A change in the UK’s land compensation rules could lead to local authorities having an extra £9.3bn to invest in infrastructure, think tank says.

The Centre for Progressive Policy has argued that the Land Compensation Act 1961 is a significant barrier to reaching the Government target of delivering 300,000 new homes per year.

The current land compensation rules require landowners to be compensated at values that include the assumption of planning permission in case the state uses the land for housing.

This means the added value that planning permission gives to a plot of land goes to the original landowner rather than the state.

The Centre for Progressive Policy’s report, entitled Reforming the Land Market, proposed reforming the Land Compensation Act 1961 so that the profits from any uplift in land values flows to local authorities.

The think tank estimated this could increase investment by as much as £9.3bn per year which could pay for the infrastructure for an additional 96,500 units per annum — a quarter of which would be in the Core Cities.

‘Until the government stops guaranteeing the flow of monopoly profits to land investors, the high price of land will continue to act as the major barrier to accelerate housebuilding across England,’ said the report’s author Thomas Aubrey.

‘Tweaking the land compensation rules would not only fund large scale infrastructure investment to open up new areas for housing, but it would also level the playing field for small housebuilders and self-build projects increasing capacity across the sector.’