Act Locally and Get ‘Em Young
The Labour Land Campaign has members all over the country, a resource that we have perhaps neglected in the past. LLC members do not need explaining why local action is particularly relevant to the fight for Land Value Taxation. All members are encouraged to contact their Member of Parliament and Councillors. Below are templates that might help (links at the end for downloadable versions). Of course, these templates are very much that: a Labour politician might need to be approached in a different way from a Tory; someone representing a deprived area will have different priorities from someone in a prosperous constituency, etc. For example, it might be worth pointing out to a Labour or Lib-Dem that their party has a long if unrealised history of espousing LVT, and that John McDonnell is a longstanding LLC member. Tailoring will be essential but the templates may be a starting point.
If an elected representative expresses interest, experience shows that they are often focus on impediments. LLC Vice-Chair Heather Wetzel composed a text to answer points raised after she spoke to her own MP. This is presented as a Follow-Up template at the bottom of this page.
Finally, LLC feels that a priority is to “get ‘em young”. Students of economics have been famously questioning why nothing that they learn in their studies accounts for the financial crisis. LLC members know that a central issue was land and that this is ignored in the neoclassical paradigm that dominates academic economics. If you feel up to it, you could offer to present a talk to students about land and LVT so the third template is aimed at university lecturers and A-level teachers of economics and business studies. Perhaps you could offer such a talk at your kid’s school or college? Perhaps you know an educator who might be interested? This LLC site contains various resources for such presentations, e.g. you could show the film “The Taxing Question of Land” to launch a discussion and slides can be downloaded from the “Want to teach Land Value Tax or hold your own event?” page. If you get a positive response from an educator but don’t feel up to giving a talk yourself, get in touch with Carol Wilcox who may be able to organise a speaker.
- Member of Parliament
I am a member of the Labour Land Campaign, a cross-party group that advocates the introduction of a Land Value Tax (LVT) to replace economically inefficient taxes. As you know, the prices of goods and services are raised by taxes on work like Income Tax and National Insurance contributions as well as taxes on business and investment like Corporation Tax and Business Rates; this eliminates jobs and cuts down productivity and competitiveness. Taxes on trade like VAT similarly raise prices, and both VAT and Council Tax fall unfairly heavily on the poorest people and the most deprived parts of the country. These six pernicious taxes account for some 85% of government revenue.
Almost all economists from across the political spectrum agree that only one form of taxation is economically neutral, namely an annual tax levied on the rental value of land, irrespective of any buildings or other improvements on it. Being a tax on wealth, LVT would tend to fall on those most able to pay: it would be fair. Being a tax on land, LVT would be unavoidable: it would expand the tax base. Moreover, LVT would lower land prices and get rid of incentives to leave potentially useful land idle: it would help economically productive business (especially in deprived regions) and solve the housing crisis.
With the Chancellor having identified the three main challenges facing the country in 2016 as low productivity, the housing crisis and inequality (both social and geographical), LVT—however politically tricky—would seem to be a no-brainer. As an article in the Economist said last year, “Politically tricky problems are ten-a-penny but few offer those who solve them a trillion pound reward.”
If you are not familiar with all the advantages of LVT over any of our current taxes (only a few of which are mentioned here), please have a look at the Labour Land Campaign Web site [http://www.labourland.org] and I would welcome the chance to speak to you about it face to face.
I am a member of the Labour Land Campaign, a cross-party group that advocates the introduction of a Land Value Tax (LVT) to replace economically inefficient taxes. While Council Tax is grossly unfair with a tenant in [local town] paying more than the owner of a multimillion pound flat in London, Business Rates are penalising local enterprise and investment, thereby eliminating jobs and cutting down productivity and competitiveness.
Almost all economists from across the political spectrum agree that only one form of taxation is economically neutral, namely an annual tax levied on the rental value of land, irrespective of any buildings or other improvements on it. Furthermore: LVT is fair (falling more heavily on the wealthy); it cannot be avoided or evaded (you cannot put your mansion in the Cayman Islands); and it would free up potentially useful but currently idle land and lower land prices, thereby helping productive business and solving the housing crisis. Across the world, especially in the United States, local authorities have introduced a local LVT with great success; some of these examples are described in the “Tax Trial: a Land Value Tax for London” report I am attaching [attach this file or link: www.london.gov.uk/sites/default/files/final-draft-lvt-report_2.pdf]. This Report was published in February 2016 for the incoming Mayor of London and recommends—as well as laying out a concrete plan for—implementing a pilot local LVT in a specific part of the city with a view to roll-out across the capital in the future.
It would be exciting if this eminently sensible and fair solution to the country’s problems were to be pioneered in [your local authority], however politically tricky it might seem. As an article in the Economist said last year, “Politically tricky problems are ten-a-penny but few offer those who solve them a trillion pound reward.”
If you are not familiar with all the advantages of LVT over our current taxation system (only a few of which are mentioned here), please have a look at the Labour Land Campaign Web site [http://www.labourland.org] and I would welcome the chance to speak to you about it face to face.
3. Get ‘Em Young
A-level Teacher/University Lecturer on Economics or Business
I am a member of the Labour Land Campaign, a cross-party group that advocates the introduction of a Land Value Tax (LVT) to replace economically inefficient taxes. We offer speakers for high school and university students studying for Economics and Business qualifications.
After years in the shade, the idea of LVT is gaining traction as a solution to the country’s current problems—low productivity, the housing crisis and inequality—recently highlighted by the Chancellor. As you know, almost all economists from across the political spectrum agree that only one form of taxation is economically neutral, namely an annual tax levied on the rental value of land, irrespective of any buildings or other improvements on it. Being a tax on wealth, LVT would tend to fall on those most able to pay: it would be fair. Being a tax on land, LVT would be unavoidable: it would expand the tax base. Furthermore, LVT would lower land prices and get rid of incentives to leave potentially useful land idle: it would help economically productive business (especially in deprived regions) and solve the housing crisis.
If you are not familiar with all the advantages of LVT over our current taxation system (only a few of which are mentioned here), the Labour Land Campaign Web site [http://www.labourland.org] contains information and links to other resources that you might find useful.
If you think that your students might profit from hearing a short talk on the adverse impact of our current taxes on work, business, trade, enterprise and investment, and the relative advantages of LVT, I would be happy to organise such a talk.
Follow-Up (if your MP expresses interest in learning more)
Answers to four major barriers faced by a future Labour Government in introducing an annual Land Value Tax
This text aims to explain some of the actual and perceived objections a future Labour Government has to address in order to be successful in introducing an annual Land Value Tax on all land in the UK. (For simplicity, this paper uses the term annual Land Value Tax as it is widely used by academics, politicians and think tanks concerned with collecting natural resource rent.) The paper assumes the reader understands how local and national taxes in the UK are not fit for purpose and how public services, particularly the NHS, local health care provision, transport, education and housing are seriously at risk because of a lack of adequate and sustainable funding.
It is worth noting that LVT is not exclusively a policy of the left and is advocated to replace all or some taxes by the Liberal Party, Green Party, Institute for Fiscal Studies, Adam Smith Institute, Institute for Economic Affairs, New Economics Foundation, …
1) Probably the biggest barrier faced by advocates of collecting natural resource rents centres on understanding of what is meant by the “economic rent” of land.
a) Land Value Tax (LVT) requires an annual valuation of the economic rent of each site based on at its optimum permitted use. A lack of agreement of what is meant by “economic rent” has caused misunderstanding and distorted discussions about how an annual LVT will fundamentally tackle many economic issues including: a skewed and avoidable tax system; unaffordable homes to rent or buy for a growing number of people all over the UK; commercial premises being unaffordable for new or expanding businesses; and growing inequality – personal and regional – all over the country. Therefore it is crucial that policy makers understand the economics of land to guarantee that their decisions are wise and that they can communicate why they are sensible in a clear, unambiguous and informed way.
b) What is meant by economic rent? The “Economic Rent” of land is, as defined by David Ricardo and others: the surplus income that rises from a site after all costs of labour and capital have been accounted for compared to a same-sized site using the same amounts of labour and capital that bears no surplus. (Please contact author for a presentation or full explanation of the theory of rent.)
c) How does Economic Rent arise? As productivity has increased over generations by virtue of public and private investment so the surplus income from each site in use has risen. Because land is fixed in its supply, this has led to its value rising as demand for its use has risen.
d) How does Economic Rent differ from the selling price of land? The cost of buying or renting a site is different to the economic rent of that site in that the selling/renting price will take stock of a myriad of extraneous factors. These may inflate the price, e.g. government grants and subsidies as happens with Common Agricultural Policy subsidies, tax-breaks, housing benefit paid for private rented accommodation, subsidised buy-to-let mortgages, Enterprise Zones, etc. Or they may decrease the price, e.g. covenants or planning restrictions (Conservation Areas, sites within a designated national park, etc.); Section 106 agreements; anticipated Community Infrastructure Levy payments; legal costs; decontamination costs; construction costs for the proposed buildings; taxes to be paid, etc.
e) The private appropriation of the Economic Rent of land has led to a serious distortion of the economy. Because the supply of land is fixed, keeping it idle—even if it has planning permission for commercial or residential use—creates an artificial shortage thereby inflating its sale price or rental value.
i) Buyers of property for speculative (sometimes wrongly described as “investment”) purposes inflate the selling/rental price of land.
ii) All government grants and subsidies eventually seep into the selling/rental price of land thereby inflating it, e.g. Common Agricultural Policy grants and Housing Benefit paid to the tenants of private landlords have capitalised into land value and are now collected by land owners rather than fulfilling their intended purposes, namely to help farmers produce food and make accommodation affordable for lower-income private tenants.
iii) Many Members of the House of Commons and House of Lords benefit from rising land values but are not required to publish details of their direct or indirect links to land holdings that benefit from the grants and subsidies they vote in.
iv) Inflated land prices deprive communities of commercial and domestic properties because tenants and buyers can no longer afford to locate in such areas.
v) Because taxes and the economic rent of land are inversely related, as taxes are lowered so land value increases and vice versa.
vi) In the UK where sitting in Parliament and voting were long subject to property-owning restrictions, taxation to fund public services has been progressively shifted off land value and on to trade, production, labour, enterprise and investment. The owners of land enjoy the bulk of the economic benefit that public investment brings to the economy and will continue to do so until this historic wrong is corrected.
vii) Taxing trade and production at the same rate in the margins (where land value is low) as at the centre (where land value is high) means businesses are incentivised to locate to already-privileged areas, exacerbating geographical inequality in employment and development.
viii) Because taxes are levied on buildings, trade, production and incomes, productivity is depressed and there is a ‘drag-anchor’ effect on the economy thereby discouraging new investment.
2) Explaining how LVT works in a clear and well-informed way
How not to do it
It is only with a proper understanding of what LVT is and how it will work that there can be success in implementing the policy. For example, because he did not understand the underlying economic benefits of the ‘Mansion Tax’, Ed Miliband, former leader of the Labour Party, failed to get full support for the policy. When he appeared on a television panel the concept of a mansion tax was belittled by entertainer Myleene Klass who raised ‘asset-rich, income-poor grannies’ being unable to pay it and said £2million would only buy a garage in central London. Because Ed Miliband did not understand that it is the private appropriation of land value that has allowed land prices – and therefore the price of homes – to spiral out of control, he lost the argument to the ill-informed and biased Myleene Klass. The £2million pound garage is nearly all land value that has been generated by all UK residents and businesses as taxpayers and real investors and not by land owners or land speculators. The simple answer to the ‘asset-rich, income-poor granny’ was for the system to allow her to defer any amount of the mansion tax she could not afford until the property changed hands. What should have been an election winner and a trailblazer to the implementation of a full land value tax got lost through a lack of understanding of how the economy works
a) Unless politicians, their advisers, the electorate and the media fully appreciate how the private appropriation of land wealth affects the economy, decisions based on misunderstanding and misinformation will leave power in the hands of those with a vested interest to maintain the status quo. We will continue to miss the opportunity to see a shift towards a fairer and sustainable economy which encourages wealth-creating investment and the provision of public services that meet individual, community and business needs.
b) It is crucial for those advocating LVT to really know what they are talking about and therefore be able to respond to the fallacies put forward by opponents of the public collection of unearned land and other natural resource rent.
3) Who are the real ‘winners’ and ‘losers’ with LVT?
a) Because the UK’s skewed economy can be righted by shifting taxes off buildings, incomes, production and trade, the country as a whole will win. The replacement of pernicious taxes with LVT will result in public investments seeing their economic return being diverted from a minority of privileged land owners to the public purse. This would drive a virtuous cycle in which improvements in public infrastructure and services leads to rising land value which in turns provides a sustainable source of funds for ongoing improvements in public infrastructure and services. Investors will no longer be enticed into land speculation and will invest in real ventures creating more jobs. Businesses will see the economic benefit of locating and expanding in areas of low investment as their overheads will be cheaper. Affordable business premises will allow individuals, co-operatives and new businesses to start-up all over the UK. As areas attract or keep workers, so the demand for currently empty homes will rise, easing the pressure on prosperous cities and areas, notably London and the South East of England.
b) Owner-occupiers are often a source of concern by advocates of LVT as well as opponents. However, rough calculations show that many owner-occupiers will in fact pay less under LVT than they currently do with Council Tax (see appendix 1). In such arguments, it is often forgotten that over 40% of adults are tenants, lodgers, homeless or—increasingly—live with their parents. These non-homeowners equally generate land value as taxpayers and consumers but get no windfall as land prices rise.
c) The only ‘losers’ with LVT will be land speculators who are holding valuable homes out of use for all or most of the year, denying those homes to people who want to live in areas near their jobs, family etc.
d) Because LVT will be levied as a function of approved use, developers with big land banks will be encouraged to develop their idle sites all over the UK rather than pressuring for permission to build on green land.
4) If it’s so great, why hasn’t it been adopted in the UK and abroad?
a) In 1692, Parliament introduced the Land Tax Act. The original Act appointed Commissioners responsible for revaluing the land each year and raised £2million – 35% of national revenue. However, after a few years, revaluation was stopped and the Land Tax was raising so little by 1963 that it was abolished. A story similar to what we are seeing now across the world with the race to the bottom in Corporation Tax (the only significant current tax that is taken out of economic rent).
In his “Peoples Budget” of 1909, Lloyd George introduced a land tax but, to placate the landowners in his own party, he compromised the simplicity of LVT with so many exemptions and complications that the only valuable outcomes were a curtailing of the power of the House of Lords on budgetary measures and establishment of a register of land ownership.
In his 1931 Budget, Philip Snowden, the Labour Chancellor successfully put Land Value Tax in his Finance Act but the National Government stopped land valuations taking place and the next Conservative Government repealed the legislation.
b) Although it is not usually recognised as such, there are examples in the UK today where some land value is collected for the public purse. The Rating system in the UK collected a portion of land value but, as is seen with today’s Business Rates, it was avoided by speculative owners of commercial sites making buildings uninhabitable and therefore exempt. Rental income from the City of London’s Bridge House Estates (now worth £500 million and yielding £35 million annually) has been used to built and maintain five bridges across the Thames since 1282. The Scottish Government and Welsh Assembly are both considering some form of LVT to replace current taxes to pay for their public services.
c) Examples of countries where land value is collected in some form include Denmark, Estonia, Lithuania, Russia, Hong Kong, Singapore, Taiwan, Australia and parts of the United States including Pennsylvania. Denmark has had a system of collecting land value locally since 1924 and this is credited with stopping land speculation there. The Hong Kong government sells leases and uses income from its land to keep other taxes low as well as for building and maintaining its Metro system and a new airport. In Singapore, public leasing of urban land raises more money than any tax, supplying funds for two-fifths of the government’s budget. In the USA, there are local authorities which collect a portion of land value through a two-tier property tax which carries one valuation on a site’s land value and another for the buildings on it. By reducing the percentage rate on the building value and increasing it on the land value component, cities such as Harrisburg have seen their land used more efficiently with buildings and idle development sites brought into full use; the Centre for the Study of Economics (http://www.urbantoolsconsult.org ) based in Philadelphia has detailed examples of land value being collected in the USA.
(More information on where land value is collected can be provided if required)