To quote our party’s anthem “Why should we beg for work and let the landlords take the best? Make them pay their taxes on the land; we’ll risk the rest”.
Aside from voting reform, no one policy is as central to the Liberal Democrats as a land value tax. This should be a key policy for any platform our party promotes.
As of 2018 half of the UK ‘s net worth is tied up in land, amounting to some £4.9 trillion of wealth. More so than in many rich democracies. Given the large-scale wealth inequalities facing the country today, the adverse effects of artificially high land values (such as higher cost for entry for starting businesses, and the promotion of rent-seeking), and the growing need for more public spending (be it on existing institutions like the NHS, schools, local government or the Police or bold new projects like a Citizens Income) a land value tax kills many birds with one stone.
The question remains what form it should take, to which I have a few ideas.
Agricultural land should be excluded from any such tax, as should land below a particular value threshold, and such a tax should be progressive; ensuring ordinary homeowners pay little to nothing, while major landlords in central London pay a considerable amount.
I propose these thresholds be set relative to the median house price, with a 0.5% marginal rate on land valued at 100% of the median house price ( or just under £250,000 at the moment), with a rate of 1% on land over 200% of the median house price ( or just under £500,000) and 2% on land over 500% of the median house price (or just under £ 1.25 million).
Measures should also be undertaken to ensure that people feel that this new tax does not just result in more revenues for a distant Westminster and that its benefits are widely dispersed. Firstly, local authorities should be able to use the information about land values collected by HMRC for a Land Value Tax to collect revenue for their own needs. Secondly, a proportion of the revenue raise (about 20%) should go to the single-tier and lower-tier authorities where revenue from this tax was raised, which the money was raised.
In practice, this would mean a £1,000,000 house in Chiswick (assuming half of its value was tied up in land) would pay to have pay tax on £250,000 of wealth ( the first £250,000 being tax-free) at a rate of 0.5% resulting in a tax bill of £1,250. Of that, £250 would be given over to the London Borough of Hounslow.
* William Francis is Chair of the Ealing Young Liberals
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32 Comments
Sounds like a great way of ensuring we lose Richmond, Twickenham, Kingston …
@Simon McGrath
Richmond has the most expensive house prices of those three areas (the median stands at £650,000 ish). https://www.statista.com/statistics/1029250/average-house-prices-in-london-united-kingdom-by-borough/
They’ll only be paying 0.5% on a fraction of that. In any case, these places know we are for higher taxes anyway.
The first step would be to ensure that we have a means of discussing amongst the members ideas for taxing land. There are already serious problems with ideas of land valuation. One is that of planning permission. A great deal of land is held by companies or people who are doing their best to get permission to build on it. Houses can increase dramatically in price if they are in an area of development, or if they are needed for a neighbouring developer. We really need to discuss these issues before looking at how to raise tax by valuing the land or the potential of the land.
The party took an important step towards land value taxation when conference adopted the current policy on replacing business rates. The next step to tax residential land is fraught with difficulty, not least for the reasons Simon McGrath highlights – it’s not only SouthWest London but across all our held seats in England that our ‘core vote’ largely relies on prosperous homeowners.
Therefore if we are to sell this policy to those voters (which I believe we should) we must frame this within our core Liberal values. The link to investment in local communities is crucial. Land value taxation is justified because community investments in schools, transport links, safer neighbourhoods etc all protect and enhance property values. Therefore it’s only right that the communities who funded those investments – local, regional and national – should get a share of those increases in value. (Especially if those communities are governed by proportionally elected assemblies – it all joins up!)
I’ll not comment on the particular formulae suggested here – others on this forum are more expert in the mechanics of land value taxation. But whatever the calculations, it is how we couch the policy in terms of fairness and moral/political values that will determine its success.
William,
As a guide, if you subtract the rebuilding cost of a house from its market value, you get the cost of land (the rebuilding cost is slightly higher than the cost of building a house from scratch, because it includes the cost of demolition). For a three-bed semi-detached house it would be ~£150k (at least that was the figure for my house in NW London), so your million pound house in Chiswick could easily have a land value of £850k, rather than the £500k you are assuming.
Fully agree William, that “no one policy is as central to the Liberal Democrats as a land value tax. This should be a key policy for any platform our party promotes.”
As Philip Wainwright notes “The party took an important step towards land value taxation when conference adopted the current policy on replacing business rates.”
The next step is indeed crucial and I believe should be focused in two areas. Firstly, Reform of the Land Compensation Act 1961 with a view to enabling regional and local authorities to assemble strategic plots of land for development of public and private housing;capturing uplift in land values arising from planning consents for the public benefit., Secondly Reform of Council Tax along the lines proposed in Ireland https://www.irishtimes.com/news/politics/green-party-eyes-higher-property-tax-for-more-valuable-sites-1.4128368.
These initial reforms would be staging posts towards the kind of national land value tax you envisage.
@Laurence Cox
Thanks for the advice. When researching for this article I wasn’t able to find out the typical proportion of the value of a house is land.
Using your assumption £850,000 for said Chiswick house. The tax levied would be £1250 + ( 0.01*350,000) or £4750 ( assuming the value of the land stays the same in spite of the tax).
Two problems with this. First, tax base is too low so it will soon be extended to cheaper properties. Second it will be seen as another rip-off tax in addition to council tax, which started out very low when introduced but soon ramped up by “progressive” governments, and once the press gets hold of it will ensure that LibDem vote does a disappearing act. These are not progressive but confiscatory taxes, bearing in mind that largely the income used to purchase residential property has already been heavy taxed and mugged by NI/income tax.
Much better solution is a sales tax on property, related to postcode so it would be high in boom areas and close to zero in depressed areas, variable as the market expands and contracts.
The last thing the govn needs is yet more money off tax-payers to waste.
I can’t see this winning us any votes unless we link it to removing council tax.
In terms of land values it’s not as simple as some suggest. It’s not the market value of a house less its rebuilding cost – after all, if you had say £400k you could probably get a lot more for your money if you went off and built a house than buying one already built. Also, land with planning permission to build is worth way more than land without. As Tom Harney says we need to consider these questions first.
Why some in our party think blanket wealth taxes are desirable or fair is beyond me. Quoting our ‘anthem’ may seem a useful rhetorical flourish, but the age of tyrannical landowners and downtrodden peasants is long gone, and the words are about as relevant as those in ‘The Red Flag’ or ‘La Marseillaise’. Citing extremes of wealth inequality as a rationale for imposing a tax which bites deep into median levels of society is also, I’m afraid, logically dishonest. Aside from the electoral disadvantage already mentioned, the concept as applied here is simply unjust.
From citing the real culprits, the commercial and other vested interests who do own the bulk of the land, the author shifts abruptly to target large numbers of ordinary homeowners who are not wealthy by any rational measure. Demanding the same tax year after year for the same asset takes no account of ability to pay. Many of those affected would be pensioners who have worked all their lives to buy the home they love, and though the facile argument says they do not ‘need’ to live there, they should not be burdened with tax to the point where they are forced to move. The extra financial burden, uncertainty and emotional pressure would be inhumane, and deeply illiberal. Should the Duke of Westminster or Amazon pay more tax? Absolutely. Targeting anyone who lives in a bigger house than you is just the politics of envy.
In the more desirable bits of the London Borough of Havering, it’s not unusual for after a house changes hands for the new owner to knock it down and rebuild. In places like that the site value could easily be 60% or 70% of the sale price, or even higher. Some of these rebuilds even have, amongst their contractors’ boards, a board announcing that it is being financed by RBS!
@William Francis,
The building cost doesn’t vary that much across the country, so the principal factor for house price differences is the value of the land. This, of course, means that whilst in London there would be a significant tax take, if you look around the rest of the country (use Zoopla) the land value for a 3-bed semi would be well below your £250k zero-band limit so no income for either the government or the local council. I often refer to LVT as London Value Tax because of this. There was an extreme example a year or two ago where a 2-bed flat in Central London was on sale at the same price (£2.3 million) as a 31-bedroom mansion in the North.
This is not to say that there is no role for LVT but, in my view, it should be seen as a replacement for (not addition to) Council Tax by removing the regressive element of Council Tax. This would mean that the LVT rate per £ of land value would vary considerably across the country and there would need to be central Government support for poorer areas but, in that respect, this is no different to Council Tax.
Laurence Cox 5th Mar ’20 – 10:30am:
The building cost doesn’t vary that much across the country, so the principal factor for house price differences is the value of the land.
Actually, the principal factor is the value of planning permission – a state monopoly.
‘The housing crisis: an act of devastating economic self-harm’ [August 2017]:
https://capx.co/the-housing-crisis-an-act-of-devastating-economic-self-harm/
@ Laurence
I am not sure I understand your stance on the central government collecting a LVT.
Are you saying only local authorities should levy a LVT?
@Jeff
Are you aware that CapX is linked to the Centre for Policy Studies, or the Tufton Street Mafia as they are also known. Frankly, I wouldn’t believe anything that came out of a think-tank founded by Keith Joseph and Margaret Thatcher unless it was supported by reports from think-tanks like IFS and IPPR reaching similar conclusions.
Laurence Cox 5th Mar ’20 – 9:58pm:
Are you aware that CapX is linked to the Centre for Policy Studies,…
I couldn’t care less where an article is published. I consider arguments on their own merits and do my own research to verify facts where appropriate. CapX is the publisher. The author of the article…
Is the Guardian sufficiently left-wing for you?
‘Forget nimbys. Yimby housing policy can transform the UK – with the political will. John Myers’ [August 2017]:
https://www.theguardian.com/commentisfree/2017/aug/11/housing-shortage-nimbys-yes-in-my-backyard-yimby
Or maybe the New Statesman?
‘What is a yimby? Meet the campaigners hoping to ease the housing crisis’ [November 2017]:
https://www.newstatesman.com/politics/uk/2017/11/what-yimby-meet-campaigners-hoping-ease-housing-crisis
@Jeff
John Myers knows zip about economics. His statement “The housing crisis has caused more damage to GDP than any event since the Black Death.” is not credible. The papers he mentions have been de-bunked, by Prof Ed Glaeser, who is the head cheerleader of “YIMBY’s” across the world. Glaeser puts the deadweight loss as 50% GDP for the most comprehensive study I’ve read, but all other estimates put them >20%.
As spatial inequalities result from optimal resource allocation, it would be best to maximise those, and use the rental value of land to pay for state services with a 100% tax upon it. Thereby optimizing the economy for growth, free of deadweight costs.
Such a tax reduces the selling price of land to zero, along with any income/wealth inequalities resulting from its mere ownership.
That solves issues like the housing crisis, instantly and permanently. And by optimising the economy for growth, we all benefit, as do those in the future, for whom the compound effect of deadweight costs on growth is a disaster.
That’s what sane economic and political policy looks like.
For the ideologically blinkered, everything is a supply-side issue. Take a couple of steps back, the bigger picture says something else.
A Nation Land Tax is a superb idea. Though as the consumption of “location” is already the most progressive type of consumption (land as a % of property value ranges from 0-90%) the tax itself does not need to be.
The revenues from such a tax (about £300bn pa) should be paid out as a UBI. This then allows for other user fees to be paid into it as well, such as a CO2 tax, congestion charges etc.
This will of course allow for reductions in benefits thus other taxes. Council Tax can be scrapped and replaced with a Poll Tax, the opposite of the UBI.
If the LibDems want to be a party governing in the national interest, rather than a minority of homeowners in Richmond, Twickenham, Kingston, they would certainly embrace the ideology of land justice the Liberals once rightly championed.
@Laurence Cox
While the building cost doesn’t vary much, it’s not necessarily true to say that the value of the land is therefore the value of the house minus the cost of the building – for new builds or near-new, perhaps, but on that basis a lot of the existing North-East housing would have a negative land value.
“As of 2018 half of the UK ‘s net worth is tied up in land, amounting to some £4.9 trillion of wealth.”
It’s fair enough to argue for a LVT providing its limitations are well understood. Some latter day Georgists have the rather naive idea that it’s a silver bullet to solve all our taxation problems. Henry George himself wrote in terms a “single tax”.
It’s nonsense of course. The sad truth is that the £4.9 trillion, or whatever is the accurate figure, doesn’t exist except in the form of valuations. Make the tax a significant cost of holding land and those valuations plummet. The trillions just disappear like the mirage they are to start with.
Peter Martin,
as Benjamin Weeden points out above, it is the market rental value of land (as determined by the demand for any given location) that generates the value on which an LVT or ground rents are assessed.
It is neither a single tax nor an additional tax. It is a replacement for an element of existing, more regressive and economically harmful, forms of taxation.
The source of income for the tax is where land rents are ultimately captured or consumed i.e. Landlords renting land, interest-bearing mortgage loans on land and homeowners with significant equity in land over and above a homeowner allowance based on the local housing allowance for the area in which they live.
As Benjamin writes above “the consumption of “location” is already the most progressive type of consumption (land as a % of property value ranges from 0-90%) the tax itself does not need to be.”
@ Joe Bourke,
“It is neither a single tax……”
Tell that to the Georgists! There are still a lot of them about.
“.. nor an additional tax”
I suspect you might be wrong about this IF it ever does become implemented.
Look, there’s no reason we couldn’t have a LVT. Countries like the USA, Canada, Singapore, Australia do have one but there is little or no evidence to support the notion that it will change anything very much.
When figures like £3.5 trillion get bandied about it leads those, who I’d frankly have to describe as economically illiterate, to run away with some very strange ideas indeed. Like our friend benjamin!
@ “benjamin d weenen”
“The revenues from such a tax (about £300bn pa) should be paid out as a UBI.”
£300 billion every year? For how long? You’re dreaming!
@Cim
If you want to be pedantic, the value of a house is what someone will pay for it. However, this does not help us with valuing the land it stands on, which was the issue where I was arguing with William Francis because he assumed the land value to be 50% of the total value for a particular case whereas I suggested it was much higher. For houses in the North-East, it is quite possible that on any reasonable assumption the land value would be close to zero. Zero land value means zero income for the Government and the local council from LVT.
It is entirely possible for land values to be negative if, for example, the land was polluted and required expensive clean-up costs (like the Olympic Park) before it could be built upon.
I know that Land Value Taxation has been voted for by Party Conferences but it is one of those “off the wall” policies that are difficult to explain and impossible to implement. It is an impractical idea that has not been properly thought through and no one seems to have a clear idea of how it is supposed to work. It seems to be conceived of as a wealth tax, but no-one here has mentioned that people who “own houses” usually have large mortgages on them so in reality a large part of the property value is in fact owned by a bank or building society. So they are often stretched financially (or would be if interest rates were not so very low) and it would not be reasonable to tax them on wealth that is not theirs. A Liberal Democrat government would have to start with the taxation system that we have, which has taken years to evolve, and work out what is wrong with it and change that, not scrap the whole system and start afresh. The idea is just impractical. I know people will say this policy has been voted for by our Conference and so it cannot be changed, but as the Party has done so very badly in the elections we need to have a review of all our policies and only include ones in our manifesto that are actually Liberal, make sense, are easily understood, workable and popular with voters. Otherwise we are doomed to keep repeating the mistakes of the past and make no progress whatsoever.
The principled arguments for taxing land values are both Liberal and powerful. First, land is a finite resource and essential to human society. Second, the value of land is closely allied to its permitted use as determined by public policy. Third, taxing land, as opposed to buildings, promotes the best use of land and inhibits land hoarding – as is currently done by Tesco and too many public utilities. Fourth, bringing vacant land into taxation, on the basis on its maxumum permitted use, will add to the income of the public authorities and thus reduce the imposition of other non-income taxes. Fifth, the valuation of land is considerably easier than that of buildings given that valuing buildings is capricious and depends to a significant extent on public policy re assistance to buyers or subsidies to rents.
To deal with the objection made regarding over-valuation in order to icrease tax yield, it would need a simple addition to the planning law to enable legal objection to be made against the granting of planning objection, just as there currently exists against the refusal of planning permission.
Essentially the rise in house prices is in reality the rise in land values as bricks and mortar do not themselves rise in value.
Simon McGrath’s comment is unworthy of him! Our task is to espouse what is beneficial and progressive and to persuade the public of its value. It is not that difficult!
Michael Hall,
“a large part of the property value is in fact owned by a bank or building society.” This is why only the proportionate equity held by a homeowner in excess of any tax-free allowance should be the subject of LVT for the householder. The bank or building society would be assessed on interest earnings arising from their proprtionate share of the land value.
It is the economic rents in the form of contract rents, interest on lending against land and notional rents in excess of a homeowner allowance based on the local housing allowance that constitutes the tax base.
Well, I will think again about this if someone can point me in the direction of a clear, simple and concise explanation of exactly how LVT will work, preferably with a draft of part of a Finance Bill to introduce it into Parliament and an explanatory leaflet in plain English that can be distributed to the public. Oh, and costings for the employment of new staff in the Valuation Office Agency who will be responsible for all the individual valuations of every property in the land. As with business rates, the Treasury will want there to be a system whereby people who cannot pay the tax are accused of wilful refusal to pay and threatened with prison, and whereby others who cannot sell their property quickly enough to raise the money to pay the tax are made bankrupt. An enforcement protocol that is truly Liberal will therefore be required so that these things cannot happen.
@Laurence Cox
Oh, certainly contaminated land could have negative value if the cost of cleanup was sufficiently high. But land which has livable – though older – housing on it? In the village I used to live in, an old terrace or council house will sell for £60-80,000 depending on condition. A smaller new build literally on the opposite side of the same street might sell for £150,000.
The (re)build costs of both houses will be similar, but it seems implausible that land on the east side of street is worth about £100,000 more per plot than on the west side. Similarly the actual sale prices for empty land with planning permission in the North East – while much lower than other regions – are still positive.
As you say, a house is technically worth whatever someone will actually pay for it – but at least that’s a measurable number, while the value of the land that established housing sits on is not. My point is that it’s not possible to separate the value of the land from the value of anything on that land, so it would need to be a bit wider than a strict LVT and include the value of any immovable assets on that land as well.
Michael Hall,
this is from the ALTER website https://libdemsalter.org.uk/en/article/2012/0621386/what-is-land-value-tax
This a short briefing on LVT from a Mutual Media Cooperative: https://www.mutualinterest.coop/2020/03/what-is-the-most-popular-tax-among-economists
“Housing cooperatives are housing units owned democratically as a cooperative by the tenants. There are two basic types of housing cooperatives, limited equity and market based. In a limited equity housing cooperative, the tenant is allowed to buy the apartment (and therefore a membership in the cooperative) for an affordable price, but in return, is only allowed to sell the apartment at an affordable price, typically only being allowed to charge for the improvements. In a market priced housing cooperative, the tenant buys and sells the apartment for a market price.
Limited equity housing cooperatives used to play a major role in Norway and Sweden. The labour movement used the model to provide affordable housing during a period of rapid urbanisation. However, beginning in the late1960s, the tenants grew increasingly hostile towards the model. They could see their neighbours who didn’t live in a housing cooperative sell their apartments for a price much higher than they could. As urbanisation had progressed, the value of the tenants apartments had grown, yet they had to sell the apartment for an affordable price. Getting rid of the limited equity model and allowing the tenants to sell their apartments for a market price was a key factor in shifting the tenants from the social democratic parties towards the right wing parties, starting the decline of the dominance that the social democratic parties had played in the countries elections.”
Limited equity housing cooperatives might usefully replace the current right-to-buy scheme for council housing ensuring that former council flats and houses remained affordable.
The tax that hits struggling High Streets hardest
Really good article on the negative effects of business rates as currently implemented and operated, which bear a striking resemblance to how LVT would probably look-like in the real world.
It never fails to amaze me that in the 21st century great areas of the UK are privately owned. No one should own the land. A land tax should be high up on the Liberal list of priorities.
@Peter Martin
Unless the LVT has a really high marginal rate and a low threshold of application, I think you are over reacting on the extent to which land values would decline.