The UK’s tax system is not fit for purpose. It is complicated and is therefore regularly avoided and evaded. It discourages good investment in economically deprived areas and encourages land speculation which can make available premises too expensive for our future budding entrepreneurs.
Land owners suck the natural resource wealth from our economy that should be collected to replace unfair taxes such as Council Tax. An annual Land Value Tax would be the best mechanism to start rectifying this historical wrong whereby big owners of land not only have the advantage of controlling its use but reap the huge economic benefits of holding land – taking land wealth that is created by all of us in society. Support for a more progressive policy on property tax could also be a way to unite the Labour party around a radical vote-winning reform.
The Labour Land Campaign has been campaigning for Land Value Tax since 1983. At this year’s Labour Party conference, we shared a stall with the Fairer Share campaign which is backing a proportional property tax (PPT) which would be a simple flat rate of 0.48% on the value of a property.
The discussions around PPT naturally led on to the question “why include the building in valuing domestic properties for PPT?” That is a good question because why would we want to penalise owners of good buildings that are attractive with enough, well-proportioned rooms for their families, that use water economically, have good insulation and which enjoy green energy.
Supporters of an annual Land Value Tax (LVT), whereby all land is valued at its optimum permitted use and an annual levy is charged, argue this very point but many recognise the value of PPT and how its acceptance as a good replacement for Council Tax naturally leads a pathway to supporting an annual LVT not just on residential land but on all land. LVT will bring idle development sites into full use, see empty or underused buildings fully occupied, encourage the beneficial use of land in our towns and cities which will reduce the demand to build on green spaces or greenfield land thus protecting both our countryside and urban green lungs. Land speculation will become unprofitable and empty flats bought in the expectation that land values will increase, will become much needed homes.
As well as discouraging home improvements another problem with PPT replacing Council Tax is that the Treasury will need to redistribute from Councils with a PPT surplus to Councils with a deficit.
In the past brilliant new initiatives were piloted by local Government long before they were adopted by Westminster. For example, many councils opened local hospitals and clinics giving free health treatment decades before the NHS was introduced by the 1945 Labour Government. Similarly, town planning, bus passes for pensioners, electricity generation, police forces, cheap fares on public transport with integrated ticketing were all pioneered by progressive local authorities. Even the pilot study for the hugely successful Eden project in Cornwall was funded to the tune of £26k by Restormel Borough Council in the mid-1990s. Whitehall, and especially The Treasury, has never been known for blazing a new trail or taking risks and without an independent local tax base giving councils the ability to respond to local ideas and demands, the UK could lose future creative experiments that ultimately benefit everyone.
We envisage PPT providing a pathway to LVT whereby local authorities collect PPT but in addition (and maybe at a later date) the national government could introduce LVT on all land throughout the country. The economic merits for taxing land rents have been acknowledged by most thoughtful economists from Adam Smith to many Nobel prize winners such as William Vickrey and Joseph Stiglitz. Unlike taxes on wages or production LVT does not distort the economy and any effects it has on individual behaviour is entirely beneficial as using all land and natural resources more efficiently not only recognises their scarcity but also creates useful employment and protects green spaces. An Annual Land Value Tax is not only the best wealth tax (you can’t hide land like a valuable painting or cash) but it is unique as taxes go as LVT is actually a wealth creating tax.
Where there are examples of residential owners genuinely not being able to afford an increase in their PPT or LVT bill over what they currently pay under Council Tax, the unaffordable bill can be “rolled-over” to be paid when the home changes ownership. Local Authorities can still borrow against this anticipated future income as happened with Transport for London’s Supplementary Business Rate levied on just a few commercial properties to part-fund the building of the Elizabeth line.
Organisations that support an annual LVT vary in their make-up and include a broad spectrum of political groups, environmental campaigns, those arguing for fair taxes, business representatives, housing campaigns and so on, they argue LVT is not a “left-right” issue but it is a “right-wrong” issue.
By working together, the success of Fairer Share’s Proportional Property Tax should lead its supporters to understand the relevance of land wealth in the economy and support the arguments for an annual Land Value Tax to replace current property taxes and other distortive taxes that discourage good behaviour and reward bad behaviour.
Dave Wetzel, Vice Chair, Coalition for Economic Justice (www.c4ej.com) and Heather Wetzel, Vice Chair, Labour Land Campaign (www.labourland.org)