8: A Land Value Tax: an idea whose time has come

Jack Chadwick, December 9th 2012 --

A tax on land – “the original source of all wealth” – would have a lot going for it; equally lauded by denizens of the Left and the Right. David Lloyd George, Keir Hardie, and even Winston Churchill numbered among the early advocates for land value taxation.

Finding justification for the idea is incredibly simple – there are both ethical and economic arguments for its implementation, complimented by a mutual underpinning in both libertarian and socialist ideologies.

But, for starters, what is ‘land value’? In short: socially-created wealth. All land everywhere has a value determined by the level of economic demand for its attributes; a piece of ground conveniently located in the midst of an oil field is worth more than a plot found in the desolate isolation of some barren waste, because the resource of oil is quite sought after.

Less extreme examples of the same can be found in the familiar confines of the UK economy; land prices are different from place to place, with spaces in some areas being more desirable due to the basic features of their location.

Monetising this abstract concept is quite straightforward – the land’s value can be estimated by calculating its rental price over a certain period of time – this ‘ground rent’ is what proponents of LVT suggest we tax.

Why an LVT then? Well, as said, land value is socially-created wealth. It’s the product of the community, of collective endeavour, and thus rightfully belongs to the community. Under the present system, this wealth is instantly deposited into private pockets – a phenomenon the political economist Henry George blamed for the economic inequality found in societies like our own.

The principal reason for having an LVT is that landowners don’t actually contribute to the value of the land they own, and yet can profit greatly from it. Whilst the owner may increase the value of the property on their land through construction and suchlike, they don’t in any way contribute to the base value of the land occupied by their buildings. As stated, this value mostly comes from the endeavours of the community: infrastructure is provided, utilities are supplied, and the existence of all sorts of services (both public and private) render the land far more valuable than it would be were all these things to cease existing.

Natural resources like oil and minerals also account for a lot of land value, and some would argue that ownership of these resources is a legitimate means of accruing wealth. However, as George argued in his pamphlet ‘Progress and Poverty’, “The smallest infant born in the most squalid room of the most miserable tenement acquires, at the moment of birth, a right to land equal to millionaires. And that child is robbed if that right is denied.”

While the argument for land value taxation can easily get clogged-up with lofty philosophising, it’s also important to take notice of the practical positives it would bring. As Telegraph journalist Jeremy Warner acknowledged, LVT “does not discourage any socially desirable form of wealth creation” in the same way that taxes on income and jobs do. “The incentive to buy, develop, or use land would not change. Economic activity that was previously worthwhile remains worthwhile” states the Mirrlees Review (the IFS’ grand tax tome).

LVT revenue could then fund meaningful reductions in economically harmful taxes like national insurance contributions and VAT, or plug the gap in our public finances – or both!
At the risk of making LVT sound too good to be true, advocates for the tax also point to its likely effects in other areas of policy. It would disincentivise urban sprawl by ensuring that all sites were used efficiently – landlords would no longer be able to profit from lethargically sitting on land without developing it. The private sector housing crisis would resolve itself. Likewise, it would end sterile speculation in the housing market, the same bubble that amplified the 2008 financial crisis to such a shocking extent.

Panaceas don’t come along often; if there is one for the current problems facing us all, then land value taxation is very likely it.

Jack Chadwick is a member of the Labour Party, and, by extension, the Labour Land Campaign.