Henry George’s influence was extensive after the publication of Progress and Poverty. His ideas attracted many progressive thinkers and politicians of the time, not least of whom was a young Winston Churchill, who became a Liberal MP in 1904. However the forces of landed vested interests also recognised the threat to their power base and were always able to defeat attempts to introduce any system of LVT. The ‘People’s Budget’ of the Liberal government of 1909 included LVT, but it was defeated by the Lords, most of whom were landlords. Any further progress was curtailed by the onset of World War I, and then by the return of a Conservative administration in 1922. During the first four decades of the 20th century numerous attempts to introduce LVT were made by local authorities, or, at the national level, through private member’s bills, by Liberal or Labour MPs. These attempts are well documented in the book Land Value Taxation in Britain by Owen Connellan.1 It was during this period that the Liberals became displaced by the ascendant Labour party––which had always supported the idea of LVT. In a further attempt, in 1931, the Labour Chancellor Philip Snowden included LVT in his March budget. But in the subsequent Conservative dominated coalition, elected in October, the measure was repealed. In 1938 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-led majority. Events were then overtaken by the advent of World War II. 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. To it 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. Also, many members of the Labour party 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 celebrating the fact that ‘We are moving towards the nationalisation of the land.’ 2
However, 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 it, awaiting a change of government, which arrived in 1951, and which duly repealed the charge.
The manifestation of planning gain was not something new; it appeared 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 to the scheme.3
The Conservative government of 1951 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 event of compulsory purchase. Within the act, section 5 provided for additional compensation for the loss of speculative ‘hope’ value due to anticipated future increases in land values.
The next Labour government introduced the Land Commission Act Betterment Levy in 1967, designed to recoup, for the government, a share of the land-value increase arising from a permission being granted, but this 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. At the time 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 could be used in tandem, but care had to be taken to avoid any duplication of charges.
All of the above attempts at land-value capture (LVC), due to taxpayer-created value, suffer from the same fatal flaw: they were and are dependent on single events; they do not have the continuity that is necessary for any useful system of raising revenue through taxation. They show a disregard of the continuity implicit in the underlying Law of Rent revealed 200 years previously by David Ricardo.
Various other ideas for land-value capture have also been proposed in recent years:
Tax Increment Financing (TIF)
This is a system of land-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 US 4 and is supported in the UK by Centre for Cities, an organisation which represents the interests of mainly provincial cities.
Community Land Auctions (CLAs)
Using this mechanism, 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.5
The TIF and CIL systems both recognize the significance of increased land values, but because they depend on one-off events, they still lack 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 economic 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 £2 m in value. Unfortunately, as with the current council tax, 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.
A report by 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.6 CIL was reported as inflexible and only suited to smaller developments in high-value areas, so it was 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. In an attempt to remedy these defects the final recommendations included further supplementary systems: LIT, (Local Infrastructure Tariff), which applied to all developments, and SIT (Strategic Infrastructure Tariff), which is 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 ever more schemes for capturing land value are yet another demonstration of an 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, one which is continuous and takes into account all the causes of land value increase not simply those due to infrastructure (see Part 3, item 1)
(1) Owen Connellan, Land-Value Taxation in Britain, Lincoln Institute of Land policy, Cambridge Massachusetts, 2004, Chapter 5, pp. 52-53.
(2) Brett Christophers, The New Enclosure, Verso Books, 2019, p.110
(3) Winston Churchill, The People’s Rights, 1909, Jonathan Cape, London, p.123 http://en.wikipedia.org/wiki/Tax_increment_financing