There are two motions for debate at Brighton that I particularly welcome, as founder member of ALTER and campaigner on Land Value Taxation (LVT) for 20+ years. There’s the one on Commercial Landowners Levy (F26), which is based on an excellent paper by four esteemed experts in our Party. Then there’s F34 “Promoting a Fairer Distribution of Wealth”.
Having read both motions, I was unhappy that F34 failed to match the combination of thorough research and analysis in F26 and also falls short on radical policy proposals to address the main cause of wealth inequality: the so-called Land Question. As a member of the last two tax working parties charged with preparing our policies on taxation, I had thought that our commitment to implement LVT on both commercial and residential property was settled.
In the most recent tax policy paper “Fairer Taxes”, approved by Conference in 2013, it was agreed that “we will … launch a consultation to determine how to implement LVT”. This was also in the 2015 manifesto.
The manifesto for the 2017 snap election did not include this commitment. However given the unavoidable lack of time in which to consult before publishing that manifesto and its inevitable focus on BREXIT-related policy, ALTER wasn’t concerned.
When I queried with the author of the paper “Giving everyone a stake”, upon which F34 is based, “Why the retreat on LVT?”, one reason I was given was that “our most recent manifesto only mentioned LVT in relation to commercial property, not residential”.
Policy is made by Conference, not Manifesto, isn’t it?
Every other proposal in F34 is explained (in the paper) with a “Who would this impact?” – but not the property tax reforms. Yet in its sponsor’s (i.e. our Party Leader’s) own words, in the 2006 tax policy paper “Fairer Simpler Greener”, “property tax taxes the most important form of personal wealth” (3.2.2).
The value of land overall constitutes more than half the total assets of the UK: £5.4tr. Of this, £4.1tr is under homes, not offices or factories! Almost ¾ of domestic ‘property’ wealth is actually land values, not ‘bricks and mortar’: the latter depreciates over time; land values increase without owners lifting a finger. If we aren’t tackling the cause of inequality in land ownership / wealth, we are failing in the most important area that the motion is dealing with – and failing in the supporting paper to admit that this impacts mostly on the young and asset-poor.
Moreover in 2007, when we committed to scrapping council tax and replacing it with a local income tax, we specifically dismissed adding higher bands to council tax as “a half-hearted reform” and agreed that “such a cautious approach is not justified”. What has changed, other than the fact land values have soared even more and resulted in even greater injustice?!
We have not reviewed local taxes since then. We should not be changing our policy on council tax without as thorough a consultation, research and analysis as has been carried out to develop our policy of replacing business rates.
FPC has a full review of policies on Wealth Inequality scheduled for 2019, called “Fair Share for All”. So please support ALTER’s amendment to F34 which merely seeks to maintain existing policy until this review has been done.
* Tony Vickers is Executive Member for Planning & Community Engagement, West Berkshire Council, a councillor for 20 years and a researcher on property taxes for 25 years.
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20 Comments
If I have no income how do I pay the tax on the value of the land I own? Slice off the end of the kitchen and sell it? Strip out some of the piping and sell it? And then next year, how do I pay next year’s tax? I’ve already stipped out the piping and demolished the kitchen, what do I strip out next?
The article does not explain policy in any way at all. Are we currently as a party committed to local income tax or LVT, it cannot be one or other , but wait, can it?????
As the contributor herein says, what of the poor in a rural area with a little bit of land? Defer it, get in real trouble, lose the land, this is going to be difficult and the LVT proponents, like the immigration issue, Brexit, are relentless in their inability to consider not eveyone is as obsessed.
I am more worried about police numbers, crime…..
LVT takes no account of the ability to pay. Perhaps the enthusiastic JoeB could confirm ?
Replacing council tax with an inheritance tax levy (with no exceptions for trusts or companies structured to avoid it) would be a vote winner. Or just add the council tax revenue on to the new land tax for commercial land, even more popular.
On domestic property a beautiful house on a small plot will fetch much more than a grotty house on a large plot, two plots of the same size but one located next to pedestrian access lane will differ significantly in value… do you value a house on an elevated plot with steep stairs to access it the same as a similar sized plot on the level? Or plots the same size but one with no parking… or one next to a busy road????? By the time you have equipped the country with the huge bureaucracy needed to value the land you will have eaten up all the revenue it is going to generate.
Is anyone aware that the serious rich buys farms so that they can pass it on without paying inheritance tax BTW?
A sales tax on house sales, when the money is not rolled over into another property, would be a fair way to tax unearned wealth (although how much of it isn’t already taxed is a moot point because you have to take into account the total cost of the mortgage, renovation costs AND then divide that figure by 0.7 to represent the income tax and NI already paid on the salary received). Second homes and BLT are a different matter and should be taxed heavily enough to provoke sales, putting more property on the market.
Personally I think LVT is being touted as a magic bullet which will unleash a cornucopia of benefits. It will be a horror show to calculate.
It’s just a tax and the LibDems love taxes. It looks like it will hit businesses and houses in the south east very hard.
But in fairness the points about the ability to pay are a bit spurious. Council Tax doesn’t recognise ability to pay now.
The prices we pay for goods and services aren’t based on ability to pay. If they were, they’d be as economically disastrous as taxes on output.
The fact is, a LVT, rent and it’s capitalisation into selling prices are economically the same thing. If you are against LVT, you are also against rent and paying selling prices.
Of course, like all changes to the tax system, there are one off winners and losers. After that, the tax simply discounts selling prices.
Genuine hardship cases, like Poor Widows in Mansions, can be offered roll up and deferment. SDLT, CGT and Inheritance Tax should be scrapped as a quid pro quo.
Council Tax can easily be modified so it reflects underlying location values. With the wealth of data we have on rents and selling prices, the admin costs of such a tax would make it the cheapest to collect by a comfortable margin.
Tony Vickers makes a crucial point when he says “If we aren’t tackling the cause of inequality in land ownership / wealth, we are failing in the most important area that the motion is dealing with – and failing in the supporting paper to admit that this impacts mostly on the young and asset-poor.”
The case for Land Reform has been made by Liberals down the centuries from John Locke to Tom Paine, J S Mill and the transforming Liberal government of 1906-14.
The case is and always has been a moral one. Adam Smith was first and foremost a moral philosopher. He considered the have considered The Theory of Moral Sentiments to be a superior work to the Wealth of Nations.
Poverty and deep inequality persits despite the exponential growth in the productive capacity of society since the beginning of the industrial society. The reason it does so is no matter how much more is produced the greatest value will always be captured by those that control the greatest wealth of natural resources – principally land.
The Increase in home ownership in post-war years has mitigated for a time the impact of wealth inequality, but as Piketty has pointed out this is only a temporary phenonemon brougt about by the destruction of capital during the world wars of the 20th century. As home ownership declines, we are once again moving inexorably back towards the situation that prevailed pre-1914 with capital concentrated in the hands of the few and the great mass of the population working for wages that can at best meet basic rent and subsisence costs.
Inequality will always increase under a Conservative government and the economy will always be managed inefficiently under a labour government – that is built into their DNA.
It is for Liberal Democrats to explain why land rents will always prevent half or more of the younger generation and a third of the landless poor from ever being able to earn more than a subsistence wage in a economy that is rigged against them.
As Benjamin says above, any change to the tax system involves winners and losers. Since the intent is to reduce inequality, the expectation must be that the rich lose and the poor win.
But you need cash flow to pay taxes if they are not being levied when an asset changed hands for money.
The problem will be the segment of society that owns valuable land, but has a relatively low income. Some of these won’t look like the filthy rich that some love to hate, any many will be elderly. It will make for bad press when they get turfed out of their homes to pay their tax arrears.
Our opponents will be quick to brand LVT as a “London Values Tax” because it is the people who live in London and some expensive areas in the South-East who will be paying almost all of it. It is hardly surprising that it is members of our Party who live in country areas where land values are low who are pushing this. In 2015 London taxpayers were paying £34 billion more in taxes annually than was spent in London and people like Tony Vickers need to understand that if you cannot sell taxation changes to Londoners, you will never get them through Parliament.
Tax deferment for low-income pensioners is a common feature of property tax systems around the world including the US, Canada, and Australia. Northern Ireland did not move from the old rates system to council tax and offered a similar deferment system. However, the take-up was so low with almost all families (heirs) choosing to pay rates as they go, that I believe it was scrapped and the small number of cases dealt with on an individual basis.
Deferment until death or sale resolves the cash-flow problem for asset rich/income poor pensioners that do not choose to use equity release to supplement their incomes.
Much more of a problem for low-income seniors in high priced housing is the maintenance of property without resort to borrowing or equity release and the subsequent dilapidation that can occur from a long period of neglect.
Equally, if not more serious, is the prospect for many of ill-health (more prevalent among the low-income elderly) forcing them into expensive care homes and nursing homes that can rapidly eat up all of the assets that they hoped to bequeath to heirs.
Social care insurance funded by an LVT is one way of tackling this intransigent problem that is a source of worry and concern for many. This has been successfully done in Japan where it has proved a popular remedy with seniors and family members alike.
Laurence.
you may not be aware, but Labour London Assembly member Tom Copley produced a report in 2016 for a trial of LVT in London https://www.citymetric.com/politics/uk-needs-rethink-its-local-taxes-it-s-time-land-value-tax-3604.
I would hope that we could take the lead on this policy in the 2020 London Mayoral Elections and not lose our deposit this time around. With the majority of Londoners renting housing accommodation, this can be an electorally popular policy across the city.
All this hand-wringing about elderly and poor people and how will they pay…
They already pay council tax, for which LVT is a drop in replacement.
Given the vast swathes of land currently untaxed (including so many empty properties, especially commercial properties) if LVT ends up higher than council tax you’ve set the rate too high.
Meanwhile the country is slowly sold acre by acre to foreign investors who only care about making a profit as the land value goes up for zero investment by them.
J G Hairston we propose a tax-free Homestead Allowance, linked to LHA (Local Housing Allowance) so much higher in London than NE.
Lorenzo: there isa 500 word limit on LDV blog pieces. Hard to explain but we CAN can our local cake and eat it! If you merge property tax with income tax, you can merge Homestead Allowance with Income Tax Allowance. That overcomes the ‘poor widow’ problem: she can combine her unused income tax allowance with her over-the-limit HA and not be penalised. She can also defer payment until death or sale.
My point is not to develop policy on the hoof in this Conference but to retain the status quo until the Equality of Wealth working Party brings a fully consulted thoroughly analysed policy back to Conference next year.
Please google Homestead Allowance, look at what Sweden does (so easy – I’ve been there) and engage with this. By the way, it is not just – or even mainly – a local tax solution. Yes there is a cornucopia of benefits to be had, both politically and economically.
So it is a simple tax to administer except in the details of the actual land value… but there are going to be two elements to it, a national tax and a local tax (all collected by HMRC)… but the income poor may actually be better off if the difference between their tax allowance and income is negative:
“Tax allowances (earned income and HA) would be transferable. Although the administration of earned income tax and LVT would be merged, the two taxes are separate. If the individual’s income is less than the HA, then LVT liablity will be reduced by the difference. However apart from this allowance, LVT is a ‘flat tax’, charged as fixed percentage of land value, quite unlike income tax. For such administration to work, LVT must be a national tax.”
In my view LVT represents an excellent opportunity to replacement business rates; a system which is clearly broken. However, it’s not clear whether the same applies for residential property. I would suggest that we see if we can get LVT implemented to replace business rates first and then look at residential if (and only if) it works effectively in the business rates context. If appropriate, the lessons learned from business can be applied to residential. In the interim I suggest we increase the number of council tax bands. The current system is severely broken and favours those with multi-million pound properties.
An interesting modification to council tax would be to relate it to household income, so those below a certain threshold would avoid it and those with two people working and earning loadsa money would pay yet more. It too could be collected by HMRC rather than councils or a declaration of income (along with tax number so it could be checked) could be made to the council.
@Joseph Bourke
I wouldn’t have much difficulty in using LVT as a replacement for Council Tax with rates set locally to raise the same amount as Council Tax; the particular problem with the latter is that it is half based on the value of houses and half based on the Poll Tax (which is why people living alone get a 25% discount). The problem I have with LVT is ALTER wanting to make it a national tax and that means that anyone living in London will be massively subsidising people living in the country.
Tom Copley’s proposal in was specifically to tax undeveloped or underdeveloped land to encourage its development for housing. He wasn’t proposing a generic tax on housing. While there is a justification for taxing price rises in housing arising from infrastructure developments like Crossrail, where I live in London all of the infrastructure development was done in the 1930s when the estates were built (and the Underground Stations preceded the estates) so all those infrastructure costs were ‘baked in’ to the price I paid for the property.
I feel that to sell LVT to the electorate, we could start with the slightly less contentious area, i.e. non-residential land though I accept this could mean we don’t get the full sleight. I don’t know whether half the cake is better than none, regardless of whether the full cake is on offer.
Laurence.
this is Tom Copley’s paper https://www.london.gov.uk/sites/default/files/final-draft-lvt-report_2.pdf
The first recommendation reads “… implement and operate an LVT to replace the three
basic property taxes: council tax, business rates and stamp duty land tax.
The motion to conference proposes replacing business rates and stamp duty land tax on commercial land with a Commercial land levy. The motion includes a proposal to assess the Levy on undeveloped land.
A study of council tax reform by the Joseph Rowntree Foundation https://www.jrf.org.uk/report/after-council-tax-impacts-property-tax-reform-people-places-and-house-prices concluded:
“The answer may lie in the design of a property tax, shifting emphasis away from the value of capital assets towards the income they may yield. Such a system existed in principle in the form of the old ‘Schedule A’ tax, which taxed the rental value of property. It was abolished in the early 1960s after it had been allowed to wither in much the same way as the current Council Tax system.
This is what the homestead allowance that Tony Vickers comment refers to is designed to do as is based on the practice in states like Pennsylvania where there are wide variances in property values between Philadelphia and rural areas.
There is a debate, as Tony Harris points out, as to whether bands should be expanded as a transitionary measure. The housing economist Professor Muellbaeur, howver, argues “that a radical reform of property taxation makes economic sense and could be more acceptable politically than tinkering at the edges, by adding a few more bands to Council Tax, for example. This is especially so with the need to broaden the tax base to fund the growing expense of the NHS in an ageing population. Since most wealth is held by older people, expanding and reforming property taxation is particularly appropriate. It is important to escape from the mistaken view of Council Tax as a kind of “service charge for local public service provision”. The current highly regressive form of Council Tax creates perverse incentives for the conversion of multi-unit residences into single-family luxury homes especially in the most expensive locations, which pay far lower Council Tax relative to property values.”
Interesting piece in Inside Housing from Lord Adonis today: https://www.insidehousing.co.uk/comment/councils-need-fair-compulsory-purchase-order-powers-57771 arguing Councils are hamstrung by onerous compulsory purchase order powers.
“Britain has enough land to vastly increase the number of affordable homes being built, but it is largely sitting idle.”
“It is clearly unfair that local councils cannot meet the urgent social housing needs of their communities.”
“A land value tax on the market value of land as it rises would enact Attlee’s principle that unearned windfalls should go to the community.”