George Monbiot has published an article this week on a report he has co-authored Want to tackle inequality? Then first change our land ownership laws
His opens with a question “ What is the most neglected issue in British politics? I would say land. Literally and metaphorically, land underlies our lives, but its ownership and control have been captured by a tiny number of people. The results include soaring inequality and exclusion; the massive cost of renting or buying a decent home; the collapse of wildlife and ecosystems; repeated financial crises; and the loss of public space. Yet for 70 years this crucial issue has scarcely featured in political discussions.”
He recounts “Since 1995, land values in this country have risen by 412%. Land now accounts for an astonishing 51% of the UK’s net worth. Why? In large part because successive governments have used tax exemptions and other advantages to turn the ground beneath our feet into a speculative money machine.”
“We pay for these distortions every day. Homes have become so expensive not because the price of bricks and mortar has risen, but because the land that underlies them now accounts for 70% of their price. Twenty years ago, the average working family needed to save for three years to afford a deposit. Today, it must save for 19 years. Life is even worse for renters. [Rents swallow 36% of the average household incomes for tenants]”
Monbiot writes “A Labour government should replace council tax with a progressive property tax, payable by owners, not tenants. Empty homes should automatically be taxed at a higher rate. Inheritance tax should be replaced with a lifetime gifts tax levied on the recipient. Capital gains tax on second homes and investment properties should match or exceed the rates of income tax. Business rates should be replaced with a land value tax, based on rental value.”
This is virtually word for word Lib Dem policy!
Replacing council tax with a progressive property tax is longstanding Lib Dem Policy. Last Autumn Lib Dems passed two substantial motions covering taxation of wealth and capital, and the replacement of business rates with a land value-based levy. Policies in the motion ‘Promoting a Fairer Distribution of Wealth’, Include turning inheritance tax into a progressive large gifts tax, taxing capital gains and dividends through the income tax system, abolishing capital gains forgiveness at death and introducing a flat rate of relief on pension contributions.
Work is currently underway on reforms that would allow public bodies to acquire land at its current use value and not at a speculative ‘hope’ value. Additionally, substantive progress is being made on putting numbers to the council tax reforms.
Monbiot is reminding us of something that Liberal Democrats have long known. Lloyd George, as Chancellor of the Exchequer in 1912 put it thus: “Search out every problem, look into these questions thoroughly, and the more thoroughly you look into them you will find that the land is at the root of most of them. Housing, wages, food, health…”
* Joe is a Vice-Chair of Hounslow Liberal Democrats, Chair of ALTER and PPC for Brentford and Isleworth
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27 Comments
“Replacing council tax with a progressive property tax” – be interesting to know what this means in practice, my idea would be to link it to household income and get the inland revenue to collect it as part of the annual tax return, so that people on say 12k a year would pay a token amount, 25k a similar amount to now and 50k would maybe double it, etc. Also worth going after people who use ltd co’s and trusts to avoid IHT.
@joe. I bow to your expertise. I would, however, wish to see some sort of penalty element or super tax on property landbanks being held speculatively, especially by builders. This would help drive up housebuilding, especially if combined with investment incentives for prefab home manufacturers, which I believe would help us cope with the skills shortages. Though hopefully there will soon be enough unemployed ex Tory MPs to be retrained to do something useful for once.
During Paddy Ashdown’s leadership Guardian economist Chris Huhne said that he wanted to rescue this policy from its most enthusiastic proponents. He got a sympathetic hearing at the Gladstone Club. Other proponents included a “single taxer” (no kid) which implies abolishing the income tax, VAT, etc.
Land was defined very broadly, including the upper floors of buildings, oil rigs, etc.
Very tall buildings need electricity, water, etc.
Other criteria apply, as in Hong Kong until 1997.
“Buy land they are not making it any more” is an obsolete strategy because railways have reached west coast USA.
I hope Joe Bourke sticks to party policy. I used to live in Hounslow, later in Isleworth. There was not then much land available for development. Vested interests tend to make illogical statements, in the UK in the 1960s, even today in USA.
William,
your idea was actually in effect in the UK up to the 1960s when the old schedule A tax assessments on imputed rent from owner-occupied dwellings was abolished. As you suggest, it may well be worth revisiting.
Martin – the keyword you have there is ‘speculative’ land banking. Volume housebuilders do need to maintain a certain level of land stock but it has to be developed within a reasonable timeframe.
Richard,
if you lived in Isleworth you are likely familiar with the old convent at Isleworth Riverside where many of the buildings fell into disrepair over the years. The site was reportedly sold for its existing use value of £5 million in 2013. This is what it looks like today after planning consent for housing development was obtained https://www.homesandproperty.co.uk/luxury/property/former-convent-in-isleworth-transformed-into-60-houses-with-thames-path-access-a123776.html The townhomes in this gated community start from £1.4 million, but the cars have to drive through old Isleworth to join the main Twickenham Road, one of the most congested and polluted roadways in the country. The local authority were unable to acquire the site for a more sensible local use or for social housing.
Recently, a site in south London with an existing use value of £5m was put on the market at £25m on the assumption that it could be developed for housing, and later withdrawn from the market on the expectation that the value would rise even further – setting back the delivery of any housing at all on that site by years, and making it almost impossible to deliver affordable housing even at the current broken definition of 80% of market prices. Were Southwark council able to acquire sites like these at existing use value we would be well on our way to addressing the kind of issues George Monbiot raises in his article.
What annoys me is the huge increase in land value just because it is given planning permission by the local council. So why shouldn’t most of this increase in value GO to the local council? First assess the value of the land without planning permission; then give the landowner, say, 10% of the increase in value and the council gets the rest. It can either build on the land itself, or let would-be houseowners build their own (e.g. Grand Design The Street), or sell to charitable housing associations etc. If developers want the land, they can pay the full value to the council and then the council can put that money into local services like social care.
Alison,
you are absolutely right in focusing on the huge increase in land value just because it is given planning permission by the local council. I am with you on putting that money into local services like social care.
Richard,
some news from your old stomping ground in Hounslow http://www.brentfordtw8.com/default.asp?section=info&page=ldrspollution001.htm
I live just 3 doors from Boston Manor Park. Overbuilding and traffic pollution is literally killing us. The entire riverfront alongside Brentford High Street is to be redeveloped with most of the local shops, craft and engineering workshops and old boatyards making way for high rise luxury developments.
There are 82,310 homeless families with 123,630 children in temporary accommodation in England, of which 56,560 families or 69% are in London.
Temporary accommodation can only get worse because incomes are too low, against which housing benefit is cut, rents are too high, council housing is being demolished, evictions are inevitable and there is a scandalous and growing lack of truly affordable housing in London.
Power is abused when land is taken from small companies and from where ever affordable land is needed for work by enterprising individuals.
Land is also torn from under the homes of council tenants and from leaseholders & freeholders by compulsory purchase orders in what is called estate regeneration.
We have allowed the value of land to exceed the capacity of low to middle incomes to afford a home and of small businesses to pay the rent and exacerbated the problem with fiscal and monetary stimulus policies designed to keep land values rising.
An answer must be to utilize the billions generated from the grant of planning consents every year and the borrowing capacity of the government to solve the housing crisis in the same way government solved the 2007/2008 banking crisis, which carries so much of the blame for the current oppression of renters in London.
The value of land is a measurement of its wealth/welfare creating potential. As it is supplied for free, those excluded from its use suffer a loss of opportunity that if not compensated bakes in excessive inequalities.
Therefore the selling price of land is a measurement of it’s value and injustice.
A 100% tax on its rental value gives everyone an equal share in its scarcity value, thereby reducing income and wealth inequality, in doing so dropping its selling price to zero.
We are a long way from doing such a thing, and there is plenty of low hanging fruit before we enact a 100% tax on land rents, 100% of the time i.e the ideal.
Council Tax can easily be reformulated to tax the underlying site values. From there it is a case of gradually increasing revenues from that source while decreasing others.
For example.
http://localtaxcommission.scot/wp-content/uploads/Submission-from-Mark-Wadsworth.pdf
Monbiot is well meaning but doesn’t really have a good grasp of the subject, hence his proposals are half-baked.
Benjamin,
“enact a 100% tax on land rents, 100% of the time”
I think you are right. Sooner or later, the state will own all the nation’s land anyway, under LVT. Owning land will become a burden, not a benefit. If the landowner can’t pay the tax ownership will default to the creditor (the state). The state can try and sell it but who would want an open ended liability which could rise far beyond the landowners ability to meet at the stroke of some assessors pencil?
And why not make all taxes (income, capital gains etc ) 100%?
The state can then use UBI to give people enough to live on after they have contributed all their income to the state.
” Also worth going after people who use ltd co’s and trusts to avoid IHT. ”
The trouble with IHT is that it’s levied on assets at death. It would be far more sensible to treat gifts (over a certain threshold, say £500 pa) and inheritances as income, and tax them like that. As inheritances are very lumpy, it might be necessary to spread the liability over several years. Also, it should be possible for inheritances to be redirected. (will variation)
@Innocent Bystander
LVT, rent and its capitalisation into selling prices are economically the same. Only difference is who collects. Under LVT, conceptually we are all equal share landlords. That the state collects our rent on our behalf is a separate issue. It certainly does have to own it to do so. Just as a letting agent doesn’t have to own land on behalf of landlords.
The reason land’s rental value should be collected and redistributed is as stated in my original comment, landowners harm those they exclude. Thus paying LVT as compensation for the loss of opportunity imposed upon others is no different in principle than paying wages or for goods/services received.
We pay each other what we owe on the “harm done” principle because it is not only fair, but ensures resources are best allocated.
This is why LVT not only has zero deadweight costs, but actually corrects existing market distortions.
This is very different from income, capital and transaction taxes which are arbitrary, unfair and distort incentives to supply goods/services i.e they shrink economic output.
So taxing those at 100% would be economically ruinous, whereas taxing land as close to 100% of its rental values is best for society and its economy.
And yes, a UBI is a very good idea, so long as like all state spending, it is paid out of revenues that doing penalise activities society deems beneficial i.e work, effort, enterprise.
@Innocent Bystander
Apologies for the typos (phone auto correct). Should read
“That the state collects our rent on our behalf is a separate issue. It certainly DOESN’T have to own it to do so.”
“And yes, a UBI is a very good idea, so long as like all state spending, it is paid out of revenues that DON’T penalise activities society deems beneficial i.e work, effort, enterprise.”
Benjamin,
But of course the state will steadily and remorselessly take ownership of all the land. No one else can own it. It has no value to anyone else. It generates no income. No one will buy it because it will incur maintenance costs. It happens now. Check out the Flint, Michigan govt site to find out how the state forecloses on land to collect ‘delinquent taxes’.
I am afraid your comparison with letting agents does not work. They simply act on the owners behalf and if the rent isn’t paid the true owner evicts the tenant and reclaims the property. Here the state is collecting ‘100%’ and if that isn’t (or can’t) be paid they take possession. They have to – who else would find any value in it?
Would you invest your money in land with a guaranteed 0% return plus costs of maintenance?
Taxing income at 100% might well be economically ruinous but that doesn’t mean it won’t be tried. There is a lot of Bolshevism hereabouts. The policies proposed all over this blog will have the effect of extinguishing the last sparks of enterprise, initiative, self-improvement and the incentive to save and accumulate a nest egg.
If you don’t believe me look out of the window. Britain has lost its mojo and ambition and ‘progressive taxation’ won’t bring it back.
Joseph Bourke 6th Jun ’19 – 5:42pm Sorry, I did not see this site.
I recall that Harold Wilson’s Labour government had a tax on property development.
The developers went on strike, the tax yield was low and the tax was abolished.
1920s industrial buildings on the north side of the A4 had style and were being considered for some form of listing. There was an unexplained fire at one of them on a bank holiday weekend. Demolition contractors moved in promptly.
Innocent Bystander
The land is already technically owned by the state This is why you can’t just declare independence for your front garden. Effectively, it’s all leased. Plus It’s not like you can take it with you when you move house
Glen,
The authority a state exerts over its territory is not the same as registered beneficial ownership.
@Innocent Bystander
What is the difference as far as land use is concerned if land is
a) owned by lots of people who rent it out to each other i.e no owner occupiers
b) one person owns all the land and rents it out
c) we all own the land as equal shares, and an entity like the state or a private letting agent collects the rent for us
d) no one ones land, but the state legislates that those that want exclusive use must compensate those they exclude. Said compensation collected/re-distributed by the state or private entity
e) the state owns all the land (as Hong Kong under the British) and rents it out as revenues
Answer. None whatsoever. Land in all cases will be best allocated by the market to those willing/able to put it to its best use.
I’m a landlord my self. I charge rent as close to 100% of market value as possible. Some times my tenants cannot afford the rent and move out. I either find another tenant at the same or a higher price. If not I lower my price until I find one.
That is no different to what would happen in a) to e)
I’m sure you must know this as its just commonsense and easily observable in the real world.
Innocent Bystander
Actually it’s technically all owned by the crown. which is why we’re subjects not citizens. Also families have “owned” great chunks of the land since they grabbed it by force during the Norman conquests. In what way is the continued inheritance of such land enterprising? Is invasion and subjugation a legitimate basis for ownership? Why, for example, do native Americans and Australian Aborigines not privately own America and Australia. In short who defines what “ownership” is?
Innocent bystander,
I expect all of us have played the game of Monopoly at some time. This economist briefing https://www.economist.com/briefing/2018/08/09/the-time-may-be-right-for-land-value-taxes writes:
“The Landlord’s Game”, a precursor to “Monopoly” [was] a game designed to show how property markets naturally tend towards monopolies in which one player can extract all the rent. But an added feature, missing from subsequent versions, was a tax on the value of land—ie, a levy that, unlike a property tax, does not vary with the number of houses or hotels built on it. The tax made it impossible for any one player to win but instead made them rich in tandem, as the proceeds of the tax were distributed between them.”
We are goig to have to grapple with the real world problems of car manufaruring leaving these shores; the British steel industry on the brink of collapse; and high street retail chains being forced into adinistration largely as a consequece of onerous and infexible lease agreements on their stores. A disorderly Brexit will bring many more serious problems of this nature.
We will no longer to be able to carry rent-seeking free loaders if the economy is to revive and regain the International cmpetiveness that underpins living standards.
The country’s income is what we produce. Selling houses to each other on the back of higher and higher levels of mortgage debt and ever higher rents produces nothing and just sets us up for the next more damaging financial crash.
Benjamin,
But you proposed a tax at 100% of the rental income so it is just the last three which are all the same. “All of us”, “No-one” and “the State” are identical. The state owns all the land and tries to rent it out. If you don’t point that out to the voting public, it’s all right because I will.
If all your rental income is taken in tax then what would remain as your incentive to be a “landlord”?
Glenn,
Quite right but you didn’t mention the Vikings (or the Eskimos).
Joe,
I always appreciate your intelligent and thought through replies. I also recognise your noble endeavours in moving us from property speculators to dynamic international competitors.
But LVT is just a panacea, a magic bullet and it won’t achieve that. There are nations out there who are thriving with systems similar to our current one and others doing well with yours. Equally some who are failing under either regimes. Of itself, LVT will not inspire the revival we need. It can only be a source of confusion until it settles down or, as Benjamin says, the state takes all the income anyway and owners just surrender their land as having zero value.
The problems, and answers lie elsewhere but they are never debated. Easy solutions are always the ones proposed.
Innocent Bystander
In other words no answer.
Joe,
“The country’s income is what we produce. Selling houses to each other on the back of higher and higher levels of mortgage debt and ever higher rents produces nothing and just sets us up for the next more damaging financial crash.”
BTW that is exactly correct and there is much that our economists could contribute to if we could only shake them from their hobby horse theories, which they ad nauseam peddle (please, no disrespect intended) and launch a wide ranging review of why we have lost our national energy and entrepreneurial spirit.
Innocent Bystander
If you think ““All of us”, “No-one” and “the State” are identical, then you are not in touch with reality.
Furthermore I said 100% of land’s rental value. So as a landlord my incentives to rent out capital i.e brick and mortar are the same as anyone else who does the same.
The issue boils down to the fact we currently have one group in society that is privileged to harm another without paying them compensation. The capitalised value of that privilege being £4.5trn. That has a huge detrimental effect on just about everything.
You are defending that injustice, I assume because you just haven’t really thought things through.
BBC Countryfile has just been running an item about land ownership and tax issues.
Benjamin,
Thank you but Land Value Taxers choose to overlook its intrinsic consequences. However, the rest of us won’t, nor will we be prevented from pointing those out, certainly not by a few dismissive insults.
Whether the consequences are flaws or not depends upon where you lie on the socialist, capitalist spectrum.
LVT is assessed by some state functionary and will be collected regardless of whether the landowner can pay it from their activities (or income from other sources if they only reside there).
Rent out your bricks and mortar, separately, as you wish, but the day may come, perhaps, when you can not find a tenant. The tax (at 100%) will still be levied regardless and your creditor will eventually foreclose and you will forfeit your land (and your bricks and mortar), to the state, to cover your debt.
I accept that, eventually, all will settle down but only after many small and marginal businesses have been closed down and many individuals have been bankrupted.
LVT is actually going to be brutal in its operation, and will lead to endless opportunities for malpractice by both unscrupulous individuals and the state.
I admire your desire to reduce unfairness but LVT will leave many victims in its wake.
Innocent Bystander,
the comparatively high cost of housing and business premises in the UK is an important contibutory to lower productivity growth which is a key aspect of international competitiveness.
A century ago John Maynard Keynes opined that the cumulative effect of productivity growth would be such that in the 21st century that only a madman would want to spend more tha 15 hours a week working, as that length of time would be more than enough to provide for all the goods and services we could possibly need.
Similarly, the Liberal economist William Beveridge social security system allowed for benefits to be paid to people who were sick, unemployed, retired or widowed that would provide a minimum standard of living “below which no one should be allowed to fall”. He argued that welfare institutions(that included the NHS) would increase the competitiveness of British industry in the post-war period, not only by shifting labour costs like healthcare and pensions out of corporate ledgers and onto the public account but also by producing healthier, wealthier and thus more motivated and productive workers who would also serve as a great source of demand for British goods.
Beveridge saw full employment as the pivot of the social welfare programme and that coupled with the contributory social security system (“something for something”) would allow the hated means test for welfare benefits to die away.
Keynes was writing in an age before the Town and County Planning Act of 1947 and assumed that the wider distribution of home ownership, market forces and the laws of supply and demand would take care of the problem of land rents. Beveridge called it the “problem of rent” and he fudged it with a temporary and unsatisfatory solution. However, as Paul Johnson writes https://www.ifs.org.uk/publications/9989 “Far from being solved, the problem of rent has become even greater”
The most dynamic economies in the world make extensive use of land and property taxatiion – USA, Canada, Australia, Hong Kong, Singapore, Taiwan etc. So too some of the most egalitarian – Denmak, Sweden etc.
Council tax can be made more progessive along the lines of the JRF proposal https://www.jrf.org.uk/report/after-council-tax-impacts-property-tax-reform-people-places-and-house-prices. On a revenue neutral basis this would be an annual assessment of 1% to 1.25% on the market value (or capitalised rental value) of land.