A land value tax should be at the heart of London’s economic recovery


 

By Jenny Jones AM, leader of the Green Party on the London Assembly

Fairer, smarter taxes are needed for London to recover from the double-dip recession. Therefore I fully support the Mayor of London’s move to have another look at them with his London Finance Commission.

Earlier this week I asked its chair, Professor Tony Travers, whether he will look at putting a tax on rising land values as one way to promote useful economic activity in a more fair way.

You can watch our exchange below:

Land value taxation can get complicated to explain, but could potentially keep down house prices, finance major transport infrastructure projects and switch more of the burden of taxation onto unearned wealth.

The basic idea is very easily explained with an example.

The £15 billion Crossrail project is expected to benefit many businesses in London, so they were required to contribute to the cost. A Business Rate Supplement has been levied on businesses with a rateable value greater than £50,000, raising £4.1bn towards the cost.

But building this new railway line will also benefit land owners along its route, estimated at a minimum to be a £5.5bn windfall gain by property consultants GVA. Their land becomes more valuable when the line is built without their lifting a finger but, unlike businesses paying rates, these landowners get their windfall gain tax-free.

The Jubilee line extension to Stratford is an even more stark example. The £3.5bn cost to the public purse was dwarfed by the estimated £10bn plus in windfall gains to land owners in the area.

A land value tax would enable the Mayor and government to reinvest a proportion of these windfall gains into new infrastructure, ensuring everyone who benefits pays their fair share.

The Metropolitan Line was built in the 1930s using a similar principle. The company who built the line bought up land along its length for housing, and used the uplift in land values to pay for the line.

London desperately needs investment in its transport, energy and waste infrastructure. Fairness also demands we do something about these huge, unearned private gains to already-wealthy individuals and companies resulting from public investment.

There are many other strong economic arguments for land value taxation – putting a dampener on the housing market by making it a less attractive option for investors; giving developers with land banks and other owners of brownfield sites a strong incentive to develop; and possibly using the revenue to reduce business rates are just three that were raised in the debate with Professor Travers by myself and other London Assembly Members.

Land value taxation could reshape London’s economy to promote useful economic activity, generate revenue for investment and fairly distribute the benefits. It’s popular with economists of all colours and stripes, and was endorsed by the Institute for Fiscal Studies’ Mirlees Review.

So it’s a shame Travers thinks the proposal is unlikely to make it into the London Finance Commission’s final recommendations. While he “definitely won’t not look at it”, he suggested it wouldn’t get buy-in from all political parties and so would be a non-starter. I hope this week’s debate will have helped convince more Assembly Members it’s a viable option and I urge them to raise it with their parties.

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  • Newsbot9

    Ah right, you dismiss a valid concern with “UR LIAR”.

    I am pointing out that if you make it economically efficient for people to live in two adjoining houses to keep the “household” income down and minimise tax, then many middle class people will do so!

    The effect on the POOR will be different, of course, and a realistic LVT won’t cause the situation above, because it’s completely different from the actually proposed LVT’s in studies and position papers!

    A LVT’s effect will depend entirely on the level at which it is set, of course. Moreover, you are making the mistake of seeing the housing market in the UK as supply-driven. It’s demand-driven, there is a critical shortage of houses!

    You are unable to realise that I am talking about two completely different scenarios, and your instantness that anyone, then use a Toff’s sighoff. Well, that explains THAT then!

  • http://profiles.google.com/gmwadsworth Mark Wadsworth

    JohnLVT, you are making a bold and valiant attempt here, but I think that Newsbot is what we would refer to as a “total lying idiot” and that we are wasting our time. Forget about being polite any more and pay him or her back in kind, teh glvoes are off.

  • Newsbot9

    Of course you want to “help” me. Certainly – give me the DOI’s of the relevant *scientific* studies.

    What I won’t do, unless you’re paying me, is watching videos you youtube, wasting hours when I’m a fast reader and learn primarily from textual sources anyway. Scientific papers, for anything scientific like economics.

    (Oh, and if I watched all the links sent to me, I wouldn’t have time for anything else – literally.)

  • Newsbot9

    Ah yes, suggestions of drug use, a typical social darwinist’s totalitarian cry.

    LVT on Farmland would be set FAR higher in the proposals I’ve seen. So, when the farmer is facing a £25,000 or higher bill…

    Rents cannot be lower than tax. This is quite simple, and what you’re ignoring. People cannot afford to make a loss by not passing the tax on!

    You keep ignoring the published proposals, since evidently you prefer to work in a world of your own imagination. I work in the real world.

  • Newsbot9

    Yes yes, you keep claiming that concerns are the same as supporting freeloading landowners, when you’re trying to concentrate land ownership with a few.

    People won’t keep loss-making land, as you are claiming they will.

  • JohnLVT

    LVT encourages maximum use of land which in itself encourages energy efficiency. A block of flats per unit uses far less energy than a detached house. Far less fuel is used in transport as well. LVT and eco are bedfellows.

    LVT DOES NOT throw million out of their homes. Quite the opposite. It actually encourages homes to be built. Take to ex Mayor Reed of Harrisburg.

    LVT is a revolutionary solution. It is used all over the world and proven., It is what we used before the Income Tax swindle was pushed onto us.

    ” Far more minor changes such as rent caps and a tax on empty brownfield land and empty property will achieve my aims in housing while council housing is built far more easily.”

    That is fiddling the system as we go along – fire-fighting. LVT encourages maximum use of land and home building. Council homes need not be an issue and the private sector will fill the gap. All homes will be affordable – even owner/occupied. Housing shortages will be a thing of the past.

    As Harrisburg’s mayor stated, who implement LVT, that LVT protects greenspaces. Planning laws will also protect green gardens, etc.

    Your understanding of LVT is near zero,. Get to understand it. It is not difficult. Then the light bulb will light up in your head.

  • JohnLVT

    Why would lawyers be involved in LVT? They were not involved in countries and cities that have implemented it. It is simple the levy is on the “value” of the land which is easy to assess. Queensland has it all on-line.

    There ARE bad taxes. Taxes that penalize production (income tax) and trade (VAT) are bad taxes. LVT is not a tax despite it name. Many do not like the title. It should titled Community Reclaim Charge, or the likes of. It is reclaiming commonly created wealth to pay for common services.

    LVT is not based at all on the buildings at all (or the technical term “improvements”). It is based on the value of the “land only”. In the USA they split “property tax” taxes into two: building and land values. Then roll into one and charge. LVT aims to eliminate a charge on buildings (that is like taxing your washing machine) and up the charge on land values to make it a fair charge. Then it cam be done nationally and eliminate income and sales taxes.

  • JohnLVT

    “2. You want a LVT which the landlord pays, and the tenant pays for.”

    No the tenant does not pay he LVT, only the landowner.

    “3. You are saying that the landlord will eat the price of the LVT”

    He will. He also pays no Income or Sales tax either.

    “He can’t. He literally can’t afford to. He will pass it on, at a 1:1 value.”

    Under full LVT the landlord pays no Income or Sales taxes. He can’t pass LVT on to the tenant as that implies he was charging under the market rate before LVT, which they do not. If he attempts to pass it on market forces come into play and people will move to another cheaper place to live, then he has to keep the rent as it was. LVT will move housing more over to the private owner/occupier sector.

  • JohnLVT

    What your warped analysis gave was quite the opposite what happened in Harrisburg.

    You are guessing. The points I gave came from the mayor of Harrisburg out of real world experience.

    Stop making things up.

  • JohnLVT

    “Yes, it can make it at the expense of the poor. Woo!”

    Look at this by economist Fred Harrison. He says the opposite of you.

    http://www.youtube.com/watch?v=6ZkfmY1PMng

    It is best you attempt to understand LVT – all you are doing is making yourself look foolish.

  • JohnLVT

    Mark I have just concluded that in my last post. I think he thinks he knows all the answers. He is totally closed to anything his brain is pre-geared to. Sad I know.

  • http://profiles.google.com/gmwadsworth Mark Wadsworth

    “I am pointing out that if you make it economically efficient for people to live in two adjoining houses to keep the “household” income down and minimise tax, then many middle class people will do so!”
    ??? You’ve lost me. Why would a household pay twice as much LVT as it had to by occupying two houses rather than one? The LVT is not based on “household income” the LVT is based on the rental value of the land. In fact it is rent. So explain why my wife and I (probably middle class by your standards and who are currently renting) would choose to rent two houses, when we only need one, and it’s expensive enough paying the rent on only one?

    “The effect on the POOR will be different, of course, and a realistic LVT won’t cause the situation above, because it’s completely different from the actually proposed LVT’s in studies and position papers!”
    All LVT proposals are broadly the same, and i am more widely read in these matters than you are. Can you explain where the magic cut off point between middle class and poor is, and then explain why the effects of LVT are equal and opposite on either side of this arbirtary line?
    Poor people, by and large, pay rent. The landlord bears the tax. He cannot add it to the rent, because he cannot charge tenants more than they are already paying. His choice would be between have tenants, pay the tax and make a small profit, or demand an above market rent, have no income and just pay the tax.
    Consider: the interest which BTL landlords pay is pretty much like LVT being collected privately by the bank. If interest rates go down, does he reduce the rent? No. And if interest rates go up, does he increase the rent? Again no. Or do you genuinely believe that BTL landlords are completely indifferent to interest rates?

  • http://profiles.google.com/gmwadsworth Mark Wadsworth

    “Rents cannot be lower than tax. This is quite simple, and what you’re ignoring. People cannot afford to make a loss by not passing the tax on!”
    Half right. The rents are fixed, by the market, and the tax is set at the total rent minus all running and maintenance and insurance costs. So the correct statement is “the tax will not be higher than the pure location rent”.
    No landlord will make a loss. If the total rental income for a nice house is £15,000 and the running costs, depreciation and voids and so on are £3,000 a year, then the location rent is £12,000 and the tax would be (say) £10,000.
    You appear to be suggesting that the landlord can somehow persuade people to pay £15,000 + £10,000 = £25,000 a year for a home which is only worth £15,000. Which is nonsense of course, the landlord is like any other supplier in this regard, he maximises his income by setting his rent at £15,000 – if he asks for more he gets £ nothing and has no income to pay the £10,000 tax.
    As to food prices, I’d be interested to see these proposals you have read (taxing farmland is barely relevant in the context of London) and even if you ignore economic logic, the fact is that the largest chunk of food prices is earned by supermarkets as pure profit. Out of £1 spent in the supermarket, the farmers probably only get 20p, so even if they managed to increase wholesale prices to 25p, the £1 final selling price is also fixed (by the market) and supermarkets will just have to live with lower profits, see if I care.

  • Newsbot9

    No, he sells the house, after evicting the tenants, to a major land-holding company. Moreover, you’re overlooking the flaw in your plan that everyone needs accommodation, and we have a critical shortage of such.

    And er…no, you need to eat too. Moreover, the Supermarkets will simply raise their prices. Again, this is something based on need, you can’t forgo food.

    We’re not talking 25p for the farmer, we’re talking 30p simply to cover the LVT, before the 20p former costs…

  • Newsbot9

    Because you stated that “households” would have a tax offset at the median, so households would pay tax only if above it.

    “All LVT proposals are broadly the same”

    Really? So, all “proposals to move things” are the same? Nope. They’re all different, but none of the ones I’ve seen address this properly.

    You’re the one arguing magic about different scenarios conflated, not me.

    “He cannot add it to the rent”

    Right, in your world he’ll eat a major loss every month, because the tax which was formerly paid by the tenants is now paid by him.

    MAGIC. Your entire position is MAGIC.

    “And if interest rates go up, does he increase the rent?”

    Oh heck yes! It’s happened to multiple people I know recently. Increases in cost ARE PASSED ON.

  • Newsbot9

    Yes yes, landlords will take a loss in your world. Every month. MAGIC.

    You insist that people who don’t believe in your magic and don’t watch trash youtube propaganda are “foolish”.

  • Newsbot9

    Guessing? I’m reading the study. You’re pushing MAGIC losses as good for landlords.

  • Newsbot9

    2. The Landlord passes the LVT onto the tenant.
    3. Under the proposal which doesn’t exist.

    And the Landlord can’t afford to take the loss you’re telling him he is. You are saying he MUST take a loss under a LVT.

    “Market Forces”? Ah yes, you can be homeless. Great alternative! There won’t BE cheaper places to live, especially as land passes into the hands of a few under your proposal, as you raise tax on the poor dramatically.

  • Newsbot9

    No, energy efficiency isn’t the concern of the landlord, he’s not the one who pays it.

    Your LVT WILL throw millions out of their homes, and Harrisburg’s social cleansing is a great example of it.

    LVT is a revolution, right, and like all such it will kill a noticeable part of the population and eat it’s children. The bodies get stacked up, every time.

    You are saying that there will be enough casualties to mean there’s a house for everyone, I see. That’s a lot of dead bodies. I don’t see mass murder as easy.

    “Planning laws will also protect green gardens, etc.”

    So property will have even larger mandatory tax bills, ensuring that many of the lower middle class will have to die as well.

    To quote a certain webcomic…
    “Murder, why is it always murder with you people. Can’t you take up knitting or something?”

  • JohnKLVT

    Again…Economics IS NOT a science. Look at the youtube vids to put you right.

  • Newsbot9

    Watch propaganda, wasting my time, to see stuff which is incorrect? Sure, again, pay me.

    Until that point, I’ll stick with believing in science, as you do not.

  • Newsbot9

    Ah yes, a tax isn’t a tax now. You’re desperate.
    No matter what you name a tax, it remains a tax.

    And right, eliminate the ability of the poor not to pay tax from the first penny…

  • Newsbot9

    Yes, you keep talking about yourself and your campaign to end shelter for the poor. You have not demonstrated why your bloody revolution is better than a sensible tax change.

  • Dave

    “As anyone reading this will appreciate, the tax liability on land pregnant with capital gains is potentially very large indeed.”

    But why should you get even half of a windfall just because you happened to own some land that the state built a railway station next to?

  • Dave

    “energy efficiency, which I would make part of rent caps or at least allow an offset against council tax for highly efficient buildings”

    And it’s nonsense like this that is the cause of our labyrinthine tax system. Energy efficient buildings are worthwhile if the amortized cost of the efficiency features is less than the saving on energy bills. If you think that the balance should be shifted in favour of more energy efficiency, your correct behaviour is to increase energy taxes to capture the harm that the consumption of that energy does. There’s no need to mix anything else in.

  • Dave

    Last time I checked, “the poor” don’t own land

  • Newsbot9

    And don’t need to pay rent for housing in your world either I’m sure.

  • Newsbot9

    Ah yes, “nonsense”. Never mind it would actually encourage landlords to update the terrible quality of housing stock which we have.

    It is NOT in Landlord’s interest to upgrade most houses while they can continue to press rent rises due to the critical housing shortage, or indeed to do much for tenants at all!

    And I see, you want to harm, and that’s the correct term of course, the poor tenants – causing the DIRECT OPPOSITE of what I intend, when their energy bills are jacked up again (and of course the Landlord isn’t going to authorise works which MIGHT cause problems for him!)

    Thanks for that display of nastiness! But no, I actually knew what I was talking about in terms of my own aim!

  • Macrocompassion

    Land Value Taxation is hard to explain because it has about 14 different facits all of which deserve some careful consideration before the basic idea can be judged. The following list of them is an attempth to present a fair and comprehensive picture.

    14 ASPECTS of LAND-VALUE TAXATION affecting Government, Land Owners, Community and Ethics

    3 aspects for GOVERNMENT
    1. LVT, adds to the national income. .
    2. The cost of collecting the LVT is much smaller than for income tax and other production-related taxes.
    3. With LVT, the national economy stabilizes and no longer experiences the 18 year housing boom and bust cycle.

    6 aspects affecting LAND OWNERS
    4. LVT is progressive, the owners of the most potentially productive sites pay the most tax.
    5. The land owner pays his LVT regardless of how the land is used. When the land is leased to tenants most or all of the resulting ground-rent is the tax.
    6. LVT stops the speculation in land prices because any withholding of land from proper use is too costly.
    7. The introduction of LVT reduces the sales price of sites even though their value (or potential usefullness) may continue to grow.
    8. With LVT, land owners are unable to pass the tax on to their tenant renters, due to the competition for land use.
    9. With the introduction of LVT, land prices will drop. Speculators in land values will tend to foreclose on their mortgages and to withdraw their money for reinvestment. LVT should be introduced gradually. It allows investors sufficient time to transfer money to company-shares where their greater use will meet the increased demand for produce (see below)
    .
    3 aspects regarding our COMMUNITY
    10. With LVT, there is an incentive to use land for production, rather than it laying idle or being partly used.
    11. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper because entrepreneurs have less difficulty in starting-up and running their businesses. Demand grows, unemployment decreases
    12. As LVT is introduced, investment money is withdrawn from land and placed in durable capital goods.

    2 aspects about ETHICS
    13. The collection of taxes directly from productive effort and commerce is socially unjust. LVT replaces this form of extortion by gathering the surplus rental income which comes without exertion. Consequently LVT is a natural system of money-gathering.
    14. Bribery and corruption cease with LVT. Before, this was due to the leaking of news of municipal plans for housing development.

  • Roy Langston

    Evan Price, your claim that there are no good or bad taxes, merely
    taxes, is a bald falsehood. It has been known for over 200 years that
    unlike taxes on income, sales, value added, etc., a tax on a factor in fixed supply, like land,
    does not and cannot impair production. Indeed, land value taxation has
    reliably produced economic miracles everywhere it has ever been tried,
    to the exact extent that it has been tried. Why do its opponents
    always refuse to know such facts? The answer is all too obvious: they
    are landowners who are being given immense wealth in return for nothing,
    and they intend to go on getting it, the nation be damned.

    Your refusal to admit that some taxes are stupid and others are very good cannot alter the fact that some taxes are stupid and others are very
    good. If you cared about effective taxation (you don’t), you would be
    an enthusiastic supporter of land value taxation. Like all other
    “criticisms” of land value taxation that have ever been advanced, or
    ever will be advanced, yours are fallacious, absurd, and dishonest.

  • Roy Langston

    LVT is automatically affordable, because it is no more than someone is WILLING to pay to use the site: just let them use it. Problem solved. It is also false to claim that LVT bills could “continue to rise without any corresponding rise in their ability to pay them.” LVT cannot exceed the land rent. Land rent is the economic advantage obtainable by using the land. If LVT increases, it is because the economic advantage to the land user has increased, and thus their ability to pay the increased rent — IF they are using the land productively, and not just sitting on it, hoarding it expectation of trousering millions for doing nothing.

  • Roy Langston

    Your claims are false and dishonest. LVT is a REPLACEMENT for the revenue from stupid, unfair, and destructive taxes. The London Assembly has the power to reduce said taxes. It should do so forthwith, and replace them with LVT.

  • Roy Langston

    Your claims are false. Food prices cannot soar, or even rise, as a result of LVT. That is a fact of economics that has been known for 200 years. Google, “Law of Rent” and start reading. Homelessness would be reduced to zero by LVT — though some people would not be able to afford to continue depriving the community of prime sites they are currently under-utilizing to the detriment of the city and the nation.

  • Roy Langston

    It is false, absurd, and dishonest to claim that LVT would concentrate land ownership with a few. The current enormous concentration of UK land ownership with a few in the ABSENCE of LVT is proof enough of that.

    “Loss-making land”? What would that be? Land’s average appreciation is currently far greater than its holding cost, even if you don’t collect the rent.

  • Roy Langston

    Your claims continue to be false, absurd, and dishonest. Poor people don’t own land, and LVT cannot be shifted onto them. Economists do not agree on much, but they do agree on that. It is absurd to claim that people would have to live in very high density housing or slums. LVT is simply the same payment a private landowner would charge for the land. He just doesn’t get to trouser it. And that is your whole objection to LVT, in its bare essentials.

  • Roy Langston

    Nonsense. There is nothing magical about paying for what you take, and the non-linearity of the economic relationships DOES make it possible for landlords to benefit at modest LVT levels. For example, a 50% increase in location subsidy repayments may stimulate a 100% increase in economic growth. The rent the landlord can charge thus increases even more than the tax he has to pay.

    But at higher levels, no one claims location subsidy repayment will be good for landlords because there is a limit to how much faster the economy can grow. If the economy is growing at 1%/yr, doubling the LSR might make it grow at 3%; but if it is already growing at 10%, doubling the LSR isn’t going to make it grow at 20%, let alone 30%.

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