I had lunch with a long-time MoneyWeek reader this week. He is convinced that the problems of Western economies are caused almost entirely by the fact that we tax everything the wrong way around.
To illustrate this he told me his Martian story. It goes like this. There was once a Martian manufacturer who made exceptionally good sweets – he was solar-system famous for his special space-dust recipe. He also knew how much we Earthlings like candy. So with an eye to cleaning up in the Earth market, he landed in the UK countryside to look for a manufacturing site. He went to an estate agent and asked to be shown a suitable 20-acre site stipulating that it must be as cheap as possible.
The agent said he had just the right spot. So they got in the car and headed off down the motorway. They left the motorway for an A road. They left the A road for a B road. They left the B road for an unnamed road. Then they headed up a narrow dirt track. Eventually the agent pulled over and waved his arm at the isolated fields around. “This is it,” he said. “All 20 acres are for sale and planning permission is already in place. Yours for £1m.”
“Not bad,” said the Martian. “But where are the services. I will need gas, electricity and vast volumes of water. And I need lots of workers. But I see no houses or schools or hospitals. Where and how will they live? And the road is terrible. How will my supply lorries arrive? It will cost millions to provide what I need here. Have you nothing else?”
The agent said he did. So they got back in the car. Down the track. Down the B road. Down the A road. Back to the motorway. In time, they arrived on the edge of a medium-sized town. The agent drove to a few empty fields surrounded by houses. “This used to be a smallholding,” he said. “But Mr Bloggs is old now and keen to move to Tenerife. So it is for sale. There are, as you can see, houses, schools and hospitals as well as a good road network – we are just off the motorway. And your gas, water and electricity are already here. However it does cost more – £50m.”
“It is perfect,” said the Martian. “Now tell me, who put the services in?”
“The state and the local council,” said the agent.
“Brilliant,” says the Martian, “Tell me where to send it and I will write them a cheque immediately.”
“Oh no,” said the agent. “You don’t pay the state. You pay Mr Bloggs.”
“That makes no sense,” said the Martian. “If I pay Mr Bloggs – whose land is only worth £50m thanks to the work of the state – who pays the state?”
“Oh you will do that too,” said the agent. “As soon as you are up and running you will pay rates, VAT, NI, income tax, corporation tax, insurance taxes and so on.”
“I don’t think so,” said the Martian.
And he went back to Mars. Immediately.
Supporters of the land tax (details of how that works here) will see where my lunch partner is going with his very good story. But he takes it a step further by referring to the unearned part of the market price of Mr Blogg’s land as “location value” – something that is effectively a social good. And he reckons that the value of the social good should accrue back to the state rather than to the individual.
We’ve written about land taxes here before with our general view being that we’d be all for it if we could be certain that other taxes (income tax and so on) would be scrapped as it was introduced. However as we are pretty certain they wouldn’t be, we can’t really support the introduction of yet another tax. I’ll come back to this – we had a long lunch.
P.S We had lunch at 1 Lombard Street in London – the restaurant very kindly donated lunch for a reader and me as part of the FT’s annual charity appeal. So if there are any inconsistencies in the above story please accept that it is entirely their fault – they kept bringing me glasses of champagne.