Government proposals for a lucrative windfall tax on land values are almost certain to torpedo their own ambitious plans for a massive house building push, a West Midlands expert claims.
The Government wants to slap a 'planning gain' tax on landowners who see their investments rocket in value when planning consent is given for development.
But Lucy Miles, a planning law specialist in the Midlands office of international law firm Reed Smith, believes that instead of encouraging development, the tax will have a braking effect on new building projects. The figures suggest that the new tax would make a massive contribution to the nation's coffers.
Planning consent for housing can transform the value of agricultural land from a mere £9,287 a hectare (2.4 acres), into a massive £2.46 million. The Government believes that since local authorities give the permission that creates the wealth, a 'modest' part of the proceeds should go to the public purse.
Following a review of the nation's housing supply, it is proposing a tax of up to 20 per cent, part of which would be returned to the relevant local authority.
Ms Miles said: "There are concerns that, as in the past, this new form of tax will actually stifle development and hinder efforts to build affordable new homes.
"The planning gain supplement could result in a reduction in the amount of land coming forward for development, as the profits would be lower than they are now. The imposition of the levy could marginalise specific projects, and halt development activity as landowners sit on their land, possibly until a change of government, in the hope that the legislation will be repealed."
Previous attempts by government, starting with the short-lived Betterment Levy in 1967, have all been unpopular and have had to be abolished, says Ms Miles.
"Considering this, one would think the Government would have undertaken an in-depth consideration of a range of alternatives," she added.
However, she is concerned that the alternatives are considered and dismissed in no more than three small paragraphs in the review.
"One of them, land value tax, is certainly workable and has been proved successful in many countries around the world, where it has resulted in higher levels of construction activity, and an improved urban environment," Ms Miles said.
It levies the same tax on all development schemes, no matter what their size, at the same time as imposing a charge on undeveloped land. This acts as an effective 'carrot and stick' incentive for owners to develop sites themselves, or sell to someone who will.
Ms Miles added: "In the UK there are tens of thousands of hectares of previously developed land which could be used to meet the housing shortage. Much of this land is now completely unused, being either vacant or derelict.
"The new planning gain supplement will not address this problem; arguably it will only make it worse as landowners hold on to their land to avoid the new form of tax.
"The supplement must be set locally and collected locally, and must be sensitive to local housing market conditions," she warned. ..SUPL: