Azara Blog: Gordon Brown wants a new tax on property development

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Date published: 2005/12/02

The BBC says:

The government may be planning to introduce a new tax on the profits made by landowners selling sites for property development.

Aiming to raise £500m a year, Chancellor Gordon Brown is expected to launch a consultation into the proposal during Monday's Pre-Budget Report.

The Treasury has refused to comment, but it is thought the tax will be set at 20% of profit from each site sold.

Property firms say it would mean less land being made available for housing.

The money raised by the scheme could help pay for the extra schools, roads and health facilities needed to support the government's huge house building plans.

If introduced, the new tax, called a "planning gain supplement", would boost the estimated £2.5bn generated each year by local planning agreements.

When developers make an application to build new houses, they already negotiate a contribution for local infrastructure projects with the local council.

This process has been criticised in the past because it can slow down the planning process and the amount raised depends heavily on the negotiating skills of the local council involved.

The Town and Country Planning Association has said that the money raised by any new tax must go towards local infrastructure and not back to the Treasury.

"My concern is that the majority of the revenue money should go on providing a local infrastructure for all communities if new housing is to come forward," said its director, Gideon Amos.

The plan has been attacked by property developers who say that it could actually result in less land being made available for housing.

Speaking about the introduction of such a tax last month, British Land chairman John Ritblat said: "It would be utter madness to replicate so many mistakes that have gone before.

"The additional administration of this further tax imposition should be cut out before it begins."

The 2004 Barker Report called for an extra 70,000-120,000 homes each year.

The Chancellor is also expected to unveil new proposals aimed at meeting this requirement in his report on Monday.

Morally this tax makes sense (why should someone who happens to own a piece of land make a windfall just because it is reclassified from agricultural to residential?). This new tax ought to replace the so-called section 106 agreements which the BBC story quaintly calls "a contribution for local infrastructure projects with the local council". Those are ripe for abuse not only because of incompetence but also because of corruption (it's a very secretive process). It seems hard to believe that the overall tax burden will increase, since developers will be able to knock the cost of section 106 agreements down, quoting the new tax as justification. Obviously if that does not happen and the overall tax burden goes up (by a lot) then even less house building will happen (by big developers) in future than today.

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