It’s time for an All Party Parliamentary Group on Land Value Taxation

The rioting in Hamburg on the occasion of the meeting of the G20 this month highlights the oftentimes violent confrontation that exists between alternative theories of capitalism and socialism, as represented by the established orthodoxy and those that would seek to tear it down.

 At the heart of this conflict lies differing interpretations of economic theory, often depicted simplistically as left v right; Keynes v Hayek; socialism v capitalism; social liberalism v economic liberalism; or progressives v conservatives.

Henry George’s Progress and Poverty envisioned a capitalism that would allow all people to own the product of their labour, but that things found in nature, particularly land, belongs equally to all humanity. 

The Coalition for Economic Justice  is a cross-party group that proposes the introduction of an annual Location Value Tax (LVT) (also known as a Land Value Tax) to reduce existing taxes on enterprise and labour in order to rebalance the economy and prevent future economic crises.

Sir Vince Cable in a 2010 conference speech opined “…in a world of internationally mobile capital and people it is counterproductive to tax personal income and corporate profit to uncompetitive levels. … But a progressive alternative is to shift the tax base to property and land which cannot run away and represent, in Britain, an extreme concentration of wealth.”

Andy Burnham, now Mayor of Manchester, ran his 2010 campaign for Labour leader on the basis of radical tax reform with Land Value Tax at its heart and Labour’s 2017 manifesto continued the theme promising to “…review council tax and business rates and consider … land value tax, to ensure local government has sustainable funding for the long term.”

Nick Boles (former conservative minister for planning) in the 2012 Macmillan Lecture proposed a land tax, using the New South Wales’ Land Tax as a successful example, suggesting that a UK Land Tax on similar terms could raise over £5 billion a year – and encourage productive use of under-utilised development land. The conservative 2017 manifesto included a commitment to registering all UK land and reforming land value capture as a means of funding local infrastructure.

Caroline Lucas of the Green Party introduced an LVT Bill in 2012; and the SNP conference passed a resolution in March this year backing LVT as a mainstay of Scotland’s land reform program.

The critical insight of Lloyd George in the1909 peoples budget, and subsequently the labour chancellor, Philip Snowden, who introduced a Land Value Tax bill in 1931;  was that taxes levied on income and profits and redistributed as subsidies to the working poor are ultimately captured as economic rent principally by owners of land and other natural monopolies. Conversely, taxes levied on land do not generate increases in market rents in the same way.

If substantive progress in tackling inequality is to be made in this Parliament of cross-party working, is it not time for the formation of an All Party Parliamentary Group on Land Value Taxation to consider the application of Henry George’s theories to present day societal conflicts?

 

 

* Joe Bourke is an accountant and university lecturer, Chair of ALTER, Chair of Hounslow Liberal Democrats and PPC for the Brentford and Isleworth constituency.

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36 Comments

  • Richard Underhill 12th Jul '17 - 11:26am

    The site value is dependent on the planning conditions. If tall buildings are allowed there will be no upper limit to the value of the site. Old planning permissions were given with no deadline for development which makes the introduction of a new tax attractive to some people. Tesco changed its policy from buying land for new and enlarged stores to using small lorries to do home deliveries, leaving some dereliction in its wake because rivals have chosen to also do home deliveries. There must therefore be a right of appeal against valuation to be triggered at any time.

  • Peter Martin 12th Jul '17 - 11:52am

    There is no inherent incompatibility with the idea of levying a LVT to replace or supplement some other taxes and the kind of modern Keynesianism that most Liberals, sorry Lib Dems, should support. Keynes was a Liberal BTW so Keynesian economics isn’t necessarily anti-capitalist or pro-Socialist as the article might suggest.

    As I understand Henry George, he was advocating LVT as a Single Tax. But the idea of a Single Tax is not supportable in a modern economy. It’s far too crude an instrument. Taxation isn’t really about raising revenue for a currency issuing government. It’s more about controlling and regulating the economy. Preventing too much inflation, keeping it from falling into recession are the two sometimes conflicting goals. The same amount of tax, of whatever kind, collected from someone who would otherwise have spent it has quite a different effect from someone who otherwise wouldn’t have spent it.

    And where, and how, they would have spent it is also important. If it’s spent in London, right now, it could simply add to inflation. If it’s spent in Derry, it could be helping to keep the economy functioning there, preventing ultra high levels of unemployment and helping prevent a return to the violence we saw there in previous decades.

    We have to have taxes on tobacco, alcohol, air and water pollution etc for obvious reasons. So taxation isn’t just about money. It’s about steering our society in the direction we’d like it to go. Taxes on income are necessary if we want to reduce inequalities in income, for example.

    Central government has an essential role in creating the conditions for full employment.
    Reliance on an unfettered private market will not create prosperity for all. LVT or no LVT. To reject the notion that capitalism is self correcting and the ‘invisible hand’ will always act to restore equilibrium isn’t to be opposed to capitalism. Managed capitalism with a mixed economy, which means having quite a bit more government involvement than we current have, is actually quite a successful system!

  • Joseph Bourke 12th Jul '17 - 12:38pm

    Richard,

    I was just reading about this issue of industrial and warehousing sites moving out of city centres this morning http://www2.iceniprojects.com/webmail/341111/5944719/d244b17b27a2aa44504323bf94cef8993f6916975b371edc262148f9bcebed28.

    As you say, planning consent determines the land rental value of the site and a change of licensed use must be reflected in valuations.

  • Joseph Bourke 12th Jul '17 - 1:16pm

    Peter,

    “Taxes on income are necessary if we want to reduce inequalities in income, for example.”

    This a quote from Winston Churchill http://www.landvaluetax.org/current-affairs-comment/winston-churchill-said-it-all-better-then-we-can.html that explores you argument:

    ” All comes back to land value, and its owner is able to levy toll upon all other forms of wealth and every form of industry. A portion, in some cases the whole, of every benefit which is laboriously acquired by the community increases the land value and finds its way automatically into the landlord’s pocket. If there is a rise in wages, rents are able to move forward, because the workers can afford to pay a little more. If the opening of a new railway or new tramway, or the institution of improved services of a lowering of fares, or of a new invention, or any other public convenience affords a benefit to workers in any particular district, it be-comes easier for them to live, and therefore the ground landlord is able to charge them more for the privilege of living there.

    Some years ago in London there was a toll bar on a bridge across the Thames, and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted of so large a proportion of their earnings offended the public conscience, and agitation was set on foot, municipal authorities were roused, and at the cost of the taxpayers, the bridge was freed and the toll removed. All those people who used the bridge were saved sixpence a week, but within a very short time rents on the south side of the river were found to have risen about sixpence a week, or the amount of the toll which had been remitted!
    All goes back to the land, and the land owner is able to absorb to himself a share of almost every public and every private benefit, however important or however pitiful those benefits may be.”

    Redistribution becomes ineffective if the end result is ever higher rents and monopoly prices. What use is lower mortgage interest if the amount needed to buy a home doubles in price and the same or a higher proportion of disposable income is needed to pay for shelter?

  • I am not retired pensioner but how would this effect those pensioners whos equivalent of a pension is renting a small number of properties (The situation of my Landlord)? I ask this because another supporter of this tax recently suggested levying it at such a high level all private (not social you understand) would be in effect forced to sell the properties to the local council on the cheap. Given I currently live in a shared house (HMO) councils do not cater this kind of accomidation that would leave people like me having to rent a flat. In some areas rent is ludcriously high but in many areas private are cheaper than local authorities which even corbyn admited to. It should be noted it was revealed last week 2/3rds of private landlords including employment income still are in the basic rate of tax band, so most landlords are hardly rolling around with plenty.

  • Frances Alexander 12th Jul '17 - 1:20pm

    Yes, Joe Bourke, an all party group to discuss LVT is urgently needed and could come to a way forward acceptable to all parties.
    Everyone knows that the current austerity is too painful.
    LVT is fair.

  • Peter Martin 12th Jul '17 - 1:30pm

    @ Joe,

    Leaving aside, for the moment, whether income taxes are or aren’t necessary, maybe you could explain why a LVT (whatever else its intrinsic merits might be) can “…. rebalance the economy and prevent future economic crises.”

    First of all, we need to understand what “rebalance the economy” means. Are we talking about making exports = imports? govt spending = taxation revenue? Reducing the North South divide? Increasing the share of manufacturing in the economy?

    Before you can claim to prevent future crises, you need to be able to explain why we had previous crises. So what’s your take on them?

  • Joseph Bourke 12th Jul '17 - 1:58pm

    Sam,

    private landlords provide a vital service in the housing sector and many people use property investment as an alternative to pension funds. Alter’s proposals are to tax land rents (after deduction of any personal income tax allowance) at income tax rates, the same as they are now.

    Landlords currently paying the basic rate of tax on their income from land would continue to pay tax at the same level.

    Homeowners in areas where private rents were lower than the local area housing allowance set by the council would pay no tax. Homeowners in high rent areas would pay LVT only where the rental value of their land was greater than the equivalent value of the Local area housing allowance paid by the local authority.

  • Joseph Bourke 12th Jul '17 - 2:10pm

    Peter,

    From the CEJ webiste http://www.c4ej.com/ :
    “Every economic crisis in living memory has been preceded by an unsustainable and speculative rise in property values, commercial/industrial as well as residential. The link between property values and bank and building society lending is strong and causal. Excessive lending fuels property prices.

    The rise in property prices is in fact a rise in the land element of the price, since the cost of building materials, and builders’ wages, has risen hardly at all. An annual tax on the rental value of land would exert a restraining influence on property values and give some control over this key determinant of economic stability. Such a tax would also cut the ground from under excessive and imprudent bank lending and remove much of the speculation in land. With LVT introduced to reduce taxes on enterprise and labour, an overall tax increase is not required.

    In the present market economy the justification for a rise in prices is that it brings forth increased supply. As the land supply is fixed there can be no such increase. As economists from Adam Smith onwards have recognised, land is a monopoly. Rising property prices therefore serve no useful economic purpose. As such, they are the natural and obvious target for taxation. The LVT thus collected on an annual basis would help to reduce those taxes, many of which are unpopular (e.g., council tax and stamp duty) as well as income tax, national insurance and business rates which directly discourage production.

    LVT is a progressive tax falling most heavily where the benefit to the community is greatest and most lightly where the benefit is least. As the tax is based on permitted land use – not on current use (or non-use) value – LVT will penalise those who hold land out of use. It will therefore encourage land use and stimulate economic activity. With LVT introduced, there will be little or no incentive to speculate in land and hence property. Much of the credit which currently supports land (property) values would no longer be needed and would be available to finance the production of goods and services. LVT is easy and cheap to collect and difficult, indeed virtually impossible, to avoid.”

  • @ Joseph Bourke

    ‘Henry George’s Progress and Poverty envisioned a capitalism that would allow all people to own the product of their labour, but that things found in nature, particularly land, belongs equally to all humanity.’

    So why not just nationalise it.
    Give town and country planning authorities the power to compulsory purchase land at agricultural prices, plan for population levels in accordance with industrial and economic development plans (and maybe immigration). Specify the build quality and environment . Consult with local residents to overcome NIMBYism, even if this means leaving some additional green space, at least it will make it residents v council rather than residents v builders. Reap the uplift in land values at 100% less an element of compensation, and use this revenue stream to increase the level of social housing.
    It will develop our towns by what is desirable and required, rather than where the most profit can be gained. And by the way Section 106 is no substitute. I see precious little political capital in implementing a horrendously complex system of dubious popularity, which will be argued over till the cows literally come home and will not make a noticeable difference to people’s lives.
    By the way, ‘private landlords provide a vital service’? That’s a debate for another day.

  • Eddie Sammon 12th Jul '17 - 5:22pm

    We need an “Unused Land Value Tax” not a “Land Value Tax”. I see no argument for taxing people using land productively, such as farmers, private landlords, builders, people providing public access and maintenance, anyone who isn’t simply hoarding and sitting on the land.

    What’s the aim of taxing all land ownership? To make them sell? Why? To raise money? How? Land is illiquid, unlike assets easily convertible into cash.

    We need proper proposals that we can debate and see what the rate would be and who would be exempt. Regards

  • Eddie Sammon 12th Jul '17 - 5:45pm

    Sorry I should be clear, there is an inequality argument, but again, I don’t see why owning lots of land, if you are doing good things with it, is worse than owning lots of other things, such as shares. I’ve heard arguments about “land being natural”, but this to me seems to be an argument against freehold home ownership and an argument to nationalise all farms and a lot of housing too.

  • Joseph Bourke 12th Jul '17 - 7:10pm

    P J/Eddie,

    this article calls for an APPG for a number of reasons, not least of which is LVT attracts support across the political spectrum for widely differing objectives. One common objective though is the reduction of deadweight costs associated with most forms of taxation.

    On Nationalisation – In 1985 Tony Benn promoted a Ten Minute Rule Bill in Parliament calling for “The Common Ownership of Land” and suggesting the creation of a Community Land Trust to collect land rent. Hong Kong and Singapore have systems that retain state ownership of land and collect rents in the form of land taxes, lump sum premiums and/or sale of long leaseholds.

    At the other end of the spectrum, the IEA has proposed abolishing 20 taxes and replacing them with:

    – A flat-rate income tax set at 15 per cent of income above a personal allowance of around £10,000. Distributed corporate profits would also be taxed at this rate.

    – VAT set at 12.5 per cent, with most exemptions abolished.

    – A new housing consumption tax on rents and imputed rents to mimic VAT at 12.5 per cent.

    – A new location land-value tax.

    Alter’s proposals are focused on replacing business rates and council tax with LVT and a new housing consumption tax on rents and imputed rents (after allowances) to mimic income tax rates.

  • Eddie Sammon 12th Jul '17 - 7:39pm

    Joseph, we can’t have state ownership of all land plus land value taxes. It adds up to an unfair level of attack on people who own or lease land compared to the rest of the population.

    If you want the state ownership of land option then you have to generate revenue by selling leases, but this land has to be bought, I don’t see what big social ill is going to be cured by this. If people want more council houses then that’s what they should call for.

    People often cite tax avoidance but unless you nationalise the land then land taxes can be avoided too by transferring ownership. Best regards

  • Joseph Bourke 12th Jul '17 - 7:53pm

    Eddie,

    In Singapore, 80% of the population live in subsidised apartments built by the government, most of them as owner-occupiers. Singapore’s Housing and Development Board (HDB), the successor of the city planning agency created by British colonial governors is the foundation of the states economic and social policy. The government has since the 1960’s acquired much of the land and now controls around 90% of the territory. New built properties are sold every year to 1st time buyers (with a means tested discount) on 99 year leases. There is a mandatory national-savings scheme to which employees of working age and employers contribute 20% and 17% respectively. . The savings fund provides the source of funds for deposits and some or all of mortgage payments. Singapore has virtually no homeless problem and accommodation is more affordable than London. Property tax is imposed on owners of properties based on the expected rental values of the properties.

    Alter does not propose state ownership of private property, but rather an LVT to fund public infrastructure and services that benefit all owners of land. The LVT would replace existing taxes on property such as council tax, business rates and SDLT and allow for an element of redistribution to tenants that is not then recaptured as economic rents by landlords.

  • Joseph Bourke 12th Jul '17 - 9:16pm

    Eddie,

    “People often cite tax avoidance but unless you nationalise the land then land taxes can be avoided too by transferring ownership.”

    Tax cannot be avoided on land because it is not mobile. Title can be held by trusts, companies or other legal persons, but must be registered to prove title or sell on.
    There are already hefty taxes for land titles held in this way, such as the Annual tax on enveloped dwellings and a higher 15% rate of SDLT.
    https://www.gov.uk/guidance/annual-tax-on-enveloped-dwellings-the-basics

  • Eddie Sammon 12th Jul '17 - 11:25pm

    Thanks Joe, I agree you can’t really money launder land, but that’s only one part of tax “dodging”.

    I’ll leave the debate here for now, but I’m not convinced beyond anything more than an unused land tax. If you are replacing the taxes you mention then I don’t see how it will raise much money and if the taxes are going to be very big then there will be big political problems. I don’t see why land owners should be more tax than other rich people, unless they are just sitting on the land.

  • Stephen Booth 13th Jul '17 - 9:24am

    Joseph, you state: “An annual tax on the rental value of land would exert a restraining influence on property values. . .” Surely this is only true if the tax is a percentage of the current land value? If the tax is based on a notional value set several years previously then it will make little difference. For it to restrain property values there would have to be annual valuation of the land and the tax applied as a percentage. Could mean quite a local bureaucracy to manage that!

  • Duncan greenland 13th Jul '17 - 10:11am

    The thread seems to have moved on from the proposal to have an All Party Parliamentary Group looking at the merits of some version of taxing property and land morenthan we do at the moment

  • Duncan greenland 13th Jul '17 - 10:15am

    To arguing the specifics of different possible ways of implementing such taxes ; can we not all agree that a cross- party parliamentary committee exploring the issues would be a good step forward,before we start trying to PRE- determine what should be the outcome of its deliberations ?

  • Peter Martin 13th Jul '17 - 10:43am

    @Joe,

    ” The link between property values and bank and building society lending is strong and causal. Excessive lending fuels property prices.”

    Quite right. As your reference explains, it’s the excessive lending that causes the rise in property prices, which causes an unsustainable bubble. Prices rise as demand increases. Demand increases because prices are rising. It can be other things too. It can be the stock market. Recently we’ve seen increasing concern about the levels of lending for motor vehicle purchases.

    So why do governments encourage excessive private sector borrowing? For a country like the UK which runs a trade deficit, someone in the UK has to do the borrowing to support it. As an accountant you’ll realise that this has to be the case, on a penny for penny basis. As governments usually want to reduce their own levels of borrowing, they find that encouraging more private sector borrowing, by reducing interest rates, to be a convenient short term solution to keep the economy buoyant. It’s not a long term solution though as this borrowing creates the conditions for the next crisis.

    This is still going to be true whether or not we have a LVT. The idea of a LVT has merit as a wealth tax, but that usually considered to be socialism! But it’s not, on its own, going to fix the underlying problems that beset our economy.

  • Peter Martin, Indeed, but there is no single policy that on its own will solve fix the underlying problems that beset our economy. It’s a bit like saying to the manager of Newport County that getting a better goalkeeper will not fix the underlying problems that beset his team.

    LVT would however provide an extra charge on property values which would start to have an effect on the price people were willing to pay to purchase a property. That would be one thing that would just begin to offset our ridiculous obsession with ever increasing house prices and borrowing against its so called value.

  • Peter Martin 13th Jul '17 - 1:04pm

    @ David Evans,

    I generally agree with your comment. Joe though did say that a LVT would “…. rebalance the economy and prevent future economic crises.”

    Joe has mentioned Henry George so presumably he’s a supporter. HG wasn’t just in favour of having a better goalkeeper, he wanted the game to be just about goalkeepers to use your analogy. LVT for him was to be a Single Tax providing all revenue for Govt. That’s really out of the question as he must know for a modern economy like the UK.

    But leaving all this aside we have to look at the political practicalities too. The Libs were in favour of a LVT in the early 20th century, but not as a single tax. It may go down reasonably well in the old Leader’s seat in Cumbria. Vince Cable would probably lose his if he suggested it for Twickenham though! In reality the chances of any LVT are somewhere between slim to non-existent for the foreseeable future.

  • Joseph Bourke 13th Jul '17 - 1:55pm

    Peter,

    I noted in other threads that you often refer to the features if a fiat currency system as described by Modern Monetary theory (MMT) and in particular to the role of taxation as a moderator of inflation and unemployment.

    MMT is to a significant extent under-pinned by the work of Hyman Minsky and in particular his financial instability hypothesis.

    The CEJ has a short article on the Impact of LVT on bank lending http://www.c4ej.com/cej-publications/the-impact-of-land-value-tax-on-bank-lending:

    The Executive summary notes:

    …banks had a business model which consisted of extending credit to customers for the purpose of purchasing property rather than for productive business enterprise and then making their books balance by borrowing money from wholesale markets rather than taking deposits.

    The basis for this imprudence was the expectation of ever increasing property prices producing a preference to fuel speculation rather than sound lending to business for productive economic activity.

    The obvious reason for the bank’s preference to speculative lending compared with lending for productive purposes is the perceived greater profitability and lower risk! Perversely, it is also encouraged by regulatory requirements. The incidence of taxation plays a significant underlying role in this. Whereas productive economic activity is heavily taxed, particularly through taxes on labour but also through business rates and corporation tax, by contrast the increase in domestic property values is untaxed.

    The basis of property price inflation has to be the land component rather than the capital (i.e. building) component since it is this that has the scarcity value and is not subject to depreciation.

    Shifting taxation off productive activity and onto land would provide a change of conditions which would work to alter the balance of what the banks’ extend credit for. Reducing taxation on productive activity would make it more profitable and so less risky to extend credit for productive activity and taxing land values would reduce the attractiveness of extending credit for property speculation. Thus a tax shift from labour and capital and onto land would provide an incentive for banks to move from inherently unstable practices to more stable and economically and socially useful ones.

  • Joseph Bourke 13th Jul '17 - 2:53pm

    Peter,

    this CEJ article in the Impact of LVT on bank lending may be of interest http://www.c4ej.com/cej-publications/the-impact-of-land-value-tax-on-bank-lending

    Executive Summary:

    Of the four UK banks that failed in the 2008 financial crisis and had to be taken into public ownership, for three, Bradford and Bingley, Northern Rock and HBOS (now part of Lloyds group) the specific reason for the failure was the same.

    Each of the banks had a business model which consisted of extending credit to customers for the purpose of purchasing property rather than for productive business enterprise and then making their books balance by borrowing money from wholesale markets rather than taking deposits.

    The basis for this imprudence was the expectation of ever increasing property prices producing a preference to fuel speculation rather than sound lending to business for productive economic activity.

    The obvious reason for the bank’s preference to speculative lending compared with lending for productive purposes is the perceived greater profitability and lower risk! Perversely, it is also encouraged by regulatory requirements. The incidence of taxation plays a significant underlying role in this. Whereas productive economic activity is heavily taxed, particularly through taxes on labour but also through business rates and corporation tax, by contrast the increase in domestic property values is untaxed.

    The basis of property price inflation has to be the land component rather than the capital (i.e. building) component since it is this that has the scarcity value and is not subject to depreciation.

    Shifting taxation off productive activity and onto land would provide a change of conditions which would work to alter the balance of what the banks’ extend credit for. Reducing taxation on productive activity would make it more profitable and so less risky to extend credit for productive activity and taxing land values would reduce the attractiveness of extending credit for property speculation. Thus a tax shift from labour and capital and onto land would provide an incentive for banks to move from inherently unstable practices to more stable and economically and socially useful ones.

    This is a longer article exploring Minsky’s financial instability Hypothesis and Steve Keen’s debt jubilee proposals http://ritholtz.com/2012/09/private-debt-is-the-main-problem/

  • Joseph Bourke 13th Jul '17 - 3:21pm

    Stephen,

    I think an LVT has to be assessed on rental value of land and not the market value of land that can fluctuate significantly upwards or downwards based on factors such as prevailing interest rates and property speculation. The rental stream (based on planning consent) is more stable and less prone to wild fluctuation. An LVT on land rental should exert downward pressure on the capitalised value of land.

  • Peter Martin 13th Jul '17 - 7:57pm

    @Joe,

    Prof Steve Keen is quite right on the question of private debt. It is much more of a problem than public debt. However, neither he nor the late Minsky are/were Georgists. That’s not to say that they might take a cautiously positive view of the merits of a LVT in a properly managed economy. But a LVT as a single tax? That’s quite another matter.

    If high levels of private debt are indeed the problem then that is the question that needs to be addressed. Not what the private debt is being used to fund. Take away land and it will simply become something else. The buildings on the land. Or stocks and shares. Or artworks and antiques.

  • Peter Martin 13th Jul '17 - 8:12pm

    @ Joe,

    On the question of MMT, I’m mainly in agreement but not entirely. My own view aligns more with Steve Keen whom you’ve already referenced. I tend to the view that public deficits do matter – but not in the way most people think they do. The national debt which is the sum of previous deficits isn’t something that needs to be repaid. In fact it hardly ever is repaid. That’s just a recognition of reality.

    MMTers play down worries about the trade deficit. Steve Keen thinks it’s important. If we weren’t as bothered as we are about the budget deficit, a high trade deficit might be OK. But they are linked in an almost 1:1 relationship at present. But we tend to treat them as separate issues which is just plain crazy!

  • Peter,

    the key element of the article is property lending to both householders and property speculators as the main driver of private debt. Inflated land prices and speculative frenzies that lead to what Minsky’s refers to as Ponzi lending is itself the driver of instability in the economy. The inelasticity of supply is the feature of land that distinguishes it from other asset categories. The supply of buildings and other assets can be increased until demand is satiated or the price falls to a level where the marginal cost of supplying more such assets becomes uneconomic. Not so with land with residential or commercial planning consent. Here the supply is fixed or greatly restricted. As demand increases the price rises. Supply cannot be increased to bring prices back to an equilibrium.

    I don’t know what Minsky or Keen’s views are on LVT but there is a long list of economists and commentators from Adam Smith, Ricardo, Mill, Friedman and Samuelson to Martin Wolf and Vince Cable today that have proposed LVT for its features as the least economically harmful tax and potential stabilising impact.

  • Peter Martin 15th Jul '17 - 7:03am

    @ Joe,

    The inelasticity of supply is the feature of land that distinguishes it from other asset categories. The supply of buildings and other assets can be increased …..

    So let’s say we took land out of the picture by Nationalising it all. We’d pay a ground rent to the Govt for the use of the land but we’d still own our houses, farms, and factories etc exactly as we do at the moment. Would this mean we’d removed the “driver of instability in the economy” ?

    If nothing else changed then no it wouldn’t. If Governments were able to reduce interest rates and ease lending regulations they could still create a stimulus in the economy. People generally borrow because they want to spend and it is the increased spending which adds to aggregate demand. Building property would still increase in value just as it has done in recent years. There would still be a bubble. The lent money would be spent and respent on just about everything possibly imaginable. Until it gets destroyed in the taxation system.

    However, the debts remains for the borrowers. These debts create a drag on the economy causing it to need another boost. The Govt then repeats the process and encourages us all to borrow even more to make up for us having borrowed too much previously. Steve Keen describes this as a process of acceleration. In other words monetary policy can only work providing there is an acceleration in the rate of creation of new credit.

    This obviously can’t last for ever. Sooner or later we get what Steve describes as a Minsky moment in the economy when general panic sets in and we have a crash.

  • Peter,

    mortgage lending is by far the largest element of household debt in the UK. Most goods and services do not increase in price the way land does, The Halifax House Price Index in May 2017 was 723.5 (Jan 1983 = 100). The retail price index was at 272 (Jan 1987 = 100).

    The driver of instability according to Minsky’s financial instability hypothesis is excessive lending by financial institutions principally to the property market both residential and commercial.

    Take out the hyper-inflation from land prices and borrowing is refocused on investment on capital goods (factories and farms) and consumption goods. Buildings depreciate and need ongoing maintenance just as motor vehicles and other equipment does. It is not the value of buildings that drives inflation in house price and associated mortgages, it is the land value as a consequence of the inelasticity of supply of land.

    The article referencing Minsky/Keen above points out that every recession/depression examined in 14 countries over the past 138 years has been preceded by run-up in private sector debt associated with a real estate bubble.

    Temper the hyper-inflation of land prices with LVT and you have a significant lever available to government to aid in maintaining stability in the housing and mortgage lending market.

  • Peter Martin 16th Jul '17 - 8:03pm

    @Joe

    “The obsession with the single LVT as a saviour is in denial of the causes of recessions and the the role that financial capital plays in destabilising economic systems. A LVT alone will do little to resolve those problems. ”

    http://bilbo.economicoutlook.net/blog/?p=30219

  • Peter,

    For the principal causes of recessions see this paper http://www.foldvary.net/works/rebc.html
    that examines the theory first proposed by Henry George (1879) that real estate variables, especially land speculation, have a significant causal effect on business cycles. The results of the study are that the proposition that real estate plays a significant role in business cycles is consistent with modern economic analysis…

    Real estate is a major component of the economy, and has historically been subject to large and widespread fluctuations. A rapid rise in real estate prices and rents based on future rather than current benefits (induced by public goods not offset by the public collection of rent) is bound to affect business profitability; the question of its extent is an empirical matter. Historical data from the U.S., Great Britain, Germany, and other countries have shown that real estate booms have preceded major depressions. The construction industry plays a major role in creating the boom and subsequent bust, and monetary, regulatory, and public-works accommodation by government have induced and accommodated the speculative booms. The theory that the major real estate cycles, accommodated by monetary inflation, have significantly contributed to the major depressions is consistent with the historical record.
    Whereas the smaller and more frequent business cycles may be due to random shocks or non-real-estate causes, the larger real estate cycles have exhibited similar patterns and, historically, have occurred in regular intervals.

  • Peter Martin 17th Jul '17 - 11:05am

    @ Joe,

    I’m not suggesting that we don’t study Economists like Henry George, Karl Marx, Adam Smith, Jean Baptiste Say or anyone else you like but we have to remember that the economies they all studied in the 19th Century and early part of the 20th century were quite different from what we have now. Then currencies were tied to gold. Now they are just freely floating IOUs of government tied to nothing at all. Credit money can be freely created by commercial banks. There’s no such thing as the “multiplier” any longer. Even the writings of Keynes have to be understood in the context that he too was writing about economies in a regime of fixed exchange rates.

    So, you really need to get yourself up to date. By all means argue for a LVT but you need to understand how it’s going to work in a 21st century economy. So maybe a bit less of Henry George and slightly more of Steve Keen and Bill Mitchell?

  • Joseph Bourke 17th Jul '17 - 2:14pm

    Peter,

    all current knowledge is based on what has gone before and as Keynes said quoting Isaac Newton – “If I have seen further, it is by standing on the shoulders of giants”

    Robert Skidelsky, the author of Keynes: The Return of the Master (2009), argued that capitalism has at its heart an instability of financial institutions and, “This insight by Keynes into the causes and consequences of financial crises remains supremely valuable.”

    Keen and Mitchell have made intelligent contributions to the debate but they are building on the seminal work of Keynes and others like Lerner and Minsky who studied and developed Keynes theories

    Foldvary in the paper linked above has developed the work of George as it relates to economic cycle theory and real estate cycles.

    By the way, Henry George was actually a greenbacker who opposed the gold standard like his contemporary Abraham Lincoln (there was no federal reserve bank in day).

    Zarlemga in the introduction to his paper on Geoege’s concept of money http://www.monetary.org/henry-georges-concept-of-money-ful/2010/12 writes:

    “Attesting to the importance of Henry George’s life and work are his 5 million books in print; the active Henry George organizations and schools around the globe with thousands of supporters and uncountable others who still respond to his name with “Oh yes – the single tax”. A man considered important enough to require the attention of one of the political establishment’s most potent operators to derail his 1886 campaign for Mayor of New York City. George was influential enough to merit that POPE LEO XIII direct a section of a Papal encyclical at his work in 1891.

    This kind of effect, I’d suggest, was not generated by the economic theorizing or theoretical observations of any individual or school, but has resulted from what was really a great moral crusade for economic justice.
    To George, the land question was the key means to that end, and his name is rightfully associated with land tax reform – with the “single tax”, described below. But although that was his main focus, there was a lot more to George than that. As Ken Wenzer pointed out “An important element of Georgism was reform of the banking and monetary system” That’s the main focus of this paper.”

  • J George SMID 26th Jul '17 - 3:05pm

    Whenever we discuss if we can or cannot tax land (or indeed assets generally), if LVT would or would not work, we must bear in mind that historically that is how taxes had been collected: as a share of wealth and ownership of the means of production (land, slaves, animals). And it did work since ancient Babylonians and Egyptians.

    In the UK the ‘income tax’ was introduced in 1799 to pay for the wars. The tax was then abolished in 1802, re-introduced by 1803 and abolished again in 1816 – in both cases as an exceptional measure to pay for the various wars. Only in 1842 the income tax was introduced to pay for ‘budget deficit’ – and has stayed with us since.

    We know the tax on assets was used for millennia, the income tax for centuries. We shouldn’t worry about introduction of something ‘new’ which has been around so long.

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