Land Value Tax – Towards a Fairer Society

A guest article by Dr Carole Tongue and Dr Dinos Kyrou, of the Professional Land Reform Group.

“All taxation is theft”. The quote from political activist Lester Neil Smith (also a writer of science fiction), has been used by the right wing and those who oppose distribution of wealth for decades. Ironically, those who support Land Value Tax may think that L.N. Smith was correct – to a certain degree.

First proposed by the economist David Ricardo 200 years ago, later to be reinforced by Henry George, the format of Land Value Tax (LVT) is simple; the construction of improved infrastructure, such as transportation, increases land values. Those who financially benefit the most from these increases – particularly land owners with substantial acreage and land owning corporations – should finance these improved transportation links by a taxation on the increase in the value of their land. It is important to note that it is the land – rather the property – which is taxed; subsequently, there is no financial incentive to sit on empty, un-developed land. The LVT incentive is to invest and develop, not speculate and cash-in. To be most successful, the tax is levied annually.

Where Has it Been Used?

The ‘model’ proponent of LVT is the city of Harrisburg, Pennsylvania A declining backwater 20 years ago the city has thrived over the past couple of decades by basing local taxes on land value and using these taxes to help finance the city’s needs. Not only is cash generated for local services but inward investment into the town has soared because a financial incentive has been created for land owners and speculators to invest and develop. Far from being a tax on ordinary Harrisburg home owners, LVT taxes those who can most afford to pay; indeed over 70% of home owners saw a fall in taxation. Following the introduction of LVT the city’s neighbourhoods and communities were revitalised. Businesses on the tax roll increased from 1,900 to almost 9,000; new jobs were created, new homes built and crime reduced by 58%. Harrisburg’s experience has led to the introduction of LVT bills in Alabama, Connecticut, Maryland and Minnesota. In California LVT is being introduced under the name of ‘Special Benefit Assessments’. The Island Line branch of Hong Kong’s Mass Transit Railway has been financed by LVT and cities in Denmark and Australia are using versions of LVT to develop transportation infrastructure.

In areas which have introduced LVT there has been a substantial reduction in empty plots of land and derelict buildings. Before LVT, no tax was paid on these run-down sites while the buildings became vandalised, leading to inevitable neighbourhood decline.

What Could / Can LVT Be Used For?

The downward spiral of empty, abandoned buildings, which blight many UK cities (and, increasingly, rural areas), could be reversed by providing the financial incentive for developers to develop, not to sit and wait for their speculations to be realised. LVT also results in an enormous increase in investment on brown-field sites; a key government aim in order to develop housing and infrastructure in our cities.

Completed in 1999 the Jubilee Line extension to London’s Underground metro was a missed opportunity to use LVT for the public good. The £3.5 billion cost could have been financed by taxing just a fraction of the £13 billion land value increases which came about as a direct result of the line’s extension – over and above the land and house price inflation that has occurred over the past decade.

LVT could be used to finance the extension of Manchester’s Metrolink tram network to Ashton, Oldham and Rochdale as well as the Leeds Supertram. In addition to providing the necessary funding for these projects, LVT would reduce urban decline and increase inward investment in Manchester and Leeds.

London’s Crossrail, which would cost around £10 billion and the Channel Tunnel link to Stratford and St Pancras, costing £5.5 billion, could be paid for by LVT. The Channel Tunnel ‘corridor’ running through Ashford will create a fast rail link from Kent to central London in 2007. Land values there have soared – far in excess of regional norms – as a direct result of this new infrastructure. Property speculators in the area – who will do well from the rail link without providing any investment – could provide a proportion of their windfall to finance the total bill of the Channel Tunnel link.

The UK Government’s Position

The recent Barker Review, commissioned by the Treasury to look at housing supply, gave a nod in the direction of LVT. However, its suggested ‘Planning Gain Supplement’ has a serious disadvantage; if you avoid the development you can avoid the tax by
leaving sites empty. These empty sites deny the community the use of
these locations to provide jobs, leisure activities or homes. PGS would not produce the benefits seen elsewhere in the world; indeed, the PGS proposal has been rejected by the British Property Federation.

Sir Michael Lyon’s report into local government funding, now due in December 2006, may address the issue of LVT if the Office of the Deputy Prime Minister and the Treasury allow Sir Michael to fully explore the issue. Moreover, the head of the Treasury-Transport team, Sir Rod Eddington, has indicated a willingness to examine new ways of financing public transport infrastructure. Indeed, Mayor of London Ken Livingstone has stated that LVT could be used to fund transport, and given the authority he would implement it. Importantly, the Board of Transport for London have sanctioned the use of LVT to finance transportation infrastructure. Although this would require implementation powers in order to do this (which can only be provided by central government), this is the first time a UK public body has sanctioned the use of LVT as an official policy.

So LVT has been used overseas, and there is grudging acceptance even within the UK of its viability. So what do the supports of David Ricardo and the Georgists have in common with the American right? While not believing that all tax is theft, many supporters of an Annual LVT certainly believe that most tax is certainly unfair. In particular, income tax is a tax on the ability to work. It has a negative economic value which impacts on the economy and the productivity of society as a whole. Those who want the ‘ultimate’ form of LVT argue that it could and should replace incomes taxes altogether. Others on the more ‘pragmatic’ wing of the debate see an ‘interim’ form of LVT being used to fund projects such as Crossrail. What is certain that all sections of the debate believe that LVT produces a much fairer and equitable method of collecting the necessary income to finance society. “All Taxation is theft”? Not quite; but all taxation should be fair, equitable and bear a true reflection on those who have the single greatest asset at their disposal – land.

Dr Carole Tongue is former Member of the European Parliament for London East and Vice President of the Professional Land Reform Group. Dr Dinos Kyrou is a Member of the Professional Land Reform Group.