Great Britain

American Journal of Economics and Sociology, The, Dec, 2000 by Owen Connellan, Nathaniel Lichfield

However, one critically important feature of the 1947 Act remains unaffected, namely that the ownership of all landed property development rights continues to vest in the Crown. Despite the amending planning legislation of subsequent Governments these rights were not given up and returned to the property owners. Consequently there is now no compensation problem to form the other side of the betterment coin. If a planning application is refused or granted with conditions, no claim for loss of development rights can be admitted. Prest puts it succinctly: "But at least one thing does seem clear in the fog: the issue of planning compensation for planning refusal can be considered truly dead and buried." [51]

This has now an additional importance beyond the solution to the compensation problem when land value is mooted as a new taxation base. Any objections from land owners, for example, to a betterment tax on the development rights which they do not own but nevertheless can enjoy (as discussed in the Uthwatt Report), [52] hardly makes for a credible case at the Court of Equity.

IV

Recoupment of Infrastructure Costs

WE NOW TURN to the third strand. On the repeal of the third Labour Government attempt to recoup community benefit from rising land values, and the absence of any development land tax, a serious anomaly became apparent. On the one hand the economy was prospering so that land values (untaxed except for capital gains tax) were rising significantly to the benefit of the landowners/developers; while on the other hand local authorities were finding themselves even more squeezed in terms of the amount of financial support from Central Government. Out of this anomaly arose the common sense response of authorities to go outside the prevailing arrangements for payment for physical and social infrastructure, and look for extra sources of contribution from the landowners/developers.

They sought to do so by use of their powers to enter into contracts with landowners/ developers outside the planning system, but related to it. The development rights, being still owned nationally, were dispensed locally, without financial charges through planning permissions, which were of great value to the landowners and developers who were anxious to obtain them in order to reap the uplift in land values consequent upon the grant. From this arose a bargaining situation. Where they chose to do so, the local authorities could pressurize the landowner/developer to make his contribution towards the cost of infrastructure (sometimes interpreted very broadly), which would be occasioned by the development for which permission was sought, and which would otherwise fall on the hard-pressed local government financial resources.

The machinery for doing so was initiated by local authorities and regularized by Government policy, under rubric initially of "planning gain" and then "planning obligations." [53] In economic terms, the exaction which was being delivered could be thought of as a tax on land value or recoupment of community benefit. But strictly it is neither; it is a shift in the burden of infrastructure financing from the public to the private landowner/developer sector. And furthermore it is capricious in its incidence. Just how it became divided between the two depended very much on the relative strengths of the landowner as vendor and the developer as purchaser, in the local land market. Just where it would be levied depended on the strength of the market and the anxiety or otherwise of the local authority to obtain the development.