In Land Revenue: the case for a Land Value Tax in the UK

Our current land economy serves us badly. The landed are getting loaded through no hard work of their own, while too few ordinary people can afford a decent home. With no tax on empty land in the UK, it can be more lucrative to acquire and hold onto swathes of empty land, watch its value rise as others invest in the area, and then sell it, than it is to develop it for people to live or work on. A Land Value Tax, targeted at unproductive wealth, could tackle this land-banking, spur the development of much-needed new homes, and help kickstart our ailing economy. In Land Revenue, a new paper published today by CLASS, adds to a growing chorus of voices from across the political spectrum advocating an age-old idea lent renewed currency by today’s straitened and unequal times.

Two thirds of the UK’s 60m acres of land are owned by just 0.36% of the population. An annual Land Value Tax levied on all land except that under occupied primary residences worth less than £2m would affect these wealthy landowners rather than ordinary homeowners and promote capital investment rather than idle speculation.

It would address a long-term driver of our chronic housing crisis – lack of land supply – by encouraging efficient use of land within the constraints of the democratic planning process. The message it would give is that those who own land should use it. And, given land is a visible, fixed, immovable asset that cannot be hidden or offshored, a Land Value Tax would be impossible for the rich and powerful to avoid.

It would more equitably align risk and reward. When the community as a whole, or the state on its behalf, takes a risk and invests in an area, for instance by developing its infrastructure, land values will rise and in turn should be taxed, returning a proportion of the gain to the public purse. Infrastructure investment could, in this way, become self-financing. A well-rehearsed example is London Underground’s Jubilee Line Extension which cost the taxpayer £3.5bn but resulted in a £10-13bn increase in land values along the route.

For it to work, compulsory registration of all land holdings would need to be introduced and enforced. Asset-rich but income-poor (generally older) people living in very expensive homes could defer payment until sale or transfer of the property. Calculations of the annualised market rental value of unimproved land should be based upon that land’s optimum permitted use. This would recognise the validity of different uses of land, so farmers, for example, would not go unduly punished for using their land for agriculture.

A new Land Value Tax should probably replace Business Rates and Stamp Duty. Council Tax would remain, although it is also in need of serious reform. Land Value Tax on very expensive primary residences would then supplement the Council Tax on them, which at that end of the market accounts for a tiny proportion of a property’s value.

Land taxes of various sorts exist in Australia and the USA, Denmark and Estonia, Taiwan, Hong Kong and Singapore, South Korea, Japan and some Caribbean states. Any attempt to introduce a Land Value Tax in the UK should draw on learning from these places.

Introducing a Land Value Tax here will take political courage, but it could help to deliver the house-building revolution, and the economic revival, our country desperately needs. It will mean facing down vested interests, not least the big land-banking ‘developers’ who deliberately drip-feed properties onto the market, making large profits on small volumes of output, even though they have the land and the country badly needs more homes. It will take a manifesto commitment, a real mandate, and no doubt a battle in parliament. But, at least in some sense, this land is ours, and our tax system should reflect that fact.