New development tax would undermine government policy

The Government's policies on waste, energy and social housing are all being threatened by the proposed new £1bn-a-year development land tax.

Consultation on the tax - called Planning Gain Supplement and proposed by both the Treasury and the Office of the Deputy Prime Minister (ODPM) - closes this weekend. Already the British Property Federation has described it as unworkable and likely to stifle the Government's plans for urban regeneration.

Originally proposed by economist Kate Barker in her review of the UK's housing problems, the tax would see developers pay around 20 per cent of the uplift in a property's value when planning permission is granted.

But critics say this would penalise people and organisations developing projects for their own use, instead of housebuilders or property firms that aim to sell on what they have built.

Grundon Waste Management, one of the leading recycling companies in the UK, has told the Treasury and the OPDM that if the tax came in, much of its innovative green developments would be killed off.

The group runs material-recovery sites, which separate waste for recycling, and is in the middle of a £180m project to build a plant in Slough, Berkshire. This would burn 400,000 tons of household waste a year to produce energy. The Government wants to encourage more of these sites as part of its policies on waste management and energy efficiency.

However, Richard Skehens, managing director of Grundon, has told the Government that the development tax would put such projects in jeopardy.

"If the Government is to impose a 20 per cent tax then this will bring into question the viability of environmental projects," said Mr Skehens. He added that the extra costs would hit the group's cash flow and profitability.

Robert Field, a partner at City lawyers Lawrence Graham, said one of the worst-groups hit would be housing associations, which develop affordable homes for poor families. The tax would ratchet up their costs, so harming the OPDM's own policies on supporting social housing and homes for key workers.

Mr Field also pointed to massive problems for local authorities, which will have to assess the financial gain from granting planning permission. Property developers, he argues, will amend their plans frequently so that the local authority will not be able to work out which planning permission has led to the uplift in value.