The following article was published in this week’s West End Extra:
With mansion tax proposals & fiscal devolution in the air since the Scottish referendum, both the left & the right should acknowledge the merits of land valuation taxation (LVT) as the best way forward. The case in Central London shows LVT would work better than any mansion tax proposal in particular with empty sites and landlords like the Duke of Westminster & his Grosvenor Estate earning him ground rents which date back to a very feudal system of land ownership.
Don’t get me wrong, l am fully signed up to additional funding for the NHS; that’s the additional 20,000 nurses and 8,000 GPs, by 2020, but the mansion tax proposal with its exemptions (asset rich but cash poor residents won’t have to pay if they are not within the higher tax band) & administrative costs may become the most convoluted way of raising the additional monies required for this investment.
A much better mechanism would be an annual levy on the underlying value of land otherwise known as LVT. For example at the GLA it was revealed recently that 170,000 homes with planning permission have been left unbuilt in London on stalled developments since 2012. Such developments can be seen in empty sites all over Central London like Chelsea Barracks, and along the Edgware Rd next to Paddington Green Police Station to name but a few. Other sites like the old Middlesex hospital have till recently laid empty for decades even when land is so scarce. An annual levy on these sites would incentivise building and discourage land banking underlining its revenue raising potential and efficiency and its reputation as the most economically efficient of property taxes available. It is also estimated that the revenue it is likely to generate could easily match that of other property taxes.
Arguably, it’s also more equitable because it hits landlords like the Duke of Westminster & his Estate. Take for example Victoria Coach Station where the Duke owns a third share and netting his Estate about £230,000 annually until 2020 while TfL manage and run it and we use it and add value to it. The value is derived and borne out by the community use and public effort rather than personal effort on the part of the landlord, and therefore its return should properly be redistributed back to the community.
With a reputation for being efficient, equitable and with good revenue potential, it’s not surprising therefore that the likes of the Institute of Economic Affairs, FT & The Economist magazine have recently reiterated their commitment to LVT. It is so efficient even Adam Smith in The Wealth of Nation acclaimed it as such, as the following quote illustrates;
“Ground rents are a still more proper subject of taxation than the rent of the houses. A tax upon ground rents would not raise the rent of the houses. It would fall altogether upon the owners of the ground rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground” Book V, Chapter 2, Article 1
On the left, we still have some unfinished business on this front as we have made a number of attempts in the past to bring in a LVT. Both the Attlee government and the administration of the County of London under the leadership of Herbert Morrison attempted to install LVT in the 1930’s and 1940’s through legislation. In London it was attempted during 1938/39 under the London Rating (site values) Bill, and nationally in 1945 one of the provisions of the Town & County Planning Act 1947 attempted to collect the development value of the increase in land prices arising from planning consent. The latter was repealed in 1951 and in the former, the attempt failed but set out detailed legislation for the implementation using annual value assessment. The very first attempt though was in 1931 when a Labour government included it in their budget.
So this is not new idea but is a tax imposed on land lying empty for years, even decades, aimed at landlords benefiting from exorbitant ground rents. Past governments have been keen proponents of a LVT, the Government of today should implement it.