Principles of tax policy - Treasury Contents

Written evidence submitted by the Labour Land Campaign


1.1  The Labour Land Campaign advocates a more equitable distribution of the land values that are created by the whole community. We are a voluntary group working for land reform within the labour movement. Our members are supporters of the British Labour Party, Trade Unions and Cooperatives, or are individuals who support our aim to share land wealth through Land Value Taxation.

1.2  Our website is located at

2.  What are the key principles which should underlie tax policy?

2.1  The Labour Land Campaign considers that Section 2.1 of the Mirrlees Review (What Makes for a Good Tax System?) provides an adequate model and does not think it useful to reiterate what is stated there.

2.2  However, we do wish to demonstrate here how all the requirements of a good tax system, as described by Mirrlees, are fulfilled by the collection of land rent for public benefit (an annual Land Value Tax - LVT).

3.  How can tax policy best support growth?

3.1  The Labour Land Campaign says that land value should be the prime tax base. We show here how LVT would support growth in the economy, by ensuring that land, that most overlooked of economic factors, is allocated to its best use.

3.2  LVT is levied on the value of land according to its permitted use, irrespective of how it is currently being utilised. If it is underutilised or lying derelict, there will be every incentive to invest capital to make better use of the land to generate income, and thus reduce the burden of LVT, or to sell the land to someone who is prepared to invest that capital.

3.3  LVT would eliminate speculation in land. It would make no economic sense to leave land idle in the expectation that it might fetch a higher price in due course, because, unlike now, the tax would still have to be paid.

3.4  Investors and home seekers will be encouraged to relocate to areas where land values are low for whatever reason, thus helping to develop or regenerate those areas by making better use of the land.

3.5  Shifting the tax burden increasingly onto LVT will stimulate investment and employment, and therefore economic development.

3.6  First, it will allow those taxes that act as a disincentive for investment and employment to be reduced or eliminated. Most other taxes, including taxes on incomes and capital, and on consumption, have a negative impact on economic development, because they increase the costs of investment and employment. When these taxes are higher, it means that employers have to pay workers more to compensate for the higher taxes workers have to pay, and at the same time the market for goods and services is reduced.

3.7  This would be offset to an extent by government spending on public services, which would create jobs and generate economic demand, thus stimulating investment and employment in the production and supply of goods and services to meet that demand. Substituting LVT for those other taxes would encourage this process all the more.

3.8  Second, the more LVT that owners of land have to pay, the more incentive they will have to invest capital in order to make the most efficient use of the land. This would help create more industries or services, and therefore more jobs, or more homes, depending on what the land is used for (subject to planning permission), which is what economic development is about.

3.9  Furthermore, depending on the rate of tax, LVT will tend to lower the market price for land, first, because potential buyers would take into account the LVT that they would have to pay in the future as a result of owning the land, and second, because owners of derelict sites and property developers holding "land banks" (often for speculative purposes), who would become liable for LVT, would have the incentive to bring the land into use as quickly as possible, which would increase the supply of land.

3.10  However, this tendency for land prices to be lower would be offset by rising economic activity (partly due to the introduction of LVT, as such, and partly due to the concomitant reduction of other taxes that have an adverse impact on economic development). This would tend to increase the demand for land and therefore its value - but less so its price because more of the higher land value would go to the community in the form of LVT.

3.11  The net effect, over time, therefore, would probably be for land prices to be lower than they would otherwise be, and less subject to inflation. This would mean that less capital would be needed to acquire land, leaving more available for investments on the land, such as affordable housing or some other productive activity, thus creating jobs and enhancing the process of economic development.

3.12  Meanwhile, the more that LVT encourages investment in new productive activities, the more this will increase the demand for land, and therefore its value, allowing more revenue to be collected from LVT. This could be used to improve public services, or allow other taxes to be reduced further, which would act as a further incentive for others to invest. Either way, or in combination, it would expand economic activity and job opportunities, with the cycle capable of being repeated over and again. In short, LVT would help create the basis for economic development on a more sustainable basis.

3.13  The Labour Land Campaign wishes to emphasise the fact that land is in fixed supply yet it cannot be consumed, therefore any land for which there is a use but which remains idle represents a loss of output which can never be recovered.

4.  To what extent should the tax system be structured to support other specific policy goals?

4.1  The Labour Land Campaign considers that LVT would address some of the most serious defects of the current economic system.

4.2  Wealth Inequality

4.2.1  Landownership represents a major proportion of national wealth, with less than 1% of the population owning 70% of British land by acreage (Who Owns Britain?, Cahill). The UK's wealthiest residents own the highest value properties, yet are liable to Council Tax at a maximum rate three times that paid by the poorest families. In the case of those non-domiciled for tax reasons, the Council Tax may be effectively the only UK tax they incur.

4.2.2  Residential and commercial land represents a small fraction of the 60 million acres of UK land but this is the only land which incurs taxation. Therefore, the vast majority of the land, which in many cases has been held by generations of the same families, incurs no tax whatsoever.

4.2.3  LVT would rightly reclaim for public benefit the land value which is provided by nature for free and enhanced by the activities of the whole community and taxpayer-funded investment in public infrastructure and services.

4.3  Environmental Degeneration

4.3.1  LVT will bring about the rejuvenation of land occupied by derelict buildings and so-called brownfield sites in towns, because the landowner would have to pay LVT on the land according to its permitted use anyway. Therefore, as just noted, he or she would have the incentive to invest capital in the land, to make full use of it, subject to planning regulations, or to sell it to someone who will.

4.3.2  By encouraging the use of brownfield sites for housing and commercial activities, LVT will help reduce urban sprawl and the need to encroach on green land.

4.3.3  By encouraging less urban sprawl through the more efficient use of land in towns, LVT will help to reduce long distance commuting, particularly by car, and less will have to be spent on roads and on public transport, thus saving on energy and reducing atmospheric pollution.

4.3.4  Meanwhile, planning regulations would preserve green spaces and other uses of land for public benefit. In addition, because, as noted below, LVT will lower the price of land over time, local authorities and other agencies could more easily acquire land to add to green spaces, protect wildlife, create parks and provide for recreational use - which would be encouraged by the fact that this would add to the value of neighbouring sites, and therefore increase revenue from LVT.

4.3.5  By ridding communities of derelict sites and buildings and increasing job opportunities, LVT will help to eliminate vandalism and anti-social behaviour.

4.4  The Housing Deficit

4.4.1  The huge increase in house prices in recent years, which has put home ownership beyond the reach of many young people, or forced them to borrow far beyond their means, is almost entirely due to the escalating price of land in the places where people want to live and work. The cost of building homes has changed hardly at all.

4.4.2  With LVT in place, because potential buyers would take into account the LVT they would have to pay in the future, the price of land would tend to fall, the more so as the rate of LVT was raised. This would make homes increasingly affordable, and reduce the costs of acquiring land for the building of new homes.

4.4.3  Furthermore, LVT would encourage the building of homes on brownfield sites, and discourage the hoarding of land by speculators, because all land would be subject to LVT according to its permitted use as determined by planning regulations, irrespective of how it was currently being used. This would help boost the supply of land for housing, and keep land prices under control.

4.4.4  Meanwhile, lower land prices would not only benefit those seeking to buy homes, but also make it more affordable for local authorities and housing associations to acquire land for social housing, thus increasing the supply of homes at affordable rents.

4.5  The Farming Crisis

4.5.1  Currently, farming in Britain is highly dependent on subsidies in one form or another. However, their net effect is that they tend to boost land prices and rent, so that the subsidies, rather than supporting farming, end up as unearned income for the owners of farmland.

4.5.2  The introduction of LVT would reduce land prices and rents, and, if substituting for income tax, would lower the costs of employing farm workers. This would enable farm subsidies, which tend to distort agricultural production away from the optimal use of land, to be abolished. Lower land prices would also encourage small scale and organic farming as a viable, environmentally friendly way of farming.

4.6  The Boom/Bust Cycle

4.6.1  The 2008 credit crunch had its origins in triple-A-rated mortgage-backed collateralised debt obligations which turned out to be junk. The trigger was, as always, an explosion of credit availability, but loose money makes its way inevitably towards immovable property.

4.6.2  As land values soared, professional property speculators pocketed their windfall gains, and banks filled their coffers with ever increasing mortgage receipts - they were, in fact, collecting the rent.

4.6.3  A land value tax would have tempered the boom and redirected savings towards productive, rather than speculative, activities.

4.6.4  The last two UK house price peaks were precisely predicted by LVT expert Fred Harrison in his books: The Power in the Land (1983) and Boom Bust: House Prices, Banking and the Depression of 2010 (2005).

5.  How much account should be taken of the ease and efficiency with which a particular tax can be imposed and collected?

5.1  Once all land has been registered and the infrastructure for valuing land has been established, the collection of LVT is cheap compared with other types of tax, since the process of assessment is more or less automatic.

5.2  Practical experience in the United States and elsewhere shows that the valuation of land is easier, less costly and more accurate than valuing buildings or other developments on the land. Valuing buildings, for instance, is complicated by their uniqueness in terms of architectural features, state of repair, what the buildings are being used for, how old they are, and so on. Land value, on the other hand, is determined almost entirely by its location relative to various amenities and by planning regulations.

5.3  It is impossible to hide land in the same way that income from earnings and trade can be hidden. All owners of land would have to pay LVT irrespective of their place of domicile or company status. Therefore, there would be none of the costly measures that other taxes require to ensure compliance and to prevent evasion through the various loopholes that so-called 'tax accountants' are so skilful at finding.

6.  Are there aspects of the current tax system which are particularly distorting?

6.1  At local level, the Council Tax is highly regressive in that people on low incomes have to pay a much higher proportion of their income in tax than the better off.

6.2  As the Mirrlees Review says, land, whether used for business or residential property, can be taxed at an arbitrarily high rate on economic efficiency grounds. Business property is an input into the production process and, on efficiency grounds, should not be taxed.

6.3  The problem with the Stamp Duty Land Tax is that it discourages the change of ownership of properties. In effect, therefore, it penalises those wishing to move to a more convenient location, or more suitable premises, and therefore encourages the inefficient use of land and buildings.

6.4  The problem with Section 106 Agreement payments is their ad hoc nature, and the lack of clarity of criteria used for arriving at such Agreements. Nominally, they can only be levied in order to 'mitigate harm' that would otherwise arise from the development, such as increased traffic congestion on local roads, overcrowding in local schools, or the tendency for developments to favour luxury housing at the expense of affordable housing required by people who work in the area. This, of course, is all a matter of interpretation.

6.5  Section 106 Agreements, therefore, are notoriously variable and unpredictable between - and even within - planning authorities, and half of all planning authorities do not even use Section 106 Agreements. Much depends on the negotiating skills of local planning authorities, which, if genuinely acting in the public interest, will want to extract the maximum contribution from property developers. The latter, on the other hand, will seek to keep their obligations to a minimum.

6.6  Consequently, negotiations can be protracted, perhaps involving expensive legal advice and lawsuits, or appeals against decisions made by the planning authorities. This can make Section 106 Agreements costly to implement, not least because of the delays before society will benefit from the developments being proposed. Furthermore, because of the opaqueness of Section 106 Agreements, it is often hard to dispel the whiff of corrupt payment for planning permission, tending to favour big national and international property developers at the expense of local builders who might have a more genuine interest in the local community.

6.7  The Community Infrastructure Levy is a form of development land tax. Under the system, in exchange for receiving planning permission, developers agree to pay a Levy when told to do so by local authorities, so that infrastructure can be provided. However, as with all development land taxes, landowners and property developers would still be able to withhold land from use, watching its value rise, simply by not seeking planning permission. And Planning Charges are merely a one-off payment, and paid only by the developer, and not by neighbouring properties benefiting from the development, thus limiting the amount of revenue that can be raised.

6.8  The Labour Land Campaign advocates that LVT replaces all current property taxes: Council Tax, National Non-Domestic Rates, Stamp Duty Land Tax, Section 106 Agreements and the Community Infrastructure Levy.

6.9  With Income Tax, the more one works, and the more efficiently one works, the more one is taxed. Similarly, with taxes on capital, the more efficiently it is employed to generate jobs and profits that can be used for further investment in the economy, the more it is taxed. Meanwhile, Value Added Tax makes goods and services more expensive, thus dampening demand, and destroying jobs, and it particularly penalises low-income consumers.

6.10  The potential revenue from one hundred percent collection of land rent would allow these taxes to be reduced, either by decreasing tax rates or by raising thresholds.


7.1  The Labour Land Campaign considers that land value should be the main tax base and that ultimately all land rent could be collected for public benefit.

7.2  Labour Land Campaign agrees with the OECD that recurrent taxes on immovable property are the least harmful. Moreover we say that an annual Land Value Tax positively promotes economic development.

7.3  The Labour Land Campaign also concurs with the arguments for taxing land values contained in Chapter 16 of the Mirrlees Review.

7.4  The aggregate annual land rent of the UK has never been measured but there can be no doubt that this is a huge potential revenue source which has barely been tapped.

7.5  Current taxes on immovable property collect only a small proportion of rent and all are mainly harmful.

7.6  The Labour Land Campaign also advocates the charging of resource rentals for the use of all natural resources, including those from the sea, as well as such things as landing slots for aircraft, and the use of the electro-magnetic spectrum and airwaves for telephony and broadcasting.

7.7  LVT meets all the established criteria for a good tax:

—  It is fair because owners of land are in effect charged for the benefits they receive.

—  It is easy and inexpensive to administer.

—  It promotes efficient allocation of resources.

—  It fairly distributes wealth and income.

—  It responds easily to changes in economic conditions.

—  It is transparent (all valuations would be in the public domain).

January 2011

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2011
Prepared 15 March 2011