18 October 2016
- Our taxes have been introduced over many centuries and in a haphazard way. Taxes were originally levied on land values but over the centuries our Parliament of land owners has shifted taxation on to trade, production and wages. The London Finance Commission gives a real opportunity for Londoners to consider what is currently taxed, what the benefits and disbenefits are and to explore an innovative, more efficient and fairer tax system (as highlighted in this year’s Greater London Authority Planning Committee’s Report for the incoming Mayor, “Tax Trial. A Land Value Tax for London?” February 2016 [https://www.london.gov.uk/sites/default/files/final-draft-lvt-report_2.pdf]).
- The Labour Land Campaign (LLC) is a broad left research and campaigning organisation and argues that current local, regional and national taxes are inefficient, distort behaviour and are often avoided or evaded. Consequently, they tend to damage the economy, discourage good investment, penalise work, and skew the economy in such a way that it actually creates unfair advantage to rich individuals, global corporations and those who claim ownership of land and other natural resources. Local taxes should empower local communities by providing a sustainable income sufficient to maintain and develop local services that meet individual and community needs. We argue that this can best be achieved by replacing all current local taxes including Council Tax and Business Rates with an annual Land Value Tax on all land – urban and rural. We also argue that London’s economy would be stronger, fairer and more secure if all taxes were to be replaced totally or in part by an annual Land Value Tax. We consider that taxes on other natural resource rents, particularly oil, the radio spectrum and airport landing slots, should also be collected.
- Council Tax is not fair because people in lower value homes pay proportionately more than those in higher value homes.
- Business Rates fall most heavily on owners of well maintained, well insulated and architecturally attractive buildings and are avoided by those who leave their buildings empty or leave development sites idle – in some cases for decades.
- Stamp Duty Land Tax (SDLT) is not efficient or fair as it only collects a small proportion of property value at the time of sale hence properties that change hands regularly pay much more than properties in static ownership. SDLT actually discourages positive trading in properties, discourages the better use of properties, destroys value for both buyers and sellers, and so discourages the optimum beneficial economic use of land.
- Income Tax is regularly avoided or evaded and can deter people from enhancing their income because this means they pay more tax or a higher rate of tax.
- Value Added Tax (VAT), local sales taxes, and Employers’ National Insurance Contributions (NICs) are not only an unnecessary cost for both employers and consumers but damage the economy through deadweight losses. VAT can easily be avoided or evaded by reducing production, reducing trading hours, employing fewer workers, selling fewer goods or services and operating in the cash economy; and above and beyond lost revenue, the convoluted VAT credit and refund mechanism is massively exploited by the unscrupulous to actually steal from the Treasury.
- NICs are easily avoided by employers shifting groups of employees to being “self-employed” thus removing the social protections that were their original prime purpose.
- Corporation tax can be avoided particularly by global enterprises using the tax advantages of one country, transfer pricing and setting up subsidiary companies – an option not open to local businesses (however well run).
- Land speculation is encouraged by the present tax system which leads to higher land prices for homes and business premises. Although it is the biggest speculators who reap the really immense rewards, the average UK worker—who will have earned something like a million pounds over his or her career—who was lucky enough to have been able to buy property early on will have seen a comparable increase in their “wealth” by doing absolutely nothing at all.
- LLC will gladly provide evidence and information to support these arguments if required.
2. Do you believe that the current arrangements for sub-national (that is, the mayor and the boroughs) taxation and the responsibility for service provision as it affects London is fit for purpose
- LLC argues that local democracy has been seriously eroded over recent years and therefore does not allow the London Mayor or individual London Boroughs to launch new initiatives that were once the pride of local government, or to offer a better level of locally run public services that actually meet individual needs. Instead, because of financial constraints, essential services are now provided by private companies concerned with making profits at the expense of workers’ wages, decent pensions and high-quality provision.
- In devolving responsibility for taxation and service provision to the Mayor and Boroughs, there also needs to be the power to reform Business Rates and Council Tax, both of which are inefficient and discriminate in favour of land speculators (UK and overseas based), land hoarders and owners of expensive homes as well as discriminating against tenants (commercial and residential) and other non-property owners, including the growing number of adults who are forced to live with family because they cannot afford to rent or buy in Greater London.
- An example of how the Mayor could finance public services through a radical reform of local taxes is seen in the building of Crossrail being part funded through a supplementary Business Rate which was at the initiative of TfL in meetings with the Treasury in order to obtain Government support for the project. By using just the uplift in land values (reflected in the property assessment for Business Rates) on only the larger business properties in London, over £4bn is being raised without objections from said businesses or the last Conservative Mayor. Although suggested by TfL working for Ken Livingstone, former Labour Mayor, the Supplementary Business Rate was generally supported by business and not only did Boris Johnson continue with the funding but the current Conservative Government has extended this source of land value funding to directly elected Mayors across the country. If only a proportion of existing as well as past and future increased land value is collected through a shift to an annual Land Value Tax on all land by the London Mayor and London Boroughs, not only would there be a sustainable source of funding for new transport infrastructure but for all local public services including Social care for all that need it and really affordable homes including new Council-owned homes for rent.
3. Do you believe that London’s government (the mayor and the boroughs) should take responsibility for a wider range of taxation and public expenditure?
- But it would be a missed opportunity if the harmful existing taxes on London’s workers and businesses were not reduced or replaced by LVT which would help tackle the London housing crisis, reduce poverty and lift up the most deprived parts of the capital.
- London could be a trailblazer in levying progressive and Green taxes that stimulate the economy using the many underused skills and talents of people living here; rid London of land speculation, land hoarding and empty/underused buildings; increase renewable energy and have all new buildings built to a high eco-friendly standard.
- Local public services are in desperate need of sustainable funding particularly all aspects of social services, youth work and social housing and in supporting schools to provide greater support for those students with learning and physical disabilities and reduce class sizes and more personal development to enable all students to become responsible citizens.
- More powers for the Mayor and Boroughs to implement a progressive tax system together with more policy control will help bring about a fair and sustainable economy benefitting all of those who live and work in Greater London. London’s progressive Congestion Charge is cited by governments the world over as an example of how to reduce congestion and pollution in a city. It was introduced by a committed and courageous Mayor and brought immediate positive results despite opposition by the London media, motoring organisations and other opponents. The former rating system allowed local authorities to provide good, wide-ranging and involved community and business organisations in decision-making.
4. If London were to take greater regional/local responsibility for taxation and public spending, which taxes and services do you think would be most appropriately devolved and why?
- LLC believes that almost all current taxes are inefficient, unfair, easily avoided/evaded and distort the economy. London needs to be able to shift to a progressive form of taxation so that the underlying and rising land values that currently go to land owners will instead, be captured and recycled to maintain and develop public services. If London were able to levy a charge on the annual rental value of land through an annual Land Value Tax on all land with at least Business Rates and Council Tax being abolished, this would provide a sustainable income for providing quality services to meet local needs. Local businesses and communities would be encouraged to become more involved as elected Members determine and provide the type of services needed locally.
- There is a precedent for London Government asking for new powers to fund its services. In 1938 the then Leader of the London County Council (LCC), Herbert Morrison MP, presented a Private Member’s Bill to Parliament which would have allowed the LCC to shift the rating system on buildings to Site Value Rating (the local designation for Land Value Tax).
5. Does the UK’s referendum decision to leave the EU affect arguments for the transfer of power from Westminster/Whitehall to London’s government?
- Leaving the EU allows the Mayor and Boroughs to argue how distortive and unfair the EU-imposed Value Added Tax is and how Common Agricultural Policy subsidies capitalise into land value thereby exclusively benefitting land owners rather than achieving their intended purpose. LLC would support greater local democracy whether or not the UK is in the EU.
6. Would greater devolution of powers to the mayor and the London boroughs make it more or less likely that public resources were effectively and efficiently used?
- Local decision-making should encourage local business and community involvement in policy making and that would lead to greater understanding and scrutiny by all. Centralised decision-making over recent years that isolated those using and needing local public services has helped create apathy among many voters and anger when they become personally affecteded. An annual Land Value Tax would solve the problem of the growing number of young adults who cannot afford to rent or buy in the London area and the revenue would ensure that the land value—that they too help generate—will benefit everyone rather than just land owners and land speculators.