Land Value Tax NOW

The Ideas Factory is a chance for you to pitch your own idea of what should be in the next Liberal Democrat manifesto. The proposal here is not the policy of the Social Liberal Forum. We will however be passing it – and the response it generates – onto the Manifesto Working Group.

The Proposal

Tony Vickers: For many Liberal Democrats, income tax is the most progressive of taxes. Those who earn most, so the argument goes, can afford to pay most (Forgetting that top earners are the top avoiders and evaders!).

‘Land taxers’, including ALTER members, usually dispute this. To us, the definition of ‘fairness’ in taxation can be summed up: “pay for what you take, not what you make” or even “tax wealth, not work”. More technically: “internalise the externalities” (which covers “polluter pays”, “no free lunch” and “reward investment”). What ethical or economic justification is there for giving any of one’s productive earnings to Government, so long as those who pollute or monopolise natural resources, do not pay their dues? As Vince Cable has said: “Ability to pay applies to wealth accumulated as well as to earnings.”

Following the Tax Commission and two lively debates in Conference (2006 and 2007), Party policy on land value taxation (LVT) is as follows:-

  • Business rates to be reformed onto a site-value-only basis (Site Value Rating) and largely re-localised, within one Parliament;
  • Site Value Rating to be levied on second homes and development permitted housing land, until residential occupation.
  • LVT more generally – including on domestic property – “longer term”.

We also have an aspiration to raise the income tax threshold to the level of national minimum wage (NMW) – but no plan for how to do this. Among our wider policy aspirations are increased supply of affordable housing, sustainable land use and massive investment in transport and other public infrastructure – all currently unfunded.

As ALTER’s representative on the Tax Commission, I presented proposals to achieve all this which were never discussed. I was told we could not dilute our “Axe The Tax” message with any suggestion of a domestic property tax. With the Credit Crunch, however, all neo-liberal economic textbooks have become obsolete, so perhaps it is time to refine and re-present these proposals, which now have the full endorsement of Liberal Youth. I suggest 5 simple steps:

  1. When scrapping Council Tax and replacing it with a Local Income Tax, retain a national domestic property tax. The easiest way to do this would be to re-introduce ‘Schedule A’ income tax (imputed rent ‘earnings’ on owner-occupied property), hence exempting all who pay rent for their home. An additional personal tax allowance would be given to partially offset the burden on those owning modest homes by local standards – as used to calculate housing rent now. Pensioners would be allowed to defer net payments until death/sale/re-mortgage.
  2. Remove the risk of a house price hike following the removal of Council Tax by ensuring yields from a revived Schedule A balance that from Council Tax now (£21bn). The basic rate threshold can then be raised correspondingly, taking millions of low earners out of income tax.
  3. While the registers of land ownership and value are being completed, require occupiers (a) to pay property taxes (recoverable by deduction from rent) and (b) to self-assess site values, with local authorities given the power to acquire sites at the owner’s valuation if thought too low.
  4. When the first national land valuation is completed, continue a ‘rolling revaluation’ to ensure the tax base remains a fair reflection of the land market and captures the impacts of all infrastructure investments. Convert ‘1’ above to conform with non-domestic site-value rating.
  5. Phase out Stamp Duty, Section 106 (Developers Contributions), Inheritance Tax and Capital Gains Tax (on ‘real property’) over time, replacing them with a higher LVT, captured through income tax and corporation tax systems.

Social liberalism is about ensuring a fairer, more equal society. Ever since Liberals were thwarted from taxing land values to achieve such a society 100 years ago, taxing work and productive profits has served only to keep people poor. Such superficially “fair” taxation does not pay for welfare: it creates so much as create what James Robertson calls a ‘dependency culture’. A century on from the “People’s Budget”, a properly progressive Land Value Tax still remains “the change we need”.

Responses

Richard Huzzey: I should probably declare my interest as a member of ALTER and Green Lib Dems. I’m obviously very sympathetic to Tony: a switch to land value tax is exactly the sort of radical overhaul that the Liberal Democrats should be aiming for. Rather than tinkering with the edges of the current tax system, we should be asking what purpose such an unfair, regressive tax system exists for. I think ‘income tax’ has become fetishized by some liberals over the year as a ‘progressive’ tax, and one that is good for its own sake. Yet, as Tony says, it is easily evaded by the very wealthiest, and is based on some bizarre philosophical reasoning.

So, I’d welcome a broader change to taxing wealth accumulation where it disadvantages others, not wealth creation where it does not harm others. The big challenge, of course is finding a practical way to switch Britain to LVT, as the short-term crossover could be painful and disruptive if done badly. It also needs – as Neil Stockley would remind us – a ‘narrative’ to sell to people on the doorstep. So, while I’m sold on the philosophical advantages of LVT, I predict the struggle to convert the Liberal Democrats will pivot on questions of transition and its viability as a doorstep message. I expect ALTER will need to focus on on the problems of transition (as Tony addresses here) and the question of how you’d sell LVT in a Focus leaflet, and offer a simple message for its virtues against the inevitable smears and spin it would suffer.

James Graham: like Richard, I’m also an ALTER member, and I have similar concerns. I suspect that LVT is something that would be a lot simpler to sell in government than in opposition. Somehow we have to find a way to elevate it up the political agenda, and I suspect that will require someone outside of traditional party politics to make it hit the mainstream.

But within the party, the dynamic has to change from a “nice idea but it will never sell” approach to a “how can we make it sell?” one.

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7 comments on “Land Value Tax NOW
  1. Ed Joyce says:

    I would also declare an interest here being a strong supporter of ALTER’s policies.

    I am also a member of Liberal Vision – and a lover of ‘Negative Freedom’. I do not feel uncomfortable being a Land Taxer and Economic Liberal (the two go together generally in my experience) in the party as the abolition of income tax for those earning less than the average wage is a policy that belongs in the Liberal Party.

    Low tax is a libertarian policy but not a right wing one. I believe the factionalisation of the party will clarify the party direction and be helpful provided that we retain a broad church.

    The basic problem between the Social Liberals and the Libertarians is that the Social Liberals are authoritarian in nature and conduct their debate in terms of ‘LV/Libertarians should leave/be expelled’. Libertarians are constantly threatened and harried within the party by Social Liberals wanting them to leave.

    Libertarians in my experience support a ‘live and let live approach’ and I have never heard any wish to expel anyone – even those who shamefully supported the Religious Toleration Bill.

    I hope that an agreement can be reached between the leaders of the SLF and LV that we will never recommend or advocate the expulsion of each others supporters from the party. If someones behavious requires this it should be done by conference as a whole with the factions either supporting their own candidate or staying on the sidelines – otherwise yes the party could be damaged by internicine strife.

    Ed Joyce

  2. James Graham says:

    The Social Liberal Forum has never called for anyone to be expelled from the Liberal Democrats; indeed we have publicly called the party remaining a broad church.

  3. Rob Knight says:

    I know that this is obviously a tricky question, but is there any way of calculating, approximately, how much individuals would pay under LVT? There are some obvious assumptions that we can make, such as that those owning large amounts of valuable land would probably pay dramatically more in tax than they do now, but what does it mean for the ‘average’ person? I’d assume that the average person would be left better off by a switch to LVT and away from other forms of tax (the increase in personal allowance for income tax), but I’m nowhere near having the sums necessary to prove it. I think that this presents a significant barrier in selling it to people; it’s much less clear even than the LIT proposal at the last GE which Charles Kennedy famously stumbled over when asked the direct question about who would pay more or less.

  4. Tom says:

    What about people in shared ownership schemes ? Do they pay full LVT ? Why shoudl someone 3 years into a mortgage (and in who in no real sense owns their property) be treated as if they owned a property outright ? they have neither wealth nor abilty to pay.
    Why do people who rent not have to pay LVT ? or am I misreading this?

  5. Richard H says:

    Tom:

    Yeah, I think you are misreading this. Just as renters have council tax and utilities passed onto them (or considered in the price of their rent, when the owner sets the charge) the LVT would of course get passed on to people who are renting.

    The advantage in LVT is that it rewards people insulating and improving their properties or re-developing brownfields sites. So, it will help many people unable to afford buying or renting a decent home by making it an incentive rather than disincentive to develop and improve a site. At the moment people are charged on the value of the property, creating a tax on improvements or insulation etc. Under LVT it is the site they are charged for. So, building thirty flats on the site of a single home would incur the same LVT — but would be shared by 30 households. What is more, the site value reflects improvements to the local area so places with greater public investment are naturally charged more.

  6. Monkee says:

    100% in agreement

    I’m a classical liberal/geo-libertarian but
    this should be a priority for all liberals

    “Ever since Liberals were thwarted from taxing land values to achieve such a society 100 years ago, taxing work and productive profits has served only to keep people poor”

    its time for “the curious death of Labourite Britain”

    Historically we were close to achieving a Liberal Britain
    then labour and the Tories went off on a mission to turn the UK into a Soviet monarchy with clause 4 and “state capitalism”

    5 stars

  7. LarryJayCee says:

    I think that there is a danger that LVT will cause deleterious and unforeseen side effects. For example, Richard H says that LVT will encourage developers to knock down houses and put up blocks of flats on the same site, because the block of flats as a whole will pay the same LVT as the house. I think this is wrong, because the value of the land should be the sum of the values of each flat less the cost of building them, because after taking his profit this is the amount that the developer should be willing to pay the owner of a similar piece of land to repeat the process. Hence, I think that the LVT on the block of flats will be much higher than on a single house, although probably less for each flat than for the single house.

    Now, Tony Vickers I know hails from Newbury and has demonstrated that LVT can work in a rural environment like Vale of White Horse. What he has failed to do is to show that it works in London, and if it does not work in London, or results in Londoners paying much more than the current £11bn per annum to subsidise the rest of the country, it will be very difficult ever to sell it. After all, all the politicians have a home in London and all the major media are based in London.

    Another deleterious side effect of LVT is that it legitimises “garden grabbing”, where property owners sell off part of their gardens for development. This is a dangerous approach IMO because it is well established that gardens, particularly in cities, are havens for wildlife and replacing old houses with mature gardens by blocks of flats surrounded by grass (what I call green deserts) damages biodiversity. Gardens are not brownfield sites, whatever John Prescott might have thought.

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