Increases in land value that result from public policy decisions should be shared with local communities and should not just go into the pockets of private developers, MPs say.

Government statistics show that agricultural land, which is granted planning permission for residential use, would, on average, increase in value from £21,000 per hectare to £1.95m per hectare.

A report from the Housing, Communities and Local Government Committee has concluded that councils and central Government should be able to capture a ‘significant proportion’ of this uplift in value to invest in new infrastructure and public services.

It recommends reform of the Land Compensation Act 1961 to give local authorities the power to purchase land at a fairer price and simplification of the compulsory purchase order process to make it faster and cheaper.

The committee also recommended reform of the Community Infrastructure Levy (CIL) to remove complexity and the extensive range of exemptions that currently limit its effectiveness.

More resources should be made available for local authorities, the MPs concluded, to ensure they are able to negotiate robustly with developers to secure the appropriate level of planning obligations.

‘Land value capture is fundamentally about fairness and necessity,’ said committee chair Clive Betts MP.

‘Fairness, because the current system allows landowners, through no effort of their own, to make multi-million pound profits from the substantial increases in land value that arise from public policy decisions, such as the granting of planning permission.

‘As these increases are significantly created by the actions of the state, it is right that a significant proportion of this should be shared with the local community.

‘Necessity, because if the Government is to meet the challenge of providing enough new homes over the coming years, then they will also need to find the funds for improving the surrounding infrastructure.

‘Our proposed package of reforms to taxes and charges will ensure a fair proportion of the increase in value arising from public policy decisions can be used by national and local government to invest in new infrastructure and public services.’

The Local Government Association’s housing spokesman, Cllr Martin Tett welcomed the committee’s recommendations.

‘We have long–called for reforms to land compensation and compulsory purchase laws and are pleased that the committee has called for the Government to implement several of our recommendations.

‘Rising land prices is one of the most influential contributors to our housing crisis — it means less homes are built, they are less affordable, they are built more slowly, there can be compromises on quality, and there is not enough funding left over for vital local infrastructure and services that communities need to back development.

‘There are therefore huge gains for communities, economies and public services in allowing councils being able to capture potentially billions of pounds worth of land value increases to invest in the very infrastructure and services that generate those increasing values.’