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”
Edward Dodson
As is always the case, politics dictates economic outcomes. That the ownership of land is a static activity rightfully subject to a community charge (i.e., a ground rent charge) determined by market forces has been understood since Richard Cantillon — and debated again and again by political economists. Always, the public good was subverted by landed interests. That this continues to be the case in the 21st century reveals just how little progress has occured in the evolution of societal organization.
Evan Price
There are no ‘good taxes’ and no ‘bad taxes’, merely taxes. Certainly, I would not categorise a particular tax as ‘stupid’ or ‘very good’. What I care about is effective taxation; and for that I would suggest that certainty and simplicity are probably key.
If you are looking to replace a tax based on a certain value (CGT and Council Tax) or an assessed value (IHT and Council Tax) with a single tax on assessed values (LVT), then it would be sensible to set that out in the policy proposal. Indeed, the Mayor of London could not abolish the other forms of taxation you mention, so the reality of this proposal is that it is an additional rather than a replacement tax and that is, with respect, what is proposed by Jenny Jones.
As to the apparent disappearance of capital gains on the implementation of your LVT, I rather suspect that you are mistaken. We have seen a progressive boom in property prices over about 40 years or so. Over that time we have seen CGT vary quite signiticantly – it is currently banded – nil for the ffirst £10,600, 18% for sums that take income up to £34,370 and 28% thereafter. I strongly suspect that that boom wasnot created by taxation or the absence of it. There are many factors, and I rather suspect that the influence of inflation, the effect of inappropriate interest rates, and the features created by limited supply and excess demand are more important than the taxation and its rates.
I live in a relatively modest part of London where property prices are absurd. The house that I live in (4 beds – I have 3 children) is a house that if it were in mid Wales would cost. at most, less than third of what it costs in London today and the difference has been growing over the last 10 years or so. Sadly, I doubt that I could afford to buy the same house in the same street today – as my income, although very good, is not sufficient to meet the increasingly stringent requirements that are being imposed by the FSA and the Banks today. I was lucky to buy the house 10 years ago when, both relatively and in reality, it was both affordable and cheaper. The idea that an LVT would destroy that additional value when the other factors that affect that price increase are not addressed is both silly and rather obviously absurd. Not only that, but politically it would be disastrous if it did have that effect.
It is probably sensible for us to review taxation more generally. It will always be better to tax something that is known, rather than something that is assessed – less scope for argument. It is also probably better to tax something that can be paid immediately, rather than create a problem for people who cannot pay because their income is insufficient to meet a particular obligation – whereas, if you tax the actual and accrued gain, you know that the taxpayer can pay.
JohnLVT
The word investors should be removed and replaced b y “harmful land speculators”. Land speculation was the root of the 1929 & 2008 crashes.
JohnLVT
Economic activity, private & public, soaks into the ground and crystallizes as LAND VALUES. The values were not made by the land owner. They never came from the sky. The value is “commonwealth” Land Value tax merely “reclaims” that value to pay for public services, LVT is not really a tax. LVT eliminates Income and sales taxes leaving people’s wages alone – currently the state effectively steals from us.
A new rail line, using public money, money from all over the UK, increases land values – the Jubilee line did and now Crossrail is before our very eyes, as infrastructure invariably does, LVT can easily fund economic growth assisting infrastructure. Then those who benefit from this infrastructure pay for by capturing the gains in growth it creates.
Use commonwealth to pay for common services. Keep private wealth, private.
1. Socialize socially created wealth.
2. Privatize privately created wealth.
It is quite easy.
JohnLVT
The Jubilee Line extension costed £3.4bn. The land values around the line rose by £14bn.
You need to understand the unique qualities of LAND. Land is not a washing machine, which is CAPITAL. LAND & CAPITAL are very different.
Winston Churchill was great fan of LVT. The only war he ever lost was to the British Landlords.