Henry George’s influence was extensive at the turn of the 19th century and attracted many progressive thinkers of the time, not least of whom were Tolstoy, George Bernard Shaw and a young Winston Churchill, then still a Liberal MP. However the forces of landed vested interests also recognised the threat to their power base and were always able to defeat attempts to introduce the system. The‘People’s budget’ of the Liberal government of 1909 included LVT, but was defeated by the Lords, most of whom were landlords. In a further attempt in 1931 the Labour Chancellor Philip Snowden included LVT in his March budget, but in the subsequent Conservative dominated coalition government elected in October, the measure was repealed. In 1939 the Labour MP Herbert Morrison attempted to introduce a Site Value Rating bill for the London County area, but this was defeated again by a Conservative majority. Events were then overtaken by the advent of the Second World War.
After the war LVT became forgotten in the new Labour government’s enthusiasm for the Town and Country Planning Act of 1947, which was indeed a necessary and progressive measure, and to which we owe the fact that England remains largely a green and pleasant land, but it did not deal sufficiently with the unearned gains to be made through land ownership. Many members of the Labour party also held on to the belief that nationalisation was the best solution. In his book The New Enclosure, Brett Christophers quotes the then chancellor Hugh Dalton as saying:
‘We are moving towards the nationalisation of the land’ (1)
The government was aware that large gains could now be made through speculation and the possibilities of ‘planning gain’ but the Development Charge that was part of the act was insufficient to capture the betterment gains for which it was intended; the landlords simply held on to their land and did not develop; awaiting a change of government, which arrived in 1951, and which duly repealed the charge. The cause of planning gain was not something new; it manifested long before the 1947 Act. In his book The People’s Rights, Winston Churchill reported that immediately after the decision to go ahead with the Manchester Ship Canal in 1885 the prices of the necessary land to be purchased for the project rose by five or six times, to the exclusive benefit of the local landowners, who contributed nothing. (2).
The new Conservative government took the matter further in protecting the interests of the landowners. In 1961 they introduced the ‘Land Compensation Act’, which was part of legislation required to compensate property owners in the case of compulsory purchase. The Land compensation Act was designed specifically to compensate landowners, not only for the existing use value, but also (in section 14) for the loss of speculative ‘hope’ value due to possible future increases in land values. In other words it was effectively a encouragement for land speculators. This legislation is still in force today and the section 14 should be one of the first things to be repealed in any move towards land reform.
The next Labour government introduced the Land Commission Act Betterment Levy in 1967, which was ritually abolished by the succeeding Conservative government in 1970. In a further move the third post-war Labour government brought in the Community Land Act in 1975, followed by the Development Land Tax in 1976. However none of these measures really encompassed the underlying principle of LVT, which is the continuous collection of the Economic Rent for the public purse.
Throughout the whole post-war period, ignorance of the real significance of land values is very evident in the various attempts at taxing ‘Betterment Gains’. The Capital Gains Tax (introduced in 1967) serves only to obscure the importance of land values; it is applied to all property, including art, antiques and cars, and principal homes are exempt. It is beset with complex exemptions and conditions, and in any case only applies once, at the moment of sale.
It had long been recognised that taxpayer funded infrastructure increases land values, the benefits of which go to private landlords in the form of higher rents and property values. In order to help finance the costs of infrastructure related to particular sites under development the Town and Country Planning Act of 1990 incorporated a ‘Section 106 Agreement’ (also known as Planning Obligation), which enabled local authorities to recoup some of the costs from the developer in exchange for the planning consent. However this was a matter of negotiation and included such items as the provision of affordable housing as part of the deal. Because of perceived deficiencies in this system the Town and Country Planning Act of 2010 included a new Community Infrastructure Levy (CIL) based on a fixed tariff schedule, so avoiding the uncertainties of negotiation. The CIL was considered simpler and more transparent for raising funds which could be used over a general area, whereas Section 106 was more site specific and was seen as more suitable for negotiating the levels of affordable housing. Both systems may be used in tandem but care has to be taken to avoid any duplication of charges. The advantages of the CIL system have more recently been questioned since the parliamentary enquiry into LVC of 2018. All of the above attempts at Land Value Capture, due to community created value, suffer from the one fatal flaw in that they were and are dependent on singular events; they do not have the continuity that is necessary for any reliable system of raising revenue through taxation; they reveal a disregard of continuity implicit in the underlying Law of Rent revealed 200 years ago by David Ricardo.
Various other ideas for Land Value Capture have also been proposed in recent years (see below)
Tax Increment Financing (TIF)
This is a system of ‘value capture’ relating to specific infrastructure projects, whereby a proportion of the resulting increase in property values can be recouped by the local authority to finance the project. It has been employed (not without controversy) in the USA, (2) and is supported in the UK by Centre for Cities; an organisation which represents the interests of mainly provincial cities.
Community Land Auctions (CLAs)
A system whereby land parcels which come up for sale and which gain in value through planning consent for development can be auctioned to the highest bidder; the local authority taking a proportion of the proceeds. This system has been advocated by Tim Leunig of the think tank Centre Forum (3).
These two systems recognize the significance of increased land (or property) values, but depend on one-off events so lacking the continuity that is required for any effective taxation system.
The Mansion Tax
The proposed Mansion Tax arose as a consequence of the excessive increases of house prices, especially before the collapse of 2008. As was explained earlier, the houses themselves do not change in any material way. What changes is the value of the sites upon which they are located. The Mansion Tax is an attempt to recoup some of this increase of value by imposing an annual tax of 1% on houses exceeding £2m. in value. Unfortunately it makes no distinction between building value and site value. It has been pointed out that the same end result could be achieved by simply extending the existing council tax bands; the valuation basis being the same.
As with TIF and CLAs a Mansion Tax would be automatically incorporated in any comprehensive system of Land Value Taxation.
Land Value Capture (LVC)
A report of the House of Commons Committee on Land Value Capture published in September 2018 recorded that both section 106 and CIL were in need of improvement (Ref. ).
CIL was reported as inflexible and only suited to smaller developments in high value areas, so not much used by local authorities outside London and the South East. Commenting on section 106; one participant asserted that ‘it was not fit for capturing land values’. Several participants felt that, where negotiations were concerned, many local authorities were no match for more skilful private developers. To remedy these defects the final recommendations included further supplementary systems: LIT, (Local Infrastructure Tariff), applied to all developments, and SIT (Strategic Infrastructure Tariff), similar to the mayoral CIL employed for Crossrail in London. These proposals of course only applied to the increase of values due to infrastructure.
One has the rather depressing sense that this proliferation of even more schemes for capturing land value is yet another demonstration of the inability (or unwillingness?) to recognise the underlying causes. A straightforward land value tax would sweep away all these ingenious but ultimately unworkable schemes with a system that comprehensively includes all forms of LVC, which is continuous and takes into account all the causes of land value increase not simply that due to infrastructure (see item 3.01)
(1) Brett Christophers, The New Enclosure, Verso Books, 2019, p.110
(2) Winston Churchill, The People’s Rights, 1909, Jonathan Cape, London, p.123