On Wednesday evening, I hopped on a train and headed into the city centre to attend my first meeting of the Birmingham Fabians, a local group of the Fabian Society, Britain’s oldest political think tank. I’ve been a Fabian member for years and even did a summer internship with them way back in 2003 but for some reason I’d just never got round to attending a meeting since moving to Birmingham three years ago.
What motivated me to get off the sofa was the subject of yesterday’s meeting, which was titled “The Case for a Land Value Tax”.
As someone who has been occasionally been mistaken for a deep thinker, I’ve always been curious about land and the process by which we arrived at our current system of land ownership and taxation. I’ve also been surprised by the strong feelings that can arise when I have questioned the fairness of the current system, in which something like 0.6 percent of the British people own 69 per cent of the land on which we live – and they are mostly the same families who owned it in the 19th century. All too often, the issue of land and and how wealth arising from its ownership is taxed, is something which is off limits.
For this reason, I was more than a little excited to get the chance to learn more about the Land Value Tax from Jerry Jones, Chair of the Labour Land Campaign and author of A Strategy For Replacing Council Tax and Business Rates With a Land Value Tax, a First Step Towards a More Equitable Tax System.
So what is a Land Value Tax then?
As its name suggests, a Land Value Tax (or LVT for short) is a tax on the value of land.
Under an LVT system, all landowners would pay an annual tax or charge,based on the rated value of the land in question. Under such a system, landowners would pay a higher charge when the value of their land rises. For proponents of LVT such as Jerry Jones, LVT is a way of ensuring the whole community benefits when the value of land rises, not just the individual landowner.
Why should landowners be taxed when the value of their land rises?
Fans of LVT justify taxing increases in land values due to their belief in what determines land value. In short, they believe landowners do not contribute to rising land values and are instead, merely the lucky recipients of a windfall generated by others.
Obviously, this is quite a controversial point of view, especially given the primacy of neoliberal economics in our daily lives but it’s worth taking the time to understand how supporters of LVT at this position.
The LVT model identifies two factors which determine land value:
1) The natural characteristics of the land. There will be more demand for land which is particularly fertile or situated in an area of outstanding natural beauty and this will push up its value. LVT calculations purposely exclude effort and investment a landowner may have made to improve the land. The landowner has not done anything to bring about this demand and so should not be able to capture all the rewards.
2) The desirability of the area in which the land is situated. Demand for land (and there land value) is high in places where more people want to live or work. Factors affecting this demand include being near markets, transportation routes, public services, and sources of employment. According to the LVT argument, land value is generated by the social and economic activities of the community as a whole and not the efforts of individual landowners.
While the LVT’s point about land values seems quite ‘out there’ at first, it starts to make more sense when you are presented with examples from real life. The strongest example Jerry gave was what happened when the Jubilee London Underground line was extended in the late 1990s. As you might expect, properties situated close to the line shot up in value without the property owners having to do anything. Owners privately benefited from public investment driving up land value. Conversely, renters who had also contributed to the Jubilee extension through taxation were penalised when the cost of renting rose due to the increased desirability of the area.
The benefits of LVT
In addition to addressing the unfairness associated with landowners benefiting from unearned lad value windfalls, Jerry Jones argued that an LVT system would deliver the following benefits:
- Discourage land speculation. Under an LVT system, landowners would be taxed on the land they hold, irrespective of whether they are using it. This would create a cost to landowners who choose to hold on to land for years on end, waiting for the price to rise, making land banking a less attractive prospect.
- Encourage capital investment in land. Because sites would be rated according to their optimum permitted planning use, whether or not they are currently being used in this way, landowners would have an incentive to develop sites to their full potential.
- Curb house price rises. According to Jones, land value has played a significant role in the steady rise of house prices over the past 30 years. It is argued that LVT would serve to dampen the rise in land value, thus stabilising house prices.
My thoughts on the Land Value Tax
I went into the talk on Wednesday wanting to like the Land Value Tax (if you can ever truly like a tax). Unfortunately, however, I came away unconvinced about whether it is a policy whose time has come.
I am not down on LVT because I disagree with what its proponents think about land and how it is valued. I still struggle with the concept of private ownership of natural resources such as land and can see all too clearly the negative social consequences of rising land and property prices.
Probably the main reason I am feeling down about the LVT because I felt its proponents, or at least the ones I met on Wednesday, appear to place so much faith in one tax to address complex socioeconomic problems. This was most apparent when Jerry was talking about how LVT would have substantially curbed house price rises. I would love to believe that an LVT would have achieved this and other socially worthwhile objectives but it doesn’t seem credible to me.
The other reason I am feeling less optimistic about the LVT is because I feel it will be extremely difficult to persuade the public to support the tax. While I am ambivalent about land ownership and am concerned about the effect of rising land values on social cohesion, I am not so naive to believe everyone else shares my outlook. Rightly or wrongly, property and home ownership arouse strong feelings in the UK. Introducing an LVT would be a challenge to the status quo and, as such, be subject to fierce resistance. When the less than watertight arguments made by proponents of LVT meet with this natural in-built resistance to change, I fear the tax will not find its way onto the statute book.