Memorandum by the Land Value Tax Campaign
(LGR 31)
ABOUT THE
CAMPAIGN
The Land Value Taxation Campaign is a non-party/all
party organisation whose aim is to secure legislation for the
replacement of existing taxes on wages, goods and services with
a property tax on the rental value of all land.[10]
As is the case with all forms of property tax, LVT is suitable
for all tiers of government and can be readily adapted to the
multi-tiered structures which have been created as a result of
Scottish, Welsh and Northern Irish devolution and the possible
establishment of English regional assemblies. This document explains
how this tax reform could be readily achieved through a reform
of the present system of local government finance and that this
reform, if carried out along the lines described, would, amongst
many other benefits, help to resolve longstanding and apparently
intractable difficulties with the system of local government finance,
including the issue of the balance of funding as between local
and national taxation.
SUMMARY OF
CONCLUSIONS
1. The Campaign advocates the replacement
of the Council Tax and the Uniform Business Rate by a property
tax based on annual rental site values only; all land, including
vacant and agricultural land would be assessed for the tax, and
the assessment would be on the assumption that the land was at
its optimum permitted use within the constraints of planning and
other controls. This would be fairer and easier to administer
than the present property taxes assessed on values of land and
buildings.
2. Within a given taxation area, the rate
of tax should be the same for land in all classes of use.
3. The tax would be multi-part, with elements
set by central government, the local authority and any other tier
of government already established or likely to be created under
devolution proposals. For that part of local government finance
where service provision is to a national standard and local authorities
are effectively agencies of central government, it is suggested
that they should be fully funded from the national element of
the land value rate; possible examples include police and fire
services, education and social services.
1. CURRENT SITUATION
1.1 Advantages of the UBR/Council Tax combination
are:
1.2.1 Administration is relatively easy.
1.2.2 Ensuring compliance is straightforward;
the taxes are difficult to evade or avoid.
1.2.3 Because the taxes are tied to property,
they can be localised and be applied to any form of local government
structure.
1.3 Disadvantages of the UBR are:
1.3.1 Valuations involve the inspection of
individual premises, as installed machinery and plant are included
in the valuation. In some uses, the UBR is close to being levied
simply as a turnover tax.
1.3.2 Many appeals are generated when valuations
are revised.
1.3.3 There is a financial disincentive to
improve and develop, as a modern building is assessed at a higher
value and subject to a higher tax than an old one.
1.3.4 Non-use or under use of land is incentivised.
1.3.5 Valuations are insufficiently frequent.
The consequences of this are exacerbated by the transitional arrangements,
which effectively prolong the use of out-of-date assessments.
1.3.6 The exemption of property in agricultural
use distorts the land market, favouring agriculture rather than
other uses.
1.3.7 The fact that all the revenue from
the UBR is allocated to local authorities by central government
gives rise to high "gearing" of discretionary local
authority expenditure, which can only be varied by a disproportionately
large increase in the Council Tax.
1.3.8 Local authorities have no direct interest
in promoting improvements and developments that would lead to
an increase in commercial rental values in their area.
1.3.9 The tax can be avoided because valuations
are based on structures "as they stand" and buildings
can readily be, and sometimes are, rendered unusable for property
tax avoidance purposes, eg by "de-roofing" or "constructive
vandalism".
1.3.10 Small business exemptions and balancing
surcharges are eventually claimed or absorbed by landlords as
economic forces ensure that total occupation costs are determined
by commercial market conditions.
1.4 Disadvantages of the Council Tax are:
1.4.1 The tax is regressive in that an undue
proportion of the overall burden is borne by occupiers of lower-value
properties.
1.4.2 The tax is also regressive across local
authorities, with the lowest rates found in areas where some of
the most expensive properties in England are situated.
1.4.3 The fact that about 75% of local government
revenue comes from central government, means that the Council
Tax is subject to high "gearing" of discretionary local
authority expenditure, which can only be varied by a disproportionately
large change, almost invariably an increase, in the Council Tax.
1.4.6 The tax cannot generate sufficient
revenue; when Council Tax was first introduced, VAT was raised
from 15% to 17.5% to cover the shortfall.
1.4.7 Non-use or under use of land is incentivised.
1.4.8 It is a loudly voiced complaint that
the Council Tax causes hardship to those—mostly older people—who
are "asset-rich but cash-poor".
1.5 The relationship between the UBR and
the Council Tax distorts the overall land market, since it tends
to favour residential use.[11]
The tax liability of a property in commercial use is higher than
if it is converted to residential occupation, and so its market
value as residential is higher.
2. OPTIONS FOR
REFORM
2.1 The main options for local property
tax reforms currently being canvassed are:
2.1.1 UBR to be partially localised.
2.1.2 Revision of Council Tax bands, with
a new valuation and a new formula for the allocation of charges
between bands.
2.1.3 Ad valorem land value tax, with
nationally and locally determined elements.
2.2 As regards the balance of funding, reforms
2.1.1 and
2.1.2 taken together would have the following
advantages compared to the present system. However, most of the
other disadvantages mentioned in section 2 above remain.
2.2.1 Localisation of the UBR would reduce
the present excessive "gearing".
2.2.2 Local authorities would have an interest
in promoting improvements which would lead to an increase in commercial
rental values in their area.
2.2.3 Where there is a significant proportion
of higher value residential properties, the introduction of higher
Council Tax bands would make the tax capable of generating additional
local income.
2.4 The drawbacks of the UBR and the Council
Tax would be overcome if the assessments were based on annual
site rental values alone.
3. ADVANTAGES
OF SITE
VALUE PROPERTY
TAX
3.1 Site value assessment (Land Value Taxation)
as proposed by the Campaign preserves the main advantages of the
existing Council Tax/UBR system.
3.2 Conversion to site-value assessment
would overcome most of the disadvantages of both the present arrangements
and the retention of the Council Tax and UBR in substantially
their present form:
3.2.1 Valuations are less costly since they
no longer involve the inspection of individual premises, as the
buildings themselves and installed machinery and plant are ignored
in the valuation.
3.2.2 Fewer appeals would be generated when
valuations were revised.
3.2.3 Improvements would not be penalised,
as the replacement of an old building by a modern structure would
not affect the assessment.
3.2.4 The owner of vacant or under developed
land would have an incentive to develop in order to secure the
revenue stream with which to pay the tax.
3.2.5 With no need to inspect individual
premises, valuations could be revised annually, mostly by statistical
adjustment, with substantive valuation quinquennially and when
major local changes occurred.
3.2.6 The inclusion of land in agricultural
use would yield additional revenue and remove distortions in the
land market without adding to the cost of farm produce.[12]
It would also serve as a clawback mechanism to recover that element
of land value arising from grants and subsidies, for example,
from the EU.
3.3 The Campaign's proposals address the
essence of the balance of funding issue. A a land value tax in
the form proposed, with a both local and national components,
would permit the long-term phasing-out of present taxes on labour,
capital, and their products:
3.3.1 It would would reduce the present excessive
"gearing" of local government funding, but local authorities
would have to be forbidden from raising the tax differentially
on land in different classes of use.
3.3.2 Local authorities would have an interest
in promoting improvements and the provision of services and amenities
which would lead to an increase in land values in their area.
3.3.3 Equalisation would be straightforward,
from areas where aggregate land value was high to areas where
it was low; central government would simply precept and redistribute.
The national LVT precept would replace a major slice of national
taxation, at the same time reducing the amount of money churning
in the system since, in the first instance, the LVT mechanism
of itself ensures that less is raised from poorer areas where
land values are low. It would thus take account not just of the
"North-South" divide, but also of the fact that there
are poor areas in parts of South East England, and pockets of
affluence in Scotland and the North.
3.3.4 The tax base would be larger since
vacant, derelict, underdeveloped and agricultural land would be
assessed and taxed on the basis of its full value.
3.3.5 The tax would no longer incentivise
the under-use or non-use of land.
3.3.6 Rental values are stable, unlike capital
values which are volatile.[13]
3.3.7 Tax rates in a given taxation area
could (and should) be identical for properties in all classes
of use because the difference in use values would be already included
in the assessment. Thus, the tax treats holders of all classes
of land fairly since it is applied equitably to all sites and
does not penalise those who develop efficiently and appropriately.
3.3.8 Land is permanent, and the tax could
no longer be avoided by devices such as "de-roofing".
3.4.7 There is no possibility for avoidance
or evasion, as land cannot be hidden, moved about or relocated
to a tax haven. The LVT cannot be avoided because the land is
physically tied to its location and if the duty is not paid, the
asset can, in the last resort, be confiscated.
3.4.8 Marginal areas are revitalised. Economic
activities are handicapped by distance from the major centres
of population. Conventional taxes such as VAT and those on transport
fuels cause particular damage to the remoter areas of the country.
LVT, by definition, bears lightly or not at all where land has
little or no value, thereby stimulating economic activity away
from the centre— it creates what are in effect tax havens
exactly where they are most needed and reduces the need for regional
assistance.
3.4.9 Less bureaucracy. The complexities
of Income Tax, Inheritance Tax, Capital Gains Tax and VAT are
well known. By contrast, LVT is straightforward. Once the system
has settled down, landholders will not be faced with complicated
forms and demands for information. Revaluation would become relatively
simple.
3.5.6 No avoidance or evasion. Land cannot
be hidden, removed to a tax haven or concealed in an electronic
data system.
3.6 The taxation of land values has a sound
basis in ethics because land is a gift of nature and land values
are the product of the natural advantages of the land and the
presence and activities of the community. Land value reflects
all communal, social and natural benefits and advantages. Thus
a tax on land values returns to the community the value that the
community creates.
4. PRACTICABILITY
OF SITE
VALUE ASSESSMENT
4.1 This system of property taxation is
in use in a number of places including Denmark, some of the Australian
states and several towns in Pennsylvania. In 1989, a thorough
report recommended its continuation in Brisbane. This was accepted.
Copies of the summary of the 1989 Brisbane report are available
on request and can also be downloaded from the Campaign's Internet
site.
4.2 A land value survey was carried out
on behalf of the Rating and Valuation Association in Whitstable,
Kent in 1964 by valuers Hector Wilks and Company, who also made
a follow-up study in 1973, this time for the Land Institute. No
particular difficulties arose, and the report commented on the
relative ease of the task, as compared with the system of valuation
then in use for rating purposes, which, as now, was on the composite
value of land and buildings or other structures.[14]
4.3 The necessary valuation expertise is
available within the surveying profession.
4.4 Land value taxation could be readily
incorporated into the UK legislative and administrative framework
by modification of the existing UBR/Council Tax.[15]
5. IMPLEMENTATION
5.1 Although the scheme proposed could be
implemented at any time, if carried out as described below, it
should be achievable at no additional cost or even with a small
saving.
1A
Forthcoming Council Tax revaluation should
not take place. Instead, there should be a valuation of all residential
land to be assessed on site values only, disregarding the value
of all dwellings and other improvements.
lB
The next scheduled UBR revaluation to be
based on site values only, including vacant and agricultural land.
5.2 Multi-part site-value tax to be introduced
with all land in the same taxation area to be subject to the
same rate of tax regardless of permitted use since the differences
in use would be already reflected in the valuations. There
is no necessity for different rates of tax, with the distortions
in the property market to which this would give rise.
5.3 The tax would be made up as follows:
| COMPONENT
| SET BY |
| NATIONAL | CENTRAL GOVERNMENT
|
| REGIONAL (where applicable) |
THE DEVOLVED BODIES CONCERNED |
| LOCAL | LOCAL AUTHORITY
|
| |
Billing and collection of the tax would be by the lowest
tier authority (unless this was a parish council) and regional
and national components precepted.
5.4 Many services are provided by local authorities to
national standards, with councils acting as agencies of central
government, and it is suggested that these should be fully funded
from the nationally determined element of the site value rate;
examples include police and fire services, education and social
services.
5.5 Transitional arrangements. The Campaign suggests
that the initial rate of tax should be fixed so that the median
taxpayer is paying much the same as at present. Because vacant
and agricultural land would be included in the assessments, the
extended tax base means that the total yield would be more than
under the present system, permitting a reduction in other taxes.
5.6 There will be a continuing need to keep under review
which local services are paid for from local taxation and which
from central government taxation and by direct charging.
6. PROPOSED LEGISLATION
6.1 The form of site-value taxation and definition of
land value which the Campaign advocates is substantially the same
as was put forward in the London Rating (Site Values) Bill 1938.
APPENDIX A
DEFINITION OF LAND VALUE TAXATION
Al. LVT is a tax on the annual rental value of land.
The valuation is the current annual market rental value of the
land alone, disregarding buildings and other improvements (drainage
works, standing crops, etc).
A2. Each unit of land is assessed at its unimproved site
value, with all surrounding land taken as being in its existing
condition.
A3. All land, including vacant and agricultural land
is subject to the tax, and the valuation is on the basis of optimum
use within whatever permissions and constraints apply.
10
The Land Value Taxation Campaign believes that confusions arise
through imprecise definitions of "land", or rather,
through indiscriminate use of otherwise precise definitions. Whereas
at law, "land" means immovable property ("real
property"), the Campaign uses the word in its meaning in
political economy (the whole of the material universe outside
of man and his products). Anyone with a beneficial interest in
land (a holding which could be let or sold at profit) is to that
extent a landholder. Popular usage more nearly corresponds to
the Campaign's: people do not normally think of houses, factories
and farm buildings as "land". To add to the potential
for confusion, book keepers drawing up balance sheets regard land
as capital, which in political economy it definitely is not. Back
11
The situation could be reversed if Council Tax continues to increase
relative to the non-domestic rate. The distortion in the land
market remains. Back
12
Tax concessions and the right to subsidies are capitalised in
the price of agricultural land. Conversely, withdrawal of these
advantages leads to a lowering of land prices, as recent experience
in New Zealand attests. Even the best agricultural land is of
low value compared with almost all urban land; in a land value
taxation regime, marginal land used for farming, by definition,
escapes payment altogether. Back
13
The primary measure of the value of land is its annual rental.
The relation between rental and capital value depends on fluctuating
factors such as changes in interest rate, expectations of market
performance, and, indeed, hope of changes of planning consent
to permit higher-value use. This makes capital values unstable,
as the land market is liable to be disrupted from time to time
by speculation and waves of panic buying- often followed by collapse.
Capital values are thus unreliable as a measure of the current
use value of land. This is discussed further in a separate document
published by the Campaign, "Rental or Capital Value?". Back
14
At the time of writing, the Whitstable land value survey is being
revised and a land valuation exercise is being conducted in part
of the area covered by the Vale of White Horse District Council,
in the western suburbs of Oxford Back
15
The London Rating (Site Values) Bill of 1938-939 is a model. Copies
are available on request and can be downloaded from the Campaign's
Internet site http://www.landvaluetax.org.uk Back
|
