Without workers, there would be no labour. Without savers, there would be no capital. So you can justify both wages and capital. But why do landowners deserve rent? Without landowners, the land and natural resources would still be available. They have existed since the planet was formed. They have not been created by human effort or ingenuity. Even land drainage or reclamation requires labour and capital applied to natural resources.
Justice demands that the benefit arising from natural resources be shared by all. But how could this be accomplished with fairness and without destroying the incentive to work and invest? Attempts to impose land redistribution will always fail. They merely create a new class of landowner and thus continue to exclude landless citizens from enjoying the benefits to which all are entitled. A land value tax (LVT) on economic rent - the amount of money the land would generate if leased - is the only fair way to ensure that we all share nature's bounty.
All land would be valued and a tax rate applied (although parks freely open to all would pay no LVT), including empty urban sites on which landowners now pay no rates or taxes. Site values grow as the result of community activity - new roads, transport links, shops, offices, policing and other services. So why should the community not be repaid for the benefit it creates for the landowner?
LVT would be levied only on the land value, however, not on the buildings. At the moment we penalise, with higher business rates, people who improve their buildings, while we reward, with lower rates, those who let their buildings fall into disrepair. LVT would bring idle land in towns and cities into use. This would reduce costly urban sprawl. The extra supply of land would cut land prices and so cut accommodation costs for homes and business premises.
It is impossible to avoid LVT - land cannot be taken to Jersey in a suitcase. Consequently, it will be cheap to collect. It will require not only fewer tax collectors, but also fewer lawyers and accountants, employed in the private sector to advise on tax dodges - another cost that falls on both taxpayers and consumers.
The principle of LVT is not an untried one. Countries such as Denmark, Hong Kong and Taiwan utilise land values to help their economies. Towns in parts of Australia, South Africa, New Zealand and North America have adopted local forms of LVT. Alaskan oil wealth pays every citizen a dividend. Over the past 20 years, Harrisburg in Pennsylvania has enjoyed greater prosperity by switching a small local tax from buildings to land.
When Gordon Brown, the Chancellor, allocated the radio spectrum for 3G mobile phone networks three years ago, he did not give the rights to this natural resource free to the Duke of Westminster. He introduced a form of LVT. He auctioned licences for 20 years for £22.5bn. In the 2020s, the process can be repeated.
Development or planning-gain taxes do not share the advantages of LVT. If you tax an event, such as the development of land, then the owner can avoid the tax by avoiding the event. Previous land development taxes (introduced in 1947 by Clement Attlee, in 1967 by Harold Wilson and in 1976 by James Callaghan) all failed because they froze the land market, reduced supply and hence raised land prices. They benefited landowners at the expense of the rest of the community.
Why accept a one-off payment when LVT can provide annual revenues? Why lose out on increases in land values created by the activities of future generations? Development land, in any case, accounts for less than 5 per cent of all land.
Many other taxes damage the economy. But studies have shown that taxing land can help the economy grow more efficiently. If you charge for a scarce resource (such as land or road space), then you always get a more efficient use of the resource.
Profits from land speculation would fall. Investment would therefore divert into expanding businesses, creating more jobs and stimulating greater productivity. Thus, LVT offers a "land efficiency bonus", calculated by Ron Banks, author of Double-Cross (Centre for Land Policy Studies, 2002), as the equivalent of a staggering annual bounty of £15,000 per head of population.
With income from LVT, and the "land efficiency bonus", the government could provide new public transport infrastructure; abolish economically damaging property taxes such as council tax, business rates and stamp duty; raise personal allowances so that millions of lower-paid workers pay no income tax at all; and reduce VAT rates to help consumers and businesses. The tax would improve earned incomes; cut the cost of tax collection; provide affordable homes; reduce urban sprawl; avoid property-led business booms and slumps; and minimise the need for constant changes in interest rates to control land prices.
Labour's 1931 Budget included LVT, but the Conservative-dominated national government that took office shortly afterwards repealed the tax before it could be launched. Conservative MPs also defeated Herbert Morrison's 1939 bill introducing "site value rating", a tax on similar lines, in the old London County Council area. Now, LVT is being revived. Lord (Richard) Rogers's urban task force, for example, has called for a study of LVT. Kate Barker, a member of the Bank of England's monetary policy committee, recommended a "planning gain supplement" (another development land tax) in her Treasury-sponsored report on housing supply, published last March. But she drew attention to LVT as "a good method of raising revenue, without distorting behaviour".
LVT has supporters from across the political spectrum: socialists, liberals and conservatives. The Scottish Parliament is researching it; Liverpool City Council has asked to be a trial area for site value rating; Oxfordshire County Council is assessing land values in a trial area. It is an idea whose time has come, and the government should now assess the gains from applying LVT across the country. Then it should act upon the results.
Dave Wetzel is chair of the Labour Land Campaign (www.labourland.org)