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27 May 2002

We should soak the landowners

Lloyd George favoured it; so did Churchill and Adam Smith. Denmark has one, as does Sydney, Australi

By Antonia Swinson

How exhausting, expensive, maddening to live in a country where our destiny is to be squashed between a red-blooded feudal system and an even more rapacious market economy. So we have a Queen who receives a £50m tax-free bunce from her mother in a jubilee year, and much happy swapping of palaces, at a time when every news story apparently points to a population on the verge of a nervous breakdown: lousy infrastructure (Potters Bar just the latest spasm), an NHS where catching a hospital infection is a one-in-ten shot, and an education system that offers our children lower horizons than their parents had. Yet making connections with these increasingly sore subjects is at last allowing the revival of a political big idea which, since David Lloyd George was chancellor before the First World War, has dared not speak its name: land value taxation (LVT).

If Tony Blair wants his place in history to be half as exciting as Lloyd George’s – and if he wants Cherie to stop griping about how much they lost from selling the house in Islington before prices soared – now is the time to suggest LVT to the boy next door. This taxes the rental value of land annually, recognising that landowners, whether rural or urban, living in Cumberland or Islington, see their wealth rising not through their own efforts, but through the investment and activity of the local community. An office in the Hebrides has less rental value than one in Hampstead because of the huge difference in the numbers of people keen to live and work there. Local facilities provided by the taxpayer also create value; a house near a good state school attracts a 20 per cent premium. Owners of land near new infrastructure see values explode, yet none of these gains is returned to the community.

LVT eliminates tax dodgers because you can’t take land offshore. It also delivers speedy social and environmental benefits: our million empty homes would soon be occupied (and so would brownfield sites), for who would want to pay tax on an empty asset? And taxes on labour, employment, goods and services could be reduced.

Pie in the sky? Perhaps not. Offshore property companies own huge tracts of undeveloped land in Liverpool: it helps their balance sheet collateral. The city council is lobbying Westminster to allow it to raise a land tax. In Edinburgh, businessmen propose that a suburban passenger railway could be wholly funded from the rising values of adjoining land. A property developer, Don Riley, in his book Taken for a Ride, estimated that surrounding land values along London’s Jubilee Line rose by £1.3bn per station – untaxed gains that could easily have provided the £3.5bn costs of building the Tube line, which runs through some of the UK’s most deprived areas.

Economists’ arguments against LVT are long rehearsed, much bolstered over the years by the considerable public relations finesse of the big landowners who have positioned themselves as custodians of the national heritage. They argue that it is not possible to separate building values from land for tax purposes. (Land speculators and property developers manage this beautifully.) LVT, they say, would not provide an adequate fiscal base for the welfare state – though no national statistical data has been given to support this. Then there is that little old lady in the big house who pays the same LVT as the millionaire next door. Finally, LVT is a violation of sacred property rights: that “Englishman’s home is his castle” killer line. But LVT is not strictly a tax, rather a fee for benefits conferred by exclusive occupancy, and therefore no different in principle from a parking meter charge or a seat at the theatre, the price of which is dependent on its position.

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It is difficult not to smell a conspiracy in a country where landowners, roughly equivalent in number to the population of Aberdeen, control and own more than 90 per cent of the UK land mass (and receive around £4bn in subsidies). So in this transparent age of databases, the Treasury, astonishingly, keeps no records of the flow of income of landowners. Even the Land Registry contains details on only about 65 per cent of UK land – that sold since 1928.

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Yet, long before our digital age, such calculations were made, and the relics are to be found in the Public Record Office in Kew – dusty evidence of Lloyd George’s bold though unsuccessful experiment to introduce land value taxation in the “people’s Budget” of 1909. This budget brought the Valuation Office into existence. Scores of Inland Revenue valuers scoured the country, creating what has been dubbed the new Domesday Book. Long forgotten, these maps were discovered in the early 1990s by Professor Brian Short, then researching his book Land and Society in Edwardian Britain. In Edinburgh last month, a leading land reformer, Andy Wightman, came across the completed Scottish survey at the National Archives of Scotland, exact maps recorded in neat purple ink.

Not that Lloyd George was the first fan of LVT. Adam Smith wrote in The Wealth of Nations (1776): “Ground rents are perhaps a species of revenue which can best bear to have a peculiar tax imposed upon them.” In 1848, Lord Aberdeen judged LVT as the best means of paying for the colony of Hong Kong. Inadvertently, he unlocked the potential of one of the world’s most dynamic economies. Then the American economist Henry George attracted a worldwide following in 1879 with Progress and Poverty, in which he called for an LVT of up to 90 per cent. His disciples included Mark Twain and Tolstoy. By the time Lloyd George introduced his “people’s Budget”, the merits of LVT were showing signs of becoming conventional wisdom.

He did not actually propose a full-blooded land tax, merely a tax on sales of land. But for the landowning House of Lords, this was the thin end of a wedge for nationalisation. Winston Churchill, then president of the Board of Trade, proposed it and the Lords threw it out. As a result, in 1911, the Liberal government succeeded in putting through the Parliament Act, which henceforth limited the upper chamber’s power to delay legislation. Then the First World War intervened.

As the years went by, the growth in private home ownership caused British politicians to sideline the idea. Meanwhile a market dominated by speculators has created a climate where disinformation about green-belt preservation and hand-wringing over a shortage of housing for key workers abound. How extraordinarily blind we are. There is no shortage of bricks, mortar, builders or land: according to Kevin Cahill, author of Who Owns Britain, 99.9 per cent of us live on less than 9 per cent of the land mass – it’s the other 0.1 per cent who have us in a neck lock.

The charm of a land tax is that, unlike other forms of taxation, it stimulates economic activity rather than dampening it: what’s the point of hanging on to land, waiting for it to go up in value, if you have to pay tax on it? The Centre for Land Policy Studies estimates that, under the current taxation system, the UK economy loses £881bn through tax avoidance, the black economy and lost output of goods and services. To raise £20bn for the NHS over the next three years will, the centre estimates, cost £63bn in what economists call dead-weight loss.

Denmark has had land taxation since 1843, with 1 per cent of the value of both land and buildings taxed nationally, and up to 2.4 per cent of the land values taxed locally, with valuations every two years. Cities in the US, New Zealand and Australia raise local revenue from LVT; Sydney raises all its municipal revenues in this way. Yet, though the Liberal Democrats support the idea, the UK Treasury says it has “no plans” even to research LVT, and the Labour Party refuses to put it on its policy agenda. It wants, it says, the widest possible tax base (and you have to admit it’s pretty wide when even those earning only £4,600 a year will pay the extra 1 per cent in national insurance contributions); when questioned on LVT, one Labour Party press officer called it “as daft as the window tax”.

Tony Blair has said he is determined to end poverty. LVT would be a means of providing painlessly for an old Labour-style public spending programme, as well as paying for an ageing population. How clearly this would demonstrate to wavering Mondeo Man and Worcester Woman that Iain Duncan Smith and his “we feel your pain” Tories are mere placemen of the Lord Cranbornes and myriad other descendants of the Plantagenet ascendancy.

Antonia Swinson writes for Scotland on Sunday