Written evidence submitted by the Henry George Society of Devon [LVC 075]
I am a retired GP, I joined the Henry George Society of Devon when it was founded 6 years ago. Its aim is to publicise the possibility of a fairer and more egalitarian tax system whereby unearned income is taxed more and earned income taxed less. So the HGSD is keen to submit evidence to the Committee.
-Development Land Taxes have not been effective in the last 70 years
-Therefore a Land Value Tax on unimproved land the best way to capture Land Value
-LVT would: end speculation in land
-Reduce the cost of land
-Make more land available
-Help solve the Housing Crisis
-Discourage urban sprawl
-The tax would be unavoidable
-Allow other taxes to be reduced, so revenue neutral
-No penalty for making improvements, which happens at present
1 The history of the last 70 years demonstrates that Development Land Taxes have been ineffective; they include the 1947 Development Charge, the 1967 Betterment Levy and the 1976 Development Land Tax. These one-off taxes actually inhibit the development of land because landowners are able to withhold land from use without any penalty but are penalised by the tax once the land is brought into use. By withholding land landowners and developers can exert pressure on governments, present or future, to repeal the tax – as has happened in the three examples above. These taxes have proved costly and complicated to implement and produced far less
revenue than expected.
2 The Planning Charges represented by Section 106 agreements and the allied Community Infrastructure Levy lack clarity, are open to interpretation and vary between planning authorities. They often lead to protracted negotiations which may result in expensive legal involvement. Stamp Duty Land Tax deters people from moving to more suitable locations and so may prevent the efficient use of land and buildings. It has a regressive effect near the boundaries between bands where the rate changes and acts as an incentive for all those involved to keep the price just below the upper limit of a band by designating as much as possible, e.g. garages, as extras.
3 One measure that would be beneficial is repeal of the 1961 Land Compensation Act so that local authorities could buy land at its present value rather than having to take into account the considerable uplift in value that occurs` if and when planning permission for development is granted. However this one-off transaction would be much less effective in capturing land value than a Land Value Tax which would result in regular annual tax revenue.
4 The above comments make clear that current methods are signally inadequate in capturing land value and the inescapable conclusion is that they should be replaced by a Land Value Tax paid annually on the unimproved value of the land, i.e. excluding buildings, crops etc. This would be revenue neutral as it would enable other taxes to be reduced or abolished. The tax would be assessed on the annual rental value of the land and this would necessitate regular timely valuations which could be accomplished without real difficulty by employing modern technology as exemplified in Computer-Assisted Mass Appraisal. This tax switch would be a recognition that it is the community and publically funded infrastructure that confers value on land and so the community is entitled to share in that value. At present landowners need do nothing while their land increases in value; and they are able to gain unearned income by charging rent for the use of land. It is morally and economically preferable to tax unearned income and untax earned income such as Income Tax and VAT: morally because it is manifestly more just, and it represents a payment to the community for a privilege granted by the community, namely the right to exclusive possession and use of land and the right to exclude others; economically because a land value tax is not associated with the deadweight losses that attach to all other taxes. Whatever activity is taxed will tend to be discouraged and hence reduce overall economic activity, but this does not apply to land where the supply is fixed.
5 Other advantages of a Land Value Tax: it would end speculation in land as the tax would be payable whether or not the land was being used. This would bring down the price of land and make more land available and so help to solve the housing crisis which is really a land crisis as in some parts of the country a high proportion of the cost of a house is the cost of the land it stands on. In addition brown-field sites within towns would become available for homes and businesses and this would discourage urban sprawl and so reduce the need for long distance commuting by car and allow less to be spent on roads and public transport , thus saving on energy and reducing atmospheric pollution. There would be no disincentive for businesses to increase their income by investing in improvements – in contrast to the current situation when higher income means higher tax. Less capital would be tied up in land speculation and made available for productive enterprises. The tax would be unavoidable as land cannot be hidden in offshore tax havens .
6 LVT is currently in operation in Denmark, Finland and Estonia and in parts of Australia, New Zealand and the USA . In Harrisburg, capital of Pennsylvania, partial LVT was introduced in 1975 whereby land is taxed at 6 times the rate for improvements. This has been credited with a substantial reduction in vacant lots with increased investment and economic activity, a rise in employment and a fall in the crime rate.
7 The disadvantages of LVT relate mainly to the perceived practical difficulties in its introduction. Ownership would need to be established and this could and should be achieved by requiring all land to be registered with the Land Registry within a certain period. Any land found unregistered at the end of the period would be taken over by the public authority. A complex new IT system will be required to administer the system; more expensive at the outset than current property tax systems though likely to be cheaper in the long term. There is always the possibility of unintended consequences so it is important to embed flexibility in system design. There is the problem of the “asset rich but cash poor” an example of which would be an elderly widow who had lived for many years in a house originally bought fairly cheaply but whose value had increased to such an extent that she could not afford to pay the LVT now demanded. This difficulty could be overcome by deferring payment until after the death of the occupant or the sale of the house.
8 These problems are likely to be small compared to the political risks involved because the losers would include some of the most powerful interest groups and richest individuals, and the large number of home owners who dislike all property taxes. To meet these problems it will be essential to do thorough desk studies before committing to a nation-wide introduction of LVT. It will need to be implemented gradually, starting with a low rate and a phased elimination of other taxes. The defects of the current tax system need to be constantly emphasised, in particular the impossibility for many people of ever owning their own house thanks to the exorbitant cost of land which has greatly outstripped the increase in wages.
9 Action by the Government: the Government should commission an economic feasibility study that would model the implementation, operation and likely yield of LVT and compare that with the yield of current property taxes, and estimate the impact of LVT on different land uses. It is regrettable that a few years ago a private members Bill advocating research into LVT was blocked. In view of all the above and the increasing support of economists and commentators (including Tony Blair) and the formation in December 2017 of an APPG on land value capture, it is clear that LVT deserves to be taken seriously and certainly warrants Government sponsored research.