Jenny Jones AM, leader of the Green Party on the London Assembly, argues the case for a land value tax to 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.
86 Responses to “A land value tax should be at the heart of London’s economic recovery”
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.
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?
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.