Written evidence submitted by the Labour
Land Campaign
1. INTRODUCTION
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 www.labourland.org.
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. EXECUTIVE
SUMMARY
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
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