Excellent, well-researched report.

As someone who works for a private housing developer I would however question whether we will really see only 60,000 new homes p.a. over the next few years.

The Construction Products Association predicts 72,000 PRIVATE homes will be started in Great Britain in 2009 - and 99,000 in 2010.

Plus the National Affordable Homes programme does look like it may start around 55,000 homes p.a. in England over 2009-11.

Plus there is also Kickstart, Decent Homes and other funding programmes that will subsidise thousands more new homes.

There is obviously some overlap between these figures - but 60,000 still seems way too low even if it only applies to England.

A rise in prices will generate more private supply - and to some degree is already doing so with developers restarting some stalled developments - but you are right to argue that it will never be enough to supply the 230,000-250,000 new homes we need p.a.

There is also a key question about why we (i.e. 70% of the adult population) invest so much of our income in buying houses.

Clearly greed is a big factor, as is the inadequate supply of decent and secure rented properties - but I see the biggest factor as the collapse of our pension system.

Without the absolute certainty (and who other than the very upper elite of the private and public sectors has that now) that a final salary pension to provide us with a liveable retirement income there is actually a lot of sense in buying a property which even if we retire in a bust rather than a boom will still be worth a very significant sum of money - and if it can't be sold can at least be lived in rent-free.

It's easy to mock Daily Mail readers and viewers of property-porn programmes like Location, Location, Location but the British obsession with home-ownership is actually quite rational in economic terms - and we can't all be turned into virtuous Northern Europeans who are happy to rent all our lives without also implementing Northern European levels of social protection.

Without this context railing against property boom and bust will only alienate the rather large majority of the voting public for whom preserving the value of their properties is not a trivial concern.

As a renter, I'm not sure that I understand the argument that Land Value Tax would benefit me. If council tax were abolished, but landlords had LVT imposed on them, then surely rents would simply rise to cover the cost? After all, all tenants would have the ability to pay more, and many landlords would be forced to raise their rents to cover their costs.

I'm also not convinced that we can glibly say that a tax is necessarily more progressive if it were levied equally on a 2-bed bungalow next door to a 6-bed mansion, just because they're built on similar size plots. And wouldn't this tax also arbitrarily transfer wealth from owners of houses to owners of flats?

Would land value tax really operate to damp out a boom in land prices either? If all land prices in the country tripled in unison (not a million miles from the present situation), LVT would either not respond at all (if we kept the level of take constant), or would penalise speculators and ordinary citizens alike (if we hold the tax rate constant).

Assuming that this Toby Lloyd is the same as the one who writes for Land and Liberty (google it - not allowed to paste links here), then the proposed land tax is nothing other than the Single Land Tax that followers of Henry George have been obsessively hawking as the solution to all social ills since the 1890s.

Or in other words Compass (and Unison, the TUC and Shelter) are now funding propaganda for a particularly daft sect of crank pseudo-economists.

If this is so and Neal and Jon are unwilling to withdraw this piece I'll have to consider cancelling my subscription.

60,000 may turn out to be an under estimate - the report was written before Kickstart was announced - but not by that much judging from the starts figures. When I predicted under 100,000 over a year ago everyone said I was too pessimistic then...

Of course individual homeowners are behaving rationally,it's the system as a whole that is irrational. And yes, over investment in housing is partly in response to the pensions debacle, which must be resolved. But the causality does flow the other way too: we spend so much on mortgages
and rent that there is little left over for other investments, even if there were sound pensions to invest in.

As for LVT and renters, yes there is a likelihood that it would be passed on as economic theory suggests, although the housing market is so imperfect I'm not convinced it would all be passed on. The main benefit for renters would be that as LVT would help reduce capital values it would also lower rents. and after all, renters pay council tax anyway, so they would be no worse off.

As for land values, I think there's no doubt LVT would both lower and stabilise them, as the evidence from Denmark and other places suggests. So hopefully the phenomenon of prices tripling would be avoided.

Anonymous, I am the Toby Lloyd that wrote for Land and Liberty many years ago. And yes, some LVT proponents do make crazy claims for the tax, but a few cranks don't make a policy wrong. That's all it is, a policy, not a panacea, and I certainly don't think it could replace all other taxes. I'm not an LVT fundamentalist - I'd actually be quite happy with a decent property tax instead.

"By taxing landowners on their unearned gains rather than taxing their tenants, LVT would be
a highly progressive tax change,with positive impacts for social justice and economic equality."

Taxing unearned gains means landowners would have a perpetual cash outflow from owning land going up in value.

So they cleally will not want to won land. So they will not...So the value of land will fall and the revenues from it. And no-one will want to build in advance.

So the unintended consequences will be immense.

until you address those consequences , your proposals are ill thought out and unworkable.

"Taxing unearned gains means landowners would have a perpetual cash outflow from owning land going up in value.

"So they cleally will not want to won land. So they will not...So the value of land will fall and the revenues from it. And no-one will want to build in advance."

Actually, if the first, second and third sentences are correct (which I am sure they are), the fourth is obviously incorrect.

Whilst the value of land may fall in the short term, the new owners (let us continue to assume economic rationality) will put it to good use and enjoy increased revenues and a much higher rate of return on their capital than on an equivalent site of higher initial value.

All things being equal, tt follows from this that the general application of a land value tax will tend towards the maximisation of economic efficiency and the actual level of tax can be adjuste over time to optimise the use of all economic resources.

So, madasafishandcompletelyignorantofeconomics, your final sentence is of a piece with your previously often demonstrated lack of contact with both logic and reality. QED.

Toby Lloyd, you say you just want a property tax, yet this document advocates eventually moving to a system where LVT phases out income tax as well. On that basis, if you are not an LVT fundamentalist, then you're not far off.

I am sure we all want to see Council Tax reformed so that is scales more proportionately with the house value, rather than the current system where it rises approximately logarithmically with value and is capped at £320k, or about £1m in today's money. I'm sure we would all also like to see an end to house price bubbles, but LVT is not the answer to either of these issues.

We had this debate over LVT in the "How to live in the 21st century" policy competition. It was a rubbish idea then, and it still is now. I for one thought it had finally been killed off for good, but like Dracula it seems it keeps getting resurrected. Now you're telling us it is official Compass policy. Well how did that happen? I certainly didn't vote for it! LVT might not have gone away, but neither have any of its major and terminal flaws.

LVT has only ever been partially implemented in a small number of places, and only then in countries with low population densities and lax planning laws. We live in one of the most densely populated countries with some of the most restrictive planning laws. LVT assumes a totally free market in land, but our planning conditions prevent this, so we live in a heavily distorted market. LVT cannot work under those conditions, but then it can't actually work under any conditions.

The believers in LVT claim that it will deliver equality, prevent housing bubbles, encourage a more efficient use of land, and create a fairer society. Only one of these claims has any substance.

You argue that taxing derelict land could help bring it back into use, but there is a downside to this. If it penalises owners of idle land, it also does the same but to a lesser extent to owners of land with low productivity. So it favours large industrial farms over small-holdings, and supermarkets over village shops. Therefore small firms will eventually be forced out of business by this tax and large corporations will benefit at their expense.

As the tax is also determined by the local environment where you live, not the size of your own house, it will force the poorer owners of small houses out of expensive areas and into poorer areas.

So we end up with a countryside dominated by large industrial farms that are bad for the environment, and cities where rich and poor live in separate ghettoes, go to different schools and live entirely separate lives. So much for equality and fairness.

As for the claim that LVT would abolish housing bubbles, that is pure fantasy. You don't stop asset speculation and inflation simply by taxing the profit, not unless you tax at over 101%. There are better ways of doing this, as I have pointed out many times previously. If you control the supply of mortgages, you will put a break on house prices. In case you hadn't noticed, that is exactly what has been happening over the last 18 months!!!!

You also assume that none of this tax will be passed on to the tenant, but as I recall the Council Tax was originally supposed to be the responsibility of the property owner, not the occupier. That didn't last long. The reality is that if LVT is set at the same level as current Council Tax it will either be added to the rent, or be written into the rental agreement alongside other utility bills and factors agency fees etc. Those with large property portfolios will still be able to avoid it.

Instead of imposing this ridiculous policy on Compass members without consultation, why not start with a set of aim and principles that we can agree to? Firstly, that it should be the stated aim of a Labour government to strive for price stability in the housing market. Secondly, that the Government should aim to eliminate homelessness within ten years. Then we can debate how we achieve this and how we pay for it. I have plenty of ideas on this and I think they are all a lot better and more workable than this one.

To understand why LVT set at current Council Tax levels cannot halt house price inflation, just consider this case study.

In the last 15 years house prices have trebled. That is the equivalent of an average inflation rate of 7.5% pa. The average house price is now about $150k. If this inflation rate were to resume, that average would rise to £160k in 12 months. That is a rise in asset value of £10k, yet the Council Tax on that property is probably only £1000 pa. So how is levying LVT at £1000 pa going to make someone think twice about buying this property as an investment when they will still make nine times that in profit each year? It won't.

You would need to levy LVT at over £10k to make the investment unprofitable for a speculator, yet the average home-buyer with a mortgage will only have an average household income of £30k-£35k to pay for their identical home, of which their current total tax bill is only £7k-£8k pa. So if the ordinary homeowner is not to suffer, you would need to abolish all his income tax, NI, and Council Tax, and yet the new LVT would still raise his tax burden by 25%. What a vote-winner!

That is why LVT does not work !!!!!

Brendan, probably most tenants and other non-property owners do not appreciate that they create land values as much as any other tax payer and consumer. As the value of land increases in an area because of better public transport, a thriving school, good health care etc - all paid for by all tax-payers - it is the owners of land who see an increase in their property; not an increase in the value of their building but an increase in the value of their home's LOCATION. You as a tenant do not receive any of that financial benefit. Indeed, your rent will go up at stages so that your landlord can get the highest rent possible. When we talk of 'property prices' going up or down we are talking about LAND prices going up and down. Property speculation is a destructive activity where owners of land deliberately hold it out of use for homes, jobs, services, leisure etc until they decide they will allow it to be used which is when they can make the most money from developing the site or selling it to another speculator. Their keeping land out of use creates an artificial shortage forcing up land prices and the local community has to suffer eyesores, rubbish tips, advertising hoardings etc that blight their neighbourhood.

By taxing the annual rental value of all land according to its permitted use, the immediate action is to bring those unused and underused sites into full use. The result of a land value tax is an increase in the number of property owners paying back to the community a part of the financial reward they receive from holding their land (which is a natural resource of course and not something they created) that tenants and other non property owners are denied - despite that wealth having been created by all of us. That sounds fair to me.

Landlords cannot pass on a land value tax because (i) this is to say they are not charging the hights rent currently - very unlikely and (ii) the empty homes and other premises brought back into use would increase supply, reducing rents (just look around where you live to see empty and underused properties not being used) and the market would mean they get no tenant at any extra high rent being demanded - they either get a tenant at the market rent or they leave their flat empty but still pay the full land value tax due - not likely to happen.

Land Value Tax is an economic tool for governement to use to act as an incentive to bring those empty and underused sites in our towns and cities into full use, reduce the need for urban sprawl and the resulting long distance commuting with all the environmental and social damage that causes and it would be a mechanism to share at least part of the wealth that we all generate through paying taxes that provide our public services, infrastructure etc and from business and other economic activities. Land owners do not create the value of their land - the whole community does - we should all share this wealth.

You, Brendan are subsidising homeowners but most of all, we all subsidise the big landowners including the Duke of Westminster who own the most valuable sites in our country.

I believe we should all share the wealth that arises from our use of all natural resources and we should tax that natural resource wealth to make sure we use our resources usefully and sparingly and because it is fair and just to do so.

Cranks? Martin Wolf and Sam Brittan of Financial Times both propose LVT as do Ashley Seager and Larry Elliott of the Guardian.It is a mistake to always identify Land taxes with Henry George, important though his contribution was.The Japanese intro'd LVT before George's time and this helped to modernise the country; LVT has been used on several occasions since in Japan which appears to have developed an independent tradition.

"By taxing the annual rental value of all land according to its permitted use, the immediate action is to bring those unused and underused sites into full use. The result of a land value tax is an increase in the number of property owners paying back to the community a part of the financial reward they receive from holding their land (which is a natural resource of course and not something they created) that tenants and other non property owners are denied - despite that wealth having been created by all of us. That sounds fair to me."

Sounds fair to me as well, Heather.

Heather, like most supporters of LVT, your comments are long on generalities but short of detail and specifics.

Yes LVT will help bring unproductive and derelict land back into economic use, but the key word here is HELP. It won't force it back into use unless the LVT is set high enough. So how high are you going to set it? As I pointed out in my last comment here, the level will need to be set so high that it is punitive for most ordinary people. And remember, there already are a number of other taxes imposed on vacant property under current laws that are designed to do just that. If they fail, why would LVT succeed?

There is also the big question of causality which you and others fail to address. Does speculation cause the rise of land prices, or do already rising land prices just encourage speculation? You and other LVT supporters appear to believe the former. Unfortunately it is the latter which is the case.

It is not speculation that is the problem, it is supply and demand. Specifically, it is the imbalance between the supply of properties due to planning restrictions on the one hand, and demand and the availability of mortgages on the other. If you address the supply and demand imbalance then prices will fall, speculation will stop, and LVT at modest rates comparable with (and instead of) current Council Tax would indeed encourage derelict and vacant properties back into use. But supply and demand issues are the key, not LVT.

It is very likely that this would drive land into the hands of the most wealthy property developers who will build for the top of the market.

The notion that such a tax would benefit the community is nice, but of course those revenues will go to whatever our unaccountable government decides, like Trident and killing babies in Afghanistan.

Adrian and anonymous have again restored some much needed and practical perspective to this slightly bizarre thread.

Social democracy and Liberalism (both relics from the 19th century) can't deal with such deep structural inequalities that we have in the UK - as the obsession with LVT just goes to show.

As usual the soft and irrelvant left response is to ensure that more people pay- more tax - and then cross the fingers in the hope that it may somehow be shifted to the deserving poor. Not only Adrian right to point out that the rerquired tax level would have to be punitive (three cheers for interfering governments!), the money raised may go elswhere as aninymous wrote - but the policy would be very unpopular - so not really very helful in a democracy or sort of anyway.

If you really want to break up the estaes of those parasites such as the Duke of Westminster - then you will need radical policies targeted at the wealthiest - who will of course cry foul and use their influence to launch a counter propaganda offensive (littered with phrases like the 'thin edge of the wedge'...) Elizabeth Windsor may well ahe to get involved because as the Duchess of Lancaster she own huge swathes of this land in her own name (like her greedy son).

This struggle would no doubt be a very difficult one - meanngful battle always are. But the chatter emanating from the liberal and centre left is just a slightly annoying sideshow - which misses the point entirely.

Adrian (Southampton) might like to be more ‘specific’ and explain to me what the flaws are with LVT. He says "Specifically, it is the imbalance between the supply of properties due to planning restrictions on the one hand, and demand and the availability of mortgages on the other". Well the supply is there - how many properties, commercial as well as residential, are deliberately kept out of use purely for speculative purposes thus reducing the supply of land that has permission for buildings? I live just five miles from Heathrow and I can show you huge sites that have been kept empty for over 20 years; they each have planning permission for homes, hotels, offices and leisure facilities so do not have any problem with planning "restriction". We are experiencing a global economic crisis where the banks fell apart because of too many mortgages being given on unsecured property loans - the gamble that land values would catch up with land prices did not happen. Now folk are losing their homes, their businesses, their jobs - because of a greedy uncontrolled banking system where loans were given to property speculators and unsuspecting ordinary folk buying their home.

I would have thought it pretty obvious that the level of land value tax would have to be sufficient to act as an incentive to bring those sites back into use (you could look at studies that show a very modest tax on land values brought unused and underused properties back into use in Harrisburg USA). If the Congestion Charge had been set at 50p per day to enter the zone, it would have been ineffective in reducing traffic to London – all forms of resource rentals have to be set at a rate that is effective in making sure our natural resources are used sparingly; why should land be treated any differently?

By taxing buildings and not just land values, owners can avoid paying all or part of their Business Rates or Council tax. The owners of the empty office blocks, empty flats, empty factories and derelict sites (many of which have buildings that have been deliberately destroyed to avoid paying their property taxes) would have to pay a land value tax that is based on each site’s value according to its planning consent and the demand for its use. Immediately the tax base is increased and even if the rate of UBR or CT already charged is not reduced for current payers, the income from LVT would be greater than from UBR and CT.

"Not only Adrian right to point out that the rerquired tax level would have to be punitive (three cheers for interfering governments!), the money raised may go elswhere as aninymous wrote - but the policy would be very unpopular - so not really very helful in a democracy or sort of anyway."

Not so if an LVT is introduced to replace council tax to be set and administered locally, with an incrementally increasing subvention to central government to incrementally replace income on low incomes, say, less than £100,000 in current real terms.

I've not thought this through fully but one of the control elements i would support to ensure that we have a truly bottom up, of the people, by the people, for the people, democracy is a reformed and unpaid House of Lords consisting of directly elected council leaders, none of whom can be a member of the executive, will mediate and settle the total subvention availble to government whilst an unpaid House of Commons considers the odd bit of legislation now and then.

Heather: why not simply tax land and buildings left unutilised ?

What impact would LVT have on the market price of undeveloped land ? What is then most likely to happen to that land ?

Heather, if all you are looking for from LVT is a tax that can be applied to idle brown-field land that would encourage re-use, then I have no problem with it in such a limited role. I am not arguing against such a tax on land per se. If landlords are allowing property to fall into dereliction in order to avoid current tax liabilities, then that is a loophole in current tax legislation that needs to be closed.

My main argument against LVT is that those that advocate it most strongly are trumpeting it as a panacea for all the ills of the housing market and the wider economy. It is not. At best it can only be a small part of the solution. I have read much of the literature on LVT, here on Compass, on the "How to live in the 21st century" site where it was one of the policy proposals, and at Labourland.org, and I find all the arguments and claims made for LVT deeply flawed.

My principal argument against LVT is that it cannot stop house price inflation, and that must be the first priority for a stable and balanced economy. In my 2nd post on this thread (08 August 2009, 3:32:05 PM) I showed that the level it would need to be set at would be so high that it would cripple ordinary taxpayers, even if all other taxes were abolished. Implementation of LVT at such a rate would result in protests that would make the 1990 Poll Tax riots seem like a teddy bears' picnic. I notice none of the proponents of LVT ever seem to present a detailed breakdown of the figures, and you certainly haven't. Unless you state what the level of LVT will be, your argument is meaningless.

You have also failed to address my challenge to you on the causality of house price inflation. I know it is intellectually convenient and morally satisfying for many on the Left to blame speculators for everything, but that is just not credible. I doubt there is a speculator anywhere near the British housing market at the moment, but it is now starting to inflate once more. Why? Because demand is back up due to low interest rates, as was hoped for and intended by this government. So my argument that housing bubbles are created by an imbalance in supply and demand, and therefore can only be tackled by addressing that balance between supply and demand, still stands. Taxation does not prevent bubbles.

There are other manifest deficiencies in LVT. As I pointed out in my 1st comment on this thread (08 August 2009, 8:11:33 AM), by encouraging maximum usage it favours industrial scale farming and supermarkets over smaller businesses. That is not very green or egalitarian. It will increase social segregation by allowing the rich to monopolise affluent areas while forcing the poor into deprived ghettos. It will also destroy the private rental sector leaving only a choice between private ownership and council housing.

Moreover it is impractical to implement. If all personal taxation came from LVT, government revenues would fluctuate wildly based on property prices, and would collapse if land prices collapsed. As I also pointed out, if most of personal taxation is based on LVT, the valuation by the appointed surveyor will be crucial. How accurate or subjective will that be? There will be a tsunami of legal challenges by home owners over their valuations that will recur every year as they seek to lower their tax burdens.

I am still not sure where exactly the likes of Sir samuel Brittain, Martin Wolf, Larry Elliot and Ashley Seager stand on all this, but I know where are I do, and it is not with the likes of Toby Lloyd and the LVT lobby. They appear to see LVT as the answer to virtually all taxation and as some miracle economic policy, and that is where I fundamentally part company with them.

I agree with Adrian on his basic arguments. But I think he misses the role played by both the financial sector and property developers in pushing up house prices. Homes are seen by the financial sector as equity to be exploited through consumer and equity loans, and this is a major driving force pushing up property prices. No efforts are being made to influence or regulate these are other factors. In fact, the Government want to see another boom in house prices because the financial sector is the government's number one priority.


I repeat that no one has given a credible scenario of what would happen to property and land, occupied or unoccupied, if a LVT were introduced. Its largely speculation, not analysed in terms of market behaviour and trends. Its very dangerous to "create policy" on the fly like this, based on notions and ideas of equity. You land up somewhere completely different to where you hope.

"In my 2nd post on this thread (08 August 2009, 3:32:05 PM) I showed that the level it would need to be set at would be so high that it would cripple ordinary taxpayers, even if all other taxes were abolished."

Nope. Not "showed", merely asserted. Unconvincingly, I might add.

Giving responsibility for raising LVT to Local Government, may well just move the accompanying unpopularity in the same direction.

And if we want 'grassroots' democracy, what happens if a local community vote overwhelmingly in favour of rejecting LVT in favour of another progressive tax - on other incomes or pollution etc?

I am in favour of a targeted Land Tax - aimed at the very wealthy - but I'm not convinced that LVT is the way forward. But having an inclusive debate always helps.

What about 'poor' people who saved before they knew that a new administration was going to change the rules? Lee rightly warns about unseen economic implications, and tax is an exceedingly contentious issue.

I've spoken to WW2 veterans. Of course, many of them were older and more experienced than present soldiers and believed that theirs was a just war.Some of them have remarked on the impact the army education programme had.Some of the lecturers were well to the left. Soldiers came home determined to vote Labour. There is a famous newsreel shot of Winston Churchill addressing a crowd at one of the victory celebrations Some people were wearing military uniform. The great war leader was taking his applause when one of the soldiers shouted out, ' We want Labour'. I wonder what the survivors feel today.

I have an interest in LVT that initially started with a bit of historical trivia. In Oregon, where I live, we have enshrined in our Constitution a bit of direct democracy called initiative, referendum, and recall -- initiative allows voters to circulate petitions to get bills on the ballot, referendum allows voters to pass judgment on bills passed by the legislature, and recall allows voters to remove legislators before the next election. The "Oregon System" (as it was called) was successfully spearheaded by a legislator named William Simon U'Ren (interestingly, the son of immigrants from Cornwall) at the turn of the 20th century, but another passion of his -- Henry George's "Single Tax" -- failed.

And yet, looking at Oregon at the turn of the 21st century, I can easily see why he supported it. The town I live in is a quaint one from the gold rush era, and its population had pretty much reached its limit because of lack of water. We voted for a levy for a much upgraded water system, and as soon as it was complete a 13 acre plot three blocks from the center of town was subdivided and turned into 90+ housing units. The owner had a huge windfall paid for by the other residents of the town. Since this was at the start of the housing bubble, some of these houses have flipped several times -- the one just on the other side of my fence has had three owners so far. Ninety homes in a town of 2000 is not insignificant (especially not so to me, since the complex surrounds me on three sides), but the fact that I helped pay a levy while a non-resident landowner reaped the profit seems a tad unfair.

So we come to the LVT. The owner of the land may well have subdivided it and turned it into dozens of houses with an LVT in place, but the increase in land value caused by the improved infrastructure -- in this case, a water line -- would have directly benefited the community by increased revenue. In addition, such an improvement may have well come earlier, since it would pay for itself without a levy, and the land would probably have been put to some sort of productive use even before an expanded water supply, rather than remaining a vacant lot near the center of town.

A couple of final points to address issues expressed in earlier posts. Most landlords want to charge the maximum their tenants will pay, and raising prices above that point will drive tenants away to cheaper units. After all, if landlords can charge more after a land value tax in place, why aren't they charging now *before* it is enacted? The ability of landlords to shift taxes to renters would depend on whether rental units were scarce, and how much substitution was possible. If taxes were shifted from all property strictly to land, well-kept rental units in less desirable areas would pay less in taxes, while poorly-kept rental units in more desirable areas would probably see higher taxes.

Second, in economic terms, land prices should be equal to the sum of the discounted future rents. Speculative bubbles raise the estimated value of future rents, while raising taxes on land reduces the amount of economic rent collected, reducing the purchase price. This is why an LVT will tend to deflate housing bubbles, since speculative volatility in land prices are far more than they are in the value of labor and material for the house on the land. People generally don't say "Hmm, I'll have to pay twice as much for wood next year, and pay carpenters twice as much per hour," but during the "housing" bubble that's what land prices were doing in some areas.

Is it a panacea? Not at all. It's not even the best possible tax -- in my opinion, that lies with Pigovian taxes on negative externalities (like pollution and traffic congestion). It does, however, cause *far* less economic distortion than taxing labor, capital, trade, and improvements to land. Simply moving all taxes from improvements to land value would do much to make the tax system more economically efficient.

It is not clear precisely what form of LVT is being proposed here but how LVT is applied has an impact on the consequences. An ad valorem tax based on annual rental values will resolve a raft of apparently intractable and unrelated economic problems without promoting aggro-farming - on the contrary. But it is not possible to appreciate how this will happen without a thorough understanding of the economics of land, which forms no part of the accepted body of economic theory. (which is why it failed to predict the boombust)

So, if you have reservations about what is being suggested here, please go back and look thoroughly at the theory that lies behind the suggestion.

A good place to start is "A new model of the economy" by Brian Hodgkinson, a summary of which can be downloaded.

"Giving responsibility for raising LVT to Local Government, may well just move the accompanying unpopularity in the same direction.

"And if we want 'grassroots' democracy, what happens if a local community vote overwhelmingly in favour of rejecting LVT in favour of another progressive tax - on other incomes or pollution etc?"

These are the reasons why is why I suggest we introduce an LVT incrementally so that it's possible to row back if it turns out not to be such a good idea after all. It's also why I suggest that it is introduced along with fundamental changes in the structure, the rights and the responsibilities of local government and that any rmittances to central government flow from local authorities, a representative of each being represented in an alternative to the House of Lords, from which there would be no rowing back without a constitutional convention and a referendum.

"But it is not possible to appreciate how this will happen without a thorough understanding of the economics of land, which forms no part of the accepted body of economic theory. (which is why it failed to predict the boombust)"

Don't want to quibble, Henry, but the economics of land have been an accepted part of economic theory since Ricardo outlined the concept of economic rent. The concept of rent is also the reason why I believe that the intellectual equivalent of the LVT must be applied to all forms of intellectual property - copyrights, patents and trademarks - which is itself only valuable because of an artificial legal construct which serves little purpose other than to take money out of people's purses for far too many years to be recycled to lobbyists, legislators, property rights owners and other sundry bums.

Good post, Michael.

Similarily at the risk of quibbling it should be pointed out that Ricardo etc are no longer 'an accepted part of economic theory' now than Keynes is - if we assume that it is only those that 'rule' us - that get to decide what is or isn't 'accepted.' This naturally is not an endorsement of the present
eroneous economic consensus - unravelling before our very eyes.

The point made about intellectual copyright is both valid and further eividence that any approach to 'progressive' tax reforms is far more complicated and muliti-facted than perhaps the article originally suggests.

The key underlying issue is still how does society collectively decide how we are taxed. The present system evolved from an original position of the conquered being forced to pay by the conquerors - and the system we use to make such important fiscal matters still reflects that.

Those proposed local delegates/Councillors sent to any Lower House may have instructions to completely reject LVT - which would contradict the Party that had introduced (imposed?) it from above - so questions of legitimacy would still arise.

As Michael says LVT is 'not even the best possible tax ' so it can't be the centre piece of any major Tax Reform - at least without so much careful qualification that it would warrant another description or name.

I think Michael (Jacksonville, Oregon)'s story explains exactly how unjust it is for those that claim ownership to land benefit from the public investments we all pay for throughour taxes.

Lee, surely it is better to have a simple, transparent, sustainable source of income from taxing the unearned wealth that we all create most of which currently goes to those who own this natural resource. LVT acts as an incentive to bring underused and unused sites into proper use but it also acts as an on-going incentive to keep the buildings in full use for homes, factories, retail, offices, leisure etc. I do not understand why it is seen as a good thing to tax improvements and reward destruction and idleness which is how current taxes work.

To see evidence of how a tax on land values works, one can look to Hong Kong, Taiwan, Harrisburg, Denmark and other places to see how different forms of capturing some land value has encouraged the more efficient use of land. It is not a big step to imagine what an effect there would be to shift the UBR from buildings and improvements to only levy the land value of each site; all empty and underused sites would be brought into use in order to pay the bill. This minor reform would have several advantageous consequences, but if nothing else, because all those speculators who keep land out of use would now contribute their fair share towards the cost of the local services which maintain the value of their land, it would increase the number of UBR payers and thus reduce the average bill for active businesses who currently pay business rates.

The market price for land is what someone will pay for a site according to its location, its planning consent and what it is worth to them to forgo other expenditure in order to rent or buy the land. Because a land value tax shares the economic rental value of land between the landowner and the government, the market price of land goes down. Taxes on land push the price down in the same way as CAP subsidies given to farmers, seep into the rent charged to tenant farmers and push the price up. (There are explanations about how the theory of economic rent works in practice elsewhere) . Another effect of having a land value tax applied to all land is to dampen the speculative market reducing the booms and busts that current economic thinking erroneously seems to accept as inevitable. when it is not. Investors will look to more productive investments (renewing our industrial capacity) instead of gambling on land prices going up above their true value so they can cash in on the bubble before it bursts again.

The owners of undeveloped land that has planning permission for development will still have to pay the tax in full and will either sell the site on or develop it. Undeveloped land without permission to develop must be maintained as green land; strong transparent planning controls are essential to reducing urban sprawl and to having every blade of grass built on in our towns and cities. Near where I live, there is a plan by the local Tory Council to build in Gunnersbury Park to finance development of the park’s facilities. This is hideous. To destroy a park that gives such pleasure and environmental benefits whilst ignoring the effect it has on the economic value of sites in its locality just shows how ignorant our economists and politicians are about the relevance of the land market in the economy. Developers understand that if they add trees, lakes, plants, green spaces to their development, it makes it a more desirable place for people to work and live – they charge more for those benefits. Why can’t governments see that by also providing parks, good transport, good schools, healthcare, etc, that too adds to land values and they can recoup just some of the financial benefit through a land value tax. (A Socialist Government should change to a system where all land is held in common and the full economic rent is collected for each site but, sadly, I don’t see one coming along for a while.)

Adrian says “the level it would need to be set at would be so high that it would cripple ordinary taxpayers, even if all other taxes were abolished”. I do not understand what you base this outlandish statement on – how could that happen when it is estimated that fewer than 10% of the population own more than 90% of our land wealth Far from penalising them, ordinary taxpayers would benefit because the tax base would increase; it would actually include all those that currently avoid paying their taxes thanks to our complex system that is full of loopholes and get-out opportunities that benefit those on high incomes (but not those on PAYE of course) and it would force those that work in the hidden economy to pay their fair share of taxes instead of working cash-in-hand to evade paying income tax, national insurance and VAT that our current tax system encourages. Many of our taxes are not progressive or efficient to collect. Income tax is not a progressive tax because the top income earners negotiate their gross income to be sufficient to give them the real income they are negotiating for, their net income. Income tax can be and is avoided by many self-employed people. VAT forces prices up and destroys small businesses.

Adrian states that LVT: “by encouraging maximum usage it favours industrial scale farming and supermarkets over smaller businesses”: LVT creates just the opposite Adrian - good planning policies should be there to decide what each site should be used for. With land zoned for organic farming or small scale farming, the market price will reflect that restriction on the use of the land. LVT actually enables organic farms to survive because their LVT would be very low or even zero if they work at the margin. To support LVT is not to support every blade of grass being built on – that is a hoary old chestnut regularly thrown at those who want to keep current taxes on production and who don’t understand the benefits of LVT but fear it will take part of the unearned uplift in their property that is created by the whole of society. Argue on the policies concerning LVT and please don’t keep making the common sweeping unfounded and untrue statements that are used to stifle useful debate.

“It will increase social segregation by allowing the rich to monopolise affluent areas while forcing the poor into deprived ghettos.” Adrian, that is exactly what happens under the current system; I am not sure how many property developers live on crowded estates!.

Land valuations go on every day in the UK for different purposes. In the US and in other places, there are people employed to value land and improvements separately in order to apply property taxes to both elements. We need honest efficient valuers just as we need honest efficient tax collectors today – what is the difference or are you suggesting professional valuers are not to be trusted? There are various methods employed in the UK and in other countries in valuing land. For the collection of a land value tax there must be a public register of all land ownership and annual valuations providing transparency and public accountability.

Adrian, it is impossible to properly discuss your claims by using this blog. Please do not stick your labels on what I and others say without first understanding what we say and believe. If you are interested in a having a serious, constructive, non-aggressive discussion where we can both gain a better understanding of what we are each saying, I am very happy to do that elsewhere. (Allman.heather@googlemail.com).

Two points in response to the comments of Michael (Jacksonville, Oregon)
on 16 August 2009, 1:35:20 AM.

1) Your argument about the water line levy seems a bit confused to me. You say the town needed it in order to continue to grow, and then complain when, as a result of its installation, a developer finally does what you want and builds some more houses. If you didn't want the town to grow, why build the new water system in the first place? Why should the developer pay? Does the town not benefit from the additional homes, either financially in terms of trade and jobs, or in terms of quality of life? If not, then why did you build the water line and allow the new homes to be built. This is not an argument in favour of LVT, but rather about effective town planning. You appear to want new infrastructure but expect someone else to pay for it. In this country the developer would require planning permission and the land would need to be granted a change in usage. If the developer has as a result benefited from a windfall, the uplift in land value resulting from the change of usage should be taxed with a capital gains tax by the town council that could then be used to pay for infrastructure. It doesn't need LVT. There are other ways of achieving the same effect.

2) Secondly I disagree with your claim that "in economic terms, land prices should be equal to the sum of the discounted future rents. Speculative bubbles raise the estimated value of future rents, while raising taxes on land reduces the amount of economic rent collected, reducing the purchase price."
This assumes that it is rental income that determines house prices, and therefore also land prices, and implies that all bubbles are driven by speculation from investors. This is not so. Very little land is rented in this country. 70% of housing is privately owned, and most of that includes the freehold. About 20% is owned by local councils and only about 10% is in the hands of private landlords. The current housing bubble on both sides of the Atlantic was driven by cheap and plentiful credit. It was too much money chasing too few assets, and the vast majority of that money was given to owner-occupiers (in the case if the USA, the sub-prime market), not buy-to-let investors.
Finally, if you are right that LVT will not necessarily be passed on by landlords, this means that their returns on investment will be squeezed. Ultimately, this will make private letting unprofitable, which will drive most potential landlords out of the market leaving only over-subscribed council housing and private owner-occupiers. That would dramatically reduce choice. In fact one of the positives of the last twenty years has been the growth in the private rental sector that increases choice for young professional people who can't yet afford to buy. If that sector were to collapse, where would these people go? They can't afford to buy and the waiting list for council homes is twenty years or more. The answer is, they will be forced to stay in the private rental sector and pay whatever is demanded. In other words, LVT will inevitably be passed on to them. So I'm afraid your argument fails.

"In fact one of the positives of the last twenty years has been the growth in the private rental sector that increases choice for young professional people who can't yet afford to buy. If that sector were to collapse, where would these people go? They can't afford to buy and the waiting list for council homes is twenty years or more. The answer is, they will be forced to stay in the private rental sector and pay whatever is demanded. In other words, LVT will inevitably be passed on to them. So I'm afraid your argument fails."

Not so. Other than those owned by the most wilfully nihilist landlords, the houses will still be standing and either retained for rent by the current landlord, or sold to some other landlord, or sold to a developer, or sold to "young professional people" - or whoever- as homes. Anyway, if you're trying to persuade through logical argument, you're making a real pig's ear of it.

Adrian,

The true value of land is its annual rental value. Its price is the capitalisation of that value. If there were no speculative expectations, the price of land would be equal to the sum that would have to be invested in a savings account to yield the same amount in interest.

But expectations of rising rental income mean that people will pay a bit over the odds for land. That is what might be termed level 1 speculation. In the early stages of an economic cycle, prices of land start to rise and then people will pay more over the odds in the expectation of rising land prices. This is level 2 speculation. The final stage is when the financiers get in on the act and advance loans for land purchase on the security of land whose value has been blown up by easy lending policies on the part, collectively, of banks, with expectations of further rises. This is level 3 speculation.

The bubble bursts when rental levels are too low in relation to prices, as debt then becomes difficult to service. The smallest knock will prick the bubble.

Drawing off a significant proportion of land rental value at the outset will reduce the speculation at all levels.

If it were true that, as you assert, the level needed to prevent land price bubbles from developing was higher than all government expenditure put together, then this revenue could always be distributed as a national dividend or Basic Income.

But I suspect you have not modelled the effects of replacing existing taxes with LVT, which is what needs to be done before baldly claiming that it would not work.

Salfordgal

LVT can not be passed on to tenants. This is standard economic theory. To suggest that it can implies that landlords are not already charging as much as they possibly can, presumably because landlords are exceptionally kind-hearted people and are happy to accept a lower rent than they could.

Instead of going down this elaborate path, where circumstances are so unstable that LVT will almost certainly create all sorts of weird distortions, why not simply an in-depth redesign of the council tax system to create exclusions at the bottom of the ladder, greater equity, and wealth shift from the top. It would be much easier to index-link property values to market shifts; and there is no reason why penalty taxes should not be added for empty properties and unused land. It will also be easier to provide exemptions for properties used for a range of socially beneficially purposes. Given that this option is open, it seems to me that LVT is really mainly symbolic puffery that will prove almost cetainly unmanageable, resulting often in the opposite to what is intended. It will also breed a new class of lawyers and court challenges. Down this road we should certainly not go. No one has picked up my challenge and tried to forecast what would happen to various categories of land in our current economic circumstances.

We should also increase the scope of eminent domain, and create tax incentives for wealthy land and property owners to encourage the use of vacant property and land for socially worthwhile purposes.

Not only might it 'breed a new class of lawyers and court challenges' as Lee warns, Heather's last post did suggest that there might have to be a vast bureaucratic system to administer the system:

'In the US and in other places, there are people employed to value land and improvements separately in order to apply property taxes to both elements. We need honest efficient valuers just as we need honest efficient tax collectors today – what is the difference or are you suggesting professional valuers are not to be trusted?'

And although she rightly points out:

'A Socialist Government should change to a system where all land is held in common and the full economic rent is collected for each site but, sadly, I don’t see one coming along for a while'

this seems equally true any 'Liberal' party that would be required to push
what I think would be a very difficult sell on a highly distrustful nation -
particularly concerning surveyors, politicians and taxes (none of which are really meant to be mentioned in polite company!).

Because of the unpopularity of a decaying New Labour Regime - we are very likely to have the Tories thrust in us - and there is no way that an Aristocratic Party is going to touch any Land tax with teeth.

But if we want to encourage debate - I think a general look at tax as a whole would have been more worthwhile. There seems to be a very pro Free trade undercurrent to some of the assunptions underpinning the enitre approach to debate on this thread. As if taxing Capitalists and Entrepreneurs is evil or regressive - at all times! If we believe that all his profit was down to his intelligence and general all round superiorty - then may I suggest that some of you sign up for the Adam Smith Institute
- they love that kind of thing!

This is not a left wing response to tax at all - but then left wing seems to be more of a label of convenience these days rather than anything of any real substance.

I can also imagine the bureaucratic hassle and problems when land-use changes, and land is sub-divided under new land use. Right now there is at least a link between council taxation and council planning authority...it may not work very well, but it can be fixed and improved.

Anyway, as Jon points out, its not going to happen. So why are we discussing it ?

"Instead of going down this elaborate path, where circumstances are so unstable that LVT will almost certainly create all sorts of weird distortions, why not simply an in-depth redesign of the council tax system to create exclusions at the bottom of the ladder, greater equity, and wealth shift from the top."

Council tax and business rates are based out of date guesstimate of the combined value of the property and land on a particular site. It is inherently regressive because of capping, and for these three reasons it distorts the property market by creating a systemic bias against households with an annual income below the 80th percentile (yes, very Pareto!), small businesses, and the maintenance of property as opposed to its change of use and/or redevelopment. It is difficult to see how these faults and their consequences can be designed out of council tax without unintentionally designing in equally undesirable and less predictable side effects.

"Not only might it 'breed a new class of lawyers and court challenges' as Lee warns, Heather's last post did suggest that there might have to be a vast bureaucratic system to administer the system:"

Unlike council tax and business rates, administering a LVT merely requires the continuous efficient mapping of all land prices (easy peasy), a few rules applied consistently, and a few calcultions.

Oskar Lange had this sussed long ago. First you start with a set of prices (think of this as the land registry function), then you apply a system of rules bureaucratically (ie, without fear or favour in the Weberian sense), and the result is a new set of prices, discounts or up to date LVT evaluations. Except nowadays the set of rules can be applied automatically by a humble PC and out comes the LVT assessment.

"Anyway, as Jon points out, its not going to happen. So why are we discussing it ?"

We're discussing it because lots of people under twenty-five can see the future and what it implies for us- an aging population, a tax system which robs the hardworking poor to feed the insatiable appetites of the rich and the out of control corporate machine, and the need to make rapid and relatively unpredictable economic adjustments in response to climate change, amongst other things - and LVT may make a major contribution to our wellbeing. If it's functional, efficient, and reasonably equitable - that is, with an in-built bias favouring the poor - then it might be worth a punt. But by increments, just to see how it goes.

But won't the very wealthy just squeeze profits - all the more from any alternative 'revenue streams' they are privileged enough to have?

If Charles Windsor wants to retain huge swathes of Cornwall - he may be
tempted to invest more agressively in the FTSE and as an large and influential shareholder, insist on higher profits to finance his expensive obsession of being an old School Landowning Aristocrat?

This point has been noted and is of course reasonable:

'But by increments, just to see how it goes.'

But my overall point still remains - there are many other factors of unfair and wealth inequality - at least as distorting and important as Land ownership - like exploitaitive employers and Shareholders - and I don't see why these should be ignored or worsened by any policies - even ones devised to put one glaring injustice right.

The Capitlaist system is based on exploitation - to ignore this and imply that Free Trade has no zero sum aspect - is to reject left politics as being relevant - and a return to 19th century Liberalism, which whatever it was - it wasn't 'social democratic' or 'direction for the democratic left'!

Henry, I have heard all your arguments before from many LVT evangelists. They are still utter rubbish. Not once in your last post do you mention supply and demand. You assume all price inflation is due to speculation by people who look at land purely as an investment that will yield a rental return. That is a total misinterpretation of the UK housing market. Your level 1 price inflation is in fact driven by long-term economic growth, planning restrictions and population pressure, not speculation. People do not pay over the odds because they anticipate prices rising, they pay more because they are bidding against others in an auction of limited resources where buyers outnumber sellers.

Then you compound your failings by saying: "If it were true that, as you assert, the level needed to prevent land price bubbles from developing was higher than all government expenditure put together, then this revenue could always be distributed as a national dividend or Basic Income."

So where do you think this dividend will be spent? On property, that's where!!!! So land values go up again, LVT goes up again to try to stop it, and tax income for the government goes up again, so the dividend goes up again, and so on. That is an inflationary bubble. So your circular argument gets you nowhere.

In reality most people buy land for somewhere to live. A mortgage offers them eventual economic and financial freedom from rent in their retirement. LVT instead condemns them to economic slavery forever, even when they no longer have the income to pay it. That is why it will never be implemented.

No SG...there is no mechanism for LVT which couldnt just as easily be incorporated into a reformed council tax system. Still, neither you nor anyone else has answered my question: how will the various segments of the market respond to LVT and what will eventually happen to the land with the full range of land-usage classifications. If you cant predict that, then you have no case for a new system, which could result in outcomes very different to the ones you want. LVT is an input to achieve a range of outputs. You have to have a sophisticated interactive model to see what outputs are most likely to occur. The theory alone is quite insufficient.

A land value tax encourages people to put the land to the use that will bring them the highest return. That does not mean that land will automatically be released for housing, and certainly not housing for the bottom of the market. You are setting up some major battles over development planning over change of land usage, and I can see the LVT values yoyoing all over the place, quickly bringing the entire experiment into disrepute. This has the makings of a great "how to spread egg over one's face", for any government foolish enough to go down this path. And the expense of installing it will not be insignificant. One would have to allow an appeals procedure...my God, the prospects are quite horrific.

With reference to SG and my comment on 16 August 2009, 4:49:52 PM

"In fact one of the positives of the last twenty years has been the growth in the private rental sector that increases choice for young professional people who can't yet afford to buy. If that sector were to collapse, where would these people go? They can't afford to buy and the waiting list for council homes is twenty years or more. The answer is, they will be forced to stay in the private rental sector and pay whatever is demanded. In other words, LVT will inevitably be passed on to them. So I'm afraid your argument fails."

SG, you misinterpret my argument once again. I shall of course assume this is because I didn't spell it out clearly enough for you, rather than being due to any continued failure on your part to understand causality (or any other physics for that matter). I did not say the rental sector would collapse. I merely pointed out the lack of choice available to people if it did (they can't afford to buy and there are no council houses). If LVT is introduced incrementally (as you propose), it will not cause a big enough shock to force the private rental sector to collapse. Instead landlords will try to pass it on to their tenants in rent increases, and with nowhere else to go those tenants will be forced to pay up, just as they are now for Council Tax, water bills, ground rents and Factor's fees or other overheads and maintenance charges. So Henry is wrong again. LVT will be passed on to tenants, and current standard economic practice demonstrates exactly how.

Moreover, there is a clear precedent for this. I point you towards the decline of the NHS dentist over the last 15 years which has occurred for the exact same reason. Not because of some great shortage, as the dentists and the Government try to pretend, but because dentists realised in about 1992 that with every NHS list full to capacity their patients had nowhere to go if the dentist decided to go private. So the dentist raises his charges and the patient has to pay or go without a dentist. The dentist's rise in "overheads" is passed on to the patient in full, just as LVT will be to tenants. Other dentists then follow suit, and a domino effect results. SG, your incremental introduction of LVT will just make this scenario even more likely.

"The answer is, they will be forced to stay in the private rental sector and pay whatever is demanded. In other words, LVT will inevitably be passed on to them. So I'm afraid your argument fails."

If you were to take on the burden of clarifying your assumptions about the different and various market structures which you feel may apply in the short term and how these may dffer over the medium and long term and the effect that these might be expected to have on the various actors (using whatever assumptions you choose to use but at least stating them clearly) I feel I may be much better paced to judge your argument.

I must say, however, that the NHS dentist analogue does not actually make the point you wish it to make. Dentists left the NHS because of low earnings and poor terms and conditions of employment arising from the standardised NHS contract. Dentists, once private, did not then attempt to pass on and merely recover their costs on the old treatments they once offered on the NHS. They offered a completely new mix of treatments (cosmetic dentistry, implants, veneers, botox, preventative contracts, &c) and began to charge the market price (although it is possible that in some areas some dentists created an effective cartel to in order to further the development of their individual practices).

"No SG...there is no mechanism for LVT which couldnt just as easily be incorporated into a reformed council tax system. Still, neither you nor anyone else has answered my question: how will the various segments of the market respond to LVT and what will eventually happen to the land with the full range of land-usage classifications. If you cant predict that, then you have no case for a new system, which could result in outcomes very different to the ones you want."

Not true, a LVT will replace council tax AND business rates and it is simpler to administer and can be brought up to date annually (or more frequently, if desired) and whenever land exchanges hands. As for market segmentation, I'm not sure what you mean: consumers, the various business markets or what? Or are you using usage to define segmentation, or even vice versa? However, let's say that we are price led and all land has a full range of possible usage and all land has an LVT equivalent to the economic rent assessed on the value of land as it is now. What difference will it make to usage? What difference will a further tax assessment the following year and so on have on the value of the land? Firstly, the rate of return on land will be much lower, and in some cases, it will be a negative return. Secondly, Any return on property will then be a function of the economic use of the property as opposed to the economic rent pocketed by the landowner.

And if I can't predict that, I still have a strong case for a new system because the existing system has completely failed the people of the is country, the recognition of which is the first step in the thousand mile journey to create a fully evidence-based and equitable system of taxation.

SG: You know very well that land is zoned for different usage, and this affects the value of that land. And planning permits change of usage applications. Unused land, once LVT is applied, will almost immediately result in change of usage planning applications. You want unused land to go as far as possible for low cost housing, and for the wealthy to pay acceptable levels of tax. In fact, the consequences of LVT may well result in neither of those. But just because it seems a good idea and will be easy to adminsiter, you think we should go that way ????

It seems to me that a lot of the arguments running in this thread are based on different assumptions over the definition of land value. This is widespread even amongst advocates of LVT.

Classic LVT is an ad valorem charge on the annual rental value of land. It is not a charge based on the selling price. This immediately cuts out the uncertainties relating to planning regulations, zoning, etc, because annual value is the present value ie existing use value or a value based on an actual granted planning consent. So there no argument about value and there is not going to be a flood of appeals.

The scenario is not so difficult to follow through, though what happens depends on whether LVT is local or national or a combination of both. For the sake of discussion, we could assume that Council Tax is replace by local LVT and UBR by a national one. We might further assume that LVT is set initially at a level such that the median taxpayer pays as much as at present ie the number of winners= number of losers.

This will raise significantly more revenue as owners of vacant and under-used land will be making a contribution. Two things then happen. The owners of that land will find it a drain on their balance sheets and will either develop it themselves or dispose of it to someone else who will develop. This has obvious implications for the construction industry. In the present circumstances, the upturn in work would be most welcome.

At the present time the increased revenue is necessary to repay the government's huge debt, though in better circumstances it should be used to allow tax thresholds to be raised, thereby reducing the cost of labour and encouraging employment.

There are three points to notice at this stage. First, the presence of the tax will tend initially to drive down land rents and land prices due to the pressure on landowners to keep their property in use. Second, and conversely, there will be a tendency in the opposite direction as tax reductions tend to promote economic activity and drive up land values. Third, the reduction in taxes on labour will have most effect in areas of locational disadvantage (marginal areas) with the lowest land values, thereby providing, in effect, tax havens in those areas where they are most needed.

LVT requires frequent, preferably annual, revaluations based on market evidence, though this can be done by statistical analysis since there is no necessity to survey buildings. As existing taxes are reduced, land values will rise, providing a growing tax base and promoting a virtuous circle, assisted by falling unemployment and falling welfare costs.

In this connection it is worth noting that according to an IEA study, existing taxes reduce the UK's GNP by about 12%. LVT has no effect on economic activity because it does not bear on the active factors of production.

LVT will not cause the rental market to collapse. People will still want to rent and there would still be a livelihood to be made from renting even if LVT was levied at 100%, just as there are business which provide rental services for capital equipment like cars, machinery and plant. But property owners will not be able to enjoy the benefits of rising land values since these will be collected through the LVT system.

LVT cannot be passed on in the form of higher rents. To suggest otherwise implies that existing rents are below market levels. Landlords normally aim to charge the highest rents they can get. The introduction of LVT does not make it possible for landlords to charge any more. On the contrary, they have to be more careful about keeping property occupied or they will be saddled with the LVT bill.

Adrian,

You are right, level 1 growth in land value is real. The bubble arises from the level 2 and level 3 inflation. Of course population growth drives up land values and so does economic growth. But if that value is collected, then it can pay for decent public services and there will be something over to provide for a basic income for people to use when they are no longer economically active. That is the opposite of economic slavery for life, as you put it, which is the lot of the large proportion of the population who do not get on the property ladder.

If you oppose LVT, please answer this simple question. How you want public services to be paid for? Here are the other options.

* Clobber hard-working families for working and reward the lazy and the cheats.
* Clobber hard-working families who improve their property.
* Clobber hard-working families when they spend their hard-earned money.
* Print the money and clobber hard-working families who have worked hard and saved.

Or perhaps you would prefer to let the roads go unrepaired and have your granny ending up crippled while the rubbish piles up in the streets. And do we want another housing boom-bust?

Britain is already the scruffiest and most run-down country in Western Europe. If, in the end, the British want to let their country degenerate to third-world standards and are too stupid and selfish to look beyond their front garden gate, that is what will have to happen.

"And planning permits change of usage applications. Unused land, once LVT is applied, will almost immediately result in change of usage planning applications. You want unused land to go as far as possible for low cost housing, and for the wealthy to pay acceptable levels of tax."

Change of usage = change of land value = change in economic rent = LVT kicking in to scoop up economic rent = level playing field for landowners and property developers = inter alia, transfer incomes for poor, elderly, sick, disabled plus incomes for teachers, doctors, jailers for corrupt bankers and corporate managers. LVT also offers the possibility (and this is one of its advantages) of minimising the need for planning regulations (big cost saver) other than those related to health and safety. Think of it as forcing both natural and artificial distortions out of the market in order to realise the benefits which can arise from all when there is a relatively free market in land regulated by the very simple mechanisms required to adminster a LVT.


"But just because it seems a good idea and will be easy to adminsiter, you think we should go that way ???? "

I believe in evidence-based incrementally applied policy - which is one of the reasons I hold New labour in such contempt.

I believe in evidence-based incrementally applied policy - which is one of the reasons I hold New labour in such contempt.
*********************************************************
So where is the evidence ? Imagine a large estate currently taxed at council rate level (which could be adjusted under amended rules. LTV is applied. Now describe to me the various possibilities and their likelihood of what will happen next.

Lee, what estate do you have in mind? The Crown Estate? Bridge House Estate? The Duke of Westminster's? The Duke of Buccleigh's? A council housing estate in Hackney? An estate of owner-occupied houses on the outskirts of London? Or Newcastle?

The situation in each is very different and what happens depends on how the LVT is introduced. You need to clarify before the question can be answered.

"What impact would LVT have on the market price of undeveloped land ? What is then most likely to happen to that land ? "

The market price will fall. The land will be brought into use or disposed of to someone who will, thereby making it available to someone for productive economic activity or as living space.

Sounds good, eh? Bad news if you like buddleias.

"So where is the evidence ?"

But that's the entire point of the incremental application of policy. If it goes wrong, fix it before extending its application; if it can't be fixed, try something else, again applied incrementally, which is likely to have the desired outcome(s); and so on. Also, the Norwegian municipal property tax based on ideas similar to those underpinning LVT, allows local authorities the right to levy of between 0,2 and 0,7 percent of the assessed property value and does not seem to have turned Norway's economy into a depressed wasteland - but it does provide some insights into both the incremental implementation and the probable effects of a LVT.

Your council estate example, Lee, will depend on the ownership of the land but I doubt if an LVT will give rise to a municipal insurrection.