A strategy for implementing LVT
- The Labour Land Campaign believes LVT should be applied to all land. And in order for it to realise its true economic potential and contribute fully towards a more just society, the ultimate goal must be for LVT to replace the Council Tax, the National Non-Domestic Rates, Stamp Duty Land Tax, and to some extent other taxes, including Income Tax for most people by raising the threshold before tax is paid on incomes.
- However, the Labour Land Campaign accepts that it may not be possible politically to introduce such a sweeping change all at once, and, as a campaigning organisation, we will work with any political party or grouping to get some of those changes introduced in stages.
- One option, already being advocated, would be to start with the replacement of the National Non-Domestic Rates with LVT, since an administrative structure already exists for valuation and collection, and it would be the least controversial politically. The Labour Land Campaign would support such a move. This could also provide the opportunity to replace the Stamp Duty Land Tax on business properties with LVT.
- Alternatively, LVT could be used to replace the unpopular Council Tax, either simultaneously with replacing the National Non-Domestic Rates with LVT, or following that. Replacing the Council Tax with LVT is more difficult politically, because it is bound to result in winners and losers before it has bedded down, which is also the reason why politicians have not carried out a revaluation of properties for Council Tax purposes since 1991 (except in Wales) – the losers tend to be quite vocal! The problem is that the longer this is left, the more out of line the relative values of properties will become. Sooner or later politicians will have to grasp this nettle, which could be the opportunity to campaign for replacing the Council Tax with LVT – and at the same time abolish the Stamp Duty Land Tax on residential properties.
- Another option that might be more readily acceptable politically as a first step would be to extend LVT to all land (including agricultural and commercial land) except that occupied by properties currently subject to Council Tax. This would replace the National Non-Domestic Rates and allow certain other taxes to be reduced.
- A further option would be to replace Income Tax at the basic rate with LVT, by gradually raising the threshold before Income Tax is payable so that most people eventually would no longer pay Income Tax, the revenue being collected instead through LVT.
- If or when LVT had replaced both Income Tax at the basic rate and Council Tax, owners of land, including owner-occupiers, would be liable for LVT in two tranches, one going to central government and one to local government, and there would be two rates of LVT, one decided nationally, and one by each local authority, which, in both cases, would largely be determined by the amount of revenue that needed to be collected.
- For ease of administration, it would make sense for both tranches to be collected by local authorities, and then the amount due to central government forwarded as appropriate.
- For local government, the Labour Land Campaign would support the continuation of the ‘equalisation mechanism’ to take account of inequalities between different local areas, and their different needs. This could be achieved, as now, through grants from central government based on needs (currently accounting, on average, for some 50 per cent of local government revenue). However, once the system of collecting LVT as described above was in place, it would probably be simpler merely to adjust the amount of LVT going to central government, as appropriate.
- Obviously, before LVT can be introduced, the first priority would be to complete the registration of all land in Britain, giving owners of unregistered land a deadline to complete the registration process or face the prospect of having their land taken over by local authorities for public use.
- Second, the rental value of all land would need to be assessed using techniques that are already available. The Labour Land Campaign favours the use of computer-aided mass assessment techniques and geographical information systems to construct a ‘land-value-scape’ as described earlier. This would produce maps marking off localities and zones with equal land values per hectare or square metre. The land value of every site could then be determined simply by referring to its position on the map. This could be updated on a continuing basis and averaged out for the purposes of LVT at the end of each year.
- Once the ownership of all land had been established and the land valued, it would be a simple matter to set the rate of LVT according to the revenue that would need to be collected to compensate for the revenue lost as a result of reducing or scrapping other taxes.
- As implied already, the substitution of LVT for other taxes will result in winners and losers. In particular, LVT is likely to penalise people living in areas where the value of their properties had increased sharply over the years (due to rising land values), while their incomes had not grown proportionately, or perhaps had gone into decline if they had become pensioners or unemployed, or had been widowed. This could also apply to established businesses. However, this problem could be mitigated in a number of ways.
- First, people – and also businesses – could decide to increase the occupation of the premises, for example, by taking in lodgers or sub-letting, or to relocate to smaller properties or to areas where land values were lower. This, indeed, is one of the long-term benefits of LVT – it encourages the better use of land.
- Second, for residential properties, pensioners and others with low incomes could be allowed to defer the payment of LVT (either wholly or in part) until the property was sold or transferred. This would enable people to carry on living in their properties at no extra cost, and, if they so chose, to pay less tax than they do now. However, it is only fair that the tax plus interest should be paid eventually, because the increased value of their properties (that is the land on which they stand), as noted earlier, would have been created by the activities of the community as a whole, and not by those who happen to occupy the particular site. Meanwhile, local authorities could obtain the revenue that they otherwise would have received from low cost loans, using as collateral the stream of income that they would eventually receive.
- Third, for people on very low incomes, it could be arranged that they received benefits similar to the Council Tax Benefit or Housing Benefit, as now.
- Meanwhile, in the case of businesses, there may be instances when the local community might, for one reason or another, want to preserve the productive activities of certain businesses in the neighbourhood, for good social reasons. As now, this could be handled simply through the planning system, which could limit the way in which the land was used. This would reduce land values in these particular cases, and therefore the liability for LVT.
- Similarly, parks and open spaces, including school sports fields, would be exempted from LVT because planning regulations would, in effect, reduce their land value to zero.
Taxes that would be phased out following the introduction of LVT:
- Income Tax at the Basic Rate
- Stamp Duty Land Tax
- Council Tax
- National Non-Domestic Rates
- Section 106 Agreements
Taxes that could be reduced, or made more selective, as
the rate of LVT was increased:
- Inheritance Tax on property
- Value Added Tax
- Corporation Tax
- Capital Gains Tax
- Planning Charges (or Community Infrastructure Levies)
Read more of our ‘Manifesto’:
A green tax
Clear and simple