An assessment of historic attempts to capture land value uplift in the UK

In 1947 development rights across Great Britain were nationalised, meaning that from then on landowners required planning permission to develop sites. It also meant that refusal to grant permission no longer merited compensation and that in future the uplift in land value arising from planning permission would belong, at least in part, to the state. Various attempts at ‘capturing’ at least some of the uplift in land values through taxation have been made since 1947, but these have proved to be contentious and, for the most part, have not lasted.
Legislation supporting a system of negotiated developer contributions has been operational in England and Wales for almost 30 years, and for more than two decades in Scotland. Nonetheless, most of the uplift in land values arising from planning permission remains uncaptured by the state. An increasing emphasis on infrastructure for economic competitiveness, and a commonly held view that some other countries handle land value capture more effectively than in the UK, has increased interest in this issue. The establishment of the Scottish Land Commission reflects this interest, and this report reviews the various attempts at capturing some of the development gains associated with planning permission since 1947, the experience in the Netherlands, China and Canada, and identifies lessons that policy makers could learn from these experiences.
Main findings
 Past attempts at land value capture have failed largely due to the absence of political consensus to support them. The lesson is that political consensus, based on an understanding of the principles underpinning land value capture, should be established before any major initiative is taken. Connected to this, schemes should be seen to be fair in order to command public consent.
 Under-resourced schemes have failed or have failed to be as effective as they might have been. It is important for there to be adequate numbers of staff with the right skills to make any system of land value capture to work. This might imply national level support for planning authorities or service sharing, particularly between smaller authorities.
 Compulsory purchase has underpinned some of the more successful attempts at capturing land value capture in the UK and elsewhere in Europe. Local authorities must have sufficient financial capacity to purchase land and provide infrastructure up-front. Borrowing rules and private-public partnerships can help to share risks as well as costs, but a national fund might be required to support development in areas of low land values, or contaminated sites.
 Compulsory purchase by local authorities is likely to be of limited success in capturing land value uplift unless it can be purchased at existing use value, or at least some way below market value. The European Convention on Human Rights (ECHR) permits expropriation of property when it is in the public interest. In such cases compensation should be paid, and there has been extensive litigation on ‘public interest’ and on the appropriate compensation. Currently the law across the UK bases compensation on market value. It is desirable that this issue is clarified since some other European countries appear to interpret market value closer to existing use value than is the case in the UK. Such clarification might include legal advice and a detailed examination of practice in other countries that are signatories to the ECHR.
 A key strength of the current system of planning obligations is that land value uplift is captured locally and its benefits are visible locally. In contrast the use of a central agency was not effective and led to conflict with local authorities. As is the case in other countries, land use planning and land value capture are best dealt with together by local government.
 Limiting land value capture to paying for infrastructure needs arising from specific sites limits its scope on high value sites whilst potentially leaving low value sites unviable. This suggests that the benefits of land value uplift arising from a site should be capable of being shared across a local authority area.
 The scope for land value capture varies greatly between different areas, according to land values. This risks leaving authorities with low value land less able to meet infrastructure needs. There is therefore a case for benefits to be distributed between authorities, perhaps through the adjustment of central government grant.
 Site-specific negotiation of developer contributions are being undermined by an unequal balance of power between planners and developers, whilst standard tariffs must be set either to ‘undertax’ high value sites or render lower value sites unviable. Experience from other countries suggest that market-like mechanisms such as auctioning serviced land are more effective in extracting land value uplift whilst maintaining viability.
 Attempts at land value capture have focussed on uplift at the point that planning permission is granted, and in some circumstances at the point it is sold. This neglects the uplift in land value that currently developed sites enjoy due to economic growth or the provision of publicly-funded infrastructure. There is therefore a case for considering the use of recurrent land value taxation as a complementary means of capturing land value uplift.