John Christensen ■ Land Value Tax: back on the table in the UK
Land value taxation, an annual charge on the value of land, has been talked about for a very, very long time. In the UK it was proposed in the people’s budget of Lloyd George in 1909, and in the subsequent election campaign it became such a hot issue the governing liberal party made a song about it, “The Land”, their election anthem in a time before party political broadcasts. You can hear the original 1909 recording here.
The Liberals failed to get LVT though, and it has subsequently remained just something to be talked about.
Now it is being talked about again, and seriously it would seem. The Network for Social Change recently organized an event on implementing a land tax in the UK, which was hosted by RICS, the professional association for surveyors.
Held under Chatham House rules the assembled economists, tax experts and surveyors were told that all political parties were now looking at their tax policies and LVT was back on the table.
The attraction of LVT is powerful. Land does not move, and the value of it can be fairly easily determined. That means for tax purposes, it is incredibly difficult if not impossible to avoid if enforced properly (in Jamiaca, there is a 60% evasion rate on LVT since no one seems very keen on enforcement).
Stopping tax avoidance is a big incentive for land and property based taxes in particular. The HMRC says they are losing half a billion though undeclared rental income alone. Avoidance from a number of other property based taxes, stamp duty, inheritance tax etc is a big issue too, and there was an acceptance amongst experts that inheritance tax is so easy to avoid that it is basically optional today.
Evidence for these forms of tax avoidance is seen by the government’s annual tax on enveloped properties. This tax was introduced to combat the growing issue of people owning their property in an offshore holding company. This meant that when they came to sell the house, rather than transferring the ownership of the property and paying stamp duty the offshore company is sold avoiding tax. It is also one way of avoiding inheritance tax.
To discourage this the UK government introduced an annual levy on property held offshore. The tax brings in about £100m a year, 5 times more than originally forecast. The government may claim this as a great result, in reality it means that many people see it as worth their while to pay the levy rather than be exposed to a number of other taxes. Its kind of an honesty box for tax avoiders, except it isn’t that honest.
There are also huge economic benefits to LVT. With a land tax the government doesn’t tax buildings, the value of which can arguably be down to the skill of the builder, but just the value of the land. That is often boosted by the desirability of the area, by planning permits, by the provision of new infrastructure (e.g. an underground station) or by scarcity, in other words nothing that is created by the owners.
Taxing land value therefore does not act to discourage economic activity in the same way that it is argued income taxes do. In fact we can use part of the income to bring down taxes on other areas of the economy which are regressive or difficult in other ways.
It is also a just tax, because you are taking the wealth which has not been created by the people owning that wealth, and using it to provide goods and services that we all benefit from.
The desirability of taxing unearned wealth was set out by John Stewart Mill in the 19th Century in his Principles of Political Economy. Referring to how landlords he said: They grow richer, as it were in their sleep, without working, risking, or economising. What claim have they, on the general principle of social justice, to this accession of riches? In what would they have been wronged if society had, from the beginning, reserved the right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies?
This leads to the third big reason for land value taxation, the potential for economic stimulus. The low cost of holding land encourages speculation. Investors may simply buy land and wait for the value to go up. With land value taxes the costs of holding land increases so land owners are encouraged to put it to productive use, or to sell it to someone who will. The result is that land prices fall.
And they fall significantly, one economist said that a tax of 1% leads to a long term depreciation of house prices by 25%, good news for the many people suffering from the raging housing market in England. Bad news for baby boomers who bought cheap housing and sat back and watched as the value of their assets ballooned whilst they sat there.
Which brings us to the crux of the problem. If something so great has been talked about for so long why has nothing happened?
The answer is politics. A new tax that will reduce the value of your home is a tough sell in a country where most people still own their own home. Particularly when the public discourse is controlled by a media which is in the hands of a wealthy elite who stand to lose most from a dose of fiscally stimulated redistribution.
An LVT would hit people who are asset rich and cash poor. The grandmother who lives in a 6 bedroom £2m house in a leafy suburb of South West London that she bought for 2p and a humbug in 1957. Now she is just living on her pension and eating tinned soup because all her money is going into heating her enormous house. She will be faced with a huge land tax which she just can’t afford.
This blogger is slightly less sympathetic to Grandma given government austerity is forcing young families out of their council flats because they have a spare box room. Grandma in my view could sell up, downsize to a £1m home, heat her home, pocket £1m in cash and enjoy Saga holidays for the rest of her life.
But for some reason, poor grandma in the £2m house touches the heartstrings.
One social scientist highlighted the extremely poor levels of public education on tax issues, inheritance tax being the best example. Inheritance tax brings in less revenue than the TV license. It is paid by a tiny amount of the population, 6% of estates, and they are exclusively wealthier people. Despite this 52% of people think it should be scrapped, and 54% think that it is paid by a quarter of estates.
They may well think that because the pages of most newspapers are filled with articles raging against the “death tax”. That may be because most newspapers are owned by wealthy families, we couldn’t possibly comment.
So how much is up for grabs? One tax expert has estimated that the amount of money available to the government could be up to £200 bn a year. And that’s just looking at residential property.
The potential for reworking the entire tax system at this point becomes possible, and there lies the political solution. If a government could get the right balance between replacing existing taxes, plugging the deficit and increasing public expenditure from the proceeds of LVT, then it could put together a package that it can sell. More so at a time when increasing numbers if people are being locked out of the housing market.
The question remains, whether any of our politicians are up to the job.
Watch UK Cabinet minister Vincent Cable (a Liberal Democratic member of the UK Government) discuss the political barriers in this public debate on LVT at the RSA (which also features TJN’s director John Christensen and sustainability expert Professor Molly Scott-Cato).
– George Turner
Read more about Land Value Tax in Tax Justice Focus.
Comments • 19
I’m sorry that you do not mention anything about the Labour Party and LVT – it was their main economic policy from its inception. A Labour government in 1931 actually enacted LVT, although it was never implemented, being quickly repealed by the incoming Tory-led coalition government. Even as late as 1939 Herbert Morrison introduced the Site Value Rating for London Bill, which did not get passed. After WWII Labour lost the plot, unfortunately, although 150 Labour MPs were calling for LVT instead of the disastrous Betterment Levy in 1947.
Thanks for the comment Carol. That is of course an important point. Hopefully politicians of all colours and none can have a sensible debate about this now.
“So how much is up for grabs? One tax expert has estimated that the amount of money available to the government could be up to £200 bn a year. And that’s just looking at residential property.”
Ultimately, all taxation is paid out of land rent. That is to say the rental value of land is depressed by the sum of taxation on income and capital.
So, while LVT would raise £200bn per year at todays rental values, the base for LVT would quickly expand as taxes on income and capital are replaced.
Could we replace all other taxes with only an LVT? I can’t see why not.
just for the record, TJN disagrees with this last commenter. LVT is a very important tax, and we should have a lot more of it. But we think single-taxers who argue that it can replace all other taxes are doing damage to the LVT cause. A better approach is to have LVT as one among a range of taxes, including income taxes, corporate taxes, capital gains taxes, value added taxes, and so on.
That seems like a pretty strong statement. I’d be fascinated to hear your reasoning. Why shouldn’t LVT replace all other taxes if possible? Sure we should keep the current Pigouvian taxes on pollution.
But why tax income and capital? It’s pretty easy to demonstrate that by doing so instead of collecting land rent as revenue makes inequality far worse. Let alone the economic damage.
It’s a simple fact that if the rental value of the land your property occupies is more than you pay in tax, you are a net burden on the rest of society.
The top 1% of households pay <18% of all domestic taxation, yet own around 50% of land by value. That equates to a £100bn per year State subsidy/free lunch to the very wealthiest.
Banks and landlords both enjoy a £40bn per year free lunch each too.
They love incomes taxes, taxes on turnover and taxes on profit. It pays for all the things that gives them unearned income and unearned wealth.
Does the Duke of Westminster finance the tax justice network by any chance?
Shove all your money offshore, owning only foreign assets: how would a UK-only LVT catch it?
“does the duke of westminster finance tjn?” given what we say and do, what do you reckon? funding details are here. https://www.taxjustice.net/about/who-we-are/accounts/
once again, I believe that obsessive single-tax lvters damage the lvt cause.
Even if you could shove your money off-shore by way of selling your assets, you have to find someone willing to buy your assets and pay the LVT. If they can’t sell their asset at a reasonable price (to them) then they pay the tax, if they can sell their land at a reasonable price, well then you’ve got a new tax-payer. Not every rich person can sell their land assets, or their would be no buyers and the value of land (and rich people’s wealth) would drop dramatically. Either way it’s a win.
The Duke of Westminster is the UKs richest born citizen. The vast majority of his “wealth” is in UK land. How is he going to off shore that?
The Duke is the visible tip of the iceberg. Banks, landlords and the top 1% of households own more land by value than the 99% of us put together.
As I wrote above “It’s a simple fact that if the rental value of the land your property occupies is more than you pay in tax, you are a net burden on the rest of society.”
If they decide to sell up and go, this is because they are a net burden. So, a 100% LVT flushes out these parasites.
Sounds good to me.
Of course, some people think making lots of money is inherently bad, as it must come at the expense of others. That’s because they cannot distinguish between land and capital, and therefore what is earned and unearned.
Good article. But I can only recommend everyone keeps an open mind and not use language like “obsessive”.
I’m not a “single-taxer”, a “georgist” or an “LVTer”. I’m only interested in tax simplification and efficiency. Fair tax systems are also efficient.
” . . the right balance between replacing existing taxes, plugging the deficit and increasing public expenditure from the proceeds of LVT, then it could put together a package that it can sell.”
I’m a fan of LVT for its economic and distributional effects, but I thought that everybody knew by now Monetarily Sovereign governments with free-floating fiat currencies don’t tax for revenue. Where have you been?
they do tax for revenue, as everyone has always known. the matter of how important deficits are is a good question, but that doesn’t change the basic point.
there, surprisingly enough, are taxpayers in the UK other than the Duke of Westminster. Many of them own assets other than land (or even land in other countries). To repeat: if they stash their wealth offshore, owning only foreign assets, how would a UK-only LVT catch it? And, once again: LVT is a great tax. Just not the only tax.
Why do you need to “catch it?” I thought the important part was revenue, which the LVT is a revenue generator like no other. If every rich person “off-shored” their assets, no one would buy the land they formerly occupied, leaving them stuck with the land and paying the tax.
tax has many purposes. revenue is one. protecting democracy and the rule of law and a sense of fairness is another. and there are others. If you are advocating tolerating a truly gigantic loophole that would effectively make tax voluntary for the wealthy, then it would be preferable to state this explicitly.
Revenue is the only good reason for a tax. Democracy, rule of law, and fairness are not served by nameless, faceless bureaucrats taking the fruits of anyone’s labor (or savings) for any reason other then to fund government. If an LVT can fully fund government without creating enforcement headaches, then it’s infinitely better taxing common property (land rents) then taking private property (labor and savings). If every wealthy person were forced to live like Warren Buffet (extremely boring middle class) in order to avoid taxes, then we’re all to benefit.
a) lots of people have their assets offshore already, whether effectively taxed or not
b) many peoples’ assets depend heavily on foreign investments, whether or not ‘offshore’
c) for your plan to work properly, you’d have to introduce full LVT overnight, so nobody could dodge it. viable?
a) So what you’re saying is that the failures of the current income and VAT taxation schemes are the principal reason they should be carried on? That because “off-shored” assets are not sufficiently taxed is reason enough to continue not sufficiently taxing them?
b) Of course lots of assets are foreign, just like a lot of foreign accounts have invested in domestic assets; there’s nothing illegal or unethical about that.
c) Not necessarily, the sudden move to a fully land-rent based tax system would throw the system into a massive recession that’d hurt the cash-poor, land rich types the most. It’d be much wiser to phase it in over time to allow the market get used to zeroing out private land wealth in favor of liquid cash wealth. Again I’m not sure what the point of “catching” it is. If the wealthy want to invest in a specific area, regardless of the nature of that investment that investment has some sort of land component. Off-shoring assets requires liquidating land assets, likely at a huge loss, into liquid capital, which if invested in a country with an income tax system then gets “captured” by their tax system.
Why would you only own foreign assets? If income is no longer being taxed in the UK, it’d make a lot of sense to work, spend, and save in the UK vs. other countries that do tax income, savings, or spending. A 0% tax rate on income, savings, and spending would turn the UK into a tax haven for the wealthy from other countries.
It makes perfect sense that cutting the taxes would increase the value of land. If you cut income tax, people will have more disposable income. They may spend this on getting a mortgage on a bigger home or just buying more things in the shops. This will either increase the value of land is zoned for residential use all make businesses more profitable because people are spending more money in the shops. This will increase commercial rents. If VAT is cut, people will have more money to spend in a similar way. Businesses that were previously below the margin of profitability will now be profitable because there will be more money being spent in the economy and therefore there will be more companies in business and thus more demand for commercial property. In addition, previously unused land will come into use because there is tax to be paid on it, thus increasing economic activity even further. This will all tend to push up land prices by an amount similar to the value that other taxes have been cut, thus increasing the value of land from today’s value andincreasing the yield from land value tax. Income tax is a disincentive to work or employ people and VAT is a disincentive to spend money or sell things, so they depress economic activity. If you cut income tax or VAT take by £100 bn is it likely that land values would rise by a similar amount, but with land value tax council tenants in Glasgow would pay nothing in tax, whereas people living in One Hyde Park would pay millions. Setting up business in the north of the country would become more attractive because it would be a way to pay less tax because land taxes are lower there, whereas VAT and Income Tax are the same right now, so why not stay in the South East where all the locational advantages are? Maybe it couldn’t be a single tax, but it could help solve quite a lot of problems.
George, thank you for an insightful article. I’d be really interested to see a reference for the analysis which showed that “a tax of 1% leads to a long term depreciation of house prices by 25%”, particularly since economic analysis on LVT seems pretty light on the ground.