LVT - national or local?

Tuesday, 09 February 2010 18:50

We want your views

A difficulty with any form of local taxation is that resources and needs do not match. Consider, on the one hand, the London boroughs of Westminster, and on the other, boroughs such as Haringey, Lewisham and Newham, just outside the central area. In Westminster are to be found Parliament, major centres of shopping and employment, and some of the most sought-after residential areas of the capital. The latter boroughs include some of the poorest people in the land. In Westminster, there are many possible taxes that would easily raise sufficient revenue to pay for public services, and probably at quite a low rate. In Haringey, Lewisham and Newham, there is no possible tax that could produce the revenue. This problem is usually described as a mismatch of needs and resources. It has usually been solved by some kind of equalisation scheme in which funds are collected centrally and redistributed according to need, using some formula or other.

Land value taxation would suffer from precisely the same problem if used as a local tax, and it is for this reason that were have come round to the view that the rate of LVT should be set nationally. This raises questions about how local services should be paid for.

A further matter is this. If we accept in principle that all land rent belongs to the community, then local authorities cannot be free to decide how much they collect or don't collect.

If one looks at what local authorities actually do, how much of it is there that is in practice decided locally? Or does not consist of services that could be paid for directly?

Services provided by local authorities to national standards could be fully funded from the national LVT fund; examples include classified roads, police and fire services, education and social services. Local authorities could in addition receive a capitation payment, paid from out of the national LVT fund, based on the number of residents, which they would be free to spend as they wished. This might be dependent on the age of the residents eg a higher payment might be made in respect of residents under 20 or over 70 years old. There could be additional amounts based on some index of deprivation, though this has the drawback of arbitrariness and would also encourage the massaging of statistics. Local authorities might be able to apply for additional payments from the LVT fund for specific projects.

What about accountability?

Supporters of local taxation argue that local authorities have the right to have all publicly funded projects paid for by LVT. If a local council decides to build a school, or road, or sewage works - then the funding should, they argue, come from LVT raised locally. But why should it have to? If local authorities have a sufficient allocation of money to spend at their discretion, they will not have to go 'cap in hand' to another level of government.

Would this remove accountability, and if so, how? Surely the accountability arises in relation to how the funds are spent?

Another mistaken argument is that "He who pays the piper should call the tune". This is not so. Land values belong to the entire community from the outset, as of right. No-one is paying the piper. That is the whole point of LVT.

So are locally set taxes a must? And again, if so, why? Surely it is locally determined spending that must be democratic? If local authorities they have their pot of money they can decide how to spend it, to pay for those things which local government is not obliged by central government to do - but which democratically elected politicians want to do.

There is one exception to this general principle. Local authorities can influence land value by their own activities. Urban improvement schemes enhance land value. Parking and congestion charges cut into land value. The latter effect can be minimised by requiring that the revenue from such charges be spent on transport improvements, thereby sustaining and enhancing land value.

To ensure that that local authorities have an incentive to carry out projects such as urban improvement schemes, a share of their local land value should be returned to them. How this can be achieved in an equitable way is something that needs more thinking about.

Please give us your views


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