Richard Winch, 28/05/2017
At a time when property prices and rents are becoming ever-more unaffordable for millions of people across the UK, it is not surprising that the opposition parties have made housing one of the main themes in their election campaigns; rent controls, large-scale house-building programs and the introduction of a mandatory landlord licensing scheme have been proposed as solutions to the housing crisis. In their manifesto, the Labour Party have announced a plan to investigate whether Land Value Taxation (LVT) should be brought in to replace Council Tax and business rates. But what actually is LVT, and why might it have a positive impact on the housing situation?
First proposed by the American economist Henry George in the late 19th century, Land Value Taxation is a levy on the unimproved rental value of land. Note the inclusion of the word ‘unimproved’ here – it refers to the rise in the value of land as a result of pure luck, rather than through any productive activity by the landowner. The rental value of every parcel of land would be assessed and a charge would be set accordingly, to be paid by the landowner. George argued that this would be a fairer and more stable alternative to taxes on production and income. As there is only a fixed supply of land, taxing it will not make it scarcer. And unlike other forms of revenue, such as income tax and corporation tax, it is very difficult – if not impossible – to avoid or evade. After all, land cannot be stashed away in a Swiss bank account!
Supporters of LVT claim that – among other benefits – it would go some way to solving the housing madness that Britain and countless other countries are currently suffering from. Empty homes would incur high levies under this system, meaning that property speculation would no longer be the nice little earner it presently is for a privileged few. Instead, these speculators would most likely shift to more productive activities, especially if LVT completely replaced business rates. Housebuilding companies would no longer profit from ‘landbanking’ – the practice of buying parcels of land and intentionally leaving them unused and undeveloped in order to make a killing when prices soar further at some point in the future. They would be inclined to develop the land or sell it, or else be hit by a high rate of land tax which would have a severe impact on their profit margins. In both these scenarios, there would be a noticeable increase in the supply of housing (both to buy and for rent) and as a result property prices would settle to a more stable and affordable level.
No doubt those of a particular political hue will have instantly dismissed the policy as yet another example of left-wing lunacy and the politics of envy, so it is important to point out that LVT has had many supporters on the free-market Right as well as the socialist Left. Milton Friedman, that great hero of Margaret Thatcher, said that “the least bad tax is the property tax on the unimproved value of land”. More recently, both the Adam Smith Institute and Institute of Economic Affairs – think-tanks with close ties to the Thatcherite wing of the Conservative Party – have also voiced support for Land Value Tax. In its purest form LVT would completely replace income tax and business rates, so it is easy to see why there is support for it amongst economic libertarians.
Although there are many strong arguments in favour of LVT, it is difficult to find any countries which actually use it; Taiwan and Estonia being rare exceptions. So why hasn’t it been introduced more widely? The likeliest reason is that the major landowners tend to be long-standing and influential members of the Establishment. Using their close connections with the political elite, they would fiercely and resolutely resist any attempt to introduce such a tax.
The Corbyn-led Labour Party are already facing the wrath of the Tories for advocating relatively moderate and widely-supported policies such as renationalising the railways, so it is a brave move to propose the bold and radical change that LVT represents.