Land Value Taxation Campaign

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Land rent for public revenue

Land a bigger fish than the Mansion Tax minnow

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On 15th Sept. a colloquium on land value tax (LVT), held at the Westminster HQ of the Royal Institution of Chartered Surveyors (RICS), was presented with economic analysis suggesting that a single annual tax based on land values would be capable of producing potential revenue flows of £82 billion: sufficient to replace all existing property taxes.

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Scotland votes no

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The Campaign as such never had a view on whether Scotland should be independent. Scotland suffers from the disadvantage of being distant both from the main centres of population in Great Britain, and also from the ports in the South-East that provide easy connections to mainland Europe. Thus, since the decline of the heavy industry which was the mainstay of the Scottish economy, the country has been struggling. This must surely have been one of the driving forces behind the independence movement.

It is not, however, just Scotland that suffers from geographical disadvantages; the same can be said of most of England north of about Leeds, as well as Devon, Cornwall and most of Wales and Northern Ireland. Ricardo's Law of Rent can be seen here having its effect at a country-wide scale, with these peripheral locations being at the margin.

One of the many shortcomings of the tax system is that it takes no account of locational advantage and disadvantage, and consequently it attempts to levy taxes at the margin. This is by definition impossible. The result is that economic activity is unviable over large tracts of the country, which then become a commercial and industrial wasteland. In Newcastle city centre, for instance, it seems as if estate agents' boards are sprouting from every other building, whilst Devon and Cornwall - and indeed much of the south of England - only survive on their seasonal coastal tourist trade. Increasingly, the population, and most of Britain's economic activity, are concentrated into the bottom-right hand corner of the country, which in turn imposes costs as infrastructure is overloaded and the demand for housing becomes insatiable.

We hate to have to keep on repeating this, but a shift from existing taxes to a tax on the rental value of land is the only way to deal with this problem. That ensures that taxes are highest where there is the most ability to pay. This reform effectively creates tax havens precisely where they are most needed. No taxes are levied at the margin, and so economic opportunities would be opened up where, at present, commerce is stymied by the tax system. In this way, the people of not only Scotland but also all the other peripheral regions of the country would be better able to make a go of things.

 

LVT in the wider context

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It is nearly two months since anything new has been added to the Campaign website. There has been little in the news that it would have been appropriate to respond to. Bigger events have moved onto centre stage, including the takeover of large areas of Iraq by Islamists, the associated massacres that have accompanied that, the war in Gaza and unfolding events in Ukraine. Our supporters will have divergent views on  these conflicts, but all of them are, amongst other things, battles for control of land and natural resources. The Iraq conflict is in and around the area of the oil fields, whilst Ukraine is a source of valuable coal which is exported to, amongst other places, the UK.

Gaza and Palestine generally are another matter. Proposals have been put forward from time to time for solutions which would involve rent-sharing, for example by Fred Foldvary. Land ownership in Israel/Palestine is a complex topic in itself. At the end of the Ottoman period, the major landowners were the Greek Orthodox Church and absentees, letting to rack-rented tenants. The GOC has retained its land holdings and even the Israeli parliament building is on leased land. The absentees sold to the Jewish National Fund which then leased it to Jewish settlers, though until the Nazis came to power in the 1930s their numbers were small, the influx was a trickle and it seemed unlikely that there would ever be enough Jews to make it possible to establish a Jewish state. Most of the absentee landlowners lost their property in the 1948 war.

It is interesting to speculate what might happen if the Israelis were suddenly to depart, leaving the country vacant but in good order. The grandchildren of the pre-1948 owners might emerge; on what basis could they make their claims? Documents would have to be produced, not only relating to land titles but also to inheritance. Courts would have to be set up to deal with it all. What assumptions would or could they make regarding the inheritance over two generations of property which had been thought lost for all time?

 

 

The living wage

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The issue of the “living wage” inevitably crops up from time to time and has done so again recently. The notion can be traced back to at least St Thomas Aquinas and has long featured in Catholic moral teaching. The Anglican Archbishop of York recently called for a ‘living wage’ to be paid to all government workers. In a recent newspaper article, he said, “what workers really need is pay, not platitudes”.

We have always asserted that workers should receive the full fruits of their labour, and in most normal circumstances that should be more than enough to support a labourer and his family. The difficulty is that wages cannot be set directly by legislation or decree, because they are governed by economic laws. These need to be understood if the problem is to be remedied.

The law of wages can be formally stated as follows: where land is free, and everyone who so wishes may procure a portion to himself, wages are determined by what a man can produce at the margin without the payment of economic rent. In this situation, there is always the choice between working for an employer and working on one’s own account on a plot of marginal land, free of any requirement to pay rent. In practice, this might mean the opportunity to provide for oneself on some kind of smallholding. Of course not everyone would wish to or be able to, but the fact that the opportunity existed would mean that no-one would be forced to work for penurious wages as they would always have the option to be self-sufficient.

In practice, all land is normally enclosed. Everyone who is not a landowner is like someone who joins a game of Monopoly after all the squares (apart from the twelve that are not for sale) are owned by one or more of the original players. The newcomers are obliged to pay rent almost wherever they land. The board game is in this respect a true model of the real world. Where all land is enclosed, those with no access to land must either pay rent or work for wages on the best terms they can obtain, in other words, the least anyone will accept. Since they cannot work for each other on their own account, they will be competing for apparently scarce jobs. This will drive down wages to a subsistence level. Where some kind of benefit payment system is in operation, take-home pay will equate to the level of benefits. In effect, the benefit sets a “floor” to wages. The overall result is that economic activity is throttled.

A further effect of an increase in wages is to drive up residential rents and property prices. Thus, the minimum wage legislation eventually leads to no overall improvement. The effect was described in a speech given by Winston Churchill in the House of Commons in 1909, when he was campaigning for land value taxation:

“Some years ago in London there was a toll-bar on a bridge across the Thames, and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted of so large a proportion of their earnings appealed to the public conscience: an agitation was set on foot, municipal authorities were roused, and at the cost of the ratepayers the bridge was freed and the toll removed. All those people who used the bridge were saved 6d. a week. Within a very short period from that time the rents on the south side of the river were found to have advanced by about 6d. a week, or the amount of the toll which had been remitted.”

For practical reasons, in our present system of economic organisation, all land is, probably of necessity, enclosed. For historical reasons, this enclosed land is owned and controlled by a small proportion of the population. In these circumstances, the best and quickest way to increase the general level of real wages is to abolish taxes on wages and production and use the annual rental value of land as the principal source of public revenue. It would probably also be necessary to introduce some kind of unconditional “citizens’ income”, paid for out of the land value tax, as a safety net for those who were genuinely unable to provide for themselves.

   

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