The Land Value Tax is an old policy idea that is generating a great deal of new interest. Its proponents range from Winston Churchill to the Occupy Movement. We explore an idea whose time may be approaching.
We hear a lot about the empowerment and democratic control that localism promises. Rejuvenated communities, finally able to make their own planning decisions, will be set on the path to self-determination, without all that red tape slowing them down. That’s all well and good, but who are the actual winners of the “regeneration” game?
Taxpayer funded improvements in a local area, such as better infrastructure and services, lead to economic benefits which are often most strongly evident as increased land and property prices. The owners of land, regardless of whether or not they contribute to the improvements in a locality, benefit massively from this increase in value. The community and the public purse, on the other hand, often see no economic return and suffer from increased rents and dispossession.
A real commitment to democratic control and community empowerment should also entail a commitment to ensuring that increases in local value are not privatised, but remain common. A land value tax would capture some of the economic benefits of development and might encourage locally motivated investment decisions. Commitments to give power back to people and reinvigorate local democracy are merely symbolic if they are not given material and economic support. Combined with other systems, such as participatory budgeting, a land value tax could put flesh on the bones of local democracy.
Two recent, but differently nuanced, studies have made cogent arguments for land value tax. Andy Wightman’s paper A Land Value Tax for England draws attention to the speculative nature of much land ownership. Owners of this scarce resource are able to sit idle, wait for other people to invest their time and energy, and then reap the rewards. This rent-seeking behaviour plays no productive role and drags down growth, a point made by Andy Hull in his think piece for the CLASS think tank. Taxing unproductive land would encourage investment, through making it uneconomic to leave land and buildings lying empty. It has been highlighted by the OECD as the least harmful form of tax for economic activity, and is in place, in different forms, Australia, Denmark, and parts of the US.
It is an idea with a long pedigree – from Adam Smith and Henry George, through to Winston Churchill, and the recent Institute for Fiscal Studies Mirlees Review of the tax system. See especially page 66 in Steve Wyler’s book A History of Community Asset Ownership.
There are wrinkles in the idea (should it replace council tax and business rates, or just tax currently untaxed land?) and potential pitfalls. Hull makes clear that his outline does not dot the “i”s and cross the “t”s of a policy proposal. If the tax was set and collected locally, what mechanism is there to address the problem of uneven development between areas? Greater increases in value will accrue in places where greater investment is possible in the first place. Will the disparities in investment lead to a wider diversion in land value between London and other parts of the country?
There is the further problem that just because money is thrown into a big pot which is publicly administered and allocated democratically, it does not necessarily follow that it will be wisely spent. This is certainly a problem. Public bodies in many guises have proven themselves inefficient over the years. But this it is also an opportunity for greater accountability, at least, and could help realise the value of good planning and substantial investment. Properly considered and implemented, it might form the basis of the creation of a viable 21st century commons-based economy. In any case, it’s a conversation we shall be having in earnest here at Shared Assets.