Land Value Taxation Campaign

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Land rent for public revenue

Scottish local tax study kicks LVT can down road

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The Scottish Local Tax Reform Commission has just published its 96 page final report, Just Change: A New Approach to Local Taxation. The remit of the 13-member commission was

"To identify and examine alternatives that would deliver a fairer system of local taxation to support the funding of services delivered by local government. In doing so, the Commission will consider:

  • The impacts on individuals, households and inequalities in income and wealth;
  • The wider macro-economic, demographic and fiscal impacts, including housing market and land use;
  • The administrative and collection arrangements that apply, including the costs of transition and subsequent operation;
  • Potential timetables for transition, with due regard to the 2017 Local Government elections;
  • The impacts on supporting local democracy, including on the financial accountability and autonomy of Local Government;
  • The revenue raising capacity of the alternatives at both local authority and national levels.

Whilst the discussion is comprehensive, it seems to come to no firm conclusions at all in terms of a set of policies that could be implemented to an actual timetable. On the subject of land value taxation, it just kicks the can down the road with this:-

"We believe that a system of land value tax is promising, but that, while the work done for the Commission has been of unprecedented scale, gaining a full understanding of its impact would require further analysis. Any system of administering property based taxation should provide sufficient flexibility in time that site values could form a tax base for a system of land value taxation. Further work should be done over the next parliamentary term to assess both general and targeted land value taxes, and their introduction should be given consideration as part of a broadened system of local taxation."

The report adds little to what has been written by various other committees that have set up to deal with the same subject over the past forty years. It could have saved itself most of its time and effort by simply regurgitating what has been said before. More usefully, the members could have begun by reading the Brisbane report on local taxation, which analyses the subject from first principles.

So these deliberations add nothing useful. One has to wonder what is the point of setting up these commissions when they cannot come down in support of anything? It indicates a combination of conceptual limitation and political cowardice. The best thing about the report is that it contains some attractive photographs of Scottish towns and villages.

 

What is LVT - at length

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A new 3000 word article available as a download discusses LVT in fuller detail, beginnning with an explanation of how land value arises and what it actually is (and is not). One of its aims is to dispel the growing misconception that LVT is a wealth tax based on the selling prices of land. LVT is not a wealth tax and it is a charge on the its rental value, which is an actual or imputed revenue stream. Selling prices are of significance in so far as they are the capitalisation of the rental income that is retained by the title holder, and are thus one means amongst others of establishing rental values.

 

Begging according to Georgist principles - update

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Abour twenty years ago there was a man in Brighton who would go up to people in the street and ask them for ten pee. He cannot have been very successful as he later reduced his request to a pee. Perhaps he did not generate sufficient sympathy, being big, sturdy and obviously well-fed. Other beggars adopted different strategies. A popular one was to ask for the bus fare to Eastbourne as they had lost their return ticket, or, more daringly, the train fare to Southampton to see a dying mother. New Cross station in south London was a popular haunt. One beggar needed the fare to go to London Bridge for an appointment at Guy's Hospital; another lurked around the entrance, and, following a pace behind women with children in prams, ask people coming in the opposite direction for money to feed the child.

That sort of begging seems to have taken hold in the 1980s as the social fabric started to fray. In more recent times there has been a huge increase in beggars from Bulgaria and Romania, following their entry to the EU. This has brought begging into countries where it was unknown in modern times, including Germany and Scandinavia, where comprehensive welfare states had made it unnecessary.

People find it an irritation and embarrassment, and there is constant talk of doing something about it. But what? If people didn’t give, the beggars would go away, but obviously enough people are happy to drop a coin in their direction, for whatever reason. There are more who will buy them a sandwich or coffee. They can even perform a useful service, collecting empty bottles and claiming the deposits, or taking unwanted food sold as 3-for-the-price-of-2 offers. Others are a nuisance, when they come up to people in the street. There are rumours that they can act even more aggressively, for example, by escorting people to cashpointss and forcing them to take out money and hand it over.


PITCH WARS
There are claims that they operate as organised gangs. There is indeed evidence that some kind of mafia is in operation. Homeless people in Sweden who sell a magazine called Faktum (equivalent of The Big Issue), have been complaining that they have been forced off their regular pitches, sometimes at knifepoint, by heavies from Rumania and Bulgaria. There is certainly collaboration between the beggars – for example, in organising transport, and probably accommodation as well. There is talk about banning begging altogether in Sweden, but the fact that the best pitches - at the entrances to railway stations, shopping malls or next to busy bus stops, are now coming under control by protection rackets taking a cut of the taking points to a potential and constructive solution. The mafias are collecting a rental value which could be collected by the local authority instead, thereby applying Georgist principles to bring the whole activity under control?

All beggars within the city area would be required to purchase a license, valid for a month or two. They would get a badge with a photograph, registration number and expiry date, which they would have to display when at "work". There would be conditions which they would have to comply with – for example, they should not be allowed to approach people. If they broke the rules they would lose their licence.

What about those rental values? These arise in the busiest areas of the city. It would be necessary to designate zones where it was only permitted to beg at particular marked pitches. To use these sites, between, say, 8 am and 8 pm, an additional session permit would have to be purchased; these could be for an hour or two. Initially, the charges could be set as a rough-and-ready flat fee, but they would have to be reviewed regularly so that the charges more closely reflected the values of the different sites. Obviously a balance would have to be struck between optimising the charges and keeping the system as simple as possible. The permits might allow limited trading or other activities such as playing music.

In effect, the community would take over the role of protection currently provided by the criminal gangs, who would be forced out of business. This would be to the advantage of the beggars themselves. Given that the criminals obviously find it is worth the effort, the revenue should at least be sufficient to pay for a team of inspectors, and possibly a profit on top for the city’s coffers.

 

Incidence of property taxes

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I regularly get into arguments with people who think that property taxes are paid by tenants. Now it is true that tenants in the UK are nominally responsible for paying the property tax, be it Council Tax or business rate. But the tax cuts into the amount a landlord can charge in rent. In other words, the incidence of the tax is on the landlord. Yet so many people refuse to believe this and do not understand it. Thus we are constantly hearing about the need to "help business" by cutting the business rate. Now it may be that the business rate, on top of all other taxes, may mean that no business is viable in some locations, and this would help to explain why so many of the UK's high streets are lined with charity shops and boarded-up windows, but cutting the business rate will not help business.

If there are any doubts on this point, this "study of studies" should dispel them once and for all.

 

Economic effects of immigration

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The Campaign as such does not have a view on anything other than LVT, and certainly not something as sensitive and controversial as immigration. However, migration certainly has economic consequences. These underpin the whole question of how rent arises in the first place. In Progress and Poverty, Henry George devotes an entire chapter to the subject, under the title "The Unbounded Savannah".
 
In George's model, the first family to arrive settles on the best site. Subsequent arrivals are forced to occupy inferior sites, so that the better sites gain a rental value which is the productive advantage of those sites over and above the least productive site in use, ie the marginal site. However, the increase in population leads to increased production as all sorts of efficiencies become possible due to division of labour and the presence of people with increasingly specialist skills. All of these lead to a progressive growth in rental value.
Note that the savannah in the story is unbounded. Land is always freely available at the margin. The minimum wage is fixed by what can be earned at the margin. What if land is not freely available at the margin? Those without land are forced to work for others or pay rent to another, and wages fall to a lower value, as labour is willing to work for the least it will accept.
 
It is not difficult to see how this works out with an influx of immigrants. Wage levels fall. In a zone with free movement of labour such as the EU, people will move from the regions where they are lowest and will undercut the wages of existing workers in regions where pay is higher. Overall, wages will have a tendency to even out across the zone, which is what we are seeing. The lower wages will lead to higher profitability and this will tend to drive up rents. An influx of people will also drive up residential rents in response to increased demand.

This observation confirms the fears of the populist right though not for the reasons they give. The populist right, under slogans such as "British jobs for British workers", is working from the "lump of labour" theory - that there is only a fixed amount of work to go round. The curious thing is that the left wing parties, who claim to be acting in the interests of working people, are also the ones who favour free movement of people. Presumably they are acting out of some notion of the universal brotherhood of man. That is a worthy motive but it is not one that will appeal to the people who are suffering from the effects of the policy, primarily their own supporters. Seeing themselves abandoned, it is not difficult to understand the appeal of the populist right.

 


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