Land Value Taxation Campaign

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Billionaires shouldn’t exist ?

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A former Labour MP, Lloyd Russell-Moyle, has attracted huge attention by claiming on a radio programme that billionaires shouldn’t exist. He explains his view in this article in the Guardian. There are, apparently, 151 billionaires in Britain. Russell-Moyle talks about the increasing concentration of wealth, how the top 1% of earners take home 14% of the national income, and how billions are squirreled away in tax havens.

What he does not refer to is the source of all these “earnings”. If he looked deeper he would discover that they are mostly not earnings; their source is economic rent of land or intellectual property rights. In both cases they are a monopoly privilege granted and protected by government. These incomes are not wages – a reward for work. By failing to make the distinction he indicates his own confusion and goes on to propagate this confusion among the public at large. This in turn leads to the formulation of damaging policies such as those currently offered by the Labour party. Hopefully they will be rejected, since they are a medicine which is worse than the disease.

As for tax avoidance through the use of tax havens and the like; the phenomenon is a product of systemic failure. Badly designed taxes will be evaded and avoided. One of the characteristics of land value tax as proposed here is that it cannot be avoided or evaded, because land cannot be hidden or removed to a tax haven. The remedy for the problem is there for the taking. Complaining about the problem and advocating ever more anti-avoidance legislation is avoiding the issue and the policies are little more than window-dressing. But perhaps those doing the complaining are not really serious and are just doing it for the sake of appearances.


Discovering land rental values

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One way to discover residential land rental values is to use web sites like Zoopla and find the 'floor level' rents. These are in places like the north-east; a three bed semi at Seaham, County Durham, is about £650 pcm. A similar property in BN2 is around £1500 pcm and London NW4 around £2000. A reasonable assumption would be to take the £650 pcm figure as a base level to cover the cost of supplying the building, with anything in excess being location ie land value.

The £650 base level figure seems to be widespread; it applies in such diverse locations as Ardrossan, Carlisle, Merthyr Tydfil - residential land values can be assumed to be zero over a large tract of the country. When different searches are done, location value starts to appear at places such as Truro, Llandudno and Swansea which are desirable for one reason or another.

Given the size of the residential and commercial rental markets, there is a large and solid body of rental evidence these days.


Scottish LVT “challenging”

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The Scottish Land Commission has on its website a report produced by the University of Reading on the prospects for introducing a land value tax in Scotland. The report sets off in the wrong direction by defining land value tax as a tax based on selling prices. The Scottish report, which uses the word 'challenging' thirty times in 119 pages, provides an excellent set of arguments against the use of selling prices for LVT assessment. The drawbacks of LVT assessment by selling price are set out in several articles on this web site. To summarise the arguments

  • LVT is perceived as a wealth tax, which it is not, since land is not wealth. A land title is a claim on wealth.
  • Land prices are reduced by an amount equal to the capitalisation of the tax payable; the tax cuts into its own base, which is like sitting on a log and sawing it off the main trunk. This is an important issue at the initial valuation, because land in commercial use is subject to the UBR, which is several times higher than land in residential use subject to Council Tax. This leads to an apparently low figure for commercial land values, from which the conclusion is drawn that a unduly high proportion of the LVT burden would have to fall on house owners.
  • Land price may include an element of hope value on the assumption that consent for development could be granted in the future. In the case of rental value assessments, that value is the value today ie it is current use value or the value on the assumption that the site has been developed in accordance with any planning consents already granted; there is no doubt on the matter.

The report neglects to refer to important documents which are available on this website, including the London Rating (Land Values) Bill 1938, and the Whitstable Land Valuation Surveys of 1964 and 1973. It is nevertheless worth reading as it includes a useful section on experience with LVT elsewhere. In most of the examples, LVT has been eroded over the years and in some instances disappeared entirely. It may be significant that all of the examples operated with capital value assessment, with rates of around 2%. Under annual rental value assessment, a realistic starting rate would be between 20% and 30%.

UK campaigners will be aware that before abolition at the end of the 1980s, the rating system operated on gross annual rental values, as does the present business rate. This makes the notion of an LVT based on annual rental value assessment easier to grasp. The authors of the Scottish report claim that it would be difficult to explain LVT to the public. I would have thought that it could be done with the aid of diagrams on two sides of a sheet of A4 paper or a one minute video.


Farming support

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With Brexit impending, perhaps, UK farming policy is back on the agenda. We need to be clear about the effects of support for farmers, in whatever form it takes. This requires an understanding of the great economist Ricardo, who formulated the Law of Rent.

Farming support has two effects. The first is to keep sub-marginal land in agricultural use. This is equivalent to keeping uneconomic coal mines in operation, with the difference that without the support, the farmland would go over to other uses or be abandoned as wilderness; most probably, the alternative uses would be forestry or recreation.

The second effect is that the benefits do not remain with the farmers as such. This is because rental values reflect the availability of the grants, subsidies or guaranteed prices. Thus, tenant farmers gain nothing from the support. Existing owner occupiers benefit, but the benefit stops with them, because the value of the support is capitalised into farmland prices. Consequently, new entrants have to pay more for farmland than would otherwise be the case, leaving them with the burden of higher repayment and interest charges.

Thus, support is a one-off benefit to farmers and landowners, but a perpetual cost to taxpayers and/or consumers.

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