In the midst of a housing crisis caused by the disastrous policies enacted by successive governments over the past 30 years or so, politicians are scrambling around for solutions. There have been repeated calls to rip up the green belts surrounding our towns and cities in order to find new land for housing construction. This pressure would be significantly eased if we made better use of our existing urban areas.
A fresh approach is needed to tackle the housing crisis, while also preserving our green spaces. At the heart of this approach should be a land value tax.
The introduction of a land value tax (LVT), an annual levy paid by property owners based on the value of their land, has long been Green Party policy. It featured in the Green Guarantee for the 2017 general election, as well as in the manifestos of several other parties. It could form part of a wider green tax shift focusing on the use of natural resources, for example a carbon tax, with the revenue being used to replace other taxes and/or fund a universal basic income.
MEP and Green party speaker on the economy and finance Molly Scott Cato discusses the benefits of LVT in the documentary ‘The Taxing Question of Land’
Shifting the focus of taxation onto land would have several benefits. Firstly, it would improve the allocation of existing housing. It would lessen the appeal of snapping up properties in desirable locations as speculative investments to leave empty. Those people living in larger houses than they need would be incentivised – but not forced – to downsize, making it easier for young families to find suitable, affordable housing.
Secondly, LVT makes it costly to hold onto valuable land for speculative purposes, putting an end to land banking. It would ensure that land in city centres is put to good use and not left vacant or under-developed: LVT would encourage developers to either build on the land that they hold or sell it on to someone else who will.
Best way to stop land banking would be a land value tax. Geeky, perhaps, but true 🙂 #Budget2017
“As land in the city centre has the largest monetary liability, the landowner will want to maximise the return on investment in order to pay it. The denser the building that sits on the land, the larger the revenue generated to pay for the same levy value.”
This would stop urban areas from spreading further out into the countryside, destroying wildlife and lengthening people’s commutes to work. The housing crisis isn’t just about building more houses; we need homes where people’s jobs are located. We need to make commutes more walkable and cyclable, helping us to reduce our reliance on cars and give us cleaner air.
Reducing urban sprawl in this way would also lessen the demand to build on productive farmland, which pushes farmers towards less productive locations.
Inflated land prices caused by speculation push out genuine farmers. “Young newcomers to farming are prevented from buying land unless they have access to money from elsewhere”, writes farmer and LVT advocate Duncan Pickard. “The rising price of farmland is attractive to non-farmers who have money to invest. They are not concerned with the land’s productive capacity – they are hoping for increases in its price.”
Taxing farm land, instead of throwing subsidies at it, would encourage efficient use of the most productive locations. Land at the fringes – which is only profitable because of subsidies – could be allowed to return to nature.
For conservationist Peter Smith, founder and director of the Wildwood Trust, LVT is crucial to his ambition of rewilding the British countryside. “Land Value Tax is a rocket to put up the backsides of landowners & developers to make the most of what we have, in doing so we put all our human effort into building better housing on the land already developed, we will make farming and recreation ‘land efficient’ and thus create the space to rewild Britain and at the same [time] have great housing & jobs aplenty”, he says.
By improving the efficiency of urban land use and reducing the incentives for speculation, sub-marginal land would become cheaper, making it easier for local authorities or nature trusts like Peter’s to purchase land for conservation.
Farmer Duncan Pickard and conservationist Peter Smith explain the impact of our current tax system on the environment in ‘The Killing Fields’
A Fairer, Greener Britain
Confronted with a housing crisis, inefficient land use and climate change, we face a choice: do we stick with the tired, broken status quo that has brought us to this point or do we go in a new direction with bold, progressive ideas such as a land value tax?
We can build the houses we need, reduce air pollution and also return land to nature and wildlife. The time has come to put a land value tax on the agenda to end the housing crisis and build a fairer, greener Britain.
When the Labour Party included a paragraph in its manifesto for the UK’s 2017 election stating that it would “initiate a review into reforming council tax and business rates and consider new options such as a land value tax”, the mere suggestion of a land value tax (LVT) was unsurprisingly derided by Conservatives and the right-wing press as “Marxist” ideology. Of course, this is nonsense, as Chris Game explained in his article “Land Value (or Garden) Tax – more Adam Smith than Marx”.
Some of my fellow LVT advocates have suggested to me that one of our most important tasks is to convince people on the right of the benefits of land value taxation – no easy task given the way the idea is frequently attacked and distorted by the right-wing press and conservative politicians.
However, there are several politicians, economists, journalists and think tanks on the conservative and libertarian right who have supported the idea. I thought it might be handy to put together a collection of articles, along with extracts, and videos supporting LVT from a right-wing perspective that can be shown to sceptics on the right, as well as perhaps to give us an insight into the arguments that may be useful in furthering our cause.
I’ve focused on people on the right who happen to be LVT supporters here, rather than LVT supporters who happen to be right-wing. I’ve also chosen to stick to more modern times, rather than go back to the days of Adam Smith (although Smith’s views are included in the article on Geo-libertarianism). A couple of the sources do not exactly provide ringing endorsements for full taxation of all land, but do at least accept some aspects of LVT. If anyone spots something that I’ve missed then please let me know. Links to all sources provided.
“Because Business Rates are levied on a property’s value not just the land beneath it, they act as a punishing disincentive to investment.
The worst affected businesses are manufacturers. Tata Steel’s rates bill rose by £400,000 a year when it rebuilt the blast furnace at Port Talbot. No wonder British Steel is struggling. Despite what the likes of Jeremy Corbyn and Nigel Farage say, the answer isn’t nationalisation of these industries. It’s modernising the tax system so they don’t get punished when they invest.
I would replace business rates with a tax on commercial land, paid by the landlords and levied only on the land value itself, so that no business is worse off if they invest and landlords do not have an incentive to keep commercial properties vacant.”
“In current circumstances, one of the most pernicious taxes is national insurance as it punishes employers for taking on new people and, because we have a fairly free market in labour, reduces people’s take-home pay just as surely, though a little more indirectly, than income tax. But if we want to cut this tax on jobs and wages, we need an alternative source of revenue that is reasonably easy to collect and which is less damaging in its effects on people’s incentives to invest, expand and hire new people…
[A land value tax] would deter speculative land banks and would encourage property owners to develop brownfield sites and put rundown areas of inner cities back to good use. Over the longer term, it would lower the price of development land and help us get off that quintessentially British rollercoaster of house price booms and busts…
Using the proceeds of a targeted Land Value Tax to cut the national insurance tax on jobs might give the British economy the crucial leg-up it needs.”
“What puzzles me is why, if he really wants a radically energised planning system and is prepared to have a huge fight to get one, Mr Brown has not gone for the much bolder option – a tax on the value of the site itself. This tax would take the form of an annual charge on the value of a site, levied according to its status in the local plan, whether or not it was developed. Its advocates claim that it would bring idle land into the best use for it, leading to an increase in supply and a decline in price.
Rather than capturing planning gain on one site at one moment, a land value tax would also recover value from neighbouring sites that had benefited from the development. Local authorities would collect more tax by the mere act of designating (or zoning) suitable land for industrial or residential development, thereby increasing its value even if no development took place. Landowners would have no incentive to hold sites back from development. Councils, by contrast, would have an incentive actively to pursue re-zoning.”
“One of these policies could be the replacement of council tax and stamp duty land tax (SDLT) with a new and simpler land value tax (LVT) on the unimproved value of all UK land. As derelict land in close proximity to urban infrastructure such as roads and railways is more valuable than Greenfield land with little nearby infrastructure, the redevelopment of poorly-utilised inner city land by its owners over new Greenfield sites would be encouraged by the LVT.
Consequently, the LVT would significantly assist in the prevention of undesired urban sprawl and the preservation of rural settings; making its introduction an effective replacement to green belts.
The elimination of SDLT would help to stimulate the UK property market; something that will need to occur if we are to encourage more housing development in the UK. Another added bonus is that the LVT would be very difficult to evade. This is because British land cannot be physically moved beyond the jurisdiction of UK tax authorities.”
“Yet, far from being an outrageous Bolshevik idea, the case for a land tax is one of the oldest and least disputed propositions in economic thought…
The basic point is that the supply of land, with rare exceptions such as reclamation in the Netherlands, is fixed. But because of its scarcity owners can command an income over and above the normal return to the enterprises placed upon it.”
David Cowan (Conservative activist, Tory Reform Group)
“The introduction of a LVT ought to be viewed as the most legitimate way to raise new revenue.
For too long, landowners and speculators have been able to reap sizeable economic outputs from rising land values, though contributing little economic input. One example being how the construction of the Jubilee line sent surrounding land values shooting up to £10 billion, to the benefit of landowners, while taxpayers still had to foot the bill….
Properties of all shapes and sizes are already overtaxed by the likes of council tax, business rates, stamp duty land tax, planning charges, and landfill tax. If these taxes were to remain then LVT would be burdening people with further unwelcome costs.
Instead, LVT should replace those property taxes – either entirely or at the very least mostly…
The LVT would not harm enterprise. It would boost productivity, discourage urban sprawl, could replace the plethora of punitive property taxes, and would be relatively simple to administer and collect.”
“Reforming the taxing of property will also improve affordability. Stamp duty, council tax and business rates should be replaced with a Land Value Tax with regularly updated valuations. This will stop stamp duty discouraging downsizing.”
“The ASI wants business rates to be stopped from taxing capital. Its reasoning is as follows: business rates tax property values, so they effectively tax both the land a property is built on, and what sits on top of the land (bricks, mortar, machinery).
“Taxing land values is a relatively good way of raising revenue, because it does not discourage production. But taxing property discourages construction, improvements and investments in new machinery,” it says.”
“5. Replace Business Rates and Council Tax with a simple Land Value Tax
While there is always a lot of noise whenever business rates change, it is often forgotten that it isn’t businesses who bear the cost of business rates, but landowners. Over time, most of any cut in business rates will be offset by a proportionate rise in rents – meaning that it’s predominantly landlords who benefit from cuts and lose out from rises, not businesses. It would be better if we were to merge council tax and business rates into a simple tax on land values. It would remove the distortion caused by changing purpose between using land for residential or commercial purposes, and ensure that business investment is not discouraged.”
“Tax unimproved land values, not transactions. Stamp duty land tax destroys huge amounts of economic value and prevents allocative efficiency—it should be abolished. Council tax and business rates disincentivise improvement and bias buildings toward certain uses—they should be first merged, and then levied only on unimproved values.”
“If and when they do revalue business rates, there’s a disincentive to anybody who is a business or is a land owner to improve the property that they’re on, and we don’t want that. What we want is them to only be paying the value of the land, and to try and get as much as possible from that land, by building as much on that property or the most profitable thing they possibly can. We’d get that with a land value tax, we don’t really get that really from business rates.”
“A good rule of thumb is that if you tax something, you get less of it, which is why taxes on capital are such a bad idea. But since there’s a fixed supply of land, taxing the value of land doesn’t get you less of anything. Nice one.”
“It’s a bit silly to call this a ‘garden tax’, since council tax valuations already include gardens. Unless the Tories are proposing to exempt gardens when we calculate how much a property is worth, they too favour a ‘garden tax’.”
“One reason to like this tax – as Milton Friedman pointed out – is that it’s the least distortionary tax there is. No one is making land anymore, so we’re not going to reduce the supply of it by taxing it. That is true of everything else – tax apple consumption and people eat fewer apples, tax incomes and some work less, tax profits and people set up fewer businesses. But land is in fixed supply, so we’re not getting less as a result of gaining our necessary tax revenue from it…
It’s also right that everyone should pay it. Yea even those horny handed sons of the soil, the farmers. Land that’s on top of some Dale is worth spit and so would pay near nothing, someone using Surrey to grow turnips probably should be encouraged to make better use of it.
For, yes, having to pay tax on the value of the land does indeed mean that people will have to allocate the land to a use which will producing a decent return on that value. This is why the OECD has insisted that “repeated taxation on property”, by which they mean the LVT, makes the economy more efficient, unlike all other taxes.”
“As Henry George pointed out to us all the art of land value taxation is to tax the unimproved value of said land. Another way to say the same thing is that we’re trying to tax the value that society adds to the land, not what the owner has added themselves. Land in the centre of London has a higher value than much land elsewhere just because it is surrounded by London. It seems reasonable enough that some of that value created by London should be taxed to pay for London.”
“That is, business rates are a crude proxy for a land value tax and as a crude proxy they’re not quite good enough. What we want instead is a proper land value tax, one that taxes the undeveloped value of that specific plot of land, that value being determined by all the other development that has taken place around it. What is actually developed upon that plot should not be taxed in the slightest. In that manner the retailer, the occupier, will not be bearing any of the cost of the rates, the developer will not be yet the landlord of the land itself will be carrying the full burden.”
“For a reasonable analysis of how zoning (or in the UK, planning permission) works is that those who currently own houses in desirable, low population areas, vote to get the zoning policies which keep those areas low population at no financial cost to themselves. The point of land value taxation being to insist that they carry that cost of excluding others from building houses in such desirable areas.”
“Business rates are not perfect as they rely upon the rentable value of the building, not the land it is upon. But they are the closest we’ve got to a good tax, a land value tax…
If you happen to be trading in a property hot spot (and, indeed, your brilliant business may have contributed to the success of that place, as in Southwold and Port Isaac, areas with notably good independent shops that will be hit by rate hikes), or big brands have arrived and now surround your enterprise, then your valuation goes up and you find yourself catapulted out of the small business relief zone.
Yes, that’s the point. There’s a limited supply of land in those hot spots, taxing that land is the least distortionary tax that we have. It’s a good tax. And note what is being taxed – that the other people around that property are adding value to it.
But the revaluation works for the online retail giants. According to CVS analysis, the nine Amazon distribution centres in England and Wales will be able to knock £148,000 off their property tax liabilities this year (despite annual sales in excess of £6bn). Similarly, fashion retailer Boohoo gets 13% knocked off the bill for its distribution centre in Burnley; so it goes on.
Quite so, this is what we want to happen. There’s a limited demand for chi chi shopfronts in Burnley and there’s lots of land. Thus we tax the use of low value land more lightly than the use of high value land.”
“However, we also know that different taxes have different deadweight costs… We even know a rough order of ranking of those deadweight costs. Transactions taxes have vast deadweight costs: at least one official report on the financial transactions tax (the report from the EU itself) tells us that that tax would make the whole economy so much smaller that it would actually lose tax revenue by being levied. Lower than that are wealth taxes (a once off wealth tax that no one knows is coming does not, but a regular one does), then capital and corporation taxes, then income taxes, then with still lower deadweight costs consumption taxes (like a VAT or sales tax) and then finally, at the bottom, we find that repeated taxes on non-movable property can even have positive deadweights. And that last can also be called a land value tax.”
“For the Institute of Economic Affairs (IEA), this is the solution: Property taxation should be completely overhauled, with the long-term aim of abolishing council tax, business rates and stamp duty, and replacing them with a Land Value Tax on commercial land and a tax on imputed rent for residential property.”
“If properly constituted, a tax on location value may cause disproportionately little economic damage, because land cannot be hidden or taken overseas to avoid the tax and owners cannot respond to the tax by producing less value in its location”
“The move away from existing property taxes and towards a land value tax and a tax on the imputed rent from owner-occupied housing (or a housing consumption tax) would create a tax system much more conducive to growth. Existing taxes on business property would be abolished and homeowners would no longer suffer stamp duty when they moved to take a more productive job. The tax on imputed rent would end the bias against rented property that exists in the UK tax system and a land value tax is well understood by economists to be one of the least growth-inhibiting taxes available.”
“The tax has attracted many proponents because it is as close as possible to an ideal tax – it is efficient (does not alter economic activity), equitable (the richer tend to have more land than the poor) and has revenue raising potential (the tax is difficult to avoid or evade). It also recognises land as a precious finite resource. More importantly, if implemented properly it can potentially seed economic growth, lead to greater productivity and even energise house building (as well as helping stabilise the cycle in land prices).”
“Now imagine local authorities had to finance all of their expenditure from their own tax revenue, and imagine a large chunk of that revenue came from, say, a local Land Value Tax (LVT). They would then have a strong incentive to grant planning permission more liberally, because this would be an easy way to broaden their tax base. That is the way to solve the housing crisis – not subsidising developers, and not subsidising homeownership.”
“Sensible tax changes would strengthen incentives to permit development by giving local authorities ‘skin in the game’. This could be achieved by, for example, replacing council tax, stamp duty, business rates and (property-related) capital gains taxes with a local Land Value Tax (LVT). Local authorities would retain 100 per cent of LVT revenue. This would encourage tax competition for residents, and it would allow local authorities to capture a part of the ‘planning gain’ (the increase in land value when planning permission is granted).”
“The UK’s system of property taxation is extremely complex, distortionary, arbitrary and inefficient. For a start, there are simply too many property-related taxes: Council Tax, Business Rates, Stamp Duty, and insofar as they relate to property wealth, Capital Gains Tax and Inheritance Tax. They should all be rolled into one, in a revenue-neutral way.
More importantly, they all tax a package. They (clumsily) tax the value of land, but they also tax improvements to that land, buildings, and the activity that takes place on it. Only the unimproved value of the land should be taxed, because this is the part of the package that a landowner cannot influence, which means that taxing it does not change their behaviour. Whether they leave their land derelict, or put it to the best possible use – their tax bill would be the same…
This would radically improve incentives. It would lead to a more efficient use of land, more and better housing development, a more efficient use of the existing housing stock, more business investment, and greater accountability in local politics. What’s not to like?”
“The economic principles of a land value tax have been advocated for centuries, from the writings of Adam Smith and Milton Freedman to the Mirrlees Review. In its purest form, an LVT is a tax on the value of the underlying land, independently of any specific improvements such as the value of any property built on it. Crucially, the owner must pay even if the land is currently unused. Unlike most taxes, then, an LVT actually encourages economic activity.”
“As the stock of land is fixed and housing is in short supply, continued growth in land value is not surprising, said Julian Jessop, chief economist at the Institute of Economic Affairs, a free-market think tank…
“The longer that this goes on, the stronger the case for introducing a land value tax to make sure that this scarce resource is used efficiently and fairly,” Jessop said.”
“The standard rebuttal to such proposals is the fact that Britain’s property taxes are already higher than anywhere else in the developed world. But that isn’t necessarily a problem: there is a strong philosophical case for taxing assets instead of work. Economically speaking, wealth taxes tend to do the least damage to growth. Property taxes also have the practical advantage of being nigh-on impossible to avoid.
The problem, in fact, isn’t that we tax property. It’s how we do so, which at present is both costly and unfair.
Indeed, it they were truly ambitious, the government might be tempted to overhaul the whole system and introduce a land value tax, which is a levy on the value of the underlying land and is paid by the landowner whether or not the land is being used. This is that rare thing: a tax that encourages rather than discourages economic activity, by making landowners pay for property that sits idle.”
“For all sorts of reasons, our green and pleasant land has become a “safe-haven” for investors the world over. The planning system can be loosened, but with so much international money chasing our acres, one has to ask what it would take to soak up the enormous pool of current and future demand.
This is why the ConservativeHome manifesto makes the case that other, more radical, measures will be required to render homeownership more affordable.
In the meantime, we need to charge investors a lot more for the privilege of burying their money in British soil. It’s not as if investing in land is going to make any more of it, so let’s whack-up the relevant taxes and use proceeds to reduce the burden on genuine, job-creating enterprise.”
“Likewise, the question of the private ownership of land is not one of whether private persons can possess or control or even trade claims on the use of land. The question is whether I can truly own land the way that I can truly own a spear.
I say: No. But what I mean by that is quite narrow, as with the airspace. You can own buildings – because buildings are created with labour and other non-land property… But you cannot (normally?) own the space (the “land”) in which the buildings and the soil sit because, as with the airspace, no property or labour has contributed to its creation…
In a previous piece, I argued against wealth taxes. But the reasoning of this post suggests that land taxes are not wealth taxes, for land cannot be part of a private citizen’s property. The land is owned (if by anyone) by the Crown. So the Crown might legitimately charge a fee for its use. I do not think such a charge should even be described as a “tax”. It is more like a usage fee.”
“In theory, the cost of paying the tax wouldn’t be passed on to tenants, but it would capture the “‘undeserved’ gains landowners make on the investment of others, such as the government improving nearby transport links.”
One could also argue that it would be an excellent way of discouraging the excesses of the British property market.”
“Meanwhile, the Chancellor should announce a comprehensive review of land taxation. Rents extracted from the productive economy by property speculators and land monopolists are a drag on growth not a contributor to it. They should be taxed accordingly.”
“There’s a sense in which all taxes are antagonistic to free enterprise – and yet we need taxes… So the question is, which are the least bad taxes? In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument from many, many years ago.”
“What kind of taxation is least harmful?….My own preference is for a single tax on land, with landholders doing their own valuation; you’d state the price at which you’d be willing to sell your land, and pay taxes on that amount. Anyone (including the tax collector) who wanted to buy it at that price could do so. This is simple, fair, and minimizes government snooping into our lives and business.”
Peter Thiel (entrepreneur and lifelong member of the Republican Party)
“Yes, I think George is a really interesting thinker. The idea that we should tax land heavily (and perhaps not tax anything else at all) is very interesting, since many of the bad monopolies in our society involve the unholy coalition of urban slumlords and pseudo-environmentalists”.
“Libertarians want to eliminate taxes, but until that can happen, taxes should at least be guided by rational principles and make a distinction between helpful and harmful behaviors. This may sound like the “no victim, no crime” principle applied to tax policy, but the philosopher Henry George arrived at the same conclusion…
Northeast Illinois’s high property taxes present a great opportunity for local Libertarians to propose sensible tax reform to solve the problems of high taxes that are stifling economic growth. The split-rate tax is a promising alternative to the burdensome tax schemes enforced across the majority of the country.
“Conservatives must support taxation on the value of land to modernise the UK economy. If they do not, it will become even more difficult to tackle issues like land banking and the housing shortage, while its implementation could allow for scrapping outdated taxes such as corporation tax and help to bring about a surge in productivity and growth.”
“English Common Law is based on natural relations within society, and not arbitrary decrees and statutes, and so it can be seen that the right to assess landed property for a land-related payment is merely a recognition in our law that land ownership cannot be absolute, that land anywhere in the world existed before any human society was formed, that the land that we live on forms a common social resource, and so it not genuinely “ownable” by anyone in any country, society or time period…
The original land grants made to Norman nobles could only be made in the context of English Common Law, which provided for exactions to be made by the Crown. It is clear that a common social resource—the land—a resource that naturally exists, is not the product of investment or the application of human skill and is generally not something that more can be produced of—has become monopolised by a few…
It is right therefore that the state attempt to extract as large a proportion as possible of the economic rent derived from possession of land, minerals, forestry and fishery resources, and the electromagnetic spectrum, and land taxation should be seen in this light. Given the fact that land is a common social resource, it is doubtful whether the word “taxation” is correctly applied to a land levy. What we are talking about here is not taxation of income or profits or the restriction of economic activity, but a levy that is based on the fact that no original ownership of the common resources ever existed.”
“The term “geo-libertarianism” was coined by economist Fred E. Foldvary. The “geo” in “geo-libertarian” stands for Georgist. Georgism is the economic belief that people should keep what they work for, but the benefits of land ownership should belong to the community as a whole. Thus, they support a land value tax (or LVT for short). Straight away, you probably see that this view is at odds with the common libertarian idea of property being an extension of the individual. Georgism stresses the idea of community, and libertarianism stresses individualism. However, these views don’t necessarily to contradict each other if the community exists to protect the rights of the individual…
One of the first Americans to identify as a libertarian was also a Georgist. His name was Albert Jay Nock. Milton Friedman also referred to the land value tax as the “least bad tax.” David Nolan (the founder of the Libertarian Party and the creator of the Nolan chart) claimed that a single tax on land was the “least harmful” kind of taxation.”
“The moral argument starts from the same place as John Locke’s famous discussion of property, with the claim that each individual is the sole rightful owner of his body and labor. Because George accepted Locke’s idea of self-ownership, he argued that most forms of taxation are unjust – essentially a form of theft. If you own your labor, and you choose to sell your labor to somebody else, no third party – including government – can legitimately demand that you give them a portion of the income you’ve received. To do so would be, in effect, to steal your labor.
But natural resources are not the product of anyone’s labor. They simply exist, on their own, as a free gift of nature. And because nobody created them, nobody has any better claim on the raw value of those resources than anybody else…
Natural resources, George thought, belong to humanity as a whole, and not to any particular person. A tax on the unimproved value of those resources is therefore one way in which humanity as a whole can reclaim what has been unjustly monopolized by a few, and do so moreover without violating individuals’ self-ownership.”
William F. Buckley Jr (conservative author and commentator)
Since the UK voted to leave the EU in June, the Tory leadership has been determined to make it clear to the rest of the world that Brexit Britain will remain “open for business”.
A recent report published by the Institute of Economic Affairs (IEA) has suggested numerous tax and government spending reforms intended to achieve just that. The authors encourage Chancellor Philip Hammond to take a sledgehammer to the UK’s tax system to stimulate economic growth, in what has been dubbed a “bonfire of taxes” by the Telegraph.
A key part of their solution is to replace several taxes with a new land value tax, described in the report as “well understood by economists to be one of the least growth-inhibiting taxes available”.
The idea of a land value tax – or LVT- has a long history, with figures from the 18th to early 19th century such as Thomas Paine, Adam Smith and David Ricardo supporting its implementation. It is closely associated with American journalist and economist Henry George, who believed that a tax on land could act as a “single tax” and replace all other taxes. LVT was also described by 20th century economist Milton Friedman as “the least bad tax”.
American journalist and economist Henry George who believed a land value tax should replace all other taxes.
In the UK, a land value tax was proposed in 1909 by then Chancellor of the Exchequer David Lloyd George and his ally Winston Churchill. The reform was included in their People’s Budget but was ultimately rejected by the land owners who filled the House of Lords.
More recently, LVT has been supported by the Green Party and Labour’s Shadow Chancellor John McDonnell.
Numerous arguments are made in favour of LVT. Firstly, increases in the value of land are largely a result of the economic activity of other people. It is possible for land owners to receive unearned income simply by speculating on increases in the value of land without making any improvements themselves. Furthermore, by taxing land, governments can recoup some of the money that they invest in infrastructure and utilities, rather than allowing the resulting increase in land values to merely provide a windfall for land owners.
Winston Churchill makes the case for land value taxation in 1909.
Secondly, the tax would encourage owners to develop valuable land rather than leaving it unused. In particular, sites in inner city areas would be used more efficiently, leading to a reduction in urban sprawl.
Unlike corporation and income tax, LVT would be virtually impossible to avoid. Advocates also claim that it would stabilise the economy, curbing the boom-bust cycle.
Lastly, switching to a land value tax means the burden of taxation can be shifted away from productive enterprise, and taxes that fall mostly on the poor can potentially be reduced or even abolished.
In the UK, three taxes that are usually considered prime candidates for replacement with LVT are:
Council tax – In the above-mentioned report published by the IEA, council tax is derided as “Confused, outdated and unpopular”.
The regressive nature of council tax has been criticised by journalist George Monbiot: “Why should council tax banding ensure that the owners of cheap houses are charged at a far greater relative rate than the owners of expensive houses? Why should Rinat Akhmetov pay less council tax for his £136m flat in London than the owners of a £200,000 house in Blackburn?”
Furthermore, MSP and LVT advocate, Andy Wightman of the Scottish Green Party has noted that 83% of households in England would immediately be made better off by a revenue-neutral shift from council tax to a land value tax.
Business rates – The IEA has previously criticised business rates in a blog post arguing for LVT: “Ideally, as argued here, they [the government] should at minimum consider scrapping business rates and replacing them with LVT. Business rates have long been criticised by many businesses because of their complexity and discouragement of investment and growth.”
Another problem is that business rates are reduced or zero for charities, agriculture and unused or underdeveloped land, which, according to the IFS, “provides a clear and perverse incentive to use land inefficiently”.
Stamp duty -It has been claimed that stamp duty, a tax on property purchases, has “a strong claim to be Britain’s worst tax”.
Jonathan Isaby, Chief Executive of the TaxPayers’ Alliance says that “Stamp Duty is unfair, unjust and must be reformed. It stops ordinary families moving up the property ladder, discourages the elderly from downsizing, and worst of all is a barrier to young people looking for their first home”.
However, abolishing these taxes could be just a first step. As mentioned above, a land value tax could also be used to shift the burden of taxation away from workers and businesses, thus encouraging enterprise and entrepreneurship. Taxing land rather than income would help the government to achieve its aim of “making work pay”.
A shift to a land value tax would encourage economic growth as it would result in lower “deadweight losses” than other forms of taxation. Economist and land value tax advocate Fred Harrison estimates that these deadweight losses amount to around £500 billion every year: “How does this happen? Taxes such as those on corporate profits, consumption and most of the rest of the fiscal tools imposed on the people of Britain result in negative forms of behaviour. The cumulative effect of all those distortions can be summed in one statistic: £500bn. That is the additional annual wealth and welfare which the people of Britain would produce if they were not burdened by Treadmill Taxes… That is because the incentives to work, save and invest would favour higher productivity in the way people went about their daily lives.“
Although, strictly speaking, they don’t have a land value tax, Singapore and Hong Kong are good examples of places where land rents have been captured for public revenue. In Singapore and Hong Kong most land is owned by the government, which leases it out to businesses and private individuals.
According to economist Neville Bennett, Hong Kong raises approximately 38% of its revenue from land leases. This has enabled the city state to keep its taxes on businesses and income relatively low. Income tax is very low in Hong Kong, with a top marginal rate of just 17%. Corporation tax there is 4% lower than in the UK (16% vs 20%).
Land value taxes have been implemented in a couple of European countries. One of these is Estonia. In part thanks to its use of LVT, Estonia is considered to have the most competitive tax system in the OECD.
Denmark also has a land value tax in place, and like Hong Kong and Singapore, it has been among the top six countries in the ease of doing business index every year since 2008. Impressively, Singapore topped the rankings every year between 2007 and 2016.
Ease of Doing Business index 2015-17. Source: Wikipedia (link)
Although numerous other factors contribute to the ease of doing business in a particular country, basing their tax systems on capturing land rents clearly hasn’t had a negative impact on those countries in this respect.
In addition to regularly featuring among the easiest places to do business, these places also perform significantly better than the UK in terms of budget surpluses/deficits.
By contrast, the UK has only achieved a budget surplus eight times in the past six decades, and not once in recent years, despite the austerity measures implemented by the coalition and subsequent Conservative government.
If the government wants to ensure that Brexit Britain is truly open for business, it would be well-advised to consider the examples of Hong Kong, Singapore, Denmark and Estonia and take a serious look at the idea of land value taxation.