by Callum Anderson
Anyone who read Oxfam’s report this week, which revealed that the 85 richest people in the world possess the same level of wealth as the poorest half of the global population, would have been shocked at the magnitude of global inequality. Things aren’t much better here in Britain. Just 189,000 families (roughly 0.6 per cent of the UK population) own two-thirds of the UK’s 60 million acres.
The what-who-how much elements of taxation are ones which have always been fiercely contested by Labour, Conservatives (oh, and Lib Dems) alike. However, as wages stagnate, the gap between rich and poor grow larger by the year, Labour should grab the initiative in this debate. However, instead of pursuing a somewhat one-dimensional tax policy in calling for the return of the 50p tax rate post-2015, the two Eds could, and must, be bolder in laying out a plan that not only yields the most revenue, but also begins to adequately address the inequality that stains our society. But one thing is clear – heavily taxing income is likely not an efficient way of doing this; instead, it is wealth that any future government must concentrate on.
As that great redistributionist, Winston Churchill, put it speaking in the House of Commons in 1909:
“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 – and 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. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived … the unearned increment on the land is reaped by the land monopolist in exact proportion, not to the service, but to the disservice done.”
By moving toward a land value tax (LVT), or at least some form of it, a One Nation Labour Government could deliver a tax system which truly begins to orient itself toward wealth, and away from income. The benefits to this are obvious: lower taxes on income would encourage people to work, whilst more substantial taxes on wealth (i.e. land) would see high net worth individuals genuinely pay their fair share in tax. It is important to note, incidentally, that LVT would replace council tax, business rates, and, perhaps, even inheritance taxes.
And there are many practical benefits of an LVT. Here are just a few.
First, LVT could not be avoided (Unlike income tax and business taxes where tax avoidance experts are in great demand and the ‘shadow economy’ flourishes to evade taxes). Land is a visible, fixed, immovable asset. As such, it cannot be hidden or offshored, making avoidance of LVT difficult. Moreover, unlike Inheritance Tax or Capital Gains Tax, it does not depend upon death or disposal, making avoidance harder still. And because the supply of land is fixed, a Land Value Tax has no substitution effect, and therefore no deadweight cost or distortion, making it highly efficient.
Second, an LVT would encourage a shift of private investment from land speculation (which creates no extra land but only higher land prices) to productive enterprises. And, as Merryn Somerset Webb has correctly pointed out, as LVT is not collected on any improvements made to land or to buildings on land, it does not discourage productive activity. Instead, it encourages people to bring idle land into use, to improve land they own and to be more productive.
Third, an LVT would provide automatic compensation for those sites which are disadvantaged by a new development. For example: with a new railway line most sites (especially those near stations) benefit from big increases in land values but some sites (maybe housing close to the track and suffering from its noise and vibration) would lose some value. These sites would pay a lower Land Value Tax, providing automatic compensation without any complicated appeals system.
There could also be significant potential benefits for the UK’s cities. LVT would help avoid urban sprawl. As brown field sites would be developed within towns and cities it would be unnecessary to permit urban sprawl. Compact towns are also more efficient in their use of resources for transport and other services. Blanca Fernandez of the London School of Economics has rightly pointed out that many European cities need high levels of investment over the next decade, particularly in transport and housing. With austerity reigning supreme within European national governments, yet cities still requiring new local funding methods, a land value tax could raise vital new revenue for future investments.
Indeed, it is the potential to hand more revenue raising and spending control to local councils and cities that is, to me, one of the most attractive elements of LVT. By handing over the reigns of control for tax and spending to our councils (and, yes, Scotland, Wales and Northern Ireland), One Nation Labour could truly be the party of localism – giving local people a greater say in how tax revenues are spent within the neighbourhood – and subsequently transform the country.
So, whilst a LVT may be difficult to implement initially (some growing pains have been seen in Denmark, for example), there would be great potential for a One Nation Labour government to genuinely offer a fairer, and more equitable, tax system, which would finally see a proper shift in emphasis on revenue collection from income to wealth, incentivising work, and, finally, beginning to narrow the inequality gap that has stained our society for far too long.
Callum Anderson currently works at the Community Development Foundation