The government should do more to tackle destructive practices in the volatile property market and reform the way property is valued by looking into a new tax on unearned profits, the Brighton Pavilion MP said today.
Caroline Lucas, whose Land Value Tax Bill is due its second reading in Parliament, is calling on the Treasury to look into the practicalities of replacing Business Rates and Council Tax with a Land Value Tax – with a view to phasing it in over a period of 10 years or more.
The concept of an LVT has long been touted (1) as a fairer way to levy property taxes, as it seeks to return to the community the value added to a property because of improvements, like transport infrastructure, that have been paid for by the public purse.
Where a property rockets in value because a tube station is built near to it, for example, LVT would seek to tax that windfall increase in property value to be re-invested back into the community.
LVT would be levied solely on the unimproved site value of the property, which is affected by its location and community efforts around it – and is levied on the owner rather than the occupier.
This means that owners of speculative land-banks, derelict land or properties that have deliberately been allowed to become run-down, would pay the same as those who take care of and develop their properties, therefore incentivising a more productive use of land.
For domestic property, where the house price includes both land and building values, LVT would apply only to the land that the house stands on, so the difference in value between a 2-bed terrace in Stoke and a 2-bed terrace in Kensington would be taxed.
The UK currently has a deeply regressive and out of date council tax system, where the different tax bands are set according to the price of a property in 1991.
Speaking about the Bill, Caroline said:
“A Land Value Tax could be a fair and progressive way to encourage both the creation of more homes, and a more efficient and sustainable use of land by making it unprofitable to sit on unused land.
“Over a period of time, it could help to stabilise the property market and tackle the boom-and-bust factor that contributed towards the 2008 financial crisis – discouraging disproportionate amounts of capital from being tied up in property and excessive accumulation of debt.
“Unfortunately, despite increasing support for the idea amongst economists and politicians (2), no government has yet been willing to look seriously into the possibilities of introducing an LVT.
“With the IFS Mirrlees Review stating that the case for a ‘thorough official effort to design a workable system’ of LVT is ‘overwhelming’, I’m now calling on the Treasury to commission research into how the reform might work in practice.
“The signs so far are not encouraging – in responding to my previous debate on LVT, Treasury minister David Gauke stubbornly refused to consider the benefits of the tax and completely misrepresented the IFS position.
“But I’m hopeful that the Treasury will look again at the need for research into an LVT, and recognise that the UK is in dire need of progressive solutions to make our broken tax system more effective.”
1) In 1909, Prime Minister Winston Churchill explained LVT and its appeal:
“Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains—all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced.”
2) Business Secretary Vince Cable has also supported the idea,arguing at his party's annual conference in September 2010: “It will be said that in a world of internationally mobile capital and people it is counterproductive to tax personal income and corporate profit to uncompetitive levels. That is right. But a progressive alternative is to shift the tax base to property, and land, which cannot run away, [and] represents in Britain an extreme concentration of wealth.”