A Land Value Tax is a payment equal to some proportion of the ground rent of land (the market rent of that land ignoring the value of any buildings or other improvements). A Land Value Tax is raised compulsorily by the state and would be introduced as a replacement for existing taxes.
For thousands of years, states raised their revenue, in cash or in kind, from the land that they defended from conquest, and whose title they guarantee. These charges for the ownership of land were gradually replaced in the UK during the eighteenth and nineteenth centuries by excise duties, income tax and the array of other taxes we know today. There are both ethical and efficiency reasons for replacing these with taxes levied on the land.
Efficient land use
All taxes discourage something. This may be the intention, as with tobacco and alcohol, or an unintended consequence like the eighteenth-century window tax which caused windows to be bricked up. A tax on the market rent of land, excluding any buildings or other improvements on it, would discourage owners from under-using their land and would therefore make it more available for others to put to good use.
Land banks contain useful development land that lies empty for decades. Much land is under-used and derelict, including over 200,000 homes that are empty for more than six months (Empty Homes Agency) and rarely-used holiday homes. Many properties are under-used, particularly where the mortgage has been paid off and there is no longer a need to generate income. A Land Value Tax provides an incentive to put the land to the best use permitted by the planning system, or to transfer it to somebody who will.
This land would become available, at a lower cost, to people who can make good use of it for new housing, new business or cultivation. This in turn would stimulate the economy, provide jobs and lead to more compact cities with co-location of work and housing.
A stable purchase price of land means that homes would be recognised to be dwellings not investments. Many who currently invest in land would stop doing so, including absentee landlords, speculators and those who invest in agricultural land for tax avoidance purposes.
Conventional taxes are easy to avoid or evade, particularly by corporations and by the very rich (The price of offshore revisited, Tax Justice Network). It is easy to move income, capital, production and profit offshore to havens where taxes are low. But you can’t hide land, or move it away.
Conventional taxes impose a Deadweight Loss on the economy that increases prices, reduces demand, destroys jobs and reduces output by at least £100bn a year in the UK, equivalent to £1,500 per year for every man, woman and child (Stewardship Economy 2011:102). They do the greatest damage in economically marginal areas where business is barely able to make a profit. Land Value Taxes impose no tax at all at marginal sites.
A Land Value Tax stabilises the purchase price (asset value) of land. Boom and bust in the economy is caused by speculation in assets like shares and land. Land is the cause of the most serious recessions, including the 2008 bank failures, government bailouts and the recession caused by a collapse in the price of American sub-prime housing.
Investment in well-conceived transport infrastructure leads to an increase in the value of the affected land, and Land Value Taxes rise in turn. Social investment, too, becomes self-funding, whether this be the provision of superfast broadband, good schools, policing and so on.
Replacing existing taxes with a Land Value Tax is a radical proposal that would address a range of seemingly intractable problems. These include poverty and inequalities, climate change, government spending, housing, regional development, agriculture, conflict and peace-building, macro-economics, single currency areas like the Euro, unemployment, the benefit system and immigration (Julian Pratt (2011) Stewardship Economy)
Support for Land Value Taxation
Economists have long understood that a tax on the market rent of land is the most economically efficient of taxes (Land Value Tax, The Economist). Growing support is reflected in publications by the World Bank and the International Monetary Fund, The Economist magazine and the Mirrlees Review of taxation in the UK. At the 2017 election it was mentioned in the manifestos of the Green Party, the Liberal Democrats and the Labour party. Perhaps such a business-friendly policy will be in time be adopted by the Conservative party.