A tax on unearned profits in the volatile property market could put an end to boom-and-bust and create a fairer housing system by shifting the tax burden onto developers and wealthy individuals who profit from soaring property prices, according to a report published by MP for Brighton Pavilion today.
A Land Value Tax for England: Fair, Efficient, Sustainable sets out a strong case for a new tax on the value of land to be gradually introduced over a period of 10 years as a replacement for Business Rates and Council Tax, concluding that an LVT would:
• treat all land on an equal basis
• eliminate inefficient allocation of land
• eliminate speculative gains arising through unproductive activity
• promote affordable access to housing and other vital land-based assets
• lead to most households paying less than they currently do in current council tax
• lead to most businesses paying less than they currently do under in business rates
The report, authored by land reform analyst Andy Wightman, clearly illustrates that a Land Value Tax would be fairer than the current council tax arrangements, under which the owner of the most expensive flat in London’s One Hyde Park development, for example, pays only £1,369 in council tax – 0.001% of its £135m value.
Meanwhile the Sultan of Brunei pays only £32 a month more in council tax for his Kensington Palace Gardens home than some of the poorest people in that borough.
The concept of an LVT has long been touted by figures such as Winston Churchill and Vince Cable (2) 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.
The Brighton Pavilion MP, whose Land Value Tax Bill is due its second reading in Parliament in April, will make the case for an LVT at an event at the Liberal Democrats’ spring conference on Saturday.
Caroline Lucas MP said:
“This report shows clearly that introducing a Land Value Tax would be an affordable and feasible way of addressing the severe inequalities in our property market and the wider economy.
“An 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.
“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.
“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.
“In light of this report, and the conclusion of the IFS Mirrlees Reviewthat the case for a ‘thorough official effort to design a workable system’ of LVT is ‘overwhelming’, I hope the Treasury will look again at the need for research into an LVT as a fair solution to help fix our broken tax system.”
1) The full report is available here.
2) 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.”
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.”