11 Days, Political Barriers and Support from all Sides

11 days, Political barriers and support from all sides.

We are at 11 days to go, Crowdfunder have very kindly extended our deadline to the end of the month following an upgrade of their website.

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Today’s blog focuses on a variety of journalists from all sides of the political spectrum who have written in favour of Land Value Tax and also considers the barriers inherent in party politics.

Simon Wilson highlights the case for LVT in Money Week

There are Left wing notions that LVT is fair and just.  This is important, but what about the economic arguments?

Free-market capitalists and mainstream economists, such as the FT’s Martin Wolf and Samuel Brittan, have both argued the case in favour. Whereas left-liberals argue for land/wealth taxes on grounds of fairness and equality, free-marketeers tend to argue that the rapid accumulation of unearned property wealth over the last 15 years has made us all fat, lazy and unproductive. Tax wealth, so this theory goes, and we will be spurred into competing with fast-growing emerging markets. Right-wing libertarians also argue that wealth taxes are the least bad option because – paradoxically – they do the least to distort or depress wealth-creating economic activity.

We have here a policy that highlights the valuable elements of our political landscape.  Left wingers highlight equality and fairness, while Right wingers value wealth creation and economic activity.  If Land Value Tax achieves this then why is there a lack of political will to bring this forward?

Sam Brittain, of the Financial Times and an advocate of LVT, explains that party politics stands in the way of genuine reform that betters society:

Many chancellors have said that they would jump at a tax that had no disincentive effects on work or enterprise but had a strong redistributive element. The problem was that the amount of preliminary work required would take more than one parliament and any credit for the measure would redound to their successors.

If politicians really want to think about the unthinkable, as they sometimes claim, here is a place to start.

Surely it is time politics grew up or is the UK really being held hostage to the inability of our parties to be able to congratulate and thank each other for what they agree on?

It is worth highlighting exactly what we are discussing and I’ll turn to Martin Wolf, also of the Financial Times, who explains Land Value Tax in terms of infrastructure.  Martin Wolf explains we should finance infrastructure costs by raising revenue from the people who benefit, the beneficiaries.  In the case of infrastructure this will be landowners:

Consider a simple example. In a busy town the average house price is £300,000, of which half is the cost of building (or replacing) the house and the rest the value of the land. Some way away is an isolated village. Here the identical house costs £200,000, of which just £50,000 is the land value.

Consider what would happen if a road were built, for the first time, between the town and the village. Residents of the town would want to move to the village to take advantage of the cheap houses and the amenities. Assume, for simplicity's sake, that the benefit of the village's amenities to the marginal movers offsets the cost of the extra time they would spend travelling. The price of village houses must jump by £100,000.

Owners of the village housing will capture the benefit of taxpayer-funded road-building. To them this will be a massive windfall gain. In general, the rise in the price of land will account for most, if not all, of the capitalised value of the surplus of benefits over costs to users of the infrastructure.

Thus, increases in land values give not only a good indication of the benefits of infrastructure investments, but also provide an efficient and just way of financing their costs. It is efficient to tax these values because the tax would reduce the size of a windfall, while other taxes used to pay for infrastructure reduce effort, penalise the division of labour or discourage capital accumulation. It is also just, because the chief beneficiaries would bear the cost.

He goes on to discuss the benefit to local authorities:

A simple way of financing local infrastructure would then be via a tax on site values. The revenue could go, in whole or in part, to the relevant local authorities. If the latter were also deprived of the right to vary the rate, they would have an incentive to make investments that raise land values and increase their revenue.

At present, however, the lack of any easy means of raising finance is proving a huge obstacle to desirable investments. Then, when investment does take place, as with the Jubilee line, it merely pours vast windfall gains on landowners at the expense of taxpayers. The result has been a long history of inadequate investment and undue reliance on inherently damaging and unjust taxation. The UK is choking on the inadequacy of its own infrastructure. The time to make a change is now.

With thanks to Martin Wolf, this highlights another important argument of our times.  How do we give power to our local authorities and give them the tools necessary to create and raise their own revenues to deliver and develop public services?  The localism agenda is at the forefront of politics today, well known for the reforms in social housing over the last few years but also is at the heart of Conservative politics.  Heseltine himself writes in ‘No Stone Unturned’ October 2012:

2.14     For the UK to face up to the challenge of increasing international competition, we must reverse the long trend to centralism. Every place is unique. Local leaders are best placed to understand the opportunities and obstacles to growth in their own communities.   Policies that are devised holistically and locally, and which are tailored to local circumstances, are much more likely to increase the economy’s capacity for growth. 

Another current discussion about land and property taxes is the mansion tax.  As there has been no discussion about revaluing our properties, the Mansion tax will still be based on the outdated Council Tax valuations made in 1991.  As such, money raised will be small and will still be regressive.  Regressive taxes means that poor tax payers subsidies rich tax payers.   While Progressive taxes mean that neither the rich nor the poor subsidise each other.

Will Hutton writing for the Guardian in March 2012 suggests that Osbourne bring in a land value tax at 0.6% on every property which would result in homeowners with homes of up to £250,000 paying less than they do now – which will create something truly progressive.  He also argues the case for business rates:

The British pay council tax on property values unrevised since 1991 – with New Labour typically never finding the political courage to launch a revaluation and thus higher, unpopular council tax bills. A mansion tax is all very well, but if it is based on 1991 valuations it will hardly bring in any revenue. Instead, Mr Osborne should announce a revaluation of the country's entire housing stock and levy a tax paid in proportion to the new valuations; council tax should be renamed as the housing services tax. To raise sufficient revenue, it would be pitched as an annual 0.6% tax on every property; as a result, homes below £250,000 would pay less tax than now, taking the political sting out of the revaluation.

He should also introduce a land value tax on business and agricultural property; the principle is that as land becomes more valuable because of its business use, so it should attract more taxation. As a partial quid pro quo, suggests Mirrlees, the chancellor should abolish both stamp duty on property transactions and business rates. Business would thus pay tax on the genuine increase in the value of the property and land it is using; home owners on the real value of the housing services they consume – and the Treasury would still be ahead.

The Institute of Fiscal Studies published the Mirrlees Review – Reforming the tax system for the 21st Century.  It is well worth a read.  In the conclusion we are told to consider what a good tax system should entail:

1. We should consider the overall system – elements can be more or less green, progressive etc but The overall system should encompass all of these.

2. Neutrality, treat similar economic activities in similar ways to make the tax system simple and transparent.

3. Achieve progressivity as efficiently as possible

The report also highlighted 7 major flaws in the current UK tax system, number 6 is:

Taxation of land and property is inefficient and inequitable.  There is a tax on business property – a produced input – but not on land, which is a source of rents.  Taxation of housing involves both a transaction tax and a tax based on 20 year old valuations.

The report goes on in section 20.2.5 to talk about how to deal with business taxation.  They propose replacing the current system of business rates with a land value tax. 

“Business rates are not a good tax – they discriminate between different sorts of business and disincentivise development of business property.”

To read more about the benefits of the tax please turn to Chapter 16 – The Taxation of Land and Property

To summarise,

We have the words of a variety of columnists who support Land Value Tax.  We can see that this issue fulfils the Left wing value of being progressive, the Right wing value of incentivising wealth creation and also the Economists value of efficiency.  Surely the best tax reform policy for our nation is the one that is supported by both Right and the Left, and also by the greatest Economic minds in the country?  If this is true, then what will provide the political courage?

Will we be stuck behind the immaturity of being unable to credit our political opponents with the courage to do what is best for us all? Or perhaps we are at the dawn of a new age, a mature age where we can work together to achieve what we already agree on?

I say, let us focus on what we have in common; together we can educate ourselves and raise awareness.  Let us stand together and say proudly, "this is our time and together we will bring about fundamental change that will benefit us all."

If you would like to help us to raise awareness of Land Value Tax, please donate to our project:

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