Abolish commercial rates and stamp duty
Property Week : Dave Wetzel
Property Week readers know that land is different from the buildings, vehicles and machines that make up capital. Namely that land needs no maintenance to retain its value whereas buildings, vehicles and machines need regular maintenance if their value is to be kept.
However, many less well-informed people fail to recognise that land is a natural gift and is not capital, it cannot be made or manufactured. If land is in short supply then its price goes up and no entrepreneurial activity or Government spending can produce more.
An IBM PC used to cost £10,000 but now a far superior PC costs less than £1,000. If computers had been produced by a monopoly supplier we would never have seen this dramatic fall in price. Many people ignore that land has been produced by a monopoly supplier - Mother Nature.
Land only has economic value when at least two people compete to use the same site. Landownership used to be decided by force of arms but now competition for sites is decided by price.
The landowner is selling a right to use a part of the surface of our planet. The buyer of freehold land is purchasing permission to enjoy rent-free occupation of that part of the planet.
The factors that can influence the value of a site include:
· the natural fertility of the soil
· the climate
· oil and mineral deposits
· the use of surrounding sites
· its accessibility including roads and transport
· its views
· the economy including public services, a skilled labour force,
current interest rates, market expectations and world events
· the supply and demand for comparable sites
· the proximity of docks, airports, harbours and railway stations
· the quality or antiquity of neighbouring architecture
· the cleanliness, smartness or dereliction of the local area
· planning restrictions or permissions
· covenants, leases, rights of way, shared access etc.
Landowners do nothing to create land values. The rent of a site is the value that the whole community puts on a particular location. The landowner captures the financial benefit of all the external attributes that are created by the community or Mother Nature.
I suggest, that it is the benefit of a location as expressed in its rental value, that should be used to pay for our public services rather than taxes on buildings, wages or trade which act as a drag anchor on the economy.
Previous Labour Governments have unsuccessfully tried to capture land value by imposing Development Land Taxes (DLT). Property Week was right to campaign against the Government’s proposed development Tariffs which would be yet another form of DLT. It is predictable that taxing development - will deter development. Hence DLT freezes the land market, creates inflationary increased land prices, leaves people homeless, raises unemployment and is unfair to landowners as existing developments and unused sites are exempt.
Business rates are also perverse - rewarding the owners of empty or underused sites and buildings with nil or reduced taxes, whilst penalising the occupiers of buildings who provide a service, are an asset to the community and add to our economic wellbeing.
Instead, the Government should introduce Land Value Taxation (LVT) charged on the annual rental value of every site, assuming its optimum use within planning constraints. The experience of assessors in the US shows that it is much easier to value land than buildings and with modern computer tools land values can be accurately assessed annually, every six months or even on a rolling revaluation basis.
Not only should business rates and stamp duty be abolished but the Chancellor
could simplify and reduce taxes on incomes, capital and trade. LVT would
apply to all sites - developed and empty - which means it would:
· act as an incentive for landowners to make good use of their sites
· be cheap to collect
· be impossible to avoid
· encourage new capital investment
· provide automatic compensation for landowners disbenefitted by
changed circumstances (eg noise and vibration from a new rail line but miles
from any station)
· avoid urban sprawl
· return land values created by nature and the community back to
the people
· help create a healthy economy with lower interest rates, lower
inflation and more useful jobs
· provide greater prosperity
· restore economic justice