Mehdi Hasan: Time to talk about land taxes

An important contribution from the FT's Samuel Brittan.

Samuel Brittan, often described as the "doyen of British economic journalists", has an important column in today's Financial Times, provocatively entitled:

Tax England's green and pleasant land

Brittan - despite his background as a Thatcherite and monetarist - has been one of the most vocal, consistent and well-informed opponents of austerity economics in recent years. Today, he says:

Whatever one thinks of fiscal austerity, governments will need a new source of income in future if only because of demographic trends.

So what does he propose? A land tax. Indeed, as the Lib Dem Business Secretary Vince Cable argued 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.

I'm not sure it's an either/or question, of income taxes versus land taxes, but Cable is correct to point out that the latter are harder to dodge, avoid and evade. And while a land tax is progressive and fair, and a potential means of redistributing wealth, it's also a mainstream and sensible proposal.

"[F]ar from being an outrageous Bolshevik idea," explains Brittan in today's FT

the case for a land tax is one of the oldest and least disputed propositions in economic thought. The underlying theory was developed at the beginning of the 19th century by the highly respectable David Ricardo. Many chancellors have said that they would jump at a tax that had no disincentive effects on work or enterprise but had a strong redistributive element. The problem was that the amount of preliminary work required would take more than one parliament and any credit for the measure would redound to their successors.

He continues:

A land tax is one of those subjects - basic income is another - which divides commentators into a great majority who never mention it, and a minority who talk of nothing else. The result is to give supporters a cranky appearance, while the eyes of chancellors of either main party glaze over if you as much as mention the subject.

The basic point is that the supply of land, with rare exceptions such as reclamation in the Netherlands, is fixed. But because of its scarcity owners can command an income over and above the normal return to the enterprises placed upon it. Gross UK trading profits of non-financial and non-oil corporations are running at over £200bn per year or about 20 per cent of gross domestic output. Some part of this - we do not know how much - is not true profit but the return on land. There is one way in which the supply of usable land can increase. That is when land, previously off limits, is newly released by local authorities for development. The consequent increase in value, say some land tax campaigners, is created by "the community", which is entitled to a share of the increment. But to argue in this way is to sell the case short. The case for a land tax is valid even for land which always was available for development or which remains in agricultural use.

My editor Jason Cowley made the case for a land tax in a New Statesman cover story in October 2010:

An annual land value tax would not only provide a new and fairer source of income, Wetzel said, but would encourage owners of empty buildings and empty land to put their properties to good use. Towns and cities would become more efficient and the need for urban sprawl would be reduced.

Meanwhile my NS colleague Rafael Behr addresses the issue of land taxation, and the wider rows and divisions over taxation and the forthcoming Budget, in his politics column this week. Clegg, he writes

clings to the idea of a "mansion tax" on houses worth more than £2m.

That policy is toxic for Tories, whose safe seats are dotted with fancy real estate. The prospect of sizing up the nation's housing stock for a new tax threatens also to make ordinary households look wealthier than they feel. Labour, by contrast, is open to the idea. The mansion tax is being actively debated in Ed Miliband's office, partly because the leader's freshly advertised enthusiasm for fiscal discipline needs reinforcing with revenue-raising measures and partly because, with parliament on course to stay hung at the next election, there are strategic reasons to flirt with Lib Dem policy.

Privately, senior figures around Miliband admit to being impressed at how effectively Nick Clegg has set the terms of pre-Budget debate and put the Tories on the defensive. Although Labour harbours no affection for the Lib Dems, there is recognition of a shared interest in branding the Conservatives as defenders of inherited privilege and hoarded wealth.

A senior Labour figure told me recently that the the party leadership plans to focus on "taxes at the top" in the coming days and weeks. Good. It's a case I made in the Guardian just a fortnight ago - and I do hope that land taxes, mansion taxes and the rest feature as part of the impending discussion. Perhaps the shadow health secretary can chip in again. And David Miliband too. Oh, and from the right, ConservativeHome's Tim Montgomerie.

I leave you with Brittan's concluding line from his excellent FT column:

If politicians really want to think about the unthinkable, as they sometimes claim, here is a place to start.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

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Debunking Boris Johnson's claim that energy bills will be lower if we leave the EU

Why the Brexiteers' energy policy is less power to the people and more electric shock.

Boris Johnson and Michael Gove have promised that they will end VAT on domestic energy bills if the country votes to leave in the EU referendum. This would save Britain £2bn, or "over £60" per household, they claimed in The Sun this morning.

They are right that this is not something that could be done without leaving the Union. But is such a promise responsible? Might Brexit in fact cost us much more in increased energy bills than an end to VAT could ever hope to save? Quite probably.

Let’s do the maths...

In 2014, the latest year for which figures are available, the UK imported 46 per cent of our total energy supply. Over 20 other countries helped us keep our lights on, from Russian coal to Norwegian gas. And according to Energy Secretary Amber Rudd, this trend is only set to continue (regardless of the potential for domestic fracking), thanks to our declining reserves of North Sea gas and oil.


Click to enlarge.

The reliance on imports makes the UK highly vulnerable to fluctuations in the value of the pound: the lower its value, the more we have to pay for anything we import. This is a situation that could spell disaster in the case of a Brexit, with the Treasury estimating that a vote to leave could cause the pound to fall by 12 per cent.

So what does this mean for our energy bills? According to December’s figures from the Office of National Statistics, the average UK household spends £25.80 a week on gas, electricity and other fuels, which adds up to £35.7bn a year across the UK. And if roughly 45 per cent (£16.4bn) of that amount is based on imports, then a devaluation of the pound could cause their cost to rise 12 per cent – to £18.4bn.

This would represent a 5.6 per cent increase in our total spending on domestic energy, bringing the annual cost up to £37.7bn, and resulting in a £75 a year rise per average household. That’s £11 more than the Brexiteers have promised removing VAT would reduce bills by. 

This is a rough estimate – and adjustments would have to be made to account for the varying exchange rates of the countries we trade with, as well as the proportion of the energy imports that are allocated to domestic use – but it makes a start at holding Johnson and Gove’s latest figures to account.

Here are five other ways in which leaving the EU could risk soaring energy prices:

We would have less control over EU energy policy

A new report from Chatham House argues that the deeply integrated nature of the UK’s energy system means that we couldn’t simply switch-off the  relationship with the EU. “It would be neither possible nor desirable to ‘unplug’ the UK from Europe’s energy networks,” they argue. “A degree of continued adherence to EU market, environmental and governance rules would be inevitable.”

Exclusion from Europe’s Internal Energy Market could have a long-term negative impact

Secretary of State for Energy and Climate Change Amber Rudd said that a Brexit was likely to produce an “electric shock” for UK energy customers – with costs spiralling upwards “by at least half a billion pounds a year”. This claim was based on Vivid Economic’s report for the National Grid, which warned that if Britain was excluded from the IEM, the potential impact “could be up to £500m per year by the early 2020s”.

Brexit could make our energy supply less secure

Rudd has also stressed  the risks to energy security that a vote to Leave could entail. In a speech made last Thursday, she pointed her finger particularly in the direction of Vladamir Putin and his ability to bloc gas supplies to the UK: “As a bloc of 500 million people we have the power to force Putin’s hand. We can coordinate our response to a crisis.”

It could also choke investment into British energy infrastructure

£45bn was invested in Britain’s energy system from elsewhere in the EU in 2014. But the German industrial conglomerate Siemens, who makes hundreds of the turbines used the UK’s offshore windfarms, has warned that Brexit “could make the UK a less attractive place to do business”.

Petrol costs would also rise

The AA has warned that leaving the EU could cause petrol prices to rise by as much 19p a litre. That’s an extra £10 every time you fill up the family car. More cautious estimates, such as that from the RAC, still see pump prices rising by £2 per tank.

The EU is an invaluable ally in the fight against Climate Change

At a speech at a solar farm in Lincolnshire last Friday, Jeremy Corbyn argued that the need for co-orinated energy policy is now greater than ever “Climate change is one of the greatest fights of our generation and, at a time when the Government has scrapped funding for green projects, it is vital that we remain in the EU so we can keep accessing valuable funding streams to protect our environment.”

Corbyn’s statement builds upon those made by Green Party MEP, Keith Taylor, whose consultations with research groups have stressed the importance of maintaining the EU’s energy efficiency directive: “Outside the EU, the government’s zeal for deregulation will put a kibosh on the progress made on energy efficiency in Britain.”

India Bourke is the New Statesman's editorial assistant.