In the UK, at the present time, a considerable amount of taxpayer’s money is spent on regional assistance schemes aimed at depressed areas, in order to encourage economic activity and a revival in fortunes for the populace in those areas. A national land-value tax would automatically address this problem. It would effect a transfer of the tax burden away from low-value areas towards high-value areas and so reduce the necessity for such regional-aid schemes. The effectiveness of this would of course depend on the condition of tax neutrality––that the introduction of LVT must give rise to an equivalent reduction in other taxes by the same amount. Assuming that the other taxes so reduced are universal––that is, at the same rate throughout the country––then all areas would benefit, poor areas and wealthy areas alike, but only the poor areas would gain the benefit of a lower land value tax, based on location. The wealthier areas would have an equivalent increase, so the wealthier areas would gain and lose while the poorer areas would only gain. In this way there would be a redistribution, not of wealth, but of the surrender of wealth in the form of taxation. With a national system the total government receipts would remain the same but they would receive more from the wealthier areas than the poorer areas. This would reduce the need for assistance to the latter, effecting a saving for the national exchequer, which would benefit everyone. Regional assistance is verging on welfare, and may unfortunately be necessary, but people would prefer to help themselves through well-paid work rather than rely on welfare.
Clearly this benefit of regional redistribution would not arise where LVT was applied only at the local level, for instance where adopted voluntarily by a town or city as an alternative to the council tax. Also, at local level there would be, in most situations, an absence of agricultural land that would be integral to any national tax. At the local level LVT would be primarily an urban tax and therefore, as previously explained, would be well suited to a limited local application. With LVT there would be a redistribution of the tax burden, according to location values, and the tax would provide local authorities an excellent opportunity to regain control over their own finances and their own affairs.
Devolution and Local Taxes
Few governments advocate the most important factor in devolution to the regions; the power to raise revenue. At the present time local government revenues derive from three sources: 52% from council tax, 31% from central government grants and 17% from retained business rates.1 Prior to 20i3 the whole of revenue from business rates was surrendered to central government, which absorbed it into the central grant system for redistribution––at the government’s discretion. Since 2013 local councils have been allowed to retain 50% of business rates, and since 2017 various pilot schemes have been trialed with a view to increasing the retention allowance to 100%––which would be preferred by those councils with strong business sectors. Clearly local councils are beholden to central government for a large proportion of their funding, which is not a happy place to be. LVT, if applied at the local level, would be an ideal means for giving local authorities real power over their own affairs. If local authorities are not able to raise revenue to finance necessary services they become dependent on support from central government, and as Rolland O’Regan warned in his book, Rating in New Zealand, ‘Grants and subventions from central government are the kiss of death to local government.’ 2 In the ten years from 2010 to 2019, although council taxes in England have been increased by 21%, central government grants have been cut by 38%.3 So councils are struggling to survive financially and in many cases having to cut services.
Raising revenue for local government has become an intractable problem over the years. The various methods tried––local rates, the community charge and council tax––have all proved unsatisfactory. (For a critique of the council tax refer to Part 3, Item 7, The Council Tax Deficiency). A local income tax, as practised in the US, has also been proposed as a solution. However, in the UK at least, there appears to be a general consensus that any local tax should relate in some way to property and be graduated according to the rentable or capital value of the property. Previous systems have attempted this in different ways, but none has ever directly taken into account one of the most important factors, the value of the site upon which the property stands.
As mentioned in Part 1 the value of a property has two parts: the value of the building––the bricks and mortar––and the value of the site. A tax on the site value only would resolve many problems. It would remove the current penalty against new building or making improvements. It would encourage the productive use of vacant and ‘brownfield’ * sites and it would provide a natural system of gradation of relative values.
Restraint of Property Values The presence of a land-value tax would rein in the escalation of property prices and speculation based on constantly increasing location values.
Prospective buyers of any property would be aware of the cost of any future land-value tax requirement and factor this into their calculations before making an offer. Sellers would have to reduce their asking prices accordingly.
In the housing market, at the present time many wealthy investors buy houses because, as an appreciating asset, they provide a better return than other forms of investment. With LVT this advantage would disappear and investors would move elsewhere. Housing would return to what it should be––a place to live rather than a speculator’s means of enrichment.
Although, for these reasons, in the urban context land values would be restrained if not reduced, at the other end of the spectrum––at the margin of agricultural land––values might actually increase. In his book Location Matters, Tony Vickers points out, ‘Marginal land would by definition attract no LVT, but the reduction in other taxes would bring land that is currently uneconomic to farm back into profit. Agricultural land values at what is now the margin would rise.’ 4
* So-called brownfield sites are usually former industrial sites that remain abandoned or considered too costly to redevelop.
Tax evasion and avoidance
The government relies heavily on income tax to raise revenue, but one of the great weaknesses of income tax is that it is easily subject to evasion by unscrupulous operators. This costs the exchequer countless billions in lost revenue, which of course has to be made good by the honest taxpayer. There is also a thriving legal tax-avoidance industry in which lawyers and accountants devote their time advising us how to be tax-efficient; in other words how to avoid paying our taxes. All of this depends on the obscurity and ambiguity of the existing tax systems. LVT is a system that would be clear and obvious to all and would eliminate this unproductive activity, which represents an enormous waste of a human resource that could otherwise be employed to some useful purpose.
Taxes, in whatever form, have never been popular. They are usually seen as an unwelcome burden to be borne with resentment and avoided wherever possible. But in an enlightened society the payment of tax would be seen not only as a good but also as a privilege, in being able to contribute to the wellbeing of society. It isn’t tax itself that is the problem; it is the type of tax and the means by which it is applied.
(2) Roland O’Regan, Rating in New Zealand, 1973, Baranduin Publishers Ltd. Waiuiomata, New Zealand, p.179.
(3) Institute for Government, “Local government…’ item 3.
(4) Tony Vickers, Location Matters, Shepheard Walwyn Ltd. 2007, p.58.