Why Britain’s ‘broken’ planning system means local people miss out

Why speculators are benefiting from rising land values instead of local communities as was originally intended

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Imagine if Britain’s National Health Service had to be paid for and that its central principle — that it is free at the point of delivery — had been discarded. Such a scenario, which if enacted would cause a political earthquake, serves as an analogy for how the UK’s planning system jettisoned the cardinal principle upon which it was founded, with little discussion or debate.

The foundations of the modern planning system were laid during the second world war, when ideas for a new postwar Britain were outlined in a series of 1942 reports (which accompanied the famous William Beveridge report of that year). The key document was Mr Justice Uthwatt’s final report of the Expert Committee on Compensation and Betterment, which was realised in the Town and Country Planning Act of 1947.

Shot through with the postwar language of the public interest and the need to protect the public good, the report lays out how the conundrum at the heart of any planning system is that the conferring of planning permission on a piece of land immediately ensures that land soars in value. The authors of the act proposed a system of dealing with these windfall gains through a development charge, with the money raised ploughed back into local communities to pay for housing, infrastructure and amenities. Among the benefits would be the reduction of speculation and a positive approach towards development in communities keen to see local benefits.

The development charge was the centrepiece of the 1947 act, but the system was complex to administer and increasingly unpopular. The Conservatives abandoned it after coming into office in 1951, with the consequence that the planning system never operated as its wartime architects intended. Hugh Ellis, head of policy at the Town and Country Planning Association, describes what the UK has today as “half a system”.

“People criticise our system for being very negative, but we don’t use the parts of the system designed to do the positive stuff — to create an income stream to fund the building of new communities. The price differential between agricultural land and land with planning permission is staggering but value accumulates to landowners and not the community that created it,” says Ellis.

Since the 1950s repeated efforts have been made to capture rises in land value using a variety of mechanisms, including development charges that are paid by developers, or land tax that is a charge on landowners. In 1967 Labour introduced a “betterment levy”, which was dropped by the Tories in the early 1970s. Again, Labour brought in a development land tax in 1976, set at 80 per cent of the increase in land value, which was maintained by Margaret Thatcher’s government at 60 per cent. But in 1985 the Chancellor of the Exchequer, Nigel Lawson, scrapped it. The opaque and confusing system of “planning gain”, which is paid by developers, evolved in the vacuum under a clause in legislation known as Section 106, but it has produced nothing like the amount of housing needed, while speculation has soared.

Although often overlooked, the need to capture the land value rises that come with the granting of planning permission has been discussed for as long as a planning system has been mooted. Illustrious figures who favoured a land value tax have included Adam Smith, David Lloyd George, Herbert Asquith and Winston Churchill.

Land value capture was also behind the creation of garden cities and new towns, which were established after land was bought at agricultural values. David Rudlin, director at planning consultancy URBED and winner of the 2014 Wolfson Economics Prize for his plan to deliver new garden cities, says the need to capture land value is at the heart of his proposals. Yet for all the government’s enthusiastic talk about garden cities this aspect is rarely discussed.

Property taxes that capture land value are central to the planning system in many countries around the world; in Australia, parts of the US, Denmark, Taiwan and Hong Kong, land taxes play a prominent role. Yet in recent years in the UK, there have been no serious attempts to introduce an effective system to capture land values.

The reason is unquestionably because speculation in land values — as well as soaring land and house prices — is at the heart of today’s UK economy and as one proponent of a land value tax put it, “turkey’s won’t vote for Christmas”. “Those who speculate would lose and that’s part of the business model for all major housebuilders,” says Ellis.

Although the capture of land value is politically unlikely in the current climate, the fact that garden cities are back in the news means that a debate on the subject should finally take place. The stakes could not be higher because until a way of capturing land values is found, the planning system will inevitably remain broken and inextricably tied to speculation.

Anna Minton is the author of ‘Ground Control: Fear and Happiness in the Twenty-First Century City’ (Penguin). She is a reader in architecture at the University of East London

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