Oh no! Not another bloody tax?
New Statesman : September 10, 2004 : Dave Wetzel -Transport
It must be a thankless task being Chancellor of the Exchequer.
Every man, woman and their dog gives advice on taxation
to the person holding the hottest seat in Government. Every
pub in the land has an "expert" who knows better
than the Chancellor how to run the economy. Usually this
advice is just a mask for special pleading.
And yet suppose there is one gem among the hundreds of ideas
being put forward? - A much more fair, equitable and effective
new tax - wouldn't that be worth looking at? After all,
it's clear that Western economies are not perfect. We see
the difficulties all countries face; eve "successful"
economies like Germany, Japan and the US.
We know: .
poverty exists where the state has rigid control
of the economy, but also where private markets rule;
expensive housing land makes it impossible for many
young families to afford a home even if they are on above-average
Many house buyers are forced to commute long distances,
which not only affects and costs individual families but
high land prices lead to unnecessary higher costs
for premises, together with Stamp Duty an obvious restraint
on business expansion.
equity release by houseowners leads to higher inflation
with damaging higher interest rates as the only measure
the north/south divide is not sustainable;
unemployment is divisive;
high property costs contribute to jobs being exported.
the countryside suffers urban sprawl, while valuable
sites for homes, jobs or leisure li empty in towns;
much needed public transport infrastructure is underfunded
causing traffic chaos, road accidents, pollution and unnecessary
additional costs for both business and personal travellers;
the property/business cycle disrupts economies.
We have a duty to find a better way of conducting our economic
affairs that not only addresses these problems but encourages
business, protects the environment, assists the developing
world and contributes to social justice - a tall order for
any single reform!
To produce goods and services, it is necessary for Labour,
using Capital, to be applied to Natural Resources. For the
benefit of clarity, I'll repeat this important point: LABOUR,
using CAPITAL, is applied to NATURAL RESOURCES.
Look around you now: are there any goods that you can see
which are not a consequence of these three factors of production?
Even a clothes prop cut from a tree, requires a knife (capital),
the tree and the land it grows on (natural resource) and
human endeavour to plan the activity cut the branch and
carry it home (labour).
In the same way, the most modern car, computer, items in
the supermarket and even the knife - used above, have all
been created from labour, capital and natural resources.
The return to labour is wages.
The return to capital is profit or interest.
The return to natural resources is economic rent.
Economic rent will increase as demand for the use of natural
resources grows. The key drivers for this increase are population
growth, greater economic activity, improved transport and
communications, improved services, innovations, neighbourhood
attractiveness and market sentiment.
Obviously workers earn their wages. Without workers there
would be no labour.
Savers receive interest. Without savers there would be no
But what do landowners provide to deserve economic rent?
Without landowners the land and natural resources would
still be available.
Few would dispute that workers earn the product of labour.
Savers risking their investments are similarly entitled
to a reasonable return. However, to whom should we pay for
the use of land and natural resources?
Land and natural resources have all existed since the planet
was first formed and no amount of human effort or ingenuity
has created them. (Even land drainage or reclamation requires
labour and capital applied to natural resources).
Justice demands that the benefit arising from natural resources
should be shared by all.
But how could this be accomplished with fairness and without
destroying the incentive to work and invest?
Attempts to impose land redistribution will always fail.
They only create a new class of landowner and continue to
exclude landless citizens from enjoying the benefits to
which all are entitled.
Land Value Tax (LVT) on economic rent, is the only fair
way to ensure that we all share Nature's bounty.
Most economists agree that taxing economic rent can not
be passed on, has the least disruptive effect on the economy
and leads to lower land prices.
Landowners of empty urban sites pay no rates or taxes on
their land. Site values grow as the result of community
activity - new roads, transport, buildings, better policing,
improved services, shops and offices.
Why should the community not be repaid for the benefit
they create for the landowner? LVT would ensure that everybody
has a share in the land wealth they create and which otherwise
ends up as landowners' unearned income. '
With LVT, all land (including empty sites) is valued and
a tax rate applied. Like Business Rates, but only on the
land value, not the buildings. (Why penalise, with higher
Rates, people who improve their buildings; but reward others
with lower Rates, if to the annoyance of neighbours, they
let their buildings fall into disrepair?)
The valuation would be based on the optimum, permitted
use of each site. Parks freely available to all would pay
LVT brings idle land in towns and cities into use. This
reduces costly urban sprawl. The extra supply of land reduces
land prices and accommodation costs for homes and business
LVT is impossible to avoid - land can not be taken to Jersey
in a suitcase. Consequently LVT is cheap to collect. Not
only does LVT require fewer tax collectors but also fewer
lawyers and accountants employed in the private sector to
discover tax dodges. The cost of this tax avoidance and
evasion industry falls both on other taxpayers and on consumers.
Countries like Denmark, Hong Kong and Taiwan utilise land
values to help their economies. Towns in parts of Australia,
South Africa, New Zealand and North America have adopted
local forms of LVT.
Alaskan oil wealth pays every citizen a dividend.
Over the past 20 years, Harrisburg in Pennsylvania has
enjoyed greater prosperity by switching a small local tax
from buildings to land.
Three years ago, Gordon Brown allocated the radio spectrum
for 3G mobile phone networks (a natural resource); he could
have given the rights free to the Duke of Westminster. He
could have sold the "freehold" ownership. However,
he rightly introduced a form of LVT; he auctioned these
licences for 20 years for a massive £22.4bn and in
17 years time the process can be repeated.
There are currently calls for development or planning gain
taxes, which do not share the advantages of LVT and must
be resisted because:
1. If you tax an event, (e.g. development) then avoiding
the event avoids the tax. Previous development land taxes
(1947 Attlee, 1967 Wilson and 1976 Callaghan) all failed
because they froze the land market, reduced supply and hence
raised land prices. They benefited landowners at the expense
of the rest of the community.
2. Why only tax development land? This forms less than 5%
of all land.
3. Why accept a one-off payment when LVT can provide annual
4. Why lose out on future increases in land values created
by the activities of future generations?
Whereas other taxes damage the economy, studies by Dr.
Rana Roy and Ron Banks have shown that taxing land can help
the economy grow more efficiently.
If you charge for a scarce resource (like land or road
space), then the resource gets used more efficiently. With
reduced profits from land speculation, investment would
divert into expanding businesses, creating more jobs and
greater productivity. Thus, LVT offers a "land efficiency
bonus", calculated by Ron Banks as a staggering £15,
000 per head, population.
With LVT income, and the "land efficiency bonus",
the Government could provide new public transport infrastructure,
abolish economically damaging property taxes like Council
Tax, business rates and Stamp Duty, raise the personal allowance
on income tax so that millions of lower paid workers pay
no income tax at all, reduce VAT rates to help consumers
and businesses and even copy Alaska's dividend for every
In this article I am suggesting a new tax policy which
would provide incentives and release the creative efforts
of business. It would improve earned incomes; cut the cost
of tax collection; provide affordable homes; reduce the
costs of urban sprawl; generally improve economic efficiency;
avoid property-led business booms and slumps and make redundant,
the disruptive tool of ever-changing interest rates to control
land prices and the inflationary results of equity release.
To facilitate the adoption of LVT, a tax-free allowance
could be introduced for the first tranche of rental value,
(similar to personal allowances for income tax) and for
those on low incomes, payments deferred until the land is
Labour's 1931 budget included LVT but was repealed by the
Conservatives before it was launched Conservative MPs also
defeated Herbert Morrison's 1939 bill introducing Site Value
Rating (SVR,local LVT) for the London County Council.
It is encouraging that LVT is now being recognised. Richard
Rogers' "Urban Task Force" called for a study
of LVT; Kate Barker, in her housing review, has recommended
a "Planning Gain Supplement" (another Development
Land Tax!) but drawn attention to LVT as "a good method
of raising revenue, without distorting behaviour".
Recent articles in the FT, the Guardian and the Morning
Star have promoted LVT. It has supporters across the political
spectrum from socialists, liberals and the right. Liverpool
City Council have asked to be a trial area for SVR; the
Scottish Parliament are researching it; Oxfordshire County
Council are assessing land values in a trial area; researchers
are valuing Whitstable and TfL, DfT and RICS are assessing
land values around transport schemes.
Now the Government needs to assess the gains from applying
LVT on a national scale - and act upon it.
Article published in New
Statesman September 10th 2004
for London Labour
Land Campaign 2004