Tag Archives: land value tax

Budget Challenge from Lib Dems: Capture Land Values

According to ONS, the land value alone of UK accounts for 60% of its net worth and is “the most valuable asset in the economy, estimated at £6.3trillion (2020).

It accounts for 98% of all non-produced non-financial assets and these – as a proportion of all national assets including those produced (buildings, goods and services) or ‘financial’ (such as stocks and shares) – rose from 39% in 1995 to 58% in 2020. Almost all that rise in non-produced assets was due to increased residential land values.

The role of land wealth in our economy is commonly overlooked. Yet the cost of land, and access to it, affects all aspects of life. Land has no cost of production. Its value only arises from our demand for homes, businesses, food production, leisure, public services, transport etc. The same applies to all natural resources – oil, gas, minerals, the radio spectrum, solar energy, wind, water, rivers, oceans, etc.

In 2018, helped mainly by ALTER and its allies in the Coalition for Economic Justice (CEJ), a new All Party Parliamentary Group (APPG) on Land Value Capture (LVC) was set up. Vince Cable was its first chair and the then Chair of ALTER, Joe Bourke, acted as its Secretary. He still does.

When Vince stepped down from Parliament, John McDonnell took over the Chair. The Labour Party has an active group of MPs – mainly on the left and including Jeremy Corbyn – who support Land Value Tax, called the Labour Land Campaign. The Green Party is a member of CEJ – north and south of the border. The SNP also supports it.

An APPG can’t exist without support from members of the governing party in the Commons and plenty of Conservative MPs in the last Parliament across a wide spectrum in that party also favoured various forms of LVC, albeit few backed LVT as strongly as the Liberal Party did in the 20th century. Tory led governments consistently blocked all efforts to implement any form of LVC throughout that time.

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The Housing Crisis and Land Value Taxation

In submitting our amendment to the motion on Tackling the Housing Crisis (F31), ALTER is not wanting to change anything called for in the policy paper that will, we hope, be adopted nearly unanimously. Our purpose is to remind Conference that we can and must use our existing policy on tax reform, namely Land Value Taxation (LVT), to solve the underlying cause of the crisis.

We call for the commitment in the 2013 policy paper Fairer Taxes, endorsed by Conference that year, to be honoured. This was to conduct “early in the next Parliament …. a full-scale review to look at how (LVT) might best be implemented”. We do not suggest any new tax policies but merely call for FPC to do what Conference asked it to, which we feel is entirely appropriate given the motion’s subject.

The motion points out that “successive governments have pursued policies that benefit homeowners”. However there is no proposal to correct that imbalance between owning and renting. Our amendment emphasises that it is land value and not the value of “bricks and mortar” that is the cause of this fundamental unfairness. It is the major homebuilders and landowners who most benefit: obscenely and without economic or ethical justification.

Governments in England – both Conservative and Labour – have failed to review the grossly unfair Council Tax despite it being the main source of local and regional inequity in housing costs for occupiers. Whilst tax policy was outside the remit of the working party, it should have been able to point this out without us seeking to amend this motion.

The paper identifies the “main drivers of the housing crisis” as principally not overall supply but about:-

  • Provision of social housing
  • Economic prosperity of the area
  • The role of finance.
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Bulls, ostriches and national housing targets

Would-be Prime Minister Liz Truss agrees with the Homes & Planning Working Group (HPWG) about scrapping the top-down national housing target! “Cakeism”? Could a Sunak Government spend more while cutting taxes?

It depends what taxes are cut – and how. Perhaps there is a way, which today’s politicians and their advisors have ignored. From John McDonald to Milton Friedman (with David Ricardo, Adam Smith and Vince Cable as classical Liberals) some have supported: the “Tax Shifting” way.

Our traditional taxes are almost all “welfare negative”: causing a huge “deadweight loss” of real growth. Taxes on earnings, dividends, profits and most transactions such as house sales (“Stamp Duty Land Tax”), fall on those parts of the economy that create wealth and prosperity.

However, it is those who simply hold title to the passive element in human activity – what economists used to call “Land”, i.e. everything not made – who are the main beneficiaries. Land exists in finite quantity and without it Labour and Capital cannot operate. The growth in national wealth since the 2008 financial crash has, according to ONS figures, gone almost entirely into inflating land values.

It is this deadweight loss that keeps the poor in poverty and causes inequality to grow unless governments act: corrective action including ‘progressive’ taxation which is unproductive. This is unintelligent and wholly unfair.

We Lib Dems have traditionally understood this. Hence our policy of Land Value Taxation (LVT).

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Fairer Share and local government finance

It was very disappointing that a motion calling for a Proportional Property Tax (PPT) to replace Council Tax, Stamp Duty Land Tax and “Bedroom Tax” was rejected for debate a second time at this Spring Conference 2021. It represents a big step towards Land Value Taxation (LVT), which ALTER helped Sir Vince Cable retain within the last three Tax Commission policy papers – all passed overwhelmingly. It has a much greater chance of gaining cross-party support than LVT. Under this Government, it might even see the Statute Book, since most support seems to come from “Red Wall” Tory MPs in hard-up northern regions.

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Funding Social Care costs

Andrew Dilnot, the economist who reviewed social care for the coalition government has described the social care system as a classic example of market failure  where the private sector cannot do what’s needed.

On the Tory plans, he said:

The changes just fail to tackle the central problem that scares most people. You are not tackling the big issue that people can’t pool their risks. There is nothing that anybody can do to pool their risk with the rest of the population, you just have to hope that you are not unlucky.

It is not providing insurance. You could easily have care costs of £300,000 each if you are a couple; you are not able to cover that extreme risk which is what we all want to do faced with anything else which we can insure. That’s the market failure and these changes do nothing to address that.

Shadow Health Secretary Norman Lamb has said:

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Sharing the Rents: The Economic relationship Between Humanity and Nature

alter-logo-300Action for Land Taxation and Economic Reform (ALTER) seeks to build on support for Land Value Taxation amongst Liberal Democrats and to promote and campaign for this policy as part of a more sustainable and just resource based economic system.

The ALTER fringe meeting at Brighton this year was chaired by our MEP, Catherine Bearder. Jock Coats, a former Oxford city councillor, presented a paper aimed at infusing the Liberal Democrat mission statement as set out in the “preamble to the constitution” with explicitly “geoist” principles.  The paper argues that only publicly collecting the “economic rent” from land and natural resources enables a genuine market and democracy to work together to optimally distribute economic welfare and save the planet.

The premise of the paper is that neither markets nor democracy can function properly whilst a monopolistic class, rentiers, captures so much of economic productivity. It leads to a two caste society, one of which reaps the benefits of public need and public programs through land values, while the other pays for it. “Tenants pay twice so landowners don’t have to”.

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Opinion: The raging south east property boom must be stopped, without harming the rest of the UK

Vince Cable speaking on the BBC’s Andrew Marr show today warned of a ‘raging housing boom’ in the South East where large parts of London could end up inhabited by only ‘foreigners and bankers’ (boroughs such as Camden, Haringey, Hammersmith and Fulham already have an average house price to earnings ratio of over 11).

One solution would be to raise interest rates making borrowing less affordable. But as Vince said today:
“The danger of raising interest rates is that you hit those parts of the country which are not yet fully recovered, you push up the exchange rate …

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Opinion: Why fear this tax?

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 …

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Opinion: Lo-Tax for the Lib Dems

landRaising the tax-free personal allowance is the Lib Dems’ headline contribution to this Government – so popular that the Tories are trying to claim it as theirs! But when Danny Alexander said that our next manifesto should include a promise to raise and peg the personal allowance to the National Minimum Wage (almost £13,000) he was setting his tax policy working group a challenge: to find £12bn a year from elsewhere.

According to the Institute for Fiscal Studies this isn’t progressive. Highest earners and others benefit, while …

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Opinion: Land is theft

landIn ‘Why Wealth can’t be Taxed’ it was alleged that a mansion tax is illiberal. However, as a liberal, I am concerned for the state of the property market in the UK. The average age of the first time buyer is now 35.

Housing is a policy that has been forgotten, with health and education becoming the areas of priority. However as liberals, we can address the state of housing through taxation, for I would say that ‘land is theft’. There is too much concentration of power in the hands of the few. Land Value Taxation is a key to addressing this.

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LDVideo: Introducing the Land Value Tax

The Liberal Democrat campaign for Action on Land Tax and Economic reform has recently released a new video to explain the virtues of a Land Value Tax — described by ALTER as ‘making taxation more progressive and addressing the injustice of economic rent, it would encourage development and boost the economy. It’s the kind of measure that our country is in desperate need of right now.’

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Housing: the IPPR’s answer

Over the last week I’ve highlighted how the Britain’s love of home ownership is not based on any evidence that high home ownership brings economic success (if anything, the opposite is true), that the proportion of people living in private rented accommodation is on a long-term rise and that changes in property prices in Britain are widening rather than narrowing the huge geographic imbalances. Add to all that the increasing importance that Vince Cable and Nick Clegg, in particular, are giving to the housing market for boosting economic growth, and it is a sector clearly in need of action.

But what action?

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Opinion: Land Value Tax – an old idea with lots of modern supporters

Adam Smith in the Wealth of Nations (1776) was an early proponent of land taxes as was that great radical Tom Paine.

John Stuart Mill was an advocate and Henry George put the case in ‘Progress and Poverty’ (1879).

The economist David Ricardo gave us the concept of economic “rent” – that land or property derives its value from scarcity rather than investment.

In the debates before and after the peoples budget of 1909 both Winston Churchill and David Lloyd George argued strongly for the introduction of a land tax.

The economists John Kenneth Galbraith and Milton Friedman recommended Land Value Tax (LVT) for …

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Get your skates on and submit a motion to Liberal Democrat conference about wealth taxes

Nick Clegg’s recent ‘open society’ speech confirmed that increases taxes on wealth in some form is very much on the political agenda. However, the default party policy option – a mansion tax – was highly controversial in the party when it was introduced (which is rather a polite term for the rolling lesson in how to bungle a policy launch, annoy MPs, irritate party members and feed negative stories to the media all in one fell swoop).

In other words – now is a very good time for the party to be debating what form of wealth taxes it favours, especially after the opportunity was missed at the party’s autumn conference. As I wrote at the time in Tax: The missing ingredient from the Liberal Democrat conference agenda,

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Opinion: Why the mansion tax runs against liberal principles – but a land value tax wouldn’t

One of the more appealing characteristics and strengths of the Liberal Democrats is the room there is within the party for genuine debate, and the freedom members have to hold views which differ from those of the leadership.

There are of course certain principles which all who hold the Liberal banner aloft share however; principles around the freedom of the individual from the unreasonable constraints of the state into their personal lives, and these principles bound us together and make the party the pleasant place to be that it is.

The Liberal tradition goes back to the enlightenment, with figures such as …

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New book: The Case for a New People’s Budget

To many of us, notably Vince Cable, it has for long been blindingly obvious that the property boom would end – and end in pain for millions around the world.

The scale of the crash may have surprised even most who expected something like it at this time, as borrowing against unsecured ‘bubble’ land values was bound to lead to massive default.

However the Lib Dems’ campaign group on land value taxation (LVT) which I chair, ALTER, believes that the ‘Credit Crunch’ can be turned into a major opportunity for the Party, if it can press home its renewed conviction …

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Opinion: The FSA’s mortgage credit proposals v. Land Value Tax

Have you heard about the Financial Services Authority’s ideas for restricting mortgage credit? One is to ban 100% Loan To Value mortgages, and clearly in a time of uncertainty that would be prudent – you don’t want to be in negative equity by the time you collect the keys to your new home. The other is to restrict all mortgages to three times earnings.

You may also have seen a report on the housing market in the Daily Telegraph recently where Edmund Conway canvassed the opinions of four leading economists. The most shockingly bearish response in “Do not pass go – or expect house prices to rise soon” was from Citigroup’s UK Chief Economist, Michael Sanders, who argued that

everything depends on the amount people can borrow. At the moment the average loan to value for first time buyers is 76pc, compared with the more recent norm of 90pc. If LTVs stay where they are, or are regulated by the Government, you’re talking about an even more severe fall. If you want to get the deposit and mortgage burden for a first-time buyer back to the average of the last 35 years with the current level of LTVs, then house prices need to fall another 65pc from their current level.”

So, the act of restricting mortgage credit could provoke a massive write-down in the value of property in order to enable buyers to afford anything. And if there’s no “new blood” coming into the housing market at the bottom end in the form of first time buyers there can be little turnover further up the market.

Now, one of the biggest objections to a significant Land Value Tax has always been the predictable (and intentional) effect it would have of removing the land value from existing property values. Yet the government is now suggesting just such a massive write-down with no compensation to the households that lose out.

With LVT, however, replacing pound for pound as many as possible of the other taxes people currently pay, they would at least be seeing some benefit from their capital loss in the form of abolishing, say, NI, Council Tax, Inheritance Tax, Capital Gains Tax and some at least of their Income Tax.

Further, those of us who campaign for LVT say that switching the tax base away from incomes and trade and onto land values will encourage enterprise, will encourage people to maximize their incomes from work. Just at a time when anyone and everyone actually creating wealth in this country needs every encouragement to continue doing so to help the economy recover.

Longer term it will also prevent the sort of speculative land value bubble we have seen over the last decade from happening again, leading to more economic stability – a much better way of doing so than trying to regulate bubbles out of existence.

There’s one additional, timely, benefit.

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