—that it is right and essential to see more investment in the infrastructure to support new developments. Finally, there is agreement that it is right and fair to expect both the private and the public sectors to contribute to the cost of such infrastructure.

Further to the point made by my hon. Friend the Member for Hertford and Stortford (Mr. Prisk) about valuations, has the Minister given thought to change-of-use valuations and how those would be assessed?

We have indeed. That is one of the areas on which we expect further observations in the consultations that are out for general comment. One of the consultation documents deals with the question of how valuation is assessed. The hon. Lady might like to take a close look at that document.

In pursuing the goals that I have set out, the Government have considered the matter and accepted Kate Barker’s recommendation that a modest levy on windfall gains in the value of land going through the planning process would be a fair and effective way not only of helping to finance additional investment that is needed in infrastructure, but of sharing the benefits of development growth with local communities. Just as Kate Barker did, the Government have considered a range of alternatives. We will continue to do so, but at this point the PGS is our lead option. That is because a workable and effective planning gain supplement would have more potential to generate much needed investment throughout the UK than its main alternatives, such as an optional planning charge or a tariff scheme; because the PGS would be proportionate to the land value uplift of a site, and thus fairer for developers and landowners; because the PGS would be more transparent and consistently applied than the existing system of developer contributions; and because the PGS would provide local communities, which would receive at least 70 per cent. of the revenue derived from their areas, with the scope to plan and pool resources strategically to fund infrastructure in support of growth.

Clearly, when we talk about the building of new towns and cities, such as Milton Keynes, we think about new house building. However, Milton Keynes has old communities in it, such as Wolverton, which is a very old town. Will the Minister clarify whether the money will also be available for the regeneration of older parts of cities, such as Wolverton, or are such places destined to be the poor relations under the supplement?

The hon. Gentleman would probably agree that such decisions are ultimately best and most appropriately taken by the local authority responsible for an area. The purpose of the planning gain supplement is to try to establish a fairer way of generating more revenue to support infrastructure developments required for housing and business development and the sort of things that we need to be able to provide better in a modern and strong economy.

The Minister has helpfully crystallised what could otherwise have been an academic and abstract debate by suggesting that 70 per cent. of the revenue would come to local authorities. Will he be equally helpful by suggesting the broad order of magnitude of the levy itself? Is it true, as has been widely reported, that the Treasury is thinking of a figure of 20 per cent.?

Having tried to be helpful to hon. Members in as precise terms as possible, I regret that I must make it clear that the Government have not yet taken that decision. If we decide to go ahead with the planning gain supplement, it will be set at a modest level that will generate extra funds but not hold back or discourage the release of land for development. It would be set at a level that would help us to avoid some of the problems that have been created in what some have seen as predecessor experiments in the field. I hope that the hon. Gentleman accepts that the steps that we have taken over the past two years—the considered analysis of, and discussion and consultation on, not only the principle of a planning gain supplement but its details—demonstrate that the Treasury is leading a prudent policy making process. We are taking such steps in our consideration of any possible rate.

It is that same careful approach that leads me to introduce this short Bill. If, after the present round of consultation, we make the judgment that the planning gain supplement continues to be a workable and effective way of capturing the windfall uplift in land value and helping to finance the infrastructure to support development, we will proceed towards introduction. However, this measure is simply a paving Bill that authorises the three parties to incur preparatory expenditure, although the burden of building the administrative systems and, ultimately, of managing the planning gain supplement would fall on Her Majesty’s Revenue and Customs.

HMRC’s expenditure prior to introduction would include spending on new information technology for the PGS, as well as on the adaptation of its existing systems. The expenditure would also go towards designing the necessary business systems to administer the levy and putting in place appropriately skilled staff to manage it, and it would equip the Valuation Office Agency and the Valuation and Lands Agency in Northern Ireland with the necessary facilities to help to administer the PGS, including staffing, training, accommodation and IT equipment.

Clearly, those administrative functions would have to be based on further substantive legislation, and they would have to be properly tested and put in place prior to the implementation of the planning gain supplement, which we have said will not take place before 2009. Expenditure incurred by the Secretary of State prior to introduction could include spending on adaptation of Government IT, such as that used to monitor the planning system, which I understand is known as the planning portal and is administered by the Department for Communities and Local Government.

rose—

I will finish my point, if I may, and then I will come to the question that the hon. Gentleman asked earlier.

Let me make clear why three parties, and only three parties, are named in the Bill. Preparations for the implementation of the policy will not require any administrative functions to be carried out by the devolved authorities in Scotland and Wales, although as I have made clear a planning gain supplement would of course apply throughout the United Kingdom if it were introduced.

The final decision on whether to introduce the planning gain supplement awaits the completion of the current round of consultation. The Bill is needed in advance of that decision, so that if an affirmative decision is taken later this year, the Government can start immediately to build the IT and administrative systems to support the planning gain supplement. I think that the hon. Member for South Staffordshire (Sir Patrick Cormack) would accept that for such a system it is imperative that we get the IT absolutely right, and to do so HMRC and its IT partners require sufficient lead time to build and test the systems properly. By introducing the Bill now, I am seeking to avoid a situation in which a decision to progress with the planning gain supplement is taken this year, but the authority to start designing and building the necessary systems is not in place. The hon. Gentleman, who is an expert in parliamentary matters, will have recognised immediately that if we introduced the Bill later in the year, and parliamentary business fell in a particular way, the parliamentary calendar might not allow the timely enactment of the measure. Delays, of course, would reduce the time available for designing, building and testing the necessary information technology.

The Financial Secretary is speaking with great charm, and he is beguiling and almost converting me, but although I am an advocate of pre-legislative scrutiny, he has not yet made me an advocate of pre-legislative legislation; he has to make the case for that. I would like to know what the cost implications are, too.

Let me take the hon. Gentleman’s points in order. Those hon. Members who have, so far, indicated that they are interested in the debate take a close interest in the subject, but it is fair to say that the House has taken a close interest in Government IT schemes in the past. A constant and key recommendation is that the Government should build in adequate time for a system to be built and tested prior to its implementation. The introduction of the Bill at this point is informed by such recommendations, which Committees and the House have consistently made to the Government.

On the hon. Gentleman’s question about costs, the early estimate of the cost of designing and building the administrative and IT systems needed for PGS prior to its introduction is approximately £40 million. If the Government go ahead with the planning gain system, and therefore with the further legislation that will be required, I will provide the House with updated estimates of the costs.

If the IT system cannot be used, can it be given to the Home Office?

I have broad-ranging responsibilities at the Treasury, but I am glad to say that Home Office IT is not one of them.

I thank my hon. Friend for giving way once again. He has commented on the shortcomings and variability of section 106 planning obligations, but does he have any proposals about the future of section 106, should he decide to introduce a planning gain supplement?

I have indeed, and the Government have set out their proposals in various publications. Essentially, section 106 obligations would be scaled back to the physical site of the development, and would continue to include affordable housing—a subject in which my hon. Friend takes a close interest.

The Minister has been generous in accepting interventions. Will valuations through the IT system be open to challenge if people disagree with them? Will they be able to see from outside what has been logged on the IT system? Who will have access to that information?

I referred earlier to a consultation document, which the hon. Lady may wish to study. She may wish to examine, too, the consultation document that looks in detail at the way in which parties may pay the planning gain supplement. Our proposal is based on self-assessment. Challenges to an assessment of the planning gain supplement will be made not by those who incur the liability and are responsible for producing the initial assessment, but by Her Majesty’s Revenue and Customs. It is likely to make such challenges only if the assessments with which it is supplied are unreasonable.

I am grateful to the Minister, who has been generous in accepting interventions. He will appreciate that, as there is so little detail in the Bill, it is important for my community to obtain clarification. Quite simply, does he envisage that there will be any problem in using the planning gain supplement to help to regenerate communities in growth areas?

The planning gain supplement, if we introduce it, is designed to support infrastructure. Clearly, the role of infrastructure is to support not just specific developments but the regeneration of an area. The hon. Gentleman says that it is important to clarify the details, but this is a one-page Bill with three clauses, one of which specifies the short title. It is a paving Bill, and there will be ample opportunity, if the Government decide to proceed with the measure, to debate and scrutinise the proposals. If we decide not to go ahead with the planning gain supplement, further expenditure directly authorised by the legislation will not be made.

The rationale for the paving measure is to ensure that sound management is in place and that we can deliver the underlying policy on time and on budget if we choose to proceed in that direction. The House would rightly be hard on us if at a later stage there were difficulties in implementation because we had not begun the planning and preparations early enough. On that basis, I commend the Bill to the House.

I am pleased to respond on behalf of Her Majesty’s Opposition. The measure is, in effect, a paving Bill, although the Minister said that it supports a lead option. It consists of just three clauses, but it is nevertheless important, as it permits preliminary expenditure related to the proposed introduction of the Chancellor’s planning gain supplement—PGS—in 2009. According to the section headed “Financial Effects of the Bill” in the explanatory notes, which have been prepared by the Treasury, expenditure under the Bill could exceed £50 million. That sum represents the combined cost of project staff in Her Majesty’s Revenue and Customs, the Valuation Office Agency and its Northern Ireland equivalent, and of new information technology systems which, as the Minister partly admitted, are often notoriously difficult to introduce on time and on budget.

The Conservatives oppose the Bill, as it permits public expenditure in preparation for an impost with which we do not agree, and my intention is to set out for the House as clearly as I can the reasons behind our opposition. I am happy to be debating these matters with the Financial Secretary, whom I commend for his usual courtesy in giving way so often. We had anticipated the possibility of debating the Bill with his colleague, the Economic Secretary—but even if the Economic Secretary is not present in person, I sense that he is here in spirit. I therefore look forward to debating these matters with the Minister for Housing and Planning instead.

There are several reasons why we oppose the planning gain supplement, and the Bill, which commits appreciable sums of public money in order to facilitate it, even before the Government have taken a firm decision to go ahead, poses problems for us. The first is that the planning gain supplement is designed to be centrally collected and then redistributed according to Government fiat. Under the Treasury’s concept, which is referenced in the explanatory notes and fleshed out at least a little further in the associated consultation documents, of which there have been several, the PGS will be redistributed from the centre, with an element going to the regional bodies and the remainder supposedly being given back to the local authority that permitted the development. The Minister gave us an indicative figure of 70 per cent. this afternoon.

However, the Bill provides no guarantee that that will be the case. It is certainly not written into the Bill. Moreover, the Select Committee on Communities and Local Government, which examined the issue in detail in November 2006, pointed out in its report the prospect of a funding formula of some kind being used to determine how much revenue should be returned to each local authority. The Government’s record of collecting centrally and redistributing locally in recent years leaves much to be desired, to put it mildly. All those who witnessed the effect of the changes several years ago in another funding formula, the key local government one, from standard spending assessment to formula spending share—from SSA to FSS, as it is known—saw how the formula was altered in order to benefit predominantly urban authorities in the midlands and the north of England.

Even if the Government were minded initially to redirect all of what one might call the local authority component straight back to the authority in question, many of us on the Opposition Benches wonder how long it would be before the measure incorporated some element of top-slicing, floors and ceilings, resource equalisation or some similar formula or criteria, so that Ministers could begin to interfere with the straight passporting of the money back to the authority that had been asked to accept the development in question. Experience of the Government to date suggests that that would be the case, and we are understandably sceptical as a result.

Will the hon. Gentleman give way?

In a moment. I shall finish the point. Overall, the Bill looks more and more like yet another Labour stealth tax, this time on development and affordable housing, rather than a genuine attempt to finance infrastructure in development areas. I gladly give way to a Back Bencher who supports stealth taxation.

I have heard the hon. Gentleman on a number of occasions rightly argue for increased infrastructure investment, particularly around the London area. He clearly opposes the Bill. How, then, would he fund that infrastructure investment in his constituency and along the Thames corridor?

I thank the hon. Gentleman for that intervention. Our argument is that it is right for developers to make an appropriate contribution to infrastructure—I shall go on to say a little about that—but we believe that the process outlined in the Bill is not the right way to bring that about.

Our second reservation is based on the fact that a significant element of the proposed planning gain supplement to be facilitated by the Bill will be regionally administered. In the real world, if we want to persuade communities to accept further development, we must carry people with us. That means persuading them that they will see genuine visible benefits coming back to them from agreeing to further building in their area. A system administered on a regional basis does little to provide reassurance that that will happen. For instance, a community in Kent could be asked to accept 1,000 additional houses in return for taxation that flows into the Treasury and is regionally redirected towards a bus shelter scheme in Buckinghamshire, remote from the original community that was asked to accept the development. Indeed, under questioning this afternoon, the Financial Secretary has admitted that that regional component of the PGS might even not go back to the original region. The Government have been keen to hide the point that it might be sent to another region, but the House of Commons has exposed that point in debate.

As the regions currently have few meaningful tax-raising powers, the PGS is partially a device to raise money that they can then spend. It is also likely to make them pro-development, even in areas that do not warrant it, in order to receive their share of the prospective PGS revenue in return. As the Chartered Institute of Taxation has pointed out:

“We think that the law of unintended consequences will apply, with the result that the proposals will not deliver the Government’s policy objectives without a major element of compulsion being applied to local planning authorities to allow developments that they do not wish to allow.”

A moment ago, the hon. Gentleman argued that the Government proposals would allow resources to be distributed to regions other than the ones in which the levy was raised. In his opening speech, the Financial Secretary suggested that there would be circumstances in which, because of proximity to the area where the levy was applied and the need for investment in an adjoining area in a different region, there might be a strong case for allocating some of the funds across regional boundaries. How would the hon. Gentleman’s party deal with that particular need, because under the existing arrangements funds can be applied only to the area in which they are raised?

I thank the right hon. Gentleman for his intervention. It seems to me that the Financial Secretary gave the House an excuse rather than a guarantee, but we were looking for something closer to the latter than the former. I hope that the right hon. Gentleman will contribute later in the debate, because I note that he opposes the concept. This month he said this to the Estates Gazette about the PGS:

“This incredibly bureaucratic scheme will cause endless arguments. It will create a new army of experts in depreciating the value of land.”

He is on the record as being against the PGS, and I hope that we will hear him spell out his reasons in more detail in a few minutes’ time, if he is lucky enough to catch your eye, Mr. Speaker.

Crucially, the decisions on where to spend PGS revenue will be taken by unelected and unrepresentative regional bodies, which are often centred many miles away from the communities in question and are not elected by the people concerned. After the Government’s overwhelming defeat in the referendum on whether to establish regional government in the north-east—by, incidentally, a margin of 78 per cent. to 22 per cent.—the Deputy Prime Minister, no less, conceded this to the press:

“The North East public have answered in an emphatic way. I am a democrat and I accept that…it was an overwhelming defeat for the proposal.”

Given that “overwhelming defeat”, those bodies no longer possess any moral or political authority with which to administer the concept, even if the House of Commons were to allow it.

rose—

I shall return the Financial Secretary’s compliment by giving way.

Will the hon. Gentleman accept—if he does not, I would like him to point to a specific reference—that there is no proposal to give PGS-related funds directly to regional assemblies?

One of the problems that we face tonight is that the Government have been short on detail about how the process will operate. They have said that they will give the money back to the regions, but they have not been clear about how the money will be administered; we assume that it will be by regional assemblies. [Interruption.] They Government have not said differently.

You are making it up.

The Government have been making it up as they go along, which is why the proposal has been delayed so often and why there have been so many multiple consultation documents. The hon. Gentleman has not made a very strong point.

The third reason why we oppose the Bill—and the PGS, which it helps to facilitate—is the threat that it would pose to the creation of affordable housing. That point was largely overlooked in the partial regulatory impact assessment, which is mentioned in the explanatory notes, and was issued alongside the pre-Budget report of 2005. The Government have been understandably coy about explaining the level at which the PGS will bite. Page 3 of the Treasury technical consultation document states that the PGS will be levied at a “modest” rate across the United Kingdom. Unfortunately, it does not say quite how modest that rate will be, so it is difficult to calculate the exact effect at this stage. Nothing in the Bill or the explanatory notes answers that important question. Nevertheless, by working from first principles we can deduce at least some of the effects that the measures might have.

It is true that developers often make considerable profit margins, particularly on greenfield housing schemes where there are no significant land clearance costs, so up to a point the PGS could theoretically be absorbed within the developer’s profit margin. However, it is not always that simple. In many urban areas, many of the most obvious brownfield sites are already, in effect, long gone. That means that developers may have to look at less easy sites such as old gasworks or factory sites, many of which have significant clearance costs, often for good reasons of health and safety, before construction work can begin.

Perhaps I can help my hon. Friend. Milton Keynes Partnerships—one of the unelected unaccountable quangos that he mentioned—anticipates that the cost would be £18,500 per dwelling.

My hon. Friend helps to amplify my point, in considerable detail, from his constituency experience.

A PGS levied at too high a rate, which might well be passed on to the eventual customers, may make the proposed development practically unviable, so that valuable opportunities to construct affordable housing would be lost, because the cost would be passed on. The National Housing Federation has argued that housing associations should be exempt from PGS because it would represent raiding public sector coffers for affordable housing. In its own words,

“In effect we will be taking money from one part of the public purse to pay another.”

I am concerned in case the hon. Gentleman may mislead people into thinking that this will have a huge impact on housing costs. As he would expect, the Government have considered the economic impacts of any PGS, as did Kate Barker in her original review. Both have demonstrated that the cost of a PGS would be passed back in lower bids for land rather than higher house prices to the consumer. I hope that he will take the trouble to recognise that.

If the Minister really wants to reassure the House about exactly how the PGS will bite, he can end our uncertainty right now by telling us what rate the Government will levy.

We have consistently made it clear that PGS will be set at a modest level. Decisions on the rate have not yet been taken, but when they are, it will be alongside consideration of some of the other issues that worry the hon. Gentleman, including whether there will be exemptions, and if so what their scope will be, and what revenues may come from any PGS. The difficult and balanced judgments required will be taken in the context of the responses that we receive to the consultations that we are encouraging people, including the hon. Gentleman, to respond to.

I come back to the original point. If the Minister cannot even tell us the rate at which the tax will be implemented, or even confirm that it will be proceeded with, given that it has now been watered down to a lead option, why on earth is the Bill before the House at all?

On affordable housing, the Charities Properties Association argued thus in the evidence that it provided to the Select Committee on Communities and Local Government:

“The CPA believes the PGS will have a seriously detrimental impact on the financial position of property-owning charities. This includes both charities which have significant land holdings as part of their endowment…and charities which develop their own land in order to fulfil their charitable purposes, for example by providing affordable housing.”

The next reason for Conservative Members’ wariness is that we believe that history is very much on our side in this matter. The explanatory notes indicate that the Bill would come into effect immediately following Royal Assent, presumably some time in spring 2007. However, there have been at least five previous attempts to introduce a similar tax in the past. Socialist Governments, in particular, have tried to do so three times since the second world war.

Specifically, we have experienced the development charge, introduced by the Town and Country Planning Act 1947 and repealed in 1952; the betterment levy, in the Land Commission Act 1967, which lasted only three years before repeal in 1970; and the development land tax, which was introduced through the Development Land Tax Act 1976, only to be first reduced, and then repealed in 1985. In most cases, those initiatives failed because of the complexity of the concept, and especially the difficulty that developers and the tax authorities experienced in agreeing the increased land valuation that was to be taxed.

PricewaterhouseCoopers explained in a note to their clients on the planning gain supplement:

“It is…likely that the protracted valuation arguments of the Development Land Tax era will be a feature of the PGS.”

The Royal Institution of Chartered Surveyors also highlighted the issue in its memorandum to the Communities and Local Government Committee. It stated:

“The valuation of development sites comprises of making assumptions about different variables, six of which can have a big impact on the opinion of value. A change of around 5 per cent. in each of these variables can result in an overall change in the value of the site of over 25 per cent.”

Mr. Peter Bill, editor of Estates Gazette, summed up the PGS proposals more succinctly in a December 2006 editorial:

“Of course it won’t work; it didn’t work the five times it was tried in the past century and it won’t work now.”

I have criticised the Bill and the Government’s approach, and I shall now say something about our preferred approach. It is important to stress that Conservative Members support the concept that developers should make an adequate contribution to infrastructure in return for being allowed to build. Development such as extra housing can help provide relief to those in housing need but, conversely, it often imposes additional pressures on local communities. For example, it can put pressure on school places, medical infrastructure—especially given the crisis in the national health service—and transport infrastructure. It is important that developers make an adequate contribution to alleviating those pressures in return for being allowed to build so that they do not adversely affect existing residents’ quality of life. In principle, hon. Members of all parties broadly accept that.

However, we believe that other options are available for fulfilling that requirement. We are considering them all closely as part of our ongoing policy review and we hope to have more to say about those matters later this year. Suffice it to say for now that, whichever system we prefer to PGS—I stress that it will be another system—it should be simple for local authorities and developers to understand, relatively easy to administer, as PGS evidently is not, and should not affect the construction of affordable housing.

Will the hon. Gentleman give a commitment today that such a system would involve cross-local authority investment in infrastructure and, indeed, regional investment in infrastructure? For example, it is important to improve the motorway network through the west midlands so that Telford can perform more effectively in future. Does the hon. Gentleman envisage a PGS-style system that would enable us to invest in regional transport networks alongside local infrastructure?

Hon. Members of all parties accept that there are limitations to the current section 106 agreement process. In fairness, the Select Committee highlighted that in its detailed report. I suspect that our solution will not simply be confined to the existing section 106 process. We may therefore go a little further than that, but I am not in a position this evening to say more.

There is probably broad agreement in the House that developers should make a realistic contribution to infrastructure costs. The problem with the Government’s proposed solution, and the Bill to facilitate it, is that it is definitely not the best way to achieve the goal. Planning gain supplement represents a top-down, socialist solution, at a time when the Government pay lip service to localism but practise democratic centralism instead.

Does the hon. Gentleman accept that the Select Committee’s position was far more logical than his? We asked the Government to compare and contrast the costs and difficulties of introducing a planning gain supplement with those of enhancing, reforming and improving the section 106 process. The hon. Gentleman’s position appears to be to rule out PGS, without coming to a view on whether reforming and enhancing section 106 would be better and more practical.

The Government’s proposals do not rule out the section 106 process either. The hon. Gentleman should recall that their proposals are for two dollops rather than one, in that they would introduce the planning gain supplement on top of the section 106 process. The Government say that that would be scaled back in some way but, as with so much else concerning the Bill and the PGS concept, they have not been clear about the degree of scaling back. All we know in principle from what the Government have said is that at present developers have section 106 agreements, whereas in future they would have section 106 agreements plus the planning gain supplement.

Will the hon. Gentleman give way on that point?

No, I have already given way to the hon. Gentleman once. That is the position as outlined by the Government, and he does not need to do his Minister’s arguing for him.

The planning gain supplement would add complexity to our planning system and would not carry local communities with it. It would be administered, at least in part, by regional bodies to which the people being asked to accept development owe little or no allegiance. Planning gain supplement is a bad idea that has failed five times before and would be likely to fail again. We therefore oppose the Bill. I urge all those who agree with us to join us in the Lobby tonight.

I declare my interest as an honorary fellow of the Royal Town Planning Institute, vice-president of the Town and Country Planning Association, a non-executive director of Hometrack and chairman of the National Centre for Excellence in Housing.

As my hon. Friend the Financial Secretary to the Treasury made clear in introducing the Bill, this is a paving measure that allows the Government—specifically, Her Majesty’s Revenue and Customs and the Department for Communities and Local Government—to undertake preparatory work on a potential planning gain supplement. I fully understand that this is not, therefore, an occasion for a full debate on the PGS proposals, not least because they have not yet been fully defined. However, it is not adequate to nod through the Bill on the basis that we shall, if the Government decide to proceed with the PGS, have a full opportunity to debate the pros and cons of the proposals in the substantive Bill. A great deal of work will have been undertaken by then that will both contribute to the architecture of the PGS proposal and provide the momentum to take it forward. Many of us can already hear the arguments being advanced—namely, that with all the expenditure of working the scheme out having been incurred, it would be wasteful to abandon or radically revise it at that later stage.

It is therefore right that we should attend today to exactly what a PGS scheme might achieve, how it might work and what impact it might have on development activity. We also need to consider how the PGS might affect the funding of any infrastructure, environmental and social works that are necessary to complement or mitigate development, and how that might compare with alternative mechanisms for achieving those goals.

I am a sceptic. I have serious doubts about the wisdom of what my right hon. and hon. Friends are embarking on and even greater doubts about the likelihood of PGS delivering the benefits that they describe. That is not because I disagree with the objective; on the contrary, I wholly favour effective mechanisms for capturing a proportion of the gain that accrues from the development process for the benefit of the wider community and to finance necessary infrastructure, social provision or environmental mitigation. However, we must recognise that that is easier said than done.

The history of post-war Britain is littered with the wrecks of abortive attempts to achieve that objective, first in the 1940s, then in the 1960s and again in the 1970s. On each occasion, the measure designed to capture for the community some of the gain accruing from the development process was repealed after experiences that could not remotely be described as successful. Against such a background, one would at the very least urge extreme caution before venturing again into such territory. I am not sure whether my right hon. and hon. Friends have been complimented by their civil servants on their bravery in introducing the measure, but they will recognise the double-edged meaning implicit in that.

Why did the previous attempts not succeed? Essentially, there were three reasons. First, the legislation was of necessity complex, as were the processes for defining the uplift in value and hence the tax liability, which were therefore not difficult for sophisticated developers to evade. Secondly, the measures were seen as being anti-development, so developers’ natural instinct was to postpone schemes until the threat of the tax had passed. That was possible because, thirdly, the Opposition of the day had pledged to repeal such measures if they got back into power, and they did so in each case.

I am not suggesting that all those scenarios apply now; the last certainly does not. However, enough of them apply to sound alarm bells. The inherent complexity of the proposal means that evasion will not be an unattainable objective. On the contrary, most informed commentators suggest that, if PGS is implemented, a small army of consultants will emerge, advising developers and landowners on how best to minimise or avoid their liability. The view of the development industry is generally hostile to PGS, so there will be all sorts of incentives to structure schemes to minimise liability.

There are two key issues. First, as was implied by my hon. Friend the Financial Secretary in moving Second Reading, setting PGS relatively low will reduce the disincentive effect that undoubtedly applied to the earlier measures, in which a very high—indeed, penal—rate of taxation was involved. I fully understand that the Government have not reached their view on a figure, but I happily acknowledge that a PGS of, say, 20 per cent. would be less likely to deter development than a tax at 100 per cent. However, I am not sure that developers will decline to explore the scope to reduce or even eliminate their liability. There is huge scope for that, not just in the inherently complex nature of the scheme, but in the varied circumstances affecting the valuation of different sites.

That takes me to the second key issue: the point at which the tax will bite. The PGS is predicated on the assumption that the main enhancement in value comes when planning permission is given. That is true in some cases, but in others the picture is much more complex. I leave aside all sorts of issues of hope value and other such factors and focus on two circumstances. There is sometimes a need for substantial land remediation costs before a site can be developed, or for infrastructure investment to give access to the site before the true value can be derived. Without the Jubilee line extension, the Greenwich peninsula in my constituency would not have been developable because, essentially, it was not accessible. Putting in the infrastructure of the Jubilee line was far more important to uplifting the value of the land than any grant of planning permission, irrespective of the infrastructure investment. That is where there is enormous scope for developers, with their advisers, to examine, explore and exploit opportunities to argue that it is not the granting of planning permission that explains the uplift in value, but the process of development, the enhancement of access, the remediation of the land, the opportunities to develop and the process.

In many developments, a period of relatively discounted low-value rents is necessary to attract people to the site. The true values are achieved only several years down the line, when the site is seen to be working. However, PGS is predicated on the assumption that it bites when the planning consent is granted, not on the ultimate development value of the site. There are serious questions about whether this measure is the most effective way to capture development value and real risks that canny developers will find easy opportunities to evade liability.

That brings me to the nub of the problem: past development taxes have generally failed because developers have seen no advantage in making the required contribution. On the contrary, they have sought to evade liability—and look set to do just the same with PGS. By contrast, section 106 contributions, despite the problems associated with them, to which I shall return in a moment, are often paid willingly by developers when they see the money being used to create a better environment for their development. That has very much been my experience in Greenwich, where my local authority raised substantial sums under section 106 from developer contributions to major local schemes such as the Greenwich peninsula or the Woolwich arsenal. The developers have been willing to agree such contributions because they can see direct benefits: better transport arrangements to serve the site, new schools, parks or health facilities that will make the development more attractive to potential investors. In short, the section 106 framework has worked for us because it has offered a win-win outcome as a result of which both parties have seen clear advantages, so there has been no incentive to try to evade the contribution.

I recognise that that does not apply in all cases. The experience of section 106 is patchy: the mechanism has worked in some areas but not in others. Developers have been critical of many local authorities for making unrealistic demands or allowing the process to drag on, so delaying much needed development. Equally, some critics have demonstrated that local authority enthusiasm and indeed capacity for negotiating section 106 agreements has been variable and that some authorities have failed to secure appropriate contributions

The conclusion that I draw, as was implied by my question to my hon. Friend the Minister, is that the section 106 process can and should be improved. The sharing of good practice and the development of appropriate support and advisory services to help local authorities negotiate section 106 agreements is obviously one way in which to improve outputs. Irrespective of the Government’s decision on PGS, that will be necessary, because—as my hon. Friend conceded—a continuing, albeit reduced, remit for section 106 is envisaged under the Government’s proposals.

If such improvements can be achieved—and in my view there is no reason why the poorer-performing local authorities cannot be helped to up their game to reach the level of the best—an obvious question is raised about why the Government are proposing to introduce a complex, unproven and potentially risky new task that may well end up raising contributions that are less than those that could be achieved under a properly functioning section 106 arrangement. A study undertaken by Knight Frank that was reported in Regeneration and Renewal last September suggested exactly that scenario—a lower yield for PGS than for a properly working section 106 system.

The traditional section 106 route is, of course, not the only option for securing developer contributions to infrastructure or social and environmental investment. There have been some very interesting developments involving tariff systems, sometimes described as “roof tax”. Perhaps the best-known example is the Milton Keynes system. Under those arrangements, developers are required to pay a fixed sum per home or per square metre of commercial space to finance additional community needs such as transport, health, education, environmental improvement and social housing.

The evidence to date suggests that developers are generally willing to enter into such agreements when they are certain of the benefits that will flow from the use of the funds that are necessary to complement and ensure the success of their development. I am aware that such an arrangement may not work everywhere. The special circumstances in Milton Keynes, which is in a defined growth area with a clear pipeline of future expansion and where land prices are generally pretty comparable throughout, make it especially suitable for such an approach. However, there is growing interest in different means of securing appropriate developer contributions within the existing legal framework. Evidence suggests that the sums being raised are growing. It seems curious that, just when there appear to be good prospects of securing the objectives that lie behind the Government’s proposal by existing means, attention may be diverted by the introduction of a radical and controversial new tax.

Given the uncertainties and risks implicit in the route on which they are embarking, I urge caution on my right hon. and hon. Friends. Whatever gloss their officials may try to put on the outcome of the earlier consultation, the reality is that the majority of informed opinion is not in favour of PGS. Nor is it a case of vested interests. The local authorities that may have the most experience of negotiating successful section 106 agreements with developers are as wary of the PGS proposals as the development industry. The Royal Town Planning Institute, of which I am proud to be an honorary fellow, described the proposals in somewhat stark terms in a press release headed “Government ‘sleep-walking’ into unworkable new tax”.

Although this is only a paving Bill, it begins a process that is inherently complex and risky and that could end badly. I urge my right hon. and hon. Friends to take stock and give careful thought to all the issues involved, as well as the considered views of the people and organisations who best know the minefield that they are approaching. If they do so, they may well conclude that the alternatives available can generate better outcomes and save them from repeating the mistakes of the past. When history has such good lessons to teach us, it is unwise—to say the least—to ignore them.

It is a privilege to follow the right hon. Member for Greenwich and Woolwich (Mr. Raynsford). His expertise, as a result of both his ministerial experience and his extracurricular CV, speaks for itself. As I witnessed his well-directed Exocets pounding the target, it made the rest of our contributions seem superfluous. He approached the matter in exactly the right tone, being constructive but also sceptical, and I hope to continue in that spirit. The Minister’s style—the approachable way in which he dealt with questions, and his searching for areas of consensus—also encourages us to look at the matter constructively, and I shall try to do so. However, I agree with the right hon. Member for Greenwich and Woolwich that the planning gain supplement—certainly as conceived of by Kate Barker and in the Government consultation—is a seriously bad idea, and there is no point in disguising that.

It is a seriously bad idea for several reasons. There are a variety of technical issues, some of which we have heard about, such as the potential impact in terms of complexity and the negative disincentive effects on development. It is also a bad idea because it is potentially centralising. Effectively, the Government will be top-slicing section 106 money. It interposes Her Majesty’s Revenue and Customs in an area where many local planning authorities have already developed substantial expertise in judging the optimum level of planning gain that they can seek. It sits alongside proposals for the reform of the planning system that will suck out much of the decision-making authority that councils currently have

It is a bad idea for another reason, although I suspect that the Conservatives have a different view in this regard, and I do not know the view of the right hon. Member for Greenwich and Woolwich. It detracts from what is potentially a much bigger and more radical approach to the taxation of land. There is a growing view, certainly among liberal, or market, economists, that the right way forward is taxation of land values, as opposed to development betterment. That view is shared by thinking organisations on the centre-left: the Institute for Public Policy Research has produced a very good case. The Government had an opportunity to open up this whole argument. I accept that it is big, radical and complicated in itself, but by focusing on one very narrow aspect of land taxation—and probably the most difficult and unattractive aspect—the Government might well undermine that potentially important development.

I agree that the idea of a land value tax has frequently been discussed, but if there is an old lady in my constituency whose paddock is included in the area for development and she is then penalised for not developing it, will the hon. Gentleman volunteer to explain to her how she will pay that?

Of course, such matters depend on how such a very big system of taxation is introduced. That is why it is important that local authority-wide pilots are run and that work is done, as is happening in a couple of local authority areas. For example, there is collaboration between the right hon. Gentleman’s party and mine in the vale of Oxford. How this might work is being looked into. Clearly, a lot of exploratory work needs to be done and, if the legislation had been broadened in that regard, it would have been much more attractive to me.

What is being proposed is also a bad idea because it does not give us sufficient detail to talk about the planning gain supplement properly. I understand the Minister’s difficulty in setting the rate, but the rate issue is fundamental to how we debate the matter. Its history has been partially rehearsed. It is one of Governments experimenting with very different levels of development taxation. The first experiment was the proposals of Lloyd George and Winston Churchill almost exactly 100 years ago: there was a development tax of 20 per cent. but the proposals were not introduced because of difficulties with another place on a wider subject. The Attlee Government had the confiscatory 100 per cent. There was then Wilson mark 1 and Wilson mark 2, which had rates of 40 per cent. and 80 per cent. respectively, and the Thatcher Government initially experimented with 60 per cent.

There has, therefore, been a very wide range, and where we position ourselves on that range is crucial to the feasibility and attractiveness of the scheme. If we position ourselves at the top end, there will be many major disincentive effects on development; if we position ourselves at the bottom end, the issue arises as to whether it is worth introducing this measure, particularly as I believe that the Government are proposing to allow tax offsets against other taxes such as capital gains tax.

I want to develop the argument in three stages. First, as the Financial Secretary encouraged us to do, I want to look at the basic principle, his approach to which I support. Secondly, I want to look at the relative merits of adapting section 106 agreements, as opposed to introducing the new tax. Finally, I want to offer some alternatives, which the hon. Member for Rayleigh (Mr. Francois) was coy about doing.

On the basic principle, most of us will agree that the Financial Secretary is right in saying that there is a very powerful philosophical case for taxing betterment and the windfall that accrues through no greater effort than achieving a change in planning status. The right hon. Member for Suffolk, Coastal (Mr. Gummer) wrote an article some time ago in which he mounted a spirited case against that principle, based on his experiences as Secretary of State for the Environment, but as he is not here it is probably unfair to drag him into the debate. I think that there is a general acceptance among those present that the principle of taxing betterment development value is right, but the problem is that there are already other ways of doing that.

Section 106 and adaptations of it have been discussed at length, but what has not been mentioned is that capital gains tax does the same thing—it taxes windfall capital gains. The objection to relying on CGT is made in the Government’s consultation paper, which says that its effect is severely undermined by the various allowances and reliefs. The logical response to that is to tighten up on the allowances and reliefs, which I would suggest doing for wider tax reasons. At present, there are not just one but two ways of taxing betterment: section 106 and CGT.

That brings us to what is essentially a practical argument: whether section 106, as adapted—the right hon. Member for Greenwich and Woolwich suggested how that might be done—compares with the planning gain supplement concept. The arguments against section 106 have been well made and the Financial Secretary repeated some of them. In its worst expressions, it is arbitrary and inconsistent and can be long-winded. Examples from across the country—particularly from the early 1990s, when section 106 was first experimented with—show that all those arguments are true, but it has two enormous attractions: it is purely local and it is reformable.

This situation strikes me as odd, particularly as the Minister for Housing and Planning is sitting alongside the Financial Secretary today. The former Office of the Deputy Prime Minister, and now the Department for Communities and Local Government, expended a lot of effort on trying to persuade local authorities that good practice could be built on. Circular 1/97 was an example, and another circular, in December 2003, also explained how good practice could be built on. It is not at all clear that the Treasury and the DCLG are entirely at one on this issue. The former ODPM was very clear that the system was capable of being improved considerably, and some of us are disappointed that that effort has not been carried through.

I could understand why the Government want to argue that that system should be superseded if there were a simple, clear and easy way of extracting development value for the taxpayer that does not happen at the moment, but it is clear that the planning gain supplement does not do that. I do not want to speak at length on this issue, as some of the points have already been made, but there are several specific ways in which it fails. First, it fails in terms of valuation issues, as the hon. Member for Watford has already pointed out several times. In part, the problem is how it is possible in practice to crystallise a transaction in such a way that the planning gain supplement can apply in a simple way. A big development will have lots of different and related planning applications. As we know from the work of our local authorities, in practice, big and complex projects often involve a necessarily long planning process, during which there is discussion of planning conditions. It is not at all clear how a single point and a single owner can be identified for tax purposes.

The underlying measure that the Government propose is self-assessment, which, although it is counter-intuitive, is in fact right and a good idea. Clearly, people will not underestimate the value of their own land if at some point the Government can compulsorily acquire it at the volunteered value. What the Government have never clarified is how the system of self-assessment would be backed up by the compulsory purchase powers that would be necessary to make it effective. Valuation is possible, and self-assessment is a possible mechanism, but there is much more to it than simply saying that people should declare the value of their own development.

The hon. Gentleman makes a reasonable point. Does he agree with the sentiments of Mr. Peter Bill, the editor of Estates Gazette, who wrote, on complexity of valuation:

“The Janet and John examples (“a developer wants to build 10 houses…”) in the consultation documents will make the commercial sector gawp in disbelief at the underlying assumption that all developers do is build houses—and that development proceeds in a simple set of steps. Try a real live example of the 10-year process of assembling 30 sites for a 3-acre, retail-led, mixed-use urban site with a section 106 agreement—see how it works then.”?

That sounds a plausible example of what I was trying to say and I thank the hon. Gentleman for that intervention.

Valuation is one issue and the other is the impact on development, and the right hon. Member for Greenwich and Woolwich explained clearly the possible problems. It is straightforward if we are talking about greenfield development, but if it is brownfield development, with unpredictable and complex costs relating to contaminated sites, it becomes much more difficult.

The other area that no one has so far mentioned, in which the impact becomes unpredictable and difficult, relates to the improvement of property rather than the redevelopment of the land. A case could arise in which extensive internal improvements of a big office block or a factory could take place without incurring planning gain supplement because they are internal, but external cladding, which would require planning approval, would be subject to the planning gain supplement. Or a developer who wished to install a new, big lift development to comply with the disability discrimination provisions might also be subject to planning gain supplement. There are many complex areas in which development might be deterred or distorted by the working of the supplement.

The third problem area, which has also not yet been mentioned, is what I call the spill-over problem. Often, the main gains from development do not accrue to the developer, but to the neighbours. That is most obviously the case in big projects such as the Jubilee line or the creation of a new town. Everybody in the vicinity benefits from the rise in the value of land, but it is only the developer who is taxed. That is also a problem with section 106, but it is an underlying problem with taxing development rather than land that that anomaly continues.

Fourthly, we have the problem of double taxation. As I have already said, developers are taxed capital gains tax on appreciating capital values, as well as section 106. The Government are clearly aware of the problem and are talking about allowing the new planning gain supplement to be used as a tax offset for those other taxes, which potentially creates enormous complexity and undermines the whole pursuit of yield. The sheer difficulty of trying to administer separate systems of taxation alongside each other is formidable.

In conclusion, I shall talk about alternatives. The Financial Secretary rightly challenged the Opposition parties, asking what we would do. I would do several things. As the right hon. Member for Greenwich and Woolwich said, we know now that it is possible—based on the experiences of Milton Keynes, west Berkshire and the City of London—to introduce tariff-based systems that are transparent and satisfy both the local authorities and the developers. It is striking that the development industry has expressed its confidence in tariff-based systems, which is a big step forward.

Secondly, I would reform capital gains tax, dealing especially with some of the reliefs. I notice that the chairman or chief executive of British Land recently announced in the property press that he had been able to achieve a gain of some £18 million as a result of taper relief and holding on to his property assets for substantial periods of time. That is the kind of relief that the Government should consider if they intend to reform taxation in that area.

Thirdly, I would look further into value added tax. My party has long argued that we need to equalise VAT between home improvements and new residences. If that were to happen, the VAT on new development would capture some of the development gain, while reducing VAT on home improvements would enhance the incentive to increase the housing stock of older property, where much of the potential for increasing supply exists.

Finally, we would want to look further into the whole principle of taxing land values. It is a difficult area and the right hon. Member for Skipton and Ripon (Mr. Curry) has already intervened to point out some of the obvious political problems, but it is worth quoting one or two of the leading authorities in the field. John Muellbauer, for example, who is widely used as a consultant by the Government, a few days ago commented:

“I think a planning gains supplement is a pretty dumb idea: it’s been tried five times and each time it failed… A land tax, levied in proportion to the total value of the land, would be much more practical, and more likely to tame Britain’s boom-bust housing market”.

In the Financial Times, Martin Wolf recently said:

“Land taxation is the natural, efficient and just way to finance the capital cost of infrastructure.”

Clearly, there is considerable academic and practical support for the proposal. I fully acknowledge the difficulties, many of them political, but at the very least it is worth exploring through borough-wide experiments and research. Since this is a paving Bill and is designed to advance knowledge rather than implement taxation, it is a disappointment—to say the least—that the Government have not been willing to encompass within it the wider issues of the taxation of land.

It is important to recognise that the Government have introduced this paving Bill, which provides a good opportunity to talk through some of the issues before final decisions are reached. The Minister mentioned the report of the Select Committee—I am pleased to be a member—which went into the Government’s proposals in some detail, analysed the issues and highlighted some areas of concern where we believed more work needed to be done. I was very pleased indeed when I read the Government’s response to our report, as virtually every item featured the word “agree” or “accept” or otherwise pointed out that more work was necessary along the lines suggested by the Select Committee.

The Select Committee did not inquire into alternative systems, but we made a request before the Government eventually reached a view about the way forward and decided whether a planning gain supplement was necessary. We said:

“Such consideration should include comparative cost-benefit analyses of PGS and scaled-back Section 106 arrangements on the one hand and, on the other, a fully effective utilisation by local authorities of Section 106 powers, including possible reforms and enhancements.”

We were informing the Government that, as a Select Committee, we had not come down on one side or the other and that before they reached an absolute view on whether to proceed with PGS—the Minister said today that such a view has not yet been reached—they should conduct a comparative analysis.

I see the hon. Member for Rayleigh (Mr. Francois) nodding his head, but that is rather strange, as he has adopted precisely the opposite position, saying that the Opposition will rule out planning gain supplement before the detailed comparative analysis has been done and before he sees the Government’s work on it. He told the House that the Opposition were not in a position to propose alternative policies. Presumably, that means that he has not done all his working out and that the Opposition have not reached a final view on the subject, so how can he rule out PGS when he has not yet established whether an alternative, enhanced and reformed section 106 provision is practical and workable?

We are debating what is practical and workable. It seems that there is general agreement across the House that, because we do not have a free market in land and because land value is enhanced when public authorities give planning permission for development, an element of increased value is the result of a public authority decision, so it should be returned to the public purse in some way. What we are arguing about now is the mechanism by which that should happen.

The section 106 system clearly does not work perfectly. It works on some occasions, in some ways, in some local authorities. I asked parliamentary questions and received a lot of information about how section 106 arrangements are dealt with in different authorities across the country, how many affordable homes are being built, and what other revenue has been raised by the authorities. The reality is that the position is extremely patchy. We could look at trying to improve the way in which local authorities use section 106. Even with the Government’s proposals on the PGS, there will be a residual section 106 issue in relation to affordable housing, so we ought to look at that issue in any case.

There is a problem with section 106. It was initially designed to look at the immediate consequences of a development in terms of infrastructure needs specifically related to it and adjacent to it. It does not deal very well with the provision of wider infrastructure needs in an area and it certainly does not deal very well with cases in which those needs cross local authority boundaries and regional boundaries. There are some real problems there. From the answers of Opposition Front Benchers, it seems that they have not yet reached a view about how they will deal with that problem if they do not go ahead with the PGS. We have to address that problem—it is a practical issue—because if we do not we will stop infrastructure development occurring, which will itself prevent major development from occurring in the future.

I accept that the PGS, as a concept, is much simpler. In essence, as a tax at a flat-rate on increases in value because of planning permission, it should be relatively easy to understand, accept and implement. However, the Select Committee inquiry recognised that there are significant and major complications still to be addressed by the Government in working through how the tax might be implemented in practice. We received many objections, some of which have been referred to in today’s debate, from a number of organisations. They expressed concerns about the practicality of the tax. However, the interesting thing is that, when we pushed most of those witnesses in oral evidence in the Committee, although they had concerns about the PGS and how it might work, they had not got any obvious alternatives. There are difficulties.

The Milton Keynes tariff has been raised as a possible way forward. It is a relatively simple approach to take. It cannot be avoided, which has an awful lot of merit. However, when pushed, all the witnesses who gave evidence to the Select Committee said that the Milton Keynes tariff worked in Milton Keynes and any other similar area, but most areas are not similar to Milton Keynes. The approach is relatively easy to apply to large-scale housing developments in one local authority. Most areas and most developments are not like that. When the Government legislate, they should be careful that they do not exclude approaches such as the Milton Keynes tariff, because they clearly work in certain areas, but that does not mean to say that such approaches can be applied to other areas.

In looking at the way forward, the Opposition seem to imply that somehow it might be a bad thing if any system gave more financial incentives to local authorities to give planning permission for development. That would not be a bad thing at all. One of the problems with our planning system—I have an awful lot of time for the system and the people who operate it on the ground; we often knock it unreasonably—is that local authorities often have incentives not to give planning permission. They incur all the costs and often do not see many benefits. If we can start to look at changing our taxation system so that it gives more financial benefits to local authorities—at least to offset the costs of new developments, whether they be residential or non-residential—that will be an important and appropriate step forward. Listening to what the Opposition say about centralisation, I think that it would also be an appropriate step if, at the same time, we decentralised the business rate and gave that back to local authorities as another incentive for giving planning permission at a local level.

It is important that we look at any new scheme that is developed and try to ensure that it increases the revenue that comes to the public purse, particularly when that money is used to fund infrastructure that is necessary for the development to take place in the first place. Equally, it is important that, in an attempt to gather money for the public purse, the rate is not set so high that it discourages development in the first place. That is an interesting balance that the Government will have to think about when they come forward with any approach, whether it be setting the rate of the PGS or any new ideas for section 106. Whatever scheme we have, an important requirement will be for a majority of the funds to come back to the local authority area in which the planning permission is given. It must also have an element that can be used to fund infrastructure that is necessary for development on a sub-regional and regional basis. The existing system does not do that well.

I should say to the Government that there is a problem with almost all the proposals, because we will often need to put in place the infrastructure that we want to fund before a development can happen, yet the money will come from that development only at a certain point down the line. That would apply to the PGS, because it would be calculated when planning permission was given, but collected only when the development took place, although the infrastructure that would be necessary to make the development happen would have to be funded first. The Government will have to address that because it is a fundamental problem of any system.

The Select Committee report rejected the idea of Government being allowed to borrow against future streams of PGS funding. I think that we might have got that wrong because the Government might want to think about making that part of any new system that brings money forward from the value of a development—that value given by the planning permission. Whatever scheme we use, we could allow local authorities to anticipate the revenue to fund the infrastructure that is needed in the first place.

An alternative would, of course, be for the Government to create an advance fund from which local authorities could draw to fund the infrastructure. Local authorities could then pay back into that with either the PGS money or enhanced section 106 contributions when they arrive. One or other of those mechanisms, or any such mechanism, is absolutely necessary because none of the proposals made so far gets round that problem. I would be interested to hear the Minister’s comments on that.

We will also have to consider mechanisms to ensure that we can pull together contributions from several schemes when they occur in different local authority areas—and sometimes in different regions. As my hon. Friend the Financial Secretary said, parts of some local authorities are close to regional boundaries—my city of Sheffield is right next to the east midlands region—and developments can cross regions. The way in which mechanisms can pull contributions from various developments when they are needed to fund combined infrastructure is also important.

The Government have a lot of work to do. The Select Committee’s report mentioned several aspects of the practicalities of PGS that remain to be resolved: the definitions and calculations of current use value and planning value; the problem of option agreements; the issue of phased and deferred payments; the problems of exemptions, although we asked for fewer exemptions because that would mean fewer complications; and the way in which we deal with transitional arrangements from the existing scheme to any new scheme. All those issues need addressing. It is right that Ministers are talking about the process, but it is equally right that they have not committed themselves to a final outcome, because all the details will be important to the success of that final outcome.

Ministers are leaving an element of the section 106 mechanism in their proposals for PGS: the funding of affordable housing. It is essential that we recognise the importance of section 106 as the main funder of affordable housing in many parts of the country. It is not always used by local authorities as well or to the extent that it should be, but it still vital. Even if PGS is introduced, we ought to be enhancing local authorities’ understanding and use of section 106 for affordable housing.

It is equally important that we do not build any perverse incentives into a PGS scheme that encourage local authorities to reduce the amount of section 106 money that is gained for affordable housing to enhance the amount of PGS that is received. If a certain amount of a scheme’s section 106 money was extracted for affordable housing, the amount of PGS that was collected would be reduced. We must be careful about the interaction between those two elements in the final scheme.

There is a great deal of agreement that it is right in principle that when planning permission given by a public authority increases the value of a piece of land, the public purse should share in that increase in value, especially so that infrastructure developments that are needed as a consequence of that development can be funded. Many complications will need to be resolved whatever scheme we opt for, be it PGS with residual section 106 measures, enhanced section 106 or any other of the proposals that have been mentioned today.

I come back to the essential issue of the need to ensure that many of the large-scale developments occur. We have to find ways of ensuring that the up-front funding necessary for infrastructure is found, particularly if money from taxation or contributions from section 106, or whatever scheme is in place, reach the public purse only at a later stage. We must find a way of making sure that the public sector horse is funded first, so that it can drag along the private sector cart. It is not merely on behalf of local authorities that I raise that point; many developers who gave evidence to the Select Committee would articulate those concerns, too. It is important that whatever scheme we eventually come up with, we find ways of ensuring that the infrastructure necessary for development is funded in advance, even if the funding arising from the development is accessed later, when the development actually takes place. I will be interested to hear what Ministers say about the issue, because it is crucial to making sure that we have the development that is necessary to ensuring that our economies and communities move forward.

I am pleased that the Financial Secretary to the Treasury has just come back to the Chamber, because I was about to say that Ministers in this Government fall into one of two tendencies: the hysterical tendency or the rational tendency. He is one of the few who fall into the latter category. He could almost sell me a used car; I say almost for reasons that I shall explain.

I felt a slight sense of surrealism while I listened to the speeches. The Government gave us what my grandmother would have called “A lick and a promise,” the lick being the Bill, and the promise being what might eventually follow it. My hon. Friends the Members for Wycombe (Mr. Goodman), and for Rayleigh (Mr. Francois), who are on the Opposition Front Bench, gave us a promise without the lick. The Liberal Democrats gave us an effusion of licking and promises, including proposals for a tariff-based system, reform of capital gains tax, changes in VAT and a serious exploration of the land value tax. Despite my teasing of the hon. Member for Twickenham (Dr. Cable), there are substantial reasons for such an exploration, and what he proposes has been tried in the United States. However, the purpose of such a scheme would be to push people into development. In a sense, it would solve one of the other problems that Barker identified, which is people’s reluctance to bring land forward for development. However, if one considers the rate of house price increases since Barker published her report, one wonders to what extent her remedies are relevant, and to what extent they would equalise the rhythm of price rises in Britain and the continent—and that, after all, was why the report was commissioned.

I cannot help but think that the Committee stage will have a surreal feeling to it. I cannot for the life of me think what we will discover in Committee that we have not discovered on Second Reading. I see from the motion on the Order Paper that, characteristically for the Government, the Committee is due to sit for only a brief moment, but I suspect that even that is over-generous, in light of what we are likely to discover, especially when I hear from the Minister that he is already exploring the IT to make the system work. I am a member of the Select Committee on Public Accounts, and therefore live on a diet of failed IT systems, and I hope that the Minister will not choose the consultants who gave us the Rural Payments Agency, or some of the other consultants used in the past, to set up the system. I cannot help but feel—I have a political twinge—that ultimately the project might not happen at all, and that things may turn out to be even more surreal than we thought.

Without getting into the business of licks and promises, is my right hon. Friend aware of any precedent for a paving Bill being introduced in advance of a Bill that might not be introduced and is out to formal consultation?

I cannot answer that with certainty, but I would be surprised if there were major precedents. Serious questions about the timetable arise. I think that the Minister said that the consultation period finishes at the end of February. One would normally expect such a measure to be included in a Budget, but unless the Government have already made up their mind, it will not be in the March Budget. That means that we are looking at a 2008 Budget, which means that we are looking at implementation pretty much dot on the next general election. That is another reason why I have a twinge that the project might not happen at all.

Turning to the substance of the issue, there is consensus that we need to build more houses. I pay tribute to the shadow Chancellor, my hon. Friend the Member for Tatton (Mr. Osborne), and the shadow housing Minister, my hon. Friend the Member for Surrey Heath (Michael Gove), who have recognised that. That may be unpalatable, and I accept that people do not want their neighbourhoods and communities to be, in their view, deluged. However, we must build houses where people want to live—there is no escape from that. I do not particularly like the Stalinist approach that the Deputy Prime Minister adopted in his previous incarnation, and the more that the Department tells us how much can be built in the Thames Gateway the more I wonder how long that approach will last. However, there is evidently a need for housing.

We must acknowledge that populations need infrastructural support. My party has made much of the fact that the Government want to proceed with development, but are thwarted in that aim, because the infrastructure is not in place to transport people to work or to provide the schools, hospitals and roads that are needed for functioning communities. Funding for that infrastructure has not been forthcoming under existing financial arrangements, so there is a bar to development and one cannot imagine any foreseeable changes to the rules. The comprehensive spending review will soon be announced, and the decline in the increase of public expenditure will be the salient political reality of the remainder of this Parliament.

Where do we look for the cash? I followed closely the speech of the right hon. Member for Greenwich and Woolwich (Mr. Raynsford). It is a pleasure to speak in the same debate as him and, once again, to our mutual embarrassment, we find ourselves in substantial agreement. The Kate Barker proposal is not new—it has been endlessly circulated and repeated—so we must ask what would make it work, whether we need a new tax, how well it would marry with other taxes, whether we could do better by building on existing mechanisms, whether the industry will have good reason to work with the proposal, and whether it would yield useful sums. The answer to all those questions is at best open and, at worst, there is a predisposition to a negative response.

The Government have made a serious effort to mitigate the full red-bloodedness of the Barker proposals. First, section 106 will not be dethroned, although it is somewhat diminished. That is important, because we depend on section 106 for half of the affordable houses that are built in Britain. We may not be pleased about that, but if we did not have section 106 even fewer houses would be built. Anything that undermines the provision, therefore, is fatal to the cause of affordable housing, as local authorities and developers have gradually developed a great deal of expertise or case law on it. If section 106 were abolished, we would learn to love it. It is a particularly British characteristic to learn to love institutions on their demise. Section 106 is useful, but it must be developed. [Interruption.] I did not catch that sedentary intervention from the hon. Member for Sheffield, Attercliffe (Mr. Betts), but I do not think that we will learn to love the Government on their demise, if that is what it was about.

Many small schemes escape the net of section 106, so we should remedy that. The Government have tried to mitigate the proposals by trying to hypothecate 70 per cent. of the yield to local authority areas. I do not wish to be Jesuitical, but a local authority area is a vague concept. Is it in the area of a local authority? Broadly speaking, my local authority is in the Yorkshire and Humberside area. I accept that some infrastructures are adjacent or close to a local authority on which they depend heavily. If a housing estate is built at the southern end of Craven, the infrastructure in Bradford is important. A significant number of Bradford pupils go to school in my constituency, as the biggest comprehensive in North Yorkshire is in south Craven. A major housing development at the Keighley end of Bradford has implications for education across the border in the North Yorkshire education area. I would therefore not want to impose hermetically sealed borders to restrict the use of the money, as that would not make sense. But it would be entirely different if the money from a development in Bentham, at the top left-hand corner of my constituency, where one can practically smell the Irish sea, found its way down to Bradford. The sense of indignation would be considerable. Much depends on a practical, common-sense view—not that it is easy to envisage developments in Bentham that are likely to yield, whichever way the money is taken, the sort of cash that would make a huge difference to Bradford.

The Government need to be more precise. We on the Conservative Benches are rather sensitive to the notion of the region. The Minister’s constituency is in the Leeds city region. In that context, I can see that people might well perceive some advantage in sharing the products of development, however they are realised, to make that work more.

There are huge questions to be addressed. Milton Keynes gives us a limited amount of information. There is a single landlord in Milton Keynes. It is difficult to extrapolate from that example to a more generally applicable case. There is a huge difference between development on brownfield and greenfield sites—and there is a huge range of brownfield sites, not just a single example—and between a small scale project and a major project, as the right hon. Member for Greenwich and Woolwich said.

The point at which the tax takes effect is important. How differentiated will the tax be? We need some idea of the rates and the differentials, and at what point the uplift is realised. How will the Government’s 30 per cent. be used? As the right hon. Gentleman said, developers will get busy minimising the tax. Finding ways of not paying the tax will not be a cottage industry—it will be a metropolitan industry. Tax avoidance is a perfectly legitimate and honourable activity. I have just received a significant bill from the Treasury, which is due on 31 January. I am actively engaged in finding out whether there are any nooks and corners of tax avoidance that I have not yet managed to identify. I regret to say that I have failed, and the cheque will be on its way at the last possible moment consistent with not being fined.

These issues are crucial. The tax is not radical. It is a whimper, not a bang, of a tax. The problem is that the inconvenience that the whimper will cause is out of all proportion to the benefit that the tax might yield. That is the heart of the problem. The tax will not pay for Crossrail. The south-east is the region where the tax has its greatest value, as it were. Given the differential yield that it is likely to raise regionally, will the Government build into it revenue support grant formula assumptions about the level of tax yield and therefore use it as a form of redistribution, particularly as the idea of the return of the business rate seems to be a lost aspiration, as far as the hon. Member for Sheffield, Attercliffe and I are concerned?

The proposed tax is not a “with one bound Jack was free” sort of tax, and it will not be flush with money. If anyone has fantasies that it will take the strain off council tax and eventually bail us all out of the council tax dilemmas, the sooner they return to reality, the sadder but wiser they will be. The tax will certainly not get the Government off the hook of the non-return of the business rate. In other words, it is thin gruel.

Finally, there is the question of the timing. I understand that the intention was to introduce the tax in April 2008. Even that could be difficult to achieve, which moves us towards the more political dates to which the minds of those in the House are inescapably drawn. That is why a little part of me says that the tax may never come into existence.

On the option mentioned by the spokesman for the Liberal Democrats, the hon. Member for Twickenham (Dr. Cable), the land value tax, I am aware that there is a significant volume of academic opinion that is strongly supportive. Both Sam Brittan and Martin Wolf of the Financial Times have spoken in favour of it. If one wants to push people into development, one chooses that mechanism. The mechanism has been used in some cities in the United States, which provide examples of what can happen. However, the sociology of the United States is very different from the sociology of the United Kingdom, and the political disadvantages would be significant.

I know that we always choose widows and orphans when we want to make a particularly heart-rending point, but I return to the example of a widow who has lived in the same house all her life. She may be asset rich, but she is cash poor. There is a paddock in which her grandchildren play and in which her children used to play, but it has been incorporated in the development line of the local district council. The site valuer comes along and says, “That land must be pushed into development,” which is the last thing that she wants to do. I can imagine the political flak that that would generate.

The council tax martyrs will look like rank beginners compared with the ladies who are afflicted by the site development tax. That is not what we are discussing today, but it is difficult to know what we are discussing today on the basis of the Bill. I look forward to the surrealism of the Committee stage and urge the Government at least to make this passage of fantasy as brief as possible.

It is a pleasure to follow the right hon. Member for Skipton and Ripon (Mr. Curry). When I first heard him speak, he was a Minister and he was addressing a local government conference. He prefaced that speech by saying that he thought that he was the only person who understood the intricacies of both the common agricultural policy subsidy system and standard spending assessments. He certainly did understand both, and he has shown us his knowledge this evening.

In the early ’90s, as a councillor in the constituency that I now represent, I was chair of the local plan panel. The task of that august body was to formulate the land use plan for Waveney district. It seemed to me that that was probably the most important function that councillors discharged, so when I became council leader in 1991, I continued to chair the local plan panel.

The panel was setting out the future shape and development of our area for the 10 years from the date when the plan was published—it took us several years to formulate the plan. Our biggest task was to decide which large tracts of land to allocate to accommodate new houses. The figure for the number of new houses, which seemed rather high, was handed down to us by central Government, who were Conservative at the time. To listen to Conservative Members today, one would think that previous Tory Governments never did such a thing as hand down the number of houses to be built. As the right hon. Member for Skipton and Ripon has said, it is the responsibility of every Government to ensure an adequate supply of housing, which is why this Government launched the Barker review.

It did not take me and other councillors on that plan panel in the early ’90s long to realise that our decisions were turning the owners of the ordinary agricultural fields that we decided to allocate into very rich people or making them ever richer. The low-value agricultural land was turned into highly valuable sites as we raised our hands in committee to allocate them—it has been said today that such decisions can multiply the value of land by a factor of 250 or 300. Back then, it seemed wrong to me that the communities that we represented got nothing out of that increase, especially in view of the huge sums involved. I cheekily asked the planning officers whether we could invite the owners of suitable fields to bid for the allocations, because we had plenty of fields to choose from—of course, the answer was no.

Through development briefs, which were facilitated by section 106 agreements, we required the developers to provide open space and play areas to contribute to community facilities and to provide some affordable housing. However, I felt that that was a meagre return compared with the huge uplift in the value of the land and the lucrative prices that the houses fetched once they were built. Nothing that can be achieved through section 106 agreements addressed the fundamental transport infrastructure weakness in our town. Therefore, when Kate Barker proposed the planning gain supplement in her review of the housing market and its economics, I instinctively thought that she was right and that my instincts all those years ago had been right.

Throughout the years when I sat on planning committees, we tried to make the best use of section 106 agreements, but they involved protracted and complex negotiations. Planning officers often told us that what we wanted was outside the scope of a 106 or that it was not linked closely enough to the development, even though the community wanted it desperately. Sometimes the developers refused and went to appeal, or they called our bluff and we had to give in.

I acknowledge that there have been improvements in the operation of section 106 agreements since 1997 but, as noted in the recent DCLG publication, “Changes to Planning Obligations”, they have several key problems and deficiencies. We have already heard about the variations in application by different local authorities, the lack of certainty for developers, the lack of transparency, the delays, and the inevitable accusations, particularly from the public, of the buying and selling of planning permission.

I welcome the concept of the planning gain supplement and will follow its development with interest. Yes, some things have failed in the past, but the world moves on. We must be fair to communities which need to gain from development. Many people do not want large new housing developments. Some of them are nimbys who live on the edge of town and cherish their views and their closeness to the open countryside but forget that when their homes were built they took away other people’s views and sense of space. Others make a much more valid objection to large housing developments when they say, rightly, that the constant expansion of a town places more pressure on the community’s basic infrastructure, particularly transport.

Nowhere is that better illustrated than in the town of Lowestoft, which I live in and represent. Our town is cut in two by a river. It is not a real river; it is more an inlet that was cut through from Oulton broad to the sea in Victorian times. There is only one bridge in the town over that waterway, which we call Lake Loathing. It is a lift-up or bascule bridge to let the ships into the inner harbour of our port. The only other way of getting across the waterway is by the bridge at Oulton broad about 2 miles down the road. In Victorian times, the bascule bridge was sufficient to serve the town, but it has expanded somewhat since then, and the bridge has become a bit like the constriction between the two bulbs of an hourglass, which continue to grow while the constriction remains the same.

We live daily with our notorious bascule bridge, which for many years has been the cause of gridlock, especially when it opens up to let boats through and brings the traffic to a halt. We have long held the aspiration and hope that our salvation would come from something that we call the third crossing—another bridge across the waterway to relieve the strain on the bascule bridge. We have never been able to achieve that through section 106 agreements, and I do not think that we will able to do so in future. To understand what it is like living in the town—a lovely town, but with that problem—one need only imagine London with half its bridges taken away, which would make it quite difficult to get around.

The bridge is part of the A12 trunk road system but it is difficult to get Government money for it. It was a preferred route in the early 1990s but the previous Government abandoned it. Since 1997, we have got a southern relief road to it from the south and a northern spine road that will connect to it in the north, but we still do not have the bridge. Our problem is that it is not on the way to anywhere—it is simply in the middle of Lowestoft.

The Government recently established an urban regeneration company called 1st East to regenerate the town. My hon. Friend the Minister for Housing and Planning is familiar with it and we thank her for her good sense in agreeing to setting it up. It commissioned a recent study, which showed that, if we are to regenerate our town, the third crossing is essential.

The subject is relevant to the PGS debate because the situation has got worse over several decades as the town expanded. As that has happened, more money has gone to landowners but none of the money or the development gain has gone into what our town needs most—the third crossing. If only a few hundred pounds had been put into a kitty for every house that had been built in Lowestoft in the past couple of decades, we would have a great pot of money, which could contribute to what we need.

The reason that I am prepared to run with PGS, give it a go and see what happens is that it could make a huge difference to the future of the development of Lowestoft. Many more homes have come on stream, and further development will take place as a result of the urban regeneration company. All that development could make a huge contribution to our third crossing through a PGS. That would not fund the whole project—we would still need to approach the Department for Transport—but it would make the benefit-cost ratio figure look better and increase the likelihood of funding. I therefore say, “Bring it on”, because the community, not only those who happen to own the land, can gain from it.

It has been said that PGS could stifle development. Clearly, there is a limit to what such a supplement could raise, but there is still room for it. On the plan panel, we allocated one of the pieces of land back because we believed that we could get an important road out of it. We all believed that we would get a dual carriageway but, when the plan was presented, it was for a single carriageway. By then, I was a Member of Parliament and had left the local plan panel behind. I told the developer that I believed that we were going to get a dual carriageway. He replied, “You could have got the dual carriageway. It would have meant that the landowner got less money but ultimately the county council asked me for only a single carriageway.” It is clear that more scope exists for getting something out of development.

The details need to be worked out for another Bill but I am heartened by the consultations that we have held so far. The 2005 consultation paper stated that the PGS is aimed at financing infrastructure, and that we are considering dedicating money to local communities and

“maintaining the link with local delivery”.

It was encouraging that the summary of the consultation responses stated:

“The principle of capturing a portion of the land value uplift created by the planning process, in order to help finance additional infrastructure, received broad acceptance by those consulted.”

There appears to be consensus on that in the Chamber.

The Department for Communities and Local Government’s most recent communication refers to

“a fairer way of getting developers to contribute to the costs they impose on the transport network”.

Finally, there is a reference in the document to

“the unique circumstances of providing road network”

infrastructure. We certainly have a unique situation in Lowestoft. Nobody else has such a bridge in the middle of their town. Nothing else has succeeded in producing the bridge for us, so let us give the planning gain supplement a chance.

It is a pleasure to follow the hon. Member for Waveney (Mr. Blizzard), particularly given his optimistic and trusting nature. The developer was trusted to deliver a dual carriageway but delivered only a single carriageway. I would urge caution and say that, old cynic that I am, I do not trust anyone to give me anything, not even the Government.

We need to test some of the rather vague proposals. In response to one of the Select Committee’s recommendations, the Government said that they believed that

“overall the PGS proposals will raise additional revenues over and above the current planning obligations system”,

but there is no proof whatever that that will occur. I do not take their assertion on trust. I am not prepared just to give the PGS a go and see what happens. That would be a recipe for disaster for many of our communities. We have heard about good and bad section 106 practices—indeed, we just heard about some particularly bad section 106 negotiations. However, I do not argue that we should not get tougher in negotiations or that we should throw those negotiations out of the window.

Having been the chair of a planning committee, I would argue that the one positive thing about section 106 agreements, in all their imperfect forms, is that they are directly linked to discussions and communications with the community that is suffering the harm of the development. If planning committees play hardball with developers, they can make the system work. Much of the time I find myself nodding in complete agreement with the right hon. Member for Greenwich and Woolwich (Mr. Raynsford)—the system can be made to work really well.

The trouble with the Bill is that it represents the biggest divorce of cause and effect that could possibly be imagined. The developer will happily hand over a percentage, because that will be a done deal for him. He will know exactly what he has to do in the system, but the local authority will not know all the vagaries of what on earth it will get back or what it can deliver. What is more, the people who have voted in the local authority that might have had some say on the planning decision will have absolutely no way of coming back at their local council when the hoped-for goods are not delivered. The PGS is therefore the worst of all possible scenarios. With a straightforward tax for the developer—easy come, easy go—he will not need to negotiate with or even talk to the community that might suffer the harm. All that will happen is that he will get on with his developments and the local community will be left bewildered as to exactly how much it can expect to receive in return.

I am afraid that I was not assured—again, I am such an old cynic—by the words “area” or “authority”. Altering the structure of the authorities will mean a wholly different beast, but again we are not sure about areas, such as for hospital provision. I am not due to receive a hospital in my area—that one has been scotched—but there is one in Watford. I should also like to correct the hon. Member for Twickenham (Dr. Cable)—Watford is not my constituency. One could argue that, because my constituents go to that area, they are receiving some benefit from a hospital or facility placed elsewhere; but they do not want it there, they want it in their own area.

It has been argued that payments under section 106 arrangements were made willingly, because they were win-win. I support that. I do not think that the fact that some people did a bad job and got a single and not a dual carriageway is a reason for abolishing section 106.

The PGS is a redistributive tax—it has no other form—because, although we are not sure of the figures, at least 30 per cent. will be redistributed. The local community that has suffered the harm will have no say in that. In communities such as mine, with large areas of green belt and greenfield sites, which are protected, there will be a perverse incentive to redesignate those areas, because they will have the biggest planning gain uplift. In areas with lots of brownfield sites, which might have almost a negative value before remedial works are done, local authorities might be pressured into releasing more green belt land and green fields, as they scrabble around to ensure that they secure the funding, in order to deliver their share of an area’s contribution, particularly if there is an assessment formula. We should therefore consider the proposals incredibly carefully.

Then there is the law of unintended consequences. We have not really heard about the valuations. Mention has been made of self-assessment—and, therefore, people perhaps laying themselves open to investigation if they get the assessment wrong—but there was not much clarity in the response to my question about who in the community can really challenge those assessments. Again, the arrangement becomes a done deal between the developer and the Government with which everybody else can either agree or disagree.

The hon. Member for Sheffield, Attercliffe (Mr. Betts) also serves on the Communities and Local Government Committee. He said that he welcomed the fact that the Government had accepted many of our recommendations, but there were a few that they did not accept, one of which concerned the comparison between section 106 agreements and the planning gain supplement. The Committee had some quite heated debates about that. It should be transparent to a community whether it will be better or worse off under a 106 or a planning gain supplement.

When it was put to the Committee that the Government should make it open, transparent and

“obvious to those in any local authority area what the gains were from any potential development”,

we thought that that meant the public and the voters as much as anybody else. We agreed with that, but the Government said:

“If PGS were introduced, the Government would expect to make available information on the PGS revenues”,

and that comparing potential section 106 revenue and the planning gain revenue was considered to be disproportionately difficult and expensive. A local area will therefore never know whether it was better off under 106 or planning gain supplement. The Committee felt that local areas and local people should be able to see that, so I am disappointed that we are being asked to accept the PGS on a hope value and expect things to be better. I am not prepared to give it a go, to suck it and see, or to do whatever else we are supposed to do, licking and promising all over the place. [Hon. Members: “Steady!”] I hate to say it, but there are so many nebulous phrases being used. We do not know what the proposal means, so we should be treading with enormous caution.

Just to confuse my hon. Friend further, does she agree that, following the speech from the Government Front Bench, it is rather uncertain whether there will be a planning gain supplement at all, since the Minister appeared to water down the Government’s position even further?