Land Value Tax
Land Value Taxation (LVT) is an annual tax on the market value of land. It ignores any buildings that may or may not exist on the site, so the tax payable remains exactly the same whether the land is developed or not.
The concept is an old one, dating back to 300BC. The classical economists Adam Smith (1723 - 1790) and David Ricardo (1772 - 1823) quickly recognised the economic benefits that such a tax would bring. These ideas were further developed by the American economist Henry George (1839 - 1897) in his book Progress and Poverty. Despite support from Winston Churchill and Albert Einstein, they achieved little success against the powerful vested interests linked to the rising price of land. The 1931 Labour Government incorporated a fully-fledged Land Value Tax into their Finance Act, but lost power before it could be implemented. Recently there has been renewed interest in LVT as an effective antidote to toxic debt.
LVT is currently the policy of the Coop Party, Green Party and the Liberal Democrat Party. There are LVT pressure groups within the Labour Party and the Conservative Party. The 2017 Labour Manifesto included a commitment to "consider" Land Value Tax and in 2018 the Scottish Land Commission issued a favourable report on LVT. The Shadow Chancellor, John McDonnell, is a known LVT supporter, so the concept is not quite as dead in the water as is sometimes portrayed.
LVT rewards genuine development, but punishes speculation in vacant land. Land that has little or no current commercial value, for example, an amateur soccer pitch or a public park, pays little or no tax, but if planning permission were granted for profitable development LVT becomes immediately payable, year on year, based on the increased land value of the vacant site. The more extensive the permission, the higher the tax becomes, substantially eroding the landlord's profit and the windfall gains associated with a grant of planning consent.
LVT is paid by the landowner, not by the tenant. It is difficult for landlords to pass on LVT to tenants, because they are already charging the highest rent that the market will bear. There is no remission for vacant buildings, so a landlord with unlet property faces a huge financial incentive to reduce the rent. It is important that LVT is an annual tax, collected year on year, in contrast to "one off" development levies that have been so conspicuously unsuccessful in the past. These two apparently similar taxes have opposite economic effects.
LVT rewards development. Once consent has been granted, it pays the developer to get on with job, and rapidly extract the maximum return from the site. If for some reason developers cannot proceed immediately, then it is in their best interest to quickly sell to somebody who can. LVT gets land moving, out of the hands of land speculators and into the hands of entrepreneurs who can create wealth and provide jobs.
LVT also protects the environment, by encouraging the intensive and efficient use of land, and also by discouraging speculators and land banks who hang on to sites with planning consent in the hope that their value will rise. These parasites would pay LVT at the full rate from the date of the decision letter on their planning application. LVT diverts investment resources away from sterile land speculation and a "rentier mentality" towards real investment in new buildings, plant and equipment and the generation of new wealth and new jobs.
LVT is great for infrastructure, because it captures the uplift in land values after public investment in transport, parks and schools. There is no longer any need for capital expenditure controls, which are all replaced by one simple test: "Will the tax uplift pay for the scheme?"
LVT is cheap to collect and impossible to avoid. You can't hide land, nor can it be moved off-shore. Enforcement is easy if land title is made contingent on paying the tax. LVT could be made "progressive" (like income tax) by granting a poolable personal land allowance (say 25 sqm) sufficient for a very modest flat.
The introduction of LVT would allow the abolition of all the other arbitrary and unfair property taxes, such as Council Tax, Stamp Duty and Inheritance Tax. If substantial sums were raised directly from land, reductions in VAT, Corporation Tax and Income Tax would also be possible.
Last updated 4 March 2019 at 23:10. Back to the top
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