IoD response to Government's Planning Gain Supplement Consultation

21 February 2006

'Thoroughly Bad, both in Principle and in Detail'

Responding to the Government's proposed plans to impose an 'additional development tax' on business, the Institute of Directors (IoD) has made strong representations on behalf of its members.

The IoD's Head of Taxation, Richard Baron, said:

"The Government's proposal to introduce a planning gain supplement is nothing short of taxation by the back door.  The real way forward is for clearer rules about planning obligations. If, as a very last resort, any new tax were needed, the revenue should be recycled by reductions in other taxes, not as is currently envisaged for local authorities to top-up their budgets.

"The proposals, as currently envisaged, are thoroughly bad, both in principle and in detail."

The Government is currently consulting on a planning gain supplement which would be levied when land received full planning permission for residential or commercial development.  The land would be valued with and without planning permission, and the tax would be a percentage of the difference.

The money raised would be used to provide the things that developers would no longer have to provide, however, that money would not all be spent in relation to that development, some of it would be 're-allocated' to other developments or spent on broader local or regional issues.

The IoD feels that this additional tax would:

• do nothing to help the housing supply - as the Barker Review noted, taxation of anything tends to reduce housing supply not increase it;
• be a direct attack on businesses competitiveness, contrary to the Government's own stated objectives. 
• have an adverse effect on the cheaper and more successful PFI projects;
• introduce an added bureaucracy to allocate the money as well as collect it;
• be open to wide variations since it would be based on valuations not actual sale proceeds.

The IoD calls on the Government to drop these proposals and instead clarify existing planning obligation rules and regulations.