Our last Manifesto included a commitment to “reform business rates, creating a fairer system where rates are based on site values rather than rental values. “Site Value Rating” (SVR – a purely local tax) had been party policy for decades but until 2010 never made it to a manifesto. The Party had never embraced a Land Value Tax (LVT) as a key part of our national economic policy.
Since the debt-fuelled property boom led to the present global financial crisis there have been statements in support of LVT from leading figures in all the other parties. Tory Planning Minister Nick Boles wants to replace employers NI contributions with LVT; Andrew Burnham, a contender for the Labour leadership, is a strong supporter; and Green MP Caroline Lucas promoted a Private Members Bill to prepare the way for LVT.
So you might think that the Lib Dem leadership would be more relaxed about promoting the policy than ever before, especially with Vince Cable being a long-time supporter. However during the course of the Tax Policy Working Group (TPWG), of which I’ve been a member, relaxed they (or rather their close advisers) were not!
After many months of work on our paper, we were joined by two of Nick Clegg’s Policy Advisers. Their advice was that both LVT and Local Income Tax (LIT is still the current ‘official’ policy for replacing council tax) were “too toxic” with the public (or rather the tabloid press) to get a mention in our policy paper. Until then it had seemed there was a majority of the TPWG who would stick out for a gradual shift towards LVT, including residential property. But from then on the local tax section of the paper was doomed and the LVT section engulfed in the fog of a mere “full-scale review early in the next parliament to look at how it might best be implemented”.
The leadership’s thinking – with which I agree – is that we need to have enough in the policy paper and manifesto to negotiate firmly towards an implementation plan for LVT with either of the other two main parties but without “frightening the horses”. Where ALTER and some others depart from the leadership it seems is over what will frighten the horses!
Sometime there will have to be a revaluation of Council Tax. It is easier and cheaper to do that on land values than on the built-up value. If we started on existing Band H properties (the Mansion Tax band) and worked down it would soon become obvious that the wealthy were paying more and that most of the rest were paying less. So nothing to frighten the horses there.
As for business rates, Conference has already adopted a policy of offering an option for local authorities to adopt SVR on a revenue neutral basis as part of our latest Housing policy. The thinking was that this would force landowners sitting on land with existing planning consent to get on and build the houses. It would equally, of course, free up land for business and encourage economic growth especially in areas such as the North West. The benefits of this would soon be obvious.
Once SVR was seen to be fair and efficient it would be politically possible to extend it to a national tax.
Instead we go into this autumn’s Conference with a Mansion Tax as one of our ‘flagship’ policies. This is a policy redolent of the politics of envy (Labour are welcome to it) and puny in its revenue yield, totally incapable of being considered a component of Growth Strategy and only remotely related to LVT. But the polls appear to show it to be a vote-winner, so it must be OK!
Boles, Burnham and Lucas are right and Clegg’s advisers are wrong. We don’t need a Mansion Tax. We need to start implementing a Land Value Tax.. By all means commission a study in preparation for that but nobody ever won an election by promising a study! We must commit to beginning to implement LVT in the next parliament.
* Cllr Dr Tony Vickers is Vice Chair of ALTER and has been West Berks Council Lib Dem Spokesperson on Planning & Housing for most of the last 20 years. He is also co-author of several research papers for Government on aspects of planning policy.
27 Comments
Which advisors I wonder ? Polls show people support a mansion tax in much the same way they show support for any idea that people haven’t really thought about. Far from being toxic LVT should be easy to sell – it’s about raising the same amount of money but from more land and in a way that is related to the value of the land, not the hypothetical rental value of a house in 1991. That means lower bills for most people .
I suspect the advisors are guilty of burying their heads in the sand or toeing the Government that this would be another nightmare for HMRC to adminster (not that I’m assuming HMRC should necessarily be the competent authority to collect it or inspect properties). Its not like i can think of any that have any actual expertise in local government finance, please correct me if i’m wrong.
The three year failure to explain and then at least attempt to implement such a far reaching reform, that is as far as I can see the only viable solution to the generational equity gap is a disasterous omission. We keep being promoised that extraordinary economic situations demand innovative emergency treatment. LVT may not be *that* innovative (we’ve known how much good it could do since Lloyd-George so clearly explained that we can do what we like to try and make housing available but will never succeed until we tackle the issue of land values) but it is necessary, now. Politicians are increasingly irrelevant when they cannot and will not do what is necessary to secure future wellbeing. At the moment, politicians of all parties bar a very few individuals are working to increase the generational gap not reduce it. They are working against the interests of the people who elected them. Oh, and I agree on Mansion Tax – it is has always been a (very) poor relation and not a good introduction to LVT. How a president of ALTER could have thought up such a thing is beyond me!
The big flaw in Business Rates, LVT, SVT et al. is that they take no account of the nature of the business that occupy the site.
The old system of business rates which set town centre/high street rate high in comparison to the surrounding area, contributed to the establishment of large out-of-town shopping centres and business parks. Now with on-line trading we are seeing the rise in mail order, where the ship front/catalogue is effectively in the customer’s living room and the ‘store’ is a warehouse somewhere with low business rates and readily accessible next day package delivery services (typically Royal Mail).
There seems to be too great an emphasis on the one off ‘windfall’ arising from forcing “landowners sitting on land with existing planning consent to get on and build the houses.”. I’ve seen no worked through scenario which indicates how builders may behave once SVR/LVT become the regime under which they operate; I suspect that these measures will increase the cost of new development and reduce the amount of new development…
Business Rates should be replaced by an LVT. We currently have a system that taxes investment and subsidies inefficent land use. LVT would reverse that, punish inefficient land use and give a tax cut to efficient businesses.
How disappointing that not only are they opposing LVT, they are also opposing LIT as well. So what is their preference? Keep things as they are?
So when it comes to benefit cuts they are OK with implementing radical policies that takes income away from the poorest people, whilst when it comes to taxation policy that takes into account the ability to pay, then all of a sudden they are no longer radical.
I suspect that the “advisers” have been poisoned by spending too much time talking to Whitehall mandarins who are opposed to any serious change of anything, and always have lots of Oxbridge-styled arguments about why everything will be impossible.
Ronald makes a fair point about a “worked through scenario” being needed. Unfortunately it is almost invariably too difficult to pick up the “signal” of any LVT effect from the “noise” of all the other things going on in a country that endeavours to change its property tax. However the one peer-reviewed piece of research I always quote is from Pennsylvania, where about 20 out of over 200 cities / municipalities that have been allowed (since about 1975) to shift their property tax off buildings onto site values have seen a 16% increase in volume of construction activity ‘cetus paribus’ for every 1% shift in tax achieved.
It is what you would expect: if you make under-use of a piece of land carry a charge, owners have to do something to derive an income from which to pay the charge. It is what we need right now – in most of the developed world. Every country has unique circumstances which make it difficult to export a ‘pre-packed’ policy solution.
It so happens that this very week sees the International Union for Land Value Taxation http://www.theIU.org hold its conference in London. Very reasonable rates. Come and here me on Friday morning.
I don’t agree with a Land Value Tax, but I am very interested in a net-wealth tax. Part of me thinks that the “liberal” Land Value Tax campaign needs to continue the spirit of innovation in the party and tackle the problem of digital wealth hoarding, which is only going to get worse with globalisation.
The point is Eddie that the major class of asset whose “value” is essentially unearned by the owner is land/location. Yes, people have used that unearned wealth to buy up more wealth of different types, so to that extent, where land values have enabled gearing up to buy other assets, those assets are also “unearned”. But if a land tax took out the unearned land values, the ability to use that to accumulate even more would be removed. LVT is the original (long before Milliband even heard the word) “predistributive” tax system.
I am getting sick and tired of adviser some of whom appear to be just out of nappies telling people who have far more experience how to do things.
We have hear a policy that will move things on at a pace it will get developers building on brown field sites because the
tax will not let them land bank with planning permission till they can see a greater profit.
It is about time that we started to get this party back from faceless kids who often have not done a days work in their lives to the members like Tony who has done twice the time that i have and others so that we can get policies back on the agenda that we can campaign and be proud of. If the Daily Mail does not like LVT so what , and of my comments upset some special adviser tough
Tony – you seem to have a different recollection to mine. As I recall the advisers were keen for us to have something on LVT in the paper so that we could use it as a negotiating stance in any future coalition discussions. Whereas it was FPC – and notably one Lord Greaves – that got the Local Taxation section, together with the longstanding commitment to converting business rates to SVR, dropped from the paper.
I’m not happy with that either – but I think you’re shooting at the wrong target on this occasion.
Jock I don’t see how the proceeds from land rent are unearned, unless it is inherited or gifted. If you buy land you deserve the income because of the opportunity cost of capital.
Dominic, I disagree with you and Tony.
At one stage, advisors wanted LVT in the paper precisely for the reasons Dominic states. However, then the tone seemed to change. By FPC it was not just Tony Greaves but advisors and those close to them who were critical of LVT – and/or the local tax section. One wonders whether Treasury orthodoxy was brought to bear.
Disappointed that the land value tax has not made policy yet but I believe the time will come. The problems that caused the credit crunch have not gone away eg reliance on massive debts to fuel housing bubbles, reliance on increasingly scarce oil. The government are offering subsidies to buy houses and fossil fuel development) I confidently predict that in a few years, we will get a repeat credit crunch and next time the governments will not have the resources to rescue the financial system again.
Credit crunch deniers (people who think the economic crisis was just a blip and our present model of financial capitalism is fine really) appear to have the upper hand in the political elite and media and this has even “infected” the Lib Dems. Because of this inertia, I expect many of us are going to learn the hard way though economic crises which will dwarf 2008.
The land value tax is not a panacea, but it could form part of the solution to our present economic woes. The present policy of targeting expenditure such as welfare is mad and doomed to failure in my view. When you have a big bill to pay you don’t look to your small change to pay it.
I will continue to campaign inside and outside the Lib dems for such a policy. However, a warning to those conservative Lib Dems. We may find that by resisting change and radical policy, we may hand over the initiative to new and upcoming political forces who will push the Lib Dems and all the other failed politicians and media types out the way.
I am disappointed that policy papers are not decided on the merits of the case but on what is or might be popular.
If a majority of the Tax Policy Working Group supported a gradual shift towards LVT including on residential property then it should be in the policy paper and not be removed. No matter if it was removed because according to Tony Vickers of the advice of two of Nick Clegg’s Policy Advisers that it is ‘too toxic’ with the pubic or because according to Gareth Epps (and Dominic to some extent) because the Federal Policy Committee removed it after following the advice of “advisers and those close to them”.
Its difficult to see how LVT could be “too toxic” with the public when a revenue neutral replacement would result in the bottom 4 Council band (75% of homes) paying no more or less than the currents system. Could be that LVT is just “too toxic” for Nick Clegg’s Policy Advisers , rather than the public.
Nick Clegg is relying on too much on Social Liberal policies, rather than true liberal economic policies, ultimately thats not going to work with the public. The economies poor recovery may not affect Policy Advisers very much, but its the only thing most of the public care about. The world changed after the credit crunch, but many Policy Advisers are still thinking in terms of business as usual (small C) conservative economic policies. They are in denial and the Help to Buy scheme is just the latest manifestation of the fact.
William Davison wrote – Its difficult to see how LVT could be “too toxic” with the public when a revenue neutral replacement would result in the bottom 4 Council band (75% of homes) paying no more or less than the currents system
But what is the evidence for this assertion, does this include every council tax set in every part of the country. It is certainly at odds with an earlier comment from Ronald who said – I’ve seen no worked through scenario which indicates how builders may behave once SVR/LVT become the regime under which they operate; and Tony Vickers who responded by saying – Ronald makes a fair point about a “worked through scenario” being needed. Unfortunately it is almost invariably too difficult to pick up the “signal” of any LVT effect from the “noise” of all the other things going on
It is nigh impossible to build an argument without knowing the scenarios and allows the policy to be ripped to pieces by its enemies.
Even Caroline Lucas’ Bill was only looking to “commission a programme of research into the merits of replacing the Council Tax and Non-domestic rates in England with an annual levy on the unimproved value of all land”
The Federation of Small Businesses are saying “Another unfairness from which small shops suffer is the way business rates are calculated. A small shop pays considerably more, pro rata to their floor area, than a large superstore does” this issue needs to be addressed with a clear policy response
We need a clear policy on council tax when the top band is only paying twice the bottom band it clearly not right, a better response than the gimmicky mansion tax would be to advocate additional upper bands with progressive multipliers and clear bandings that in theory could continue to rise indefinitely to meet the highest valued house in the land.
I trust ALTER will be sponsoring an amendment, when the time comes.
Gareth – I think what you say may be fair about the local taxation section but not about LVT specifically. From what I could see it was Greaves and the FPC (who certainly weren’t lead by advisers – if anything the reverse, if you recall!) who knocked out our commitment to SVR to replace business rates. Now we haven’t even got that, so we’re actually less far advanced in terms of the non-residential commitments than we were in our last manifesto (& the one before).
On the other hand, what’s in the final paper includes a firmer commitment at least to trialing LVT that we had before – which is in line with what “the advisers” wanted and is at least an improvement on our last manifesto (though still not as far as I would have liked).
Why do politicians fear LVT? Their no.1 priority is to get re-elected.
To paraphrase Norman Lamont, “there is with out doubt an economic rationale for taxing property. In my view this would be political suicide”
.
https://www.youtubev=Bj_F0JzUk9I.com/watch?
Norman Lamont is a wise old bird, and IMO the most underrated politician we’ve ever had.
He goes on to say the British are attached to housing and see the wealth tied up in it as solely their property. And of course he is right. Turn on the TV, open any newspaper or go to any dinner party. House prices.
The very fact we talk about rising house prices, which do not ever rise faster than inflation, rather than the land they sit on that does, should give you a clue to the fundamental problem of trying to persuade anyone of the merits of LVT.
People do not understand or are even aware of the problem LVT is a cure to. So unless that is sorted first, the chance of any meaningful or lasting change are slim.
Don’t blame the politicians. They are just a reflection of our ignorance and desires.
Tony.
You may remember the ALTER event a few years ago when Adrian Wrigley and Vince Cable were the speakers.
Back then Vince said that economic reform proposals were revolutionary, and that the LibDems are a radical party. I think the above developments by the party leadership turn us from radicals into apologists.
Perhaps this is this sort of lack of progress and directness on LVT – an almost total lack of leadership by everyone at cabinet level other than Chris Huhne – which lead Adrian to take his own life two weeks ago.
We continue to enrich the rich, to allow lobbying and vested interests to run rife, tinkering at the edges. Adrian, uniquely showed how you don’t need boom years to introduce LVT (via Location Value Covenants) to make transition to LVT a win-win for all.
Unfortunately, the latest tax commission had no freedom to explore that sort of practicality as we had no scope to make proposals around mortgage finance which is a significant part of the issue.
I don’t think I can bring myself to come to conference to see our SVR policy revised down to a review by an FPC sat startled by rabbits in the headlights, in this case the headlights of the media on a party in government.
One place where Nick Clegg is absolutely right is in the need for us to be straight and honest. Existing polices will not prevent yet another property bubble.
The worst… the almost unbearable is that we may end up going into the next general election with weaker economic policies than Labour… I can’t blame anyone for not wanting to live with that.
RIP Adrian. You’ve given us the keys to a People’s Budget for the 21st Century. Perhaps at the next crash we might be ready to listen.
Where’s the edit button…
Should read: “sat startled *like* rabbits in the headlights”
LVT all the way … all right, not a constructive comment, but worth a flag wave by any of the few who “get it”. Wealth taxes (success taxes), (as well as earnings tax, but that’s for a different discussion) are just not liberal, fair or progressive. LVT is / can be if considered as a legitimate option.
Well, I think even if LVT is introduced, Business Rates should be retained (although reduced). Instead, we should create a budget to fund business R&D and Investment to make sure that the money would flow into R&D and real investment instead of lobbying and perks like in the case of many drugmakers.
William Davison – What are the differences between true liberal and social liberal economic policies?