Land Wealth for the People

David Wetzel

[2006]

David Wetzel is President of the Labour Land Campaign in the United Kingdom

Economists and politicians concentrate their energies on trying to remedy various basic flaws in the body politic.

On the one hand, solutions are sought for poverty, unemployment, run-down inner city areas, homelessness and poor housing.

At the same time citizens complain of high tax rates.

Tax avoidance and evasion have become an art form, a major industry, squandering the energies of skilled accountants, lawyers and bankers as they use every possible device to ensure their clients keep their own tax liabilities to a minimum whilst expecting others to make their full contribution.

Our Government does nothing to rectify an economy which rewards sloth and penalises hard work and enterprise.

A major transport planning company with over 50 staff recently moved from freehold premises in Paddington which they had occupied for over 30 years. The unearned increase in property value was enormous.

(Remember in this context "property value" really means "land or site value"; buildings deteriorate over time, bricks, roof tiles, floor boards, windows do not escalate in value - it is the site or land value which we see spiral).

Consequently, this firm earned more from their trade on property value than they had earned gross profits as a trading organisation over 30 years!

What does this mean?

It means that we reward inactivity more than enterprise. The owner of a land site can earn more from their rents and unearned capital value increase than the tenant or occupier -- who is creating wealth -- can earn in profits!

Land and empty buildings are often held out of use while the price appreciates. The owner incurs no penalty and is not disbenefited; they pay no taxes on empty land and buildings and can always borrow finance using the rising property value as collateral.

Often, the empty building will be vandalised with broken windows, graffitti and other neighbourhood disfigurements etc.

But as the owner lives far away they are not disturbed.

However, locally, the neighbours of this site have to put up with a ruined environment, rubbish being dumped, vandalism and graffiti which spill over onto occupied properties nearby, a venue for drugs and criminal behaviour and generally a run-down atmosphere in their neighbourhood.

Every empty site in urban environments is denying the community jobs, homes and/or leisure activities. This artificial shortage of space where people wish to live or work leads to higher land prices and the people and firms that can not afford to locate in towns and cities move into the countryside, thus creating urban sprawl.

I'm not suggesting that the countryside should become a museum with no new development.

I do suggest, however, that growth should be to enhance local village and countryside economies, providing homes and jobs for young people who wish to stay in the locality.

It should not be for, not second homes for town dwellers to keep empty for most of the year whilst enjoying the investment potential and inflating rural house prices so as to or forcing essential workers to adopt long commutes because it is only these homes far from in the towns urban sprawl where they work, that they can afford to buy.

No action is needed by landowners for their land to increases in value. It is the community activity around a site, good schools, the health service, refuse collection, water on tap, sewerage, electricity or gas supplies, the local pub and shops, transport availability and good roads which gives land its value.

Taxpayers contribute to the cost of building new railways like the Jubilee Line Extension which cost £3.5bn, and yet landowners, within 1,000 yards of the eleven new stations have benefited to the tune of £13bn increase in their land value.

And it is not just public activity which increases land values. When, in 1931, Henry Ford built a new factory on a 500-acre site on the banks of the River Thames near the small village of Dagenham in Essex, he provided a massive unearned bonus to local landowners in the area as demand soared for sites for homes for these new workers and for the services they'd require.

Is there an alternative?

The UK Government has failed miserably to address this problem - but a simple solution is at hand. If all land were valued for its optimum permitted use, and an annual rate applied, then not only could the Government use this new source of unearned income to reduce or replace those taxes which damage businesses and destroy jobs, but landowners would have a direct incentive to put their land to good use, thus creating the homes and jobs we need.

This policy is known as Annual Land Value Tax (LVT)., This tax is not an additional burden on the economy. It utilises the rents we already pay to landowners, and the rental income forgone by land speculation on empty sites. It allows Governments to reduce punitive taxes on businesses and individuals and restores to the community that wealth which the community, not landowners, creates.

Because LVT encourages the owners of empty urban sites to put their sites to use, the extension of urban sprawl for commuting purposes would cease and most people would live closer to their jobs. The income from Annual LVT could also pay for those future projects (such as new rail lines), which lead in themselves to higher land prices, thus creating a win-win situation.

Together with Tony Benn MP, the Labour Land Campaign in 1985 promoted a Bill in Parliament which if enacted, land value would have created a "land dividend" paid to every person, man, woman and child in the UK. This land dividend could be enough to replace all means-tested benefits, giving students, pensioners, unemployed people and people with disabilities a minimum living wage without any of the bureaucratic costs, debts and indignities that the present system entails.

The side effects of Annual LVT include the reduction in the cost of land. Both homes and business premises will become more affordable and the Bank of England could reduce interest rates as the housing price bubble is controlled by fiscal means. Marginal firms would be able to expand, start-up businesses would more easily flourish, the unused sites beyond the South-East would bear a lower tax burden and regeneration would take place in a natural and harmonious way.

With cheaper land and a sustainable income (using Site Value Rating - the local form of LVT), local authorities would be able to afford to provide more community and youth facilities, sport would thrive, wild-life sites could grow, city farms be encouraged and formal and informal parks and playgrounds could be provided.

As Annual LVT can not be avoided (you can't take land to the Cayman Isles in a briefcase!) it is cheap to collect so that not only do we reduce the costs of collection but the army of accountants and lawyers employed in tax avoidance could utilise their undoubted skills in more productive endeavours.

Will UK politicians ever consider adopting?

Of course, timid UK politicians will never adopt this challenging policy which is already proving its benefits in places like Hong Kong and Harrisburg, the Capital of Pennsylvania in the USA?

At least in the interests of the vast majority of the population and society as a whole, they should seriously consider LVT as part of an important debate on how we manage the public finances better.

Or will we will have to wait for a new breed of real leaders to step onto the national stage before fairness and economic efficiency is allowed to replace the narrow vested interests of the British Aristocracy and greedy land speculators.