Want growth? Scrap income tax and introduce a location tax

A few weeks ago, I wrote about my lunch with a reader – Nicholas Dennys – in London and repeated a story he told me about Martians and space dust, which was meant to exemplify the idea behind a land or location tax. I have been meaning to return to the subject so apologies for having left it so long. You can read the original post here: Why a Martian would never manufacture in Britain, but I also want to run through some of the rest of our conversation for you. 

The main point behind a land or location tax is that, in general, the price you pay for a property or piece of land (ie, the value the market gives it) is not about the land itself, but about where the land is. A house sitting on a piece of land might cost more or less the same to put up in Wales and London, and as a structure, be worth the same in both places.

But the house in London still sells for 20 times the one in Wales because of the wealth of activity around the land on which it sits. The community, the infrastructure, the buses, the airports, the schools, the hospitals, the ease of doing business  – the price you pay for the land is a function of all these social rather than private goods. As Nick puts it, “the mud beneath our feet is only worth what it is because of what goes on around it”. 

This suggests that the value of a piece of land should perhaps be divided into two. The first part should be the value of whatever sits on the land (its houses, sheds, factories and the like). The second should represent the value given it to buy the surrounding civilisation (its ‘location value’).

There is a neat little example of the existence of location value in today’s FT. According to letter writer Charles Bazlinton, when a bypass is built around a town, residential property values in that town will rise by an average of 15% as a direct result.

This 15% uplift in capital values – which is effectively a 15% rise in the location value of the properties – accrues instantly to private property owners in the town. But given that the bypass will have been paid for by everyone’s taxes, why does it make sense that one group of people (freehold property owners) should make money out of it when everyone else does not?

From this comes the idea that the 15% uplift should be shared out among the community as a whole via a property value tax – or a location value tax (LVT). That way, something the community has provided benefits the community rather than just the private landowners within the community.

This makes a kind of moral sense. But there is another argument for an LVT – the idea of excess burden or the deadweight loss of taxation. It refers to the amount by which a country’s potential GDP is reduced by the distorting effects of various sorts of taxation – effects that are stunningly high.

Our own Treasury puts the excess burden of taxation at around 30p per pound of tax collected. LVTs are thought to have very low excess burden – or possibly none at all. A recent report out from the OECD (Tax Policy Reform and Economic Growth) made the point that, of all the four categories of tax (property taxes, consumption taxes, personal income tax, corporate income tax), property taxes are the least harmful to an economy.

“Income taxes have larger effects on firm and household decisions than (most) other taxes and therefore create larger welfare losses ceteris paribus.” Recurrent taxes on immoveable property are the “least harmful” tax in that they distort rational economic behaviour the least. “A growth orientated tax reform would therefore shift part of the tax burden from income to consumption and/or residential property.”

There is even a very good argument to be made that an LVT is not just neutral but stimulative, in that land taxes work to shift investment out of property and into ‘higher return activities’. A proper LVT could also be stimulative in that it might bring marginal land back into use.

Consider a derelict inner city site and a would-be start-up business. The business might find that it can afford to fund its costs of labour and capital, but not the endless taxes imposed on that labour and capital. However, under an LVT system, this wouldn’t be so much of a problem: the location value of land no one else wants is low to non-existent and so would be the taxes. The result? A new business and a marginal area brought back into the community. 

The main and the best objection to a location tax is that we have so many taxes already. This is quite right and we are utterly opposed to new taxes being introduced without old ones being dumped.

There was a good letter in The Times on this matter from James Lewisohn earlier this week. In it he noted that, while it sounds like a good idea to shift the UK tax system away from income and towards wealth, and in particular, unearned wealth via increased taxes on property, the truth is that the UK “already taxes wealth and greatly so: at 40% UK inheritance tax is among the highest in the world, and vastly above Scandinavian rates”.

As a Dane, for example fictional detective Sarah Lund, may incur regular and relatively high property taxes on an annual basis. Yet, should her mother pass away in suspicious circumstances in series three of The Killing, “she will pay no more than 15% in estate tax”.

Her counterparts in Norway and Sweden will pay much less: “in Sweden a simple 0%”. A location tax may be a great idea (or not – please discuss below). But for it to work, it would have to come instead of, rather than on top of, all our hundreds of other taxes.

  • Phil

    How do you value land though? And fairly keep the value up-to-date?

    For that matter, how do you value the structure of a 50-year old 2-up 2-down terraced house?

    A substantial LVT would tend to encourage people to move away from ‘high-value’ areas to ‘low value’ areas – arguably a good idea, providing that building homes in green-field areas becomes easier. But perhaps businesses tend to start-up in ‘high value’ areas, because that’s where the greatest density of customers are found, leading to excessive commuting.

  • Chilli

    brilliant sentiments! Property prices in the uk are akin to looking up at a vast avalanche set to destroy you. Who would buy into this? And what happens in the meantime while we wait for more normal conditions?

    The uk desperately needs to formulate a new ‘deal’ with it’s entrepreneurs. Land values and taxes are the yoke that keeps us in ‘non job’ slavery. I’d rather have 10 000 unemployed if it meant one more Richard Branson or Steve Jobs withe the time and economic conditions to make dreams come true.

  • rod

    I think the answer is ‘no’. Income is actual money which can be taxed. If land generates money then that money can be taxed, if it does not then we would be taxing a notional value yet to be realised.

  • Boris MacDonut

    Income Tax brings in £155 billion a year or 22% of Government revenues. To fill that hole would require a property tax close to 4% of value pa across the board based on total UK property values of around £4,500 billion. For Joe average in a house worth £190k that is £7,600 a year or roughly80% more than he pays now. I assume it would have to hit all property owners including the elderly, so it would take a bit of thinking through and could be applied like an annual stamp duty at todays stamp duty rates. People earning £2 million in a £1 million house would only pay £40,000pa !! No wonder the rich like it.

  • rpaco

    We already have a tax on the value of our land/property it used to be called “The Rates” then “The Poll Tax” and now it’s called Council tax.

    It works in almost the way you describe in being variable dependent upon area and is widely despised in giving petty officials disproportionate and oft abused power with zero accountbility.

    Income tax has the benefit of only being payable if you have an income eg a means to pay it. Owning land does not it itself, generate any income, with which to pay your tax, indeed it most likely costs an exponentially rising amount in relation to the size of the property, so one is inversely affected. Many ex-stately homes are run on a shoestring by the remnants of once great families, your suggestion would see the whole lot up for sale to pay your property tax. Call it location tax if you like it’s all the same. I gather a similar scheme in France nearly caused a second revolution.

  • Henry

    I don’t think anyone is suggesting that LVT should be an *additional* tax. It would definitely be a simplification.

    The safest route – as suggested by the excellent Mirrlees Review – would be to start by replacing business rates, council tax and stamp duty land tax (all horrible, distortionary taxes). There are probably others such as related CGT, inheritance tax and rental income that could go immediately too.

    Going further, I’d then reduce income tax, NICs and others.

  • Paul Amery

    Congratulations, Merryn, on an excellent article. The introduction of LVT would do a great deal to reduce the huge imbalances in our economy. The landowning/financial oligarchy that rules the UK will put up a huge struggle to prevent it, though.

  • Ellen

    Younger people starting out in life, without much parental assistance, often find they need to start in large cities like London…they have to go where the work is. Things are stacked enough against the young already and the proposed tax would be targeted at tenants as much as owner occupiers. Also, small uncomfortable residences in cities would attract the same tax as big piles in the country. I would consider this to be a grossly unfair concept.

  • Chris

    A better idea in my opinion would be to make the UK more competitive by lowering the cost of living. This would require the Government and vested interests to allow the housing market to crash (rather than at present to be artificially propped up at inflated levels) and ban second home ownership and build enough houses. It would also require the prevention of any future BoE deliberately created housing bubbles and dramatically reduced immigration. This would give the young a chance to own their own house, would make the UK more competitive and may stop the population thinking that property speculation is the way to make money for nothing. Who knows we may even see a return to manufacturing rather than city of London gambling.

  • bingo

    Seems a bit unfair on poor people who live in areas that get gentrified. Not only do the bookies and boozers disappear, to be replaced by organic delis and gastropubs, they have to pay more tax too.

  • Pensioners living in genteel poverty

    NO NO NO, our incomes as pensioners = 20k but our house = 400k. So we pay little income tax highish council tax and vat on purchases. We live in what I call genteel poverty — were ok just so long as we only spend our income. A land tax sounds like we would have to move downmarket to some ***forsaken area just to eke out our income. Get real here this is gross redistribution of wealth the savings and sacrifices we have made over 60+ years to live somewhere nice [london/essex borders]

  • Boris MacDonut

    The concept of a Land Tax is touted as a way of getting the rich to pay up a fair share in a transparent and unavoidable way. Maybe this idea should be brought in only for property and land holdings in excess of say £500,000. Then tailored so the “only a bit rich ” are not disadvantaged and the very, very, very rich are forced to pay a reasonable whack. Remember, a billionaire can afford to create 990 millionaires and still be a multimillionaire himself.

  • StevieG

    Merryn,
    I like the regional policy element of the proposal. Otherwise, I don’t think it’s a flier because of the impact on the elderly: house rich, cash poor = misery and political nightmares. They’ll die soon enough and, as you observe, their ‘estates’ will pay 40% IHT.
    With this and other property proposals like the ‘mansion tax’, I think the key requirement is to apply tax fairness (my version) to the population. Which means:
    Increased property taxes for people (or their close companies) who own 50 homes @ £250K just as much as those owning 1 home @ £2M;
    Proportionately increased council tax on £1M+ value property; Non-doms to pay stamp duty.
    Overall, any proposalss have to be fair in the sense that people – even old people – are not driven out of their one and only home.

  • Romford Dave

    More tinkering aimed at punishing the wealthy, sucking in the middle classes as these schemes always do, squeezing ever more money into the already bulging coffers of the treasury for clueless politicians to waste on another vote grubbing idea.

    If you’re serious about growth then tax cuts at the lower end of the income scale are one of the best forms of stimulus. Raising the tax threshold benefits those who do.

    How to pay for it?

    Build tolls at the exit of every port so that every vehicle entering the country pays £100

    Divert any court awarded compensation payments to the treasury – we already pay for the welfare state to support people in need of it, use it.

    Want to help business?

    Make sick pay illegal – boosting at a the stroke productivity and moral of the entire public sector, along with equalising the gap between the vast amount of workers who survive on just statutory sick pay.

  • Ryman

    Location tax replaces council tax and inheritance tax. Allowances for income poor/property rich owners are made up out of the estate.

  • Nicholas Dennys

    The Martian story shows huge misdirection of wealth. All UK shared infrastructure and social provision is created & maintained by wealth producers – individuals, companies & the state – & is financed by £600 billion taxes on labour & capital. But the money value of it is taken by groups who benefit from the rents & capital values of land that location value enhances, which are very lightly taxed. As the use of land is essential for existence & any activity the effect is universal. The application of labour & capital in all its myriad forms is distorted & impaired. Also a large % of the population have no or little land but much taxes, rents or mortgage payments. The social costs of softening this damage to individuals & communities has made the minimal state a distant dream at great cost. Excess Burden is a measure of this inefficiency. As Merryn says, at lowest estimate, the Treasury’s, we loose 30p off GDP for every £1 of tax – almost £200 billion a year through Excess Burden.

  • Nicholas Dennys

    But the Treasury don’t calculate it. Prof.Tideman & Plassman in The Losses of Nations, ed Harrison 1998, give a more considered opinion & put it at 40% of NDP or somewhere over £400 billion per annum today. This is not a sum we can afford in a crisis.

    The crisis itself, including the banking crisis the value of whose land collateral was destroyed by it, was caused by a speculative boom/crash in location values. This could not happen if they were socialized back to the community as revenue, and other taxes reduced. As far as I can see Tideman and Plassman don’t take into account the massive destruction of wealth that this has caused nor the damage to forward investment etc.

    There will be assessment issues and many people and situations requiring transitional arrangements as people have pointed out. But there is little doubt of the benefits of drawing most revenue from location values & as little as possible from labour and capital. There is a lot to play for.

  • JAW

    Taxing land value is a seductively attractive idea, especially if coupled with the abolition of so many taxes which have a little understood effect of suppressing wealth creation eg income tax, business rates, corporation tax, etc. Yes, it would result in spectacular growth… but perhaps at an initial profound social cost?

    Those who own or occupy land (both commercial and residential) in the newly designated high value areas of cities and towns etc and who do not use the advantage of their location to produce much wealth, ie the non-productive poor, incompetent and failing companies, charities, low income institutions etc, would be forced to relinquish the land (and the property on it) and move to cheaper areas, even zero rated areas.

    Unless LVT is phased in slowly there could be as much mass migration and population exchange as occurred during the partition of India in 1947. Let us hope the rich and the poor don’t shoot at each other as they pass by.

  • Edward J. Dodson

    National governments might consider an approach that would reduce the tax burden on “earned” sources of income and effectively tax income gained from speculation in land, in real estate and other forms of passive investment. All individual incomes up to the national median could be exempted from taxation (no other exemptions or deductions allowed). Above this level, an increasing rate of taxation would be applied to higher ranges of income, the rates and ranges set during the government budget process in order to achieve a balanced budget. Thus, most revenue would be raised by the taxation of what is essentially “unearned” income. If and when a high effective rate of taxation is directly imposed on the rental value of land, the amount of income that is unearned would begin to fall.

  • Steven Clarke

    Yay! Glad to see you approve of LVT. It is a no-brainer.

    Abolishing IHT would not be my priority. It’s unearned wealth, and people’s success in life should depend on their own efforts not the good luck to be born to the right parents.

    Substantially lift the income tax thresholds, replace council tax and business rates, reduce employer’s NICs.

  • Critic Al Rick

    It’s not Growth per se which needs encouragement, it’s targeted Growth; Growth of anything contributing towards achieving an improved Balance of Payments, whether it be by increased revenues into the UK or reduced revenues out of the UK (via greater self-sufficiency).

    Significant Taxation concessions should not be applied across the board but targeted as above.

    It’s HM Treasury’s expenditure which needs significant alteration; strongly downwards. The Public Sector needs to be reduced by at least the amount it increased since the mid 1990s. This could simultaneously release a (largely unnecessary and efficiency inhibiting) huge regulatory burden off the Private Sector.

    But it’s not going to happen, not voluntarily. How long will it be before the IMF intervenes?

  • David Cooper

    Excellent article, love the parable about the Martian.

    Let’s use LVT to abolish stamp duty, inheritance tax, Employer’s NI. All of them distorting, anti-work and anti-enterprise. Move taxes from doing work to owning wealth. And for good measure, abolish the 50% income tax rate.

    @Pensioners living in genteel poverty
    Latest thinking is to have tax allowance which can be used for land taxes OR income tax. So if you have little income but lots of land, you don’t pay LVT unless you are enormously wealthy.

  • Nick

    Amen.

    Absolutely agree.

    If the goverments wants to introduce it slowly, they can aim for a mansion and btl tax above certain value.

  • NeutronWarp9

    The mob are all in favour of a tax system that reduces their own personal burden and introduces a system that appears to grab from ‘ The Haves ‘.
    On Question Time this week it was argued that getting rid of the 50% income tax rate results (however counterintuitive it might seem) to increase tax-take for the government from the wealthy. And yet, as in Roman times, the bleeding heart and devious rabble-pleasers chose not to accept the evidence. Raise the poor out of taxation (thereby reducing tax-take) – cue the applause!
    At least Diageo, BAT and the like would benefit, I suppose.
    I say bring the mob a 100 Days of Games – or its gladitorial equivalent – The London Olympics.

  • James wright

    In central London where there is a desperate shortage of housing over 60% of flats in new build projects are sold to foreigners, the majority of who are happy to keep the flat empty and just enjoy the tax free capital increase. Meanwhile they pay close to the lowest council tax in the country and force local workers even further from the centre. At the very minimum capital gains allowance for non doms should be removed to level the playing field. A tax on property value as in New York would then ensure the burden of social expenditure would fall on those in multimillion pound pads rather than those the reside in poorer areas of the capital. For example in Tower Hamlets a someone living in a run down studio pays higher council tax than a billionaire living in 1 Hyde Park.

  • Sam

    Of course a land tax would make sense, (with exclusions for agricultural working farmers who are already struggling) – but try getting that collective bunch of actor – clowns in Parliament to agree with all their vested interests and lobbyists to represent. You’ll be lucky!!
    The taxation system, made so, so complicated under Gordon Brown is in desperate need of scrapping and replacing with a straightforward, more user friendly system, where tax havens are no longer tollerated and so called non doms, who suck the nation’s blood and pay almost no tax are also made to pay their proper dues. Real entrepreneurs must be rewarded, but so called “property developers” would not be classed as such.
    Job creaters are really put off by all the crappy red tape rules they have to adhere to – no wonder the economy is struggling because so much talent is laying dormant!
    The sums would have to add up though!!

  • Daniel

    Completely agree with the article.

    @Ellen, Younger tenants would be benefit from the introduction of a location tax because it would encourage vacant and underused properties to be put to best use.

    The tax could not be passed on by the landowner to the tenant, because the share of the burden of taxation depends on the relative elasticities of supply and demand. With land, the supply is perfectly inelastic and therefore the entire burden is borne by the landowner.

    (See “Who Pays Taxes?” and Figure 7-7 here: http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Chapter_7/PThy_Chapter_7.html)

    @Romford Dave, A location tax taxes unearned wealth and relieves taxes on those who earn wealth. The “middle class” would therefore benefit from a location tax. Most “middle class” people already pay large amounts in income tax and the proposal is to scrap the income tax and replace it with a location tax, not to have both, which would be grossly unfair!

  • Romford Dave

    @Daniel.

    I’ve witnessed a number of new and novel tax proposals in the brief time I’ve spent on this Earth, all resulted in more tax being paid. The focus needs to change to cutting taxes without giving the opportunity for the slippery bas****s introducing anything new.

    The major issue I have with LVT, regardless of how fair it is, is that it has no beaing on an individuals ability to pay. Anything other than a phased introduction would result in a complete collapse of the property market along with the financial system as cash poor owners offloaded the milestones.

    Phased introduction gives them the excuse not to scrap any other tax until its fully up and running, some time never.

  • Max De Volution

    An idea as radical as this could and should only be attempted in micro-states of 100,000 people or less. And then we can sit back and watch the results – good or bad – of our experiment in slow motion, as in a petrie dish. And if it is seen to work it can then be more widely adopted. This being so, it seems to me that what we need most is not just Scottish independence but devolution across the board. England has 53 million people of all hues and stripes – absurd..!! It is surely no co-incidence that much of the most prolific flowering of Western thought and innovative human genius occurred in small states – Ancient Greece, N.Italy, the Low Countries, and dare I say it, Germany pre-unification…!
    So, Isle of Man, Isle of Wight, step up to the plate..! But as there are not enough such islands, why not create on small parcels (eg, 10 sq miles) of long-leased land all over the country? Impossible you say? I remember a place called Hong Kong..!

  • Robert

    Higher returns usually come with higher risk. Before putting money into risky projects you need a proportion in low risk investments. A house value is unlikely to be volatile or evaporate completely, it is durable, you can see it, no management fees and it has a use which will save you rent or provide an income. Without this psycological stability people may actually invest less in other things.

    Less well off owners may not be able to raise the cash for LTV. Existing owners, which are the vast majority, couldsuffer although new purchasers would be able to only buy something that they could afford. The tax may bring the value back to the level before the infrastructure improvement but it may actually end up lower as the house would then be more of a liability. This would have a knock-on effect on the values of all houses in the area.

  • Mark Wadsworth

    Merryn, well said!

    I did the workings recently, if we replaced the entire tax system lock stock and barrel, a typical first time buyer couple would pay about £15,000 – £20,000 less in tax. So under current rules, they are paying far too much – so who’s getting away with paying far too little?

    And as I have said before, land values are NOT net wealth, because one man’s rental income is another man’s rental expense. And although an owner-occupier has no cash income, the non-cash rental value of his land is exactly equal to the burden he places on ‘everybody else’ by being able to exclude them from it.

    As to ‘ability to pay’, why do people wail on about this? You want the nicest car like a BMW, well you have to pay. Does anybody wail about the fact BMW only selling their cars to those able to afford them?

  • Mark Wadsworth

    For clarity:

    “if we replaced the entire tax system lock stock and barrel with a fiscally neutral Land/Location Value Tax, a typical first time buyer couple would pay about £15,000 – £20,000 less in tax.”

  • Mark Wadsworth

    To avoid clogging up your comments thread, I have posted my responses to various silly objections on my ‘blog.

    http://markwadsworth.blogspot.com/2012/03/merryn-somerset-webb-finally-comes-over.html

  • Chris M

    LVT is clearly an idea whose time has come. If any political party introduced LVT into their manifesto, they would secure my vote.

    Clearly it would need to be done with a few exceptions: pensioners main residences for example (no bad thing: perhaps that might create a financial incentive for families to take in their elderly relatives), and obviously the issue of creating LVT bands would have to be overseen well. But it cannot be beyond the wit of the Land Registry and HMRC to instigate this. The tax system is already ludicrously over-complicated. This would be a vast simplification of it.

  • Chris M

    LVT is clearly an idea whose time has come. If any political party introduced LVT into their manifesto, they would secure my vote.

    Clearly it would need to be done with a few exceptions: pensioners main residences for example (no bad thing: perhaps that might create a financial incentive for families to take in their elderly relatives), and obviously the issue of creating LVT bands would have to be overseen well. But it cannot be beyond the wit of the Land Registry and HMRC to instigate this. The tax system is already ludicrously over-complicated. This would be a vast simplification of it.

  • Chris M

    LVT would sort out the banking mess (fewer incentive schemes for mortgage sellers in housing market that’s not over-boiling), it would slash generic tax evasion (I’d like to see Tesco/Vodafone et al try and take their taxable properties to the British Virgin Islands), it would almost instantly bring the estimated 300,000-1million empty homes in Britain back into use, and over time it would put an end to the appalling statistic that 80% of Britain is still owned by 1% of its population.

  • Chris M

    Be nice to see those who’ve piled into the UK in recent years (Greek millionaires, Russian oligarchs etc) start paying for the upkeep of the society that attracted them in the first place, and whose law-abiding citizens safeguard their fortunes.

    The time has come to stop running this country on out-dated feudal 19th century software, and upgrade to a system fit for democracy in the 21st Century. Bring. It. On.

    One big pill to swallow though: house price stagnation, if not falls. Could the UK ever really do it?

  • Mark Wadsworth

    @ Chris M, the rich foreigners will be delighted to pay LVT if it means that the rest of their income is tax-free.

    The Swiss have actually adopted this model for rich foreigners – they tax them on notional income of five times the rental value of their home and that is the end of that. So if your income is more than five times the rental value of your home, Switzerland is the place for you. Under a full-on LVT system in the UK, they’d all be over here like a shot.

  • 4caster

    Don’t get carried away. Land Value Taxation can never replace the whole gamut of taxes we pay!
    It is nothing new! Adam Smith wrote in 1776, “The Wealth of Nations”, Book V, Chapter 2, Article I: Taxes upon the Rent of Houses. “Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground.”
    Later it was called Site Value Rating (SVR), and was proposed solely to replace local authority Rates (taxes on buildings). The idea was to encourage efficient use of land by valuing a site, not on its present use, but on what could be built on it. Land that would not attract building consent would always be exempt. It would encourage maximum exploitation of building land, and discourage the hoarding of land, waiting for the value to increase. …..

  • 4caster

    ….. SVR appeared in great detail in the 1928 Liberal Party Yellow Book, written mainly by David Lloyd George and John Maynard Keynes. Then, as now, few people understood it. It remained Liberal policy until the party merged with Robert Maclennon’s Social Democratic Party in 1988 to form the LibDems. The SDP’s preferred policy was for a local income tax, and that idea kicked SVR into the long grass.
    Land value taxes have already been implemented in Taiwan (Republic of China), Hong Kong, Singapore, Russia and Estonia, as well as in some localities in the American state of Pennsylvania, the Australian state of New South Wales and Mexicali, in Mexico. They do what they are intended to do, and there is little local opposition.

  • Chris M

    @38 Mark W & @394Caster – absolutely.
    I’m not in favour of soaking the rich, just saying that if foreign wealth is pouring in, then it’s right that wealth should pay a fair rate for the stability that we – as citizens of the UK – create.

    And yes, I’m well aware of the history of LVT, and its near implication prior to WW2, Churchill’s advocacy etc. What I’m saying is that its time is now. The young in this country are disenfranchised. All the political parties seem intent on simply maintaining high house prices and the NIMBY agenda. LVT seems like a very good third option. If the Greens, Lib Dems, UKIP, Labour or (heaven forbid) Cons went for it, it would sway my vote. Or a new party?

  • Mark Wadsworth

    4Caster: “Land Value Taxation can never replace the whole gamut of taxes we pay!”

    It never will because the landowners and banks are against it, but there’s no reason why it couldn’t.

    If the median household pays £15,000 in income tax, NIC, VAT, Council Tax, TV licence etc etc per year, why wouldn’t the median household be able to pay £15,000 LVT a year?

  • Peter Lawn

    Wealth tax is an attempt to move money from capital investments into circulation. It targets those near or in retirement reducing the value of their pensions. It primarily benefits the banks and high income earners (in the banks) who would invest overseas. Spending peoples investments is not a mechanism for stable growth.

  • Boris McDonut

    #24 NeutronTime Warp,has a thin grasp of reality. Referring to “the mob” is very contemptuous, or perhaps he sees himself as a Roman Emperor. The argument that the 50% rate results in less tax is ridiculous. If so,why do those paying it complain? They are patently better off paying less. By extension we should reduce tax to 1% to get the most from our rich. I don’t accept they alter their evasion strategies because of it. It implies they were all happy to pay at 40% but not at 50%. The typical top 1% er earns £325,000,so the extra tax is only £16,000 or 5% of pay.

  • Henry Law

    As a pensioner who lived in a house in an area where land values went up more than averagely I don’t but this nonsense about being squeezed out.

    First, LVT should be based on rental values, not selling prices, and these have never shot up.

    Second, income tax is ultimately paid by customers as the income tax paid on peoples wages has to be built into the prices of everything.

    Third, I always had the option of letting a room.

    Fourth, I could have sold up and bought a flat nearby, which would have been easier to manage anyway.

    Fifth, which was the option I finally went for, I could have bought a flat somewhere else altogether – which has the advantages of being far more suited to my needs as an older person and was even less expensive than option four.

    Countries have two options. One is to continue with their present taxes which have turned their economies into slow-motion train crashes. The other is to change to LVT. It’s a no-brainer.

  • Mark Wadsworth

    Peter Lawn: “Wealth tax is an attempt to move money from capital investments into circulation. It targets those near or in retirement reducing the value of their pensions. It primarily benefits the banks and high income earners (in the banks) who would invest overseas. Spending peoples investments is not a mechanism for stable growth.”

    LVT is not a tax on wealth because land values are not net wealth, they are merely a measure of wealth that flows from the productive economy to land owners. While the train station, the roads etc are investments, they are public investments which are supposed to benefit everybody, not just land owners in the vicinity.

    And if income tax were scrapped, why would private individuals invest overseas? They’d invest where they get the best return on their investment, i.e. in the UK.

  • ontheotherhand

    Some of us are already paying vast amounts of LVT, it’s just that we pay it to the bank and the older generation rather than to the community. Anyone under 35 has to borrow more money than they can ever hope to repay in a working lifetime after income tax to buy somewhere to live. Most of this money goes as unearned capital gain immediately to someone older, and as a monthly interest ‘tax’ to the bank for enabling buyers to bid their future income in ever increasing multiples. With LVT the price of property would moderate, and the monthly tax for living would go to the community instead of exclusively to the bank + previous land owners.

  • Nicholas Dennys

    Raising revenue from location value charges would achieve 2 things, important to all.

    One is a huge increase in economic efficiency & productivity on removing Excess Burden. In this crisis state provision must continue but debt be paid down. The difference between Labour & the Coalition on this point is clearer to them than any one else. Everyone wants to square this circle. A measure that increases productivity by hundreds of billions per annum, is so not-tinkering, as other proposals do, that Jaw writes of civil strife.

    Secondly, it will improve the social contract between individuals & the community. In the crisis this will be under threat for most sections of the UK community, & internationally.

    The crisis was not caused by a boom in bricks & mortar – the built environment depreciated. Speculation in location values forced home buyers to shed increasing %ages of income on mortgages, justified only by a belief that the price would rise.

  • Nicholas Dennys

    When location values fall the ensuing crisis leaves many with more debt than location value, unemployment or falling wages, and/or the destruction of savings. Location value was the collateral of banks. Its collapse is deforming whole nations and has suspended democracy in Greece and Italy, with barely the blink of an eye.

    Location value is publicly created and maintained. Part of the current crazy social contract is that the many will supply costly police, judiciary and law to keep the owner safe in a property while excluding themselves from it, but charge themselves for the cost of that and let the value accrue, unearned, to the landlord, mortgage company, or occupier. The taxes on labour and capital to maintain this then cripple productivity for all.

    It’s not that the poor and rich may shoot each other if location value charges are brought in with sensible transition arrangements, it is that they may shoot each other or riot now.

  • Valiant Dickson

    a good idea but will not and would be unfair to implement as you can’t completely change the rules half way through the game there would be a national outcry form everyone who owns a house if it was always this way there would be no problem rents would have factored in this cost and people would have factored in this cost when deciding where to live

  • Nicholas Dennys

    With the chance of riches for a few players from unearned asset growth, the burden of unnecessary taxation or even personal ruin in business for some, poverty and even homelessness for others, the collapse of national budgets around the world, the potential for social mayhem as in Greece, it is a very exciting game. How long does it go on?

  • Romford Dave

    Anyone who thinks handing out an anual one off £15,000 bill to the average taxpayer an not expecting a backlash is delusional, regardless of how you justify the equality of it.

    Look back at public reaction to the poll tax and see how a bill for a few hundred pounds affected the psyche of the average law abiding person.

    Margaret Thatcher swept to power promising to cut income tax – she did, but raised VAT and fuel duty to compensate, managing to squeeze a bit more trying to convince everyone that if you consolidate the the existing VAT rates of 8% and 12% you get 15%.

    Tony Blair swept to power promising to to raise income tax – he didn’t but raised NI, convinced that he hadn’t gone back on his promise.

    Giving them any opportunity to change the tax system is at your peril.

    Caveat Emptor

  • Steve

    Dangerous stuff. There are places and regions in every nation state which are attractive to leisure investors because they are pleasant places to be (second homes, marinas etc). The location of these often has little resonance with the economic functionality of a region. For example, a by pass near an urban town on the outskirts of a major city could well increase property prices because it ‘ups’ the quality of life; but in a rural or country town it could just as easily decrease the quality of life as it scars the landscape or takes productive land out of use.

    In rural areas especially people can live in homes or on land whose worth bares no relation to their income.

  • gmwadsworth@gmail.com

    Romford Dave: “Anyone who thinks handing out an anual one off £15,000 bill [etc]”

    Under current rules, people have to hand over half their earned income and businesses have to hand over their profits, and we see this as normal!

    As a matter of fact, the median household does have to pay £15,000 in various taxes every year (or whatever the figure is). But once you own land, you get implicit and explicit subsidies chucked at you left right and centre. Hardly surprising that everybody wants to pack in working and become a landlord.

    The backlash is largely because if you replace stealth taxes with in-your-face taxes, people suddenly realise how much tax they are actually paying – hence and why Thatcher got away with reducing a more visibly tax (income tax) and increasing a stealth tax (VAT).

    So if most tax were raised with an in-your-face tax, the pressure would really be on to reduce the tax take – which counts as a result, as far as I am concerned.

  • Boris MacDonut

    #54 gmwadsworth. You are right to point out just how much we all pay, but income tax is a very visible evidence of workers contributing to wider society. I do fear that the LVT would bring in a disconnect for many in social housing who no longer retain the dignity of paying tax from earned income. This is the hub of the matter and it is what rankles when the rich don’t wish to pay. The money they contribute pays for soldiers to defend their freedom, ambulance drivers to rush them to casualty, firefighters to stop their expensive homes from burning, roads to drive their ferraris on…all provided by those less well off p[eople they so decry and begrudge.

  • Chris M

    Surely a fairer tax system would rely on a mix of several sources: LVT yes, but also a sales tax (keep the name VAT if you like, but dispense with the current ludicrous situation where a sandwich has tax added to it if it’s toasted and so forth), and Income Tax. That way, you catch everyone – UK residents, visitors, alien workers, land-owners, foreign companies etc. Apply sales and income tax at 10% so HMRC forms could be filled in by even the most mathematically challenged, and make the LVT amount the required supplement in the necessary yearly tax collected, ie: if the UK needs £500 billion per year (which it does, roughly), then if Sales Tax and Income Tax bring in £100 billion each; LVT must bring in £300 billion. As other commentators have mentioned – one would imagine viewing figures of parliament TV sky rocketing when the average man or woman on the street is handing over their hard earned (but easy to calculate) taxes.

  • Elvis Presley

    @ 50. Valiant Dickson – cannot change the rules halfway? That would mean we could never change anything. If people bought houses many years ago thinking some or all of their pension would be ‘in the house’ then they were making investment decisions (at some level) alone the way. Those investment decisions should be subject to an investment risk as are other investments; therefore if the house falls in value due to tax/rule changes, tough! Join the club if you are going to ‘invest’.

  • Boris McDonut

    #56 Chris M. Last year the UK needed £760billion and only raised £640billion through taxation. IT brings in £150 billion, Vat £80billion and Nics £90 billion.
    Sad fact is the weasels in the Liberal party now say they’ll happily get shot of the 50p rate in return for asking the 47,000 people who live in houses worth over £2million to pay £10,000 a year each. I ask myself if that is a good deal.

  • Nicholas Dennys

    Tax issues are often presented as national housekeeping decisions – a bypass here affecting the value of people’s homes a bit, a tax shift there advantaging one sector of the public or not. The thing I have wanted to emphasise is that government expenditure creates location values. These are not taxed much. The impact of taxing labour and capital is vast because of the distortions and loss to the economy – Excess Burden. I’ve banged on about its impacts, but I want to bang a bit more. Fred Harrison gives a shocking pointer in his book Ricardo’s Law, 2006. He looked at opposing flows of tax paid and unearned location wealth received, for different income groups, to discern their real contribution to running the State. He showed that, while all groups pay roughly the same percentage of tax (all taxes), the lowest 20% slightly more, few of that group own their own homes, or have low value accommodation.

  • Nicholas Dennys

    As the value of houses increases in better off income groups location value received increases. Analysis shows that over a lifetime location value received exceeds total taxes paid. Only the poor pay for the State and all its infrastructure.

    If you let this thought sink in it is quite staggering. Not only those who want equity will be shocked. Some object to location charges because they don’t want their hard earned nest egg for their families further taxed. But middle groups don’t receive the whole reimbursement because many pay it to the mortgage company. They are also being leeched because of the damage to the economy from Excess Burden. Their earnings and opportunities in a half strength economy are far less than they could be. The State is manufacturing poverty on a massive scale by failing to collect location value. No wonder the State is growing.

  • Nicholas Dennys

    People rightly worry about the widow, house rich & income poor, but she has more than one concern. She cares that her child lives at home, in their late 30s, unable to get a mortgage or, if they have one, their negative equity if they loose their job. She worries that her grandchildren play with the childminder while their parents work long hours to pay the mortgage. Her pension and savings are vanishing as old age approaches – results of a crisis made possible by inefficient taxation. She is a citizen not just a widow. For every special case many more suffer in the current system.

    The 1910 Finance Act sought taxes on land. The market-gardener had for some reason become the special case, Winston Churchill said, “On the one hand, we have one hundred and twenty thousand persons in Glasgow occupying one-room tenements: on the other, the land of Scotland. Between the two stands the market-gardener. We are solemnly invited for the sake of the market-gardener,..

  • Nicholas Dennys

    “..to keep that great population congested within limits that are unnatural and restricted to an annual supply of land which can bear no relation whatever to their physical needs – and all for the sake of the market-gardener, who can perfectly well move farther out as the city spreads.”

    In the 1800s it was argued that an investment in slaves left by a man to his widow should be excluded from abolition as she depended on them for subsistence.

    The primary question is: ought the value of location goods, created collectively, be appropriated by individuals given the consequences for the economy as a whole? A State no longer manufacturing poverty could tolerate lower revenue. Opportunity for all livelihoods will improve greatly if taxes are withdrawn from labour and capital. As Henry Law says, people will be fleet footed in their own interest as now. For the few who can’t be, equity extraction or transition arrangements will do.

  • Jonathan

    As far as I can remember I have agreed with everything I have read by Merryn … except this – most emphatically.

    “You bought something, for a fair market price? … and you thought it was YOURS? Ho-hoh. Sorry – I’m going to renegotiate, retrospectively: you’re going to have to pay more … yes … EVERY year … and I let you know how much I decide I want, or need (to pay off my debts). Yes I know you paid for it with TAXED income; yes and you pay more tax in stamp duty … yes AND pay even more if you die in possession of it.”

    So much for the principle; but really a land tax is about appropriating land. “You thought you could live comfortably on your smallholding, with a very small income? Sorry – I’m going to tax you off it: EVERYONE has got to be a wage slave.”

    Tax should be on income only. Just because a land tax is easy to inflict and hard to avoid doesn’t make it RIGHT. You can’t use extra taxes to boost the economy – neither right nor effective.

  • Smibby

    I see the logic in the argument but can think of a few practical points.

    For a start as was pointed out we already have a Land Tax on properties called the Council Tax based on the valuation of properties when it was implemented.This is now out of date and really needs to be updated and reformed to reflect current values especially Band G plus.

    Any other land will have to be valued for the tax.What,every 10 years say.

    The thing that flies out of the page for me would be how do you administer it?How do you decide a properties valuation?Do you assess it annually or when?Inherently the valuation will be out of date or wrong.As I see it a tax on land values would be a nightmare to administer.

    You will have to bear with me if I am out of date here but this tax would just give valuers a job for life.

  • Nicholas Dennys

    (Council Tax damages development. It’s on the whole property including improvements)

    A pure location value charge (LVC) can’t be drawn primarily from capital values (ie long lease/freehold prices), as some argue, because these can fluctuate often markedly in a single year, eg 2005-2009, by over 20%pa in London. This is from causes, such as speculation, that have nothing to do with expectations of profitability or use value of sites as assessed on purchase of new leases or at rent review by business occupiers. Or, in the case of residents, when they judge their ability to afford the amenities on site plus its surrounding location, for rent or freehold. But it is on these expectations that they contract to pay a level of rent to a superior landlord. Consequently, if basing a charge on capital values, increases could bankrupt businesses or dispossess residents at times of speculative volatility. They could not be sure of future levels of LVCs.

  • Nicholas Dennys

    Further, basing assessment on a part of capital values, say 5%, that happened by coincidence to approximate to 100% of the annual value would tend to move the capital value toward zero as the site would bear a charge equivalent to the location value provided by the community. While productivity might soon increase creating capital values once again, they‘d be like a whale leaping above and below the visible surface as it flees the harpooner. It would introduce an uncertainty principle in which the basis of measurement unpredictably altered the existence or amount of the thing measured.

    Attempting to introduce gradually, to allow adjustment to it, a location value charge on this basis alone would run into a hail of problems. On the other hand, if scarcer, annual location prices are relatively stable. When extrapolated from market evidence they are a more reliable basis for assessing location value charges and don’t disappear when it is applied.

  • Nicholas Dennys

    But the long term aim is to shoot the whale. The existence of capital values shows that annual location values are not being fully taken, or at all, by the community for the location goods it provides; that labour is working for low reward in a highly inefficient economy, inescapably subject to booms and slumps in location values. As location values are collected capital values shrink, but the quantity of LV payments would provide a wealth of more reliable evidence in their place.

    For how location value (land value) is assessed see http://www.henrygeorge.org/ted.htm. This link is by Ted Gwartney who was, for 12 yrs, the Assessment Commissioner for British Columbia, Canada. It is based on the axioms that the evidence for value is determined by the open market and that valuers are not determining value themselves but extrapolating from market evidence, which would be used also to challenge at arbitration an assessment felt to be inaccurate, as now.

  • Greg

    I recently wrote to the Government suggesting that they considered scrapping Stamp Duty and Council Tax and replacing with a LVT instead of a Mansion Tax – I argued that it might actually help kick-start the housing market, put a stop to land-banking by developers and Stamp Tax avoidance by property investors – they replied saying it would be unfair and would not work but didn’t really explain why. Surely there could be exemptions and deferred payments for those who are on low incomes (including the retired) like there is in the current system? I personally think it would be much fairer, make housing more affordable and land use more efficient… I would then gradually scrap all other taxes and move them over to the LVT…

  • Greg

    I recently wrote to the Government suggesting that they considered scrapping Stamp Duty and Council Tax and replacing with a LVT instead of a Mansion Tax – I argued that it might actually help kick-start the housing market, put a stop to land-banking by developers and Stamp Tax avoidance by property investors – they replied saying it would be unfair and would not work but didn’t really explain why. Surely there could be exemptions and deferred payments for those who are on low incomes (including the retired) like there is in the current system? I personally think it would be much fairer, make housing more affordable and land use more efficient… I would then gradually scrap all other taxes and move them over to the LVT…

  • Geoff

    Why do you think 60% of MP’s own farms?
    EU subsidies to grow oilseed-rape and other ‘non-essential’ food-stuffs, wind turbine ‘tax-payer-funded’ build & run subsidy and ‘inflation-proof investment-return’, English law IHT exemption, to name but a few.

    Ahhh! it’s an unfair world!

  • Albe

    To administer a property tax and use it to reduce income tax would be simple. Just take the average house price as the datum so that everyone with a house value at or below this point would pay no property tax. All those with house valued above this point would pay tax on a progressive sliding scale (moving up incrementally by 1 per cent at a time until it capture the total income tax take as T present. Anyone unable to afford this annual property tax ( retired for example) would simply be allowed to let it accrue until their property is sold.
    This would have two really beneficial effects on society, only the truly rich would pay taxes and it would restrain property prices ( the great fault with the uk economy)!

  • simon

    So many posts immediately conflating property with land. Either this is a deliberate disingenuous attempt to misrepresent LVT or the posters need to try and understand what is being proposed a little better – visit the Henry George website perhaps – there is a large list of FAQs.

  • John

    It was clear many did not understand the point of the Martian story. The Martian would be paying TWICE for the services. The gainer was the landowner who never paid for the services to the site, but walks away with a fortune.