The simple case for taxing land
[A speech delivered in the U.K. House of Commons, 24
The difficulty in stating the case for taxing land is that it is so
simple; and simple things are often difficult to put across. There are
indeed some who see land taxation as the basis of an entirely
different economic order replacing market capitalism. Maybe. But it is
also possible to see it as an improvement in the tax system of a
normal capitalist mixed economy. Thus I do not believe that it will
cure cancer, abolish war or even eliminate boom and bust. But it is
still well worthwhile.
Most forms of direct taxation are inevitably a disincentive to
enterprise and work. So are most forms of indirect taxation, although
this is less obvious. The advantage of a land tax over other kinds of
tax is that it is in principle based on pure space and need not be a
disincentive to either capital or labour. If you are religious you can
say it was given by God. In more secular terms land has a zero
elasticity of supply. Indeed it provides a positive incentive to use
land wisely and not to hoard it. It is also one of these rare things:
a redistributive measure with few adverse kickbacks. (Land ownership
is far more concentrated than wage income or even capital ownership.)
These features were noticed as long ago as the early nineteenth
century by the classical economist David Ricardo. Towards the end of
that century the American social reformer Henry George advocated a
single tax on land ownership as the main source of government revenue.
The Attlee government attempted to nationalize development values, but
its plans floundered in a morass of legal and political complication.
The present Labour Government tried to nibble at the problem with a
Planning Gains Tax, proposed in the 2005 Pre-Budget Report.
Unfortunately all the vested interests affected immediately joined
forces to lobby against it; and it was withdrawn in the 2007 PBR.
Instead there was a return to the old vague exhortations to local
authorities to deals with developers to provide social infrastructure
and so on.
A hackneyed contrary argument is that you cannot separate the portion
of land value representing pure space from that representing man-made
improvements ranging from simple drainage to the erection of
commercially useful buildings. Can't you just? Valuers are doing it
every day. A clear example is the increment of land value resulting
either from planning permission or the extension of public facilities,
such as the Jubilee Line in London. Not far from the Financial Times
in Southwark, South London, a property developer named Don Riley has
an office which looks out over a site that was available for purchase
in 1980 for £100,000. In January 2000 it was sold for £2.6m.
The gain was 'money in the bank' for the owners but nothing was
contributed to the general welfare.
I suspect that the main reason for popular lack if enthusiasm for a
land tax is the suspicion that it is not a genuine tax reform but an
addition to the total tax burden, if not a stealth tax at least a
backdoor tax. And who is to say that popular opinion would be wrong?
It is therefore very important that some other highly visible tax is
removed or reduced at the same time. A land tax should not be
introduced in the context of a general tax-raising budget. And
whatever your hopes of its ultimate yield it should start of in a
small way, as income tax did under Pitt.
Meanwhile let me commend a not very novel simple halfway house
practical proposal. Why not auction planning permission? Many local
authorities have approached this piecemeal by making such permission
conditional on the provision of services such as leisure centres,
approach roads and so on. Why not instead use the proceeds of auctions
as a contribution to local authority revenue; or better still return
this windfall to the local taxpayer in the form of asset distribution
and let citizens decide how to spend it?
Finally, let me make a very general point. It is one I make to
supporters of other unconventional reforms I support such as a basic
income for all. This is that the reformers should not retire into a
corner and talk to themselves, but should participate in general
fiscal and economic debate. Of course they should submit their ideas
to bodies like the Barker Review or the ongoing IFS Commission on the
tax system. But I mean a little more than that which they are more or
less doing already. They should examine proposals already in the air,
like the Planning Gains Tax, and instead of simply underlining their
shortcomings, consider how they might be improved and become a step to
the final goal. A half a loaf can be better than no bread.