Wednesday, 7 May 2014
In praise of Land Value Tax: the case for change
We're delighted to present this guest blog by April Cumming (Holyrood researcher, Vice-Chair Scottish Fabians, Nordic Horizons, Electoral Reform Society) making the case for a Land Value Tax. While it's important to stress that this is not a statement of STUC policy, we are currently researching alternatives to the Council Tax with options to be presented to STUC Congress 2015. An appraisal of the benefits and disadvantages of LVT and other alternative forms of taxation is central to this process. The STUC also continues to be closely engaged with ongoing debate around taxation and constitutional reform.
It is a rare occurrence to sit in the company of experts who are able to describe what is on the surface a complex tax issue in simple terms. Dave and Heather Wetzel, and their colleague Fife farmer Duncan Piccard, are three such experts. As part of their trailblazing tour promoting the introduction of a Land Value Tax they dropped by at the Parliament for a one hour briefing session for policy enthusiasts, where they somehow achieved in a short space of time what the Mirlees report expresses in many long intimidating pages. Namely a crystallisation of the arguments for why LVT is the natural and logical step to take in the journey towards a more equitable and fair distribution of land and resources in the UK. It is a lever to fundamentally alter the way we engage with the land, our most valuable and misunderstood commodity. At a time where intermittent and sporadic spurts of growth have become a dominant characteristic of our economy, academics and policymakers have started to look for alternative methods of raising revenue that offer a more sustainable approach. As a result of this there has been a growing body of opinion arguing for a fundamental shift in the system that favours a reduction of existing taxes to be replaced by an annual Land Value Tax. The Labour Land Campaign is one of the voices in this argument.
At present we are witnessing what the Coalition government have lauded as the much anticipated green shoots of recovery. What is disappointing is that, rather than recognising that these shoots are nothing more than perennial weeds the government have celebrated the beginning of what has all the hallmarks of the bad old ‘boom and bust’ of pre-crisis years, and dressing it up like a sturdy evergreen. Cast your eye a few short administrations into the future and it’s not difficult to imagine the consequences of this return to the old economic orthodoxies of the past. As the OBR have pointed out this is a growth based on speculation in the housing market, on increased consumer spending and the gradually chipping away at savings to float the household budget. In the long term this may only lead to further crisis.
The Coalition For Economic Justice, formed by a cross-section of think tanks to offer alternatives like LVT, have pointed out the inadequacy in the current system of valuing land and the corrosive effect these structures have on surrounding communities. “Events are clearly demonstrating that the speculative rise in land prices is a common feature of the repeated economic booms and busts. In order to address this problem we call for a new approach that delivers both economic justice and prosperity for all. This solution must be based upon the annual collection of land value for public purposes".
This was a point echoed repeatedly by Duncan, Heather and Dave. The hypocrisy that lies at the heart of the current system of land ownership in the UK is that land absorbs public funding and yet the profit generated through the use of that land is then returned to the owner rather than those who contribute. The example used by Dave Wetzel to illustrate this point is the expansion of the Jubilee line in London’s underground. As a result of greater connectivity to the city the land that lies adjacent to the expansion accumulated in value significantly. And yet, none of this benefit was returned, despite the use of public funds through infrastructure investment. Those who benefit from this expansion are those who already own land on the route, the speculators. It cost the taxpayer £3.5bn but resulted in a £10-13bn increase in land values along the route; when one considers this net gain, which was the fruit of public investment, does it not then follow that as land values rise they should in turn be taxed, returning a proportion of the gain to the public purse? Imagine the difference that this would make to the ability to fund further infrastructure?
Such funding could go to building vital housing, and in the process create employment. Couple land speculation with the fact that there is a dire need for affordable housing in capital cities across the country and it’s not hard to understand the need for a more equitable system. Land that has been sat on purposefully by UK and foreign speculators as it accumulates in value could be used to generate an income for an entire community, making their homes not only a more pleasant place to be but also making adjacent businesses more prosperous.
While many may term a shift to a land based tax as being a radical shift this is not new thinking. The governments of Lloyd George and Winston Churchill made efforts to introduce LVT, both consecutively overruled by the House of Lords at the time. It has also been recognised as a viable alternative to income tax and business rates by the current business secretary, who acknowledged that the ability to shift wealth around the globe to find favourable business environments has lead to a growing imperative to re-assess where and how wealth should be taxed.
"It will be said that in a world of internationally mobile capital and people it is counterproductive to tax personal income and corporate profit to uncompetitive levels. That is right. But a progressive alternative is to shift the tax base to property, and land, which cannot run away, [and] represents in Britain an extreme concentration of wealth."
- Vince Cable, Liberal Democrat conference, Liverpool, 22 September 2010
But bringing in an LVT first requires a land register with up to date, transparent information on who owns what and at what cost. Scotland’s own Land Review Group fell disappointingly short of the mark on progressing the case for an updated register. However, the recent musings of the Scottish Affairs committee in Westminster have suggested that this is a potential development, as the case for a more transparent system is brought forward. As their interim report points out, “no government which has any pretentions to land reform can avoid the need for full and clear information on its existing ownership patterns to be widely available”. This is a starting point but the political will to engage with campaign groups and start to make a pointed shift in how we tax wealth in this country must exist both north and south of the border. Two thirds of the UK’s 60m acres of land are owned by just 0.36% of the population. An annual Land Value Tax levied land would affect these wealthy landowners rather than ordinary homeowners across the country and create a case for long term sustained capital investment. Sitting on land would no longer be a viable business choice.
This issue is not the reserve of the land and estates or the highlands. It takes in the unused land in our cities and towns, where a lack of targeted legislation has allowed the build-up of pockets of wealth that have a direct negative impact on the people who ought to have a direct stake. The buildings sitting on valuable land are allowed to crumble, as the current system allows it. This is, at its heart, an issue of power. Power lies with those who have the ability to control land use, namely the tiny percentage of the population capable of the privilege of ownership. Any government who makes even a passing reference to their left wing credentials has a duty to engage with the issue of land whole heartedly because in doing so they may facilitate a sea change that not only improves the lot of small businesses but also rebalances the economy in a sustainable, equitable manner. No more boom and bust and speculation, Land Value Tax could be the seed that creates the evergreen recovery we so badly need.