Chris Game explains that the principle of land value tax – a tax which Labour has wrongly been accused of planning to impose as a “Marxist tax grab” – was one supported by Adam Smith and David Ricardo, hardly proto-Marxists.
Some of the consequences of Theresa May delaying until mid-April her U-turn on holding a General Election will undoubtedly be reflected in Friday’s results. One, though, was seen almost immediately – when it was decreed too late for the General, local, and mayoral elections all to take place synchronously.
It could have saved money and probably doubled the local and mayoral turnouts. Which in turn would almost certainly have avoided the unfortunate situations in the West Midlands and Liverpool City Region, where the new metro mayors, Andy Street and Steve Rotheram, were elected with significantly smaller vote mandates than were achieved in May last year by their respective Police and Crime Commissioners.
Another consequence of the May delay is that, with the parties’ General Election manifestos published almost immediately after the local elections, we heard – even before ‘security’ issues took over the campaign – less directly about local government than we might normally have done.
This was particularly frustrating for me personally. Though still attached to the Institute of Local Government Studies, I’m now largely retired from university teaching. But, even during my reasonably lengthy career, only one of 10 General Elections fell clearly during the conventional 20-week lecturing year (Feb. ’74, since you were too polite to ask). Nine times, therefore, I was deprived of the enjoyment of inflicting on captive undergrads my Local Government Election Manifesto Quiz. So yes, as a pathetic personal consolation, I thought I’d bother you with a micro version of this year’s quiz, based on the local government sections of the Conservative, Labour, Liberal Democrat and Green party manifestos – with links and page references for the exceptionally keen or doubtful.
Which manifesto do you reckon (or recall):
- mentions “local government” just twice in 84 pages (pp. 32, 81)?
- proposes (p.103) creating a Minister for England in the Department for Communities and Local Government?
- will introduce (p.27) a ‘presumption of devolution’, whereby devolved powers transferred from the EU post-Brexit will go straight to the relevant region or nation?
- wants (p.94) ‘devolution on demand’, enabling devolution of Westminster powers to groups of councils working together – like a Cornish Assembly or Yorkshire Parliament – with or without a mayor?
- would (p.74) replace Police and Crime Commissioners with accountable police boards of local councillors?
- will encourage councils to economise by painting yellow lines where you can park?
- wants (p.17) more empty homes brought back into use, and a trial of a Land Value Tax (LVT) to encourage the use of vacant land and reduce speculation?
The answers, apart from the Monster Raving Loony Party’s yellow paint one – just to check you were paying attention – are in the order the parties were listed above: C, L, L, LD, LD, G. Points for correct answers, none for incorrect – except the last one, for which you can award yourself points for either Labour (p.86) or the Lib Dems (p.40), as well as the Greens.
Which is one of several noteworthy things about this relatively sudden cross-party interest in land value taxation. First, it was indeed mentioned by all three parties, and in almost identically vague terms. The Greens’ “trial” was the strongest commitment – appropriately, with their Co-Leader Caroline Lucas being probably the tax’s most prominent recent parliamentary advocate. The Lib Dems would merely “consider” it, while for Labour it’s one possible “new option” in an overall review of local government funding. In no manifesto – including, I emphasise, Labour’s – is it a policy, plan, pledge or commitment. None gives it more than a part-sentence, and there’s not a figure or any other detail in sight.
Which might explain why, when the respective manifestos appeared, it received effectively no media attention whatever. Until last week, when Conservative campaign headquarters was presumably tasked with fabricating something to counter the damage done by Labour turning Theresa May’s social care charge into a ‘dementia tax’. Accordingly, the nerdish-sounding Land Value Tax (LVT) was frankensteined into a culture-threatening – sorry: Marxist, culture-threatening – ‘Garden Tax’ aimed at undermining the foundations of English family life as we know it. The inaptly-named ‘red-top’ Conservative-supporting tabloids were accordingly briefed and unleashed.
“Labour’s secret plans, hidden in the small print of Jeremy Corbyn’s manifesto”, contain “proposals to replace council tax and business rates” with “a destructive, devastating tax on homes and gardens that a Tory analysis estimates would result in a yearly tax bill of £3,837 for an average family home in England – a massive 224 per cent increase on the current average bill – send house prices plummeting, and plunge mortgage holders into negative equity.” Since when there has been a torrent in the same vein, with even Philip Hammond, in possibly his final days as Chancellor, accusing Labour of a “Marxist tax grab”.
There’s a minor irony here. The principle of land value taxation – the recognition that land’s true ‘location’ value derives less from the actions of the individual owner than from the wider efforts of the community in creating transport links, schools, hospitals and other infrastructure, and the community should benefit from this ‘unearned betterment’ part of the value accordingly – does indeed have history. Far from an invention of Corbyn’s Labour Party, it dates back well beyond Marx to at least the 18th Century classical economists, Adam Smith and David Ricardo: hardly proto-Marxists. Indeed, the bearded one himself dismissed it as a distraction from the historically inevitable transition from capitalism to communism.
Others, however, have supported it, and even enthused, seeing its combination of economic efficiency and progressiveness (the wealthiest paying most) as close to a ‘perfect tax’ – which even I, as an economic illiterate, can see is somewhat overegging it. Even so, its signed-up supporters make an impressive list, including the then Liberal, Winston Churchill; economics textbook king, Paul Samuelson; Mrs Thatcher’s favourite economist, Milton Friedman; the Adam Smith Institute, and the Institute for Fiscal Studies. The truth is that any future review of local finance would be more criticisable for omitting LVT than for including it.
Chris Game is an Honorary Senior Lecturer at INLOGOV, University of Birmingham, and the joint-author of the best-selling introductory text on Local Government in the United Kingdom.
How may LVT be made politically acceptable?—An alternative (but equivalent) to LVT which has less opposition from the landlords.
Much as I applaud the Single Tax idea of Henry George for having great ethical principles at heart, I find after more than 50 years in our Movement that its introduction is simply not practical. Apart from use of the word “Tax”, which in any case no politician wants to propose, we must eliminate the offense that our proposals for LVT causes to landlords. Obviously they will strongly oppose the proposal for having to pay a new tax (or anything else we might like to call it). The problem then is not to have to fight them, nor try to convince them on moral grounds, but how to make them want to pay for land access rights or revenues.
To achieve this there should be introduced a gradual change in the way that land is being owned, which should be introduced by new laws. Whenever a site or prospect of land is being offered for sale (possibly with its buildings, etc.,) and whenever ownership of such a site is being transferred between family members (and on which an inheritance-tax would normally be paid), the change is that government automatically buys the land at its current normal nominal price. This is done simultaneously when the buildings are sold in the usual way or their ownership is being transferred. (The courts shall be empowered to settle the land-value, if/when doubt is expressed–land-value maps being publicly accessible.)
The previous landlords or their heirs will no longer have any political objection, since the money from the land sale will greatly exceed the subsequent annual lease-fee (see below) for access rights to this land. This change will also eliminate the (hated) inheritance-tax. It is imagined that this process of land sales and governmental purchases will be spread over at least 40 years.
Immediately when the site belongs to the government, this land must be offered for lease to the new or bequeathed owner of any buildings thereon. The lease-fee should be set according to normal amounts of rent for other similar sites, (and again the courts should decide when there is disagreement.) The above “first refusal” for this leasing offer is most necessary, because any buildings of practical use and value on the site, will still be sold or bequeathed as items of durable capital goods, as before.
However, access to the site and its buildings should be denied by the government until the site is leased by someone who can then (and normally would) have purchased (or been given) the building in the usual way. All taxes that are applied to subsequent building developments should be abolished at this time.
A new owner would acquire the building property more cheaply than before, because it is now without the price of the land under and around it. Such a buyer can then give for hire (rent-out) any building for access and use, as if it were any other item of durable capital goods. In the unlikely event of the leaser not owning the buildings, his/her incoming land rent (from the building owner), shall not exceed the out-going lease-fees by more than 2% (say). Should nobody initially lease the site and its buildings (if any), because of there being no demand for their use, the buildings may be pulled down by the next (eventual) leaser, who will be free to re-develop the site (and would naturally want to do so).
The government should borrow the money for site purchase, or can even offer national redeemable bonds to raise money for it. As the lease money begins to flow to the government, it uses this to:
a) repay part of its loan for site purchase, which may be extended,
b) purchase more sites as and when they become available,
c) cover the interest on the loan and on the new bonds and their eventual redemption, and eventually
d) reduce other kinds of taxation.
It will be appreciated that over the long term the lease fees are equivalent to LVT, but due to the greed of landlords (who behave as if they were capitalists), their income from land sales will satisfy them better than their being taxed. Eventually nearly all the land would then be leased from the government.
Nationally leased land, in countries like Hong Kong, is close to 100%. This approach is known to be most successful, for the rate of growth of prosperity. Also when the previous landlords have more money to spend, most of it will be invested in durable capital goods, making production costs lower as obsolescent durable items are more easily replaced and so the national prosperity will grow also from the government’s investment in land values.
This proposal is not land nationalization (at least no more than what currently applies), since no additional regulations are placed on how the land is to be used.
Because the selling of land is a natural process which is (if anything) encouraged by the land returning to public benefit, the resulting lower priced buildings will become more easy to sell and this will not place such a limitation on their owners who wish to better develop the sites.
“There’s a minor irony here”
I think that there’s a major irony here. For 40 years the Tories (together with the IMF, etc.) have been claiming the mantle of economic responsibility and yet have turned their backs on the only form of taxation that is economically neutral – without deadweight losses. Land Value Taxation is not left wing or right wing – it is a no-brainer to most economists from across the political spectrum but it is is seriously counter to the interests of the vested interests that boost and fund the Conservative Party and for a large part make up its parliamentary representation.
….OK, really simple question. What will the LVT be for homeowners, using the average house price for England….I’ve had no response from my local Labour councillor, or Labour Land. I have read their supporting papers which accept the impact could be adverse and therefore it will be ‘smoothed’ in at 0.85% before then being increased over time to the magic 3% mark….OK, but how will income tax then be proportionately lowered in tandem? I didn’t see that bit….
There are plenty of ways one could ‘pay’ the value. It could ‘chip away’ at existing home equity, it could be paid upon sale (meaning you don’t get screwed by a speculative bubble). Most importantly is that it should be accompanied with a reduction in Sales,Income taxes which will either push upward on rents again, but also free up capital for more productive purposes.
Land Value Taxes levy the “unimproved value” of land, so the house itself is not really a factor. It would in essence decapitalize the land itself until the only value is the value of the property atop it and whatever people are willing to pay to live there.
Hi Justin,
The devil will be in the detail of implementation but, given the massive concentration of land ownership in the UK, it shouldn’t be too difficult to figure out a scenario in which almost everyone apart from a tiny minority will win out (above and beyond the benficial, knock-on effects of the economy as a whole).
Anthony Molloy (Chair of the Labour Land Campaign)
The average income is £27k a year, a yearly increase in tax of £2,591 to a household with one working parent would represent almost a 10% increase in income tax. Any Government that attempts this will make the poll tax riots look like minor in comparison and even more so when their manifesto states that no one earning under £80k a year will pay more tax – it would be a blatant lie.