The latest proposals from the UK Government regarding planning reform have been announced, and the hot topic of conversation is who's going to pick up the tab? This week's blog looks at the proposed substantial planning fee increases and the effect that could deter smaller developers from entering the market when money is already too tight to mention.
The initial announcement has been to propose a consultation, where the industry will be offered the opportunity to raise its concerns, of which there could be many, given this will be seen potentially as another stealth tax with only a vague outline of how the extra money will improve the performance of the system.
The idea is to increase planning fees by 35% for major applications and 25% for all other applications while creating additional costs for bespoke or 'fast track' services, like a VIP lane. There are two schools of thought on this. First, you could argue a VIP lane is potentially discriminatory, with the more prominent businesses with more comprehensive budgets winning out; so, in theory, this could speed up the overall number of applications dealt with at a cost of a fair system. Also, everyone over a certain threshold will opt for the fast track, so you're almost creating a bottleneck situation before you have even started. There is also talk of doubling fees for retrospective applications and removing the 'free go' for repeat applications, which may dissuade people from building rather than increase revenue, but time will tell.
There are some positives, the planning system does need reform to assist our demographic of clients, and one of the proposed items to discuss is the ringfencing of this additional income to ensure that it all goes directly into the expansion of the local planning authority. Lastly, a caveat proposes that the fees will be adjusted according to inflation. The main goal here is to improve the quality of the local authority planning services by monitoring more performance measures.
Anybody reading this who is representing property development clients will attest to the frustrations of the last 18 months around decision-making times, LPAs across the country are desperate for more resources to rebuild capacity, and these shortfalls are often leaving clients in limbo waiting for decisions. At Invest & Fund, we work closely with our clients who are stuck in this process, but the general feeling is that smaller developers are often sat on borrowing terms they fear are going colder and more expensive while they que for a decision.
So, that being said, surely a relatively nominal fee increase must be a good thing? Savills have stated that the 'fees should be absorbable as part of the development budget', and there is some positive sentiment across the industry agreeing with this. Still, these nominal fee increases are adding up and compounding quickly, materials, wages, acquisition costs, legal costs, surveyor costs, and cost of funds; if you're turning to smaller businesses to solve a housing crisis, you can't ask them to do that for free, and a long line of nominal fee increases will drain away that margin pretty quickly.
We believe that the proof will be in how well the government can demonstrate that the money ringfenced will directly correlate with an increase in the speed of decisions being processed; the danger is the money could be used to shore up the existing system attracting more staff to replace those who have left post-pandemic, or just returning the wait times from unacceptable to terrible, and that will feel like a stealth tax on the very sector government is looking to incentivise to combat the housing shortage. You could conclude that a two-tier system based on 'whoever pays the most gets seen first' seems like a reasonable imprudent way to untangle a complicated and confusing system of regional bureaucracy, but solving these problems and finding an alternative that suits everyone, will take some time.
Regardless of the outcome, Invest & Fund will continue to work closely with clients throughout the planning process so they can make sure their funds are available when their project is ready.
The consultation for the planning proposals runs until April 25th and can be viewed here.https://www.gov.uk/government/consultations/increasing-planning-fees-and-performance-technical-consultation
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