17 December 2015

UK planning fee regime: A throwback to the Soviet era

By Thomas Aubrey

Joseph Stalin’s first five-year plan ordered a massive jump in cotton production. He thought this would be the best way of industrialising the Soviet Union, particularly in kick-starting a textile industry. The peasants in Turkmenistan refused to cooperate as the price of cotton set by the state was not high enough for them to buy food. Stalin didn’t like the idea of peasants relying on the price mechanism and so set about collectivising their holdings. Besides the wholesale slaughter of those who chose not to cooperate, the net result of ignoring the price mechanism was a fall in cotton production.

For some inexplicable reason this approach to public policy – minus the wholesale slaughter – remains highly influential in Britain. Central government continues to set the price of local authority planning fees. This means in areas of high demand for planning, delays appear to be the norm due to insufficient resources. Although empirical analysis shows the planning system is not the main constraint to house building, improving the efficiency of the system is quite rightly an important government objective.

This issue was recently discussed at a sitting of the House of Lords Select Committee on the economics of the UK housing market. The Committee was informed that there were often delays of up to three months before work could start after the granting of planning permission due to resourcing issues, and in areas of high demand the lack of planners has caused widespread bottlenecks.

The challenge for local authorities is that they are unable to respond to changing market conditions and adjust prices accordingly to cover their costs and hire more planners. This is because the fee schedule that stipulates at what price local authorities can charge for planning services is decided by the secretary of state, which is set out in full in the 2012 Town and Country Planning regulations.

For example there is a fixed price of £385 for each 0.1 hectare of the site area as long as the area is under 2.5 hectares. But if you go above this then it costs £9,527 and an additional £115 for each 0.1 hectare which is capped at £125,000. But if you are erecting a glasshouse on agricultural land then the price is £80 of the gross floor space, but £2,150 if it is over 465 square metres, and so on. The net result is a mind bogglingly complex tariff sheet that bears little resemblance to local market conditions and the actual cost of providing planning services.

Data from the Planning Advisory Service (PAS) which sampled councils across England highlights two key issues. Firstly, the income and work profile of applications differ between councils, highlighting the futility of trying to set central rates. Secondly, roughly three quarters of the work profile of planning, which is for things like extensions or turning front gardens into parking spaces drive only about a fifth of income. That means primary legislation is forcing planning departments to use fees from large scale applications – the ones that will help solve the housing crisis – to cross subsidise more basic applications. Given that this data was collated in the run up to the 2012 regulations, the decision to ignore the evidence is indeed curious.

The PAS also highlights that councils can lose up to three full time employees worth of resources per year due to work that is withdrawn for which there is no charge.  The release of three full time planners to work on productive activity would be hugely useful for cash-strapped planning departments, particularly when it comes to responding to the difficulties that emerge from large scale development applications.

Clearly what is needed is for these departments to run at cost, in conjunction with some simple guidelines on transparency and exploiting technology best-practice to increase output. The Lords Committee on housing was informed that developers would be happy to pay higher fees if the process could be sped up as the cost of sitting on the site and waiting to get started is substantially higher. For large scale applications, there is no reason why planning departments could not charge day rates which are stopped when the development hits a snag somewhere.

But without a mechanism that allows planners to invest in more people and technology thereby providing a more efficient service it is unclear how departments with high levels of demand might respond more quickly. Between 2006 and 2010, 66% of decisions on large scale applications were made within 13 weeks. This dropped to below 49% between 2011 and 2012. Since 2013, the government changed the performance metric to include “within an agreed time” or within 13 weeks, so it is impossible to assess whether this downward trend has continued due to inadequate resources.

Given the government is now firmly embarked upon a devolution agenda, it is incongruous that planning fees still need to be set by the secretary of state. Calls from Lord Porter, chair of the Local Government Association, for the devolution of planning fees have been ignored. But if the government is serious about improving the planning process, then it should let planning fees be determined at the city-region level that covers an economic geography. Abandoning the practice of centrally controlled prices may put the secretary of state out of a job, but at least it would demonstrate that politicians can shift away from ideology towards evidence-based policy.

Thomas Aubrey is director of the Centre for Progressive Capitalism and founder of Credit Capital Advisory