Memorandum by Land Value Taxation Campaign
(ERF 07)
A REPLIES TO
THE QUESTIONS
Q1 The effectiveness, usage and coverage of
the five new, EU approved, land and property regeneration schemes—Direct
Development, the Speculative and Non-speculative Gap Funding Schemes,
Community Regeneration and Environmental Regeneration;
In so far as such schemes are effective, they
will result in the enhancement of land values (a) from the resultant
increased prosperity and environmental improvement and (b) the
availability of any grants and subsidies, which, as intended,
make the selected locations more desirable. Thus, such schemes
transfer public resources to private landowners. The Campaign
believes that this is inefficient and cannot be supported on grounds
of social justice and equity, or even sensible disbursement of
public funds.
Q2 Any barriers to regeneration caused by
the current framework;
Urban decay and the failure of urban areas to
regenerate spontaneously is largely a consequence of the present
tax system. Positive obstacles are value added tax, income tax
and taxes which add to transport costs, all of which increase
the costs of the construction and repair of buildings. These bear
with particular severity at marginal locations: cities in the
north and west generally, and in pockets in cities in the rest
of the country, for example, South-East London.
Further obstacles are the operation of the business
rate and Council Tax. Under the business rate, when a building
is improved or redeveloped, the property is reassessed at a higher
value and becomes subject to a higher tax; in effect, the development
is penalised with a fine! The problem is compounded by the interaction
between the business rate and the Council Tax, because a property
attracts a lower tax burden if in residential use. This distorts
the property market and has led to a loss of premises suitable
for small businesses, as these have been converted to residential
use. Thus, mixed-use areas, which are a key element in the urban
renaissance, are gradually becoming primarily residential, losing
their vibrancy and genuinely urban character as they are transformed
into dormitories.
A major distortion, is the absence of any tax
on the site value of land; thus, the only holding cost of unused
land is revenue foregone, and when owners have expectations of
higher values in the future, they are willing to give up present
income and allow land to stand vacant, under-used and under-developed
in the interim. Thus regeneration is deferred, often for decades.
If any government were to set out with the deliberate aim of provoking
urban decay, if would introduce a tax system much like the one
we have in Britain today.
Further trouble arises from delays ceased by
the planning system. The planning authorities frequently have
expectations of developments which the developers are unwilling
to satisfy, leading to protracted negotiations, again, sometimes
lasting for decades; the Campaign would argue that such delays
are, in part, due to the absence of a land value taxation system
which would automatically claw back development value as public
revenue.
The absence of a land value tax also provides
no encouragement to pubic bodies to provide infrastructure improvements,
where such improvements could often turn round depressed areas.
Under a land value tax régime, the enhanced land value
due to the development is automatically reflected in the tax base
and hence brings about an increase in public revenue.
Q3 The consequence of the urban renaissance
in terms of outputs, outcomes and value for money
Grants and subsidies generally are not a satisfactory
means of achieving urban renaissance. The first step must be to
remove those obstacles which inhibit spontaneous urban regeneration,
of which the most important are the present tax system and the
absence of land value taxation. It is inefficient and cumbersome
to attempt to take money out of an area through the tax system,
and then return it via a costly bureaucratic process in the form
of grants and subsidies.
Q4 The need for a new European Regeneration
Framework
The Campaign suggests that existing taxes on
labour, goods, services and capital should be phased out and replaced
by a tax on the rental value of land. In this way:
(a) areas of urban decay, where land values
are low, would, in effect become tax havens and regenerate spontaneously.
(b) Land would not be held out of use speculatively,
and under-used land and buildings would be brought into optimum
use.
B FURTHER EXPLANATORY
COMMENTS
1. Aims of the Land Value Taxation Campaign
1.1 The Land Value Taxation Campaign is
a non-party organisation which was established with the aim of
securing legislation which would fundamentally change the basis
of public revenue in the United Kingdom. It proposes that existing
taxes on wages, goods and services should be progressively replaced
with a property tax on the rental value of all land. This is referred
to as land value taxation (LVT). The policy advocated by the Campaign
would ultimately secure 100 per cent of the rental value of land[2],
for the Exchequer, but it is recognised that, as with any radical
change in the tax system, a transition period would be desirable.
The Campaign therefore accepts that the introduction of LVT would
be phased in a series of deliberate steps.
1.2 Although the Campaign was established
to promote the case for a national land value tax, we would point
out that, as is the case with all forms of property tax, LVT is
suitable for all tiers of government and could be readily adapted
to any multi-tiered structure including devolved bodies in Scotland,
Northern Ireland, Wales, London, and any future English regional
assemblies, as well as existing local authorities.
2. SUMMARY
2.1 LVT, provided that it was levied at
a sufficiently high rate and accompanied by corresponding abatement
of existing taxes, would promote spontaneous urban regeneration
with little need for further public intervention, other than the
provision of additional infrastructure where this was inadequate.
2.2 An important reason for this is that
the tax would in effect, create tax havens where they were most
needed, thus removing an important disincentive to urban renewal.
2.3 By imposing a cost on land holding,
LVT would encourage land owners to develop derelict inner-city
areas themselves, or to pass them onto somebody else who would
do so. Thus LVT in itself provides a fiscal spur to the efficient
working of the land market and the most productive use of undeveloped
or underdeveloped inner-city land.
2.4 The current system of local government
finance, based on the UBR and the Council Tax, penalises high
quality development and rewards withholding and under-use. Land
as such has no "carrying charge" and is the ideal subject
for speculation, being non-reproducible, non-transportable and
therefore "price inelastic". The present fiscal régime
encourages mis-use of valuable land, making it artificially scarce
and dear. This forces developers who decide to develop to seek
to recoup their outlay on site acquisition by building upwards
or, in the case of housing, cramming in as many dwellings as possible
with tiny rooms in minuscule plots in order to maximise the number
of habitable rooms. The tendency today is thus, perversely, to
have over-development side by side with underdevelopment. LVT,
properly implemented, promotes rational development.
2.5 LVT would provide an equitable means
of paying for infrastructure and other enhancements to the public
realm since it would automatically capture external (ie non-farebox
and non-revenue) benefits, as such enhancements, if they were
of perceptible advantage, would lead to increases in the tax base.
2.6 To promote urban renaissance with a
minimum of public intervention, the Campaign therefore urges that
all land in the United Kingdom should be valued frequently and
accurately, in accordance with its optimum use within the current
planning regulations, and made subject to an ad valorem
land value tax, with existing taxes being phased out as quickly
as practicable.
3. ECONOMIC IMBALANCE
AND THE
MARGIN
3.1 Land which has advantages over sites
at the margin, commands Rent in proportion to its relative advantage
vis-a"-vis all other land. Land Rent scoops this difference,
leaving the return to capital (considerations of time and risk
apart) and to labour (experience and special skills apart) more
or less the same everywhere within a nation or community. Because
marginal land only just remunerates Labour and Capital, and leaves
no surplus to go as Rent, attempts to levy conventional taxes
at the margin have the effect of tipping economic activities at
such locations into unprofitability. Potential wealth creation
is stopped. At the economic margin, at the periphery, current
taxes are destroying jobs. This is a principal reasons why London
and the South-East region act as a magnet for population and business,
at the expense of the North, Scotland, Wales, the West and Northern
Ireland.
3.2 This is not just a matter affecting
the edge of the wilderness, however. In practice, each occupation
has its own effective margin; the point on the way out of town
where shops give way to houses is one such margin. Marginal activities,
in town as in the country, can be put out of business by taxation
just as easily as those struggling at the literal margin of production.
Thus we find depressed areas even within Greater London, usually
where the local environment is unattractive, the infrastructure
is poor and access difficult.
3.3 Thus, an important reason why urban
renewal policies have become necessary is to counteract the effects
of conventional taxes at the margin and make wealth creation possible.
A complex system of grants and subsidies has spawned, directing
taxpayers' money into selected projects and areas. This is hit-and-miss,
open to abuse, and expensive to administer. It creates a "dependency
culture".
3.4 To recapitulate: conventional taxes
cripple. At the true economic margin, where no Rent of Land is
paid, the price at which goods are sold goes to reward only labour
and capital. Where land has no economic value, any tax assessment
based on land value must be nil, and hence no land value tax is
payable. The margin thus becomes a tax haven and in the absence
of any other taxes, production immediately becomes viable. This
can, however, happen only if government is funded solely by collection
of the Rental Value of Land. We accept that such a change cannot
be made overnight, but a progressive switch from conventional
taxation is a pre-requisite if the present "north-south"
imbalance is to be redressed. Given a switch from conventional
taxes to land value taxation, urban renewal would take place spontaneously.
3.5 Thus change from existing taxes to LVT
would promote urban renewal by reducing the overall burden of
tax on people who are at present penalised by their location.
In effect, LVT creates tax havens exactly where they are most
needed. Sites at present sub-marginal would be brought into economic
use. This would promote urban renaissance and at the same time,
enormously reduce the demand for land for all purposes—commerce,
industry, housing, roads, etc—in the most congested parts
of the country.
4. CAPTURE OF
DEVELOPMENT VALUE
4.1 Under a system of LVT, the valuation
would be based on the full rental value of the site, at its optimum
permitted use. Thus, increases in land value (betterment) arising
from planning decisions would automatically be collected as a
revenue stream, along with existing land values and betterment
arising from all the other causes which influence land values.
4.2 Furthermore, the system would contain
a built-in compensation mechanism. Where the value of land was
depressed by—for instance—planning, blight, traffic
noise, or the presence of listed buildings or other restrictions
on its use, this would naturally be reflected in the valuation,
and the landowner would be relieved accordingly.
4.3 Thus, LVT is a payment for benefits
actually received, and falls only upon values which can be enjoyed
or realised. If planning restrictions prevented more intensive
or rent-enhancing use, eg, requiring preservation of a garden,
or limiting a piece of land to use as a golf course, or for agricultural
purposes, the land value would be assessed accordingly. The introduction
of LVT would not conflict with the existing system of planning
controls; on the contrary, it would greatly reinforce the planning
process by removing, or at least reducing, the financial incentive
for overturning restrictions on development contained in existing
statutory plans.
5. FOR FURTHER
INFORMATION
5.1 The London Rating (Site Values) Bill
of 1938-1939 is an example of model LVT legislation. This would
obviously have to be updated and adapted to suit present circumstances
and to conform to the law in Scotland and Northern Ireland. Copies
are available or may be downloaded.
The URL is http://www.landvaluetax.org.uk/1939bill.htm
5.2 Proposals for a transition from existing
local taxes to a land-value based system are set out in the Campaign's
publication "Options for Property Tax Reform". Copies
are available or may be downloaded. The URL is http://www.landvaluetax.org.uk/lvtprpsl.htm
5.3 Following a comprehensive study of local
taxation, commissioned in 1986 by Brisbane City Council and chaired
by Sir Gordon Chalk, KBE, LID, formerly deputy premier of Queensland,
a report was published in 1989 in which the committee strongly
recommended that the city keep its existing system, based on site
values. This is essentially the stance advocated by the Land Value
Taxation Campaign. A copy of the summary of the Chalk Committee's
two-volume report is available on request or may also be downloaded.
The URL is http://www.landvaluetax.org.uk/brisbane.htm
5.4 The interrelationship between land value
taxation and planning was discussed in a submission to the Royal
Town Planning Institute. The document may be downloaded.
The URL is http://wwwlandvaluetax.org.uk/planning.htm
2 The term land is used here not in its legal sense
but is given its meaning as defined in political economy, ie "that
part of the material world other than human beings and the products
of their labour". Back
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