Land Value Taxation Campaign

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Oxbridge College riches

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An ill-informed article in The Guardian draws attention to the "riches" held by Oxbridge colleges - £21 billion, according the report, "Guardian study reveals how wealth of nearly 70 colleges is held in estates, endowments and artworks". The mischief and disinformation is the aggregation of estates, buildings and artworks under the title of "assets". The buildings, being hundreds of years old and scheduled ancient monuments, are more of a liability than an asset. The artworks and other historic artifacts, whilst they might fetch vast sums at auction, are also liabilities which are costly to conserve and insure, and generate no streams of revenue. That leaves the estates. The colleges occupy valuable city-centre sites, but since they could not be redeveloped for commericial or residential use and are encumbered by historic buildings, their value is also trivial.

It is a pity that the authors of the study missed the main point. The wealthiest of the colleges have valuable land holdings. St John's College, which tops the Oxford list, owns most of north Oxford. This was originally poor quality grazing land, but was developed for housing in the 1870s, when Oxford dons were allowed to marry. The properties were sold on 99 year leases, probably at a modest price. However, this is now prime residential real estate. Other colleges have been steadily buying up land in the city centres for centuries and are also holders of what has become, but was not originally, valuable real estate yielding solid rental income. You would never guess this from the Guardian's article.

Now the mischief is this. Any economics tutor who drew attention to the economics theories developed by Henry George would quickly get a tap on the shoulder from his bursar, telling him to lay off the subject. In fact, they would probably never have been appointed if their views were known. Thirty years ago, there was a junior Oxford fellow who was quite keen on promoting LVT and often used to tout the idea. Gradually, he said less and less, and now he is an Oxford professor he says nothing at all on the subject. So the chances of anyone going to Oxford and coming out with a sound knowledge of the role of land in the economy are minimal. Since this includes most of those who become senior members of the government, whichever party is in power, it means that their toolbox is bereft of effective policies.

Postscript A subsequent Guardian article has drawn attention to the Oxbridge college landholdings. That's more like it. The article was not open for comments.

 

Responsorium 14 January #2

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I see a grain of truth in there, but this does not make it a valid or complete argument. In general, from an efficiency point of view one should tax those goods/service that respond the least (this, however, often clashes with equity considerations). Land, in an geographic sense, does not adjust.

Yes

However, in practice, there also a lot of margins of "productive land" that are affected by land taxes. For example, if my land produces less than the tax: I sell it to someone else, who then migrates, leaving the land without effective owner. And so, the land has no reverted back to no use (while it would have maybe produced marginally if I kept it). This is just to say that land is not necessarily so different....

A uniform land tax to pay for all government expenditure would drive agriculture to zero, and all landowners to bankruptcy. A geographically-varying land tax is really a tax of something else.

Land Value Tax is, as its name implies, a tax on the value of land. A uniform tax would be absurd. Land in Central London is worth thousands of times more, per unit area, than land in the Scottish Highlands. The substantive value of land is its annual rental value. The selling price is a derivative value. Selling price is indeed related to the rental value but depends on factors such as interest rates and expectations of changes in value and development possibilities. Land value tax, properly applied, is a tax on the annual rental value. The actual assessment is the gross annual rental value ie the market rental value plus any taxes payable on the property.

You are spot-on with your observation that tax cannot be more than the rental value of the land, otherwise the land will be abandoned. But this applies to all taxes payable – property taxes, income tax, corporation tax, fuel tax, VAT (the incidence is partly on the seller); you have to add them all together. That is why large tracts of most EU countries are now economic wastelands. The beauty of land value tax as a replacement for other taxes is that no tax is payable at the marginal site, so that production is optimised-.

Perhaps 3 centuries ago, a lot of productive land was in the hands of big landowners...

There is plenty of unused land today. Newcastle city centre, for example, is plastered with estate agents’ boards. Some of them have been there for many years. There are sites in the middle of Brighton which have been vacant for over thirty years, with planning consent for most of that time. You will find the same thing if you look around many industrial estates. You can see this for yourself if you take a walk round some of the more run-down areas where you live. Rents do not fall to market-clearing levels.

But perhaps the greatest argument against land tax is that is practically impossible to raise the amount of tax that is currently raised,  with land taxes alone. So, while on the margin one might consider raising taxes on land, it can never be the whole solution.

All taxes come out of land rent. This was first noted by the Physiocrats. It is a corollary of Ricardo’s Law of Rent. It has also been tested by studies such as those made for the Department of the Environment following the end of the 1980s Enterprise Zone scheme. In other words, if there is a reduction in tax, rents rise, in the aggregate, by about the same amount. So if all taxes were suddenly removed (for example, if a benevolent alien arrived from a distant planet and paid for all government expenditure), then total rents would rise by about the same amount as the tax that no longer had to be paid.

Because existing land values are depressed by taxation, you cannot project from these values and conclude that a land value tax could not raise sufficient revenue. On top of that is the issue that so much government expenditure consists of welfare payments needed to redress the collateral damage done by the tax system. It is not genuine expenditure, let alone investment. These are just transfer payments.

 

Saudi catches VAT meme

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Saudi Arabia is the latest country to catch the VAT meme. The country introduced it at a rate of 5% on 1st January. They ought to know better. Land value tax is a traditional form of Islamic tax. It is known as Kharaj, and though originally intended for agricultural land there is no reason why it should not be applied to urban land, worth many times more than agricultural land. The Saudis should go for it.

As has been pointed out previously, VAT interposes a tariff barrier at the precise point where supply and demand meet. If the addition of value is taxed, then less value will be added. Wealth is created by adding value. That makes VAT the worst conceivable of all taxes. Whoever has given the Saudi government this advice should be punished. If it happens in the traditional way that absolute monarchs punished those who gave them bad advice, it should help to discourage the others. One wonders if sales are even permitted under Sharia law.

 

A Georgist EU?

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What if the EU had been constructed on Georgist principles, with the following conditions for membership?

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Vacant buildings law collapses

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Vacant buildings and sites used not to be subject rates, the UK national tax on business property. The Rating (Empty Properties) Act 2007 removed this exemption. We were sceptical about the legislation at the time and events have proved us right. Property owners have been trying to challenge the legislation and have now got their way. The owner of a building in Sunderland took the Valuation Office Agency to court. The case, Newbigin v Monk, went to the Court of Appeal in 2015 and then to the Supreme Court. The decision of this test case, announced on 1st March, was in favour of the owners.

Despite what the judges claim, we would argue that this pulls the rug from under the vacant rating legislation. It gives the green light to owners to leave buildings unoccupied and sites derelict, under the pretext that they are "under redevelopment". At first sight, one might expect that owners would be keen to avoid having sites vacant. Because of the way the land market and the banking system interact, however, it is often financially advantageous to hold premises and sites vacant, especially at the low points in the land price cycle; there are instances of sites which have been through two cycles whilst remaining vacant for the entire period, despite development consents. This promotes urban decay and ensures that economic recoveries will be retarded when the cycle begins to pick up.

The judges summarised the point at dispute as follows: "Does a commercial building which is in the course of redevelopment have to be valued for the purposes of rating as if it were still a useable office? That is the question raised in this appeal. An analogous question would arise if the building were a former hospital which was in the process of conversion into flats. Should it be valued as if it were still available for occupation as a hospital? The question is of general public importance to the law of rating and valuation."

The central issue in this appeal was whether the premises should be rated by having regard to the physical condition they were in on 6 January 2012 (the date of assessment) or whether para 2(1)(b) of Schedule 6 to the 1988 Act as amended by the Rating (Valuation) Act 1999 (“the 1999 Act”), requires a valuation officer to assume that "that immediately before the tenancy begins the hereditament is in a state of reasonable repair, but excluding from this assumption any repairs which a reasonable landlord would consider uneconomic. As the Act puts it: "Where the rateable value is determined with a view to making an alteration to a list which has been compiled (whether or not it is still in force) the matters mentioned (in sub-paragraph 7 below of the decision summary) shall be taken to be as they are assumed to be on the material day."

In making a judgement in favour of the landlord, the discussion specifically mentions the principle of rebus sic stantibus, referring to a series of cases as far back as Poplar Assessment Committee v Roberts [1922], and to the principles set out the Rating and Valuation Act 1925

The judges argue that their decision would not undermine the provisions of the Rating (Empty Properties) Act 2007, which increased the unoccupied business rate to make owners of unoccupied property liable for the same rate as those payable on occupied properties, since parliament had also introduced into the 1988 Act, in section 66A, an anti-avoidance power, which, to date, had not been used. The judges inferred that the practice before the Court of Appeal’s decision had not caused a serious problem and that the power could be exercised, if needed, for example to prevent avoidance by the partial implementation of a scheme of works and its deliberate non-completion.

In the light of the law as it is, this outcome was inevitable; the judges' decision was correct. It is what happens when valuations are based on anything other than site values only. Anti-avoidance powers just add another layer of uncertainty and provide endless scope for dispute; it remains to be seen whether they will ever be invoked.

The full details of the judgement are given here.

 

 
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