The case for market-led planning reform in Scotland

ONE OF THE THORNIEST PROBLEMS in public policy – and one that has been discussed already on this site – is the question of planning policy. Getting it right is central to encouraging both economic growth and the preservation and enhancement of our environment and quality of life.

There’s no doubt that Scotland – like the rest of the UK – suffers from a sclerotic, over-centralised planning system where development rights are granted by government slowly, unpredictably and often reluctantly, which makes it hard for business to grow and for good-quality houseing to be built.

At the same time the restrictive planning system doesn’t seem to encourage innovative design or aesthetically pleasing townscapes.

Planning policy has wide-ranging effects on our lives. The SNP uses it to prevent power generation that it disapproves of, such as new nuclear plants. And of course, it plays a big role in the proliferation of windfarms across our landscape. It is a vital ingredient in building and renewing critical infrastructure, from railways to roads and digital connections. It is the foundation stone of national parks and conservation policy, both natural and man-made.

People usually assume that planning decisions must be taken by government because there is no way of monetising and trading the costs and benefits of development rights. How do you value the environmental costs of building, say, a chemical plant in a beautiful valley?

Nobody “owns” the view we enjoy or the air we breathe so we have devised a complicated system whereby planning authorities try to aggregate public views on development through a mixture of democratic, bureaucratic and legal processes. It’s not really much different from how production priorities are decided in a Communist system, and the outcomes are predictably similar. Bureaucrats, however clever or well-intentioned, are no better at deciding where to build things than they are at deciding how many shoes to make.

Is a better way possible? Could we use market signals of supply and demand to find the right balance of development rights just as we do in most other aspects of economic decision-making?

developers “pay” for planning rights and locals “sell” them

Well, oddly, we already do – up to a point.

Developers, from house builders to wind farm companies, often make contributions to local communities to mitigate the damage done to the local environment or additional burdens they place on local infrastructure. Sometimes these are legal obligations (called Section 75 agreements) imposed by the planning authority; at other times, as with Community Benefit, they are voluntary contributions.

In principle, then, developers “pay” for planning rights and locals “sell” them – a process that, to an extent, mimics a market in development rights.

In large part, payments cover the necessary functional impacts of the development – a new road or sewage main to connect the housing estate, for example.

But there is also an element of compensation for damage done to the environment – the views across a valley, or the tranquil quality of a rural area.

bureaucrats decide if the development’s benefits outweigh its costs

The problem is that developers are not compensating locals directly for the loss of the environmental value they suffer. Instead, they typically fund worthy local projects that are only of marginal or diffuse value to most residents – playparks, community centres, public art and so on. There are many funds established by wind farm owners in Scotland, but few of them pay the people most directly affected by the turbines.

If you own a house in a peaceful valley that has a new wind farm built in it, your loss – in property value and quality of life – is only partially (if at all) offset by the refurbishment of the local village hall. So the market isn’t working properly: it is still up to bureaucrats to decide if the development’s benefits outweigh its costs.

If instead developers paid residents directly, they would have proper incentives to win locals over – by improving the quality of the development, minimising its impact, and locating it in areas where it did less damage, because locals would charge less. Local people, meanwhile, would have a proper incentive to allow development in their area. We would arrive at something much closer to the true price of environmental impact, with more – and better – development as a result.

You can even envisage a situation where local people use the income from selling rights to development that has a negative impact to buy developments that have a positive one but don’t command sufficient cash flow to be self-sustaining – a bus link, for example, or keeping the local pub or church open or, yes, a community hall. In this way, new commercial development could fund local assets that are actually valued by residents, rather than imposed from above.

local corporations with residents as shareholders could vote on developments and their associated income

How could this work in practice? How can we cut out the planning bureaucrats and find a meeting of minds between developers and the residents they affect?

One idea is to establish local corporations with residents as shareholders. They would vote on whether to accept or reject developments and the income that came with them. The income could then either be used to fund local infrastructure or simply paid out to resident-shareholders as dividends. The concept could even be developed further, with these local bodies given the power to commission local services such as rubbish collection, roads maintenance or even governance of the local school – effectively replacing sclerotic local government with much more direct and responsive form of local democracy.

You might think this is getting a little far-fetched, but elements of this sort of micro-democracy exist around the world, for example in countries such as Norway and France. It’s true that there are obvious problems with the concept – how large such local corporations should be, how to handle developments that affect multiple areas, and how to prevent irresponsible decision-making.

But the prize – better and cheaper development and healthier, more accountable local democracy – is significant enough that we should be willing to explore and experiment with genuinely radical reform along these lines in Scotland.