1 The Vision of Henry George Revisited.
“Let the individual producer keep all the direct benefits of exertion. Let the worker have the full reward of labour. Give the capitalist the full return on capital. The more labor (labour) and capital produce, the larger the commonwealth in which we all share.
This general gain is expressed in a definite and concrete form through the value of land, or its rent. The state may take from this fund, while leaving labour and capital their full reward. And with increased production, the fund would increase commensurately.
Shifting the burden of taxation, from production and exchange to land value (rent) would not merely give new stimulus to the production of wealth – it would open new opportunities. Under this system, no one would hold land without using it. So land held from use would be thrown open to improvement.
The selling price of land would fall, and land speculation would receive its death blow. Land monopolization would no longer pay. Millions of acres, where others are now shut out by high prices, would be abandoned or sold at trivial prices.
This is true not only on the frontier, but in cities, as well”.
Henry George, Progress and Poverty, 1879.
Progress and Poverty sold more copies in America in the 1890s than any other book except the Bible, making Henry George a popular author across the English-speaking world and beyond.
It continues to well repay reading both as work of economics and philosophy. George –self-taught of humble origins, who worked as a seaman, typesetter, and printer before becoming a journalist – set out in accessible English a coherent world view centred on a tax reform that modern economists of differing political persuasions have re-awakened to as an efficient and equitable means to bolster growth.
His overarching tenet was that while people possess the right to the fruits of their labour, natural elements or ‘Nature’s (God’s) bounty’ not produced by human effort – air, water, sunshine, and land – should be vested with the community.
Private ownership of land would mean continuing suppression and exploitation of working people by the landowning class – a process that would intensify as land values rose with the population and with economic and urban development, so allowing landowners to subtract more and more wealth from the community.
George offered a solution – even a panacea. Not political revolution in favour of the proletariat where the state took control of capital and labour, as well of as of land. Not progressive systems of taxation levied on income.
Rather, a single tax on the economic rents derived from land ownership as the: “The simple device of placing all taxes on the value of land would, in effect, put land up for auction to whoever would pay the highest rent to the state. The demand for land determines its value. If taxes took almost all that value, anyone holding hold without using it would have to pay nearly what it would be worth to anyone else who wanted to use it.”
The eighteenth and nineteenth founders of modern economics, including Adam Smith, David Ricardo, and John Stuart Mill, following the pre-revolutionary French Physiocrats, had earlier identified that land as a fixed factor of production in inelastic supply – the value of which depended on its use and location rather than its intrinsic characteristics – provided scope for its owners to capture massive unearned gains for reasons connected with the wider development of society (initially increased demand for food from a rising population, then for urban space in accessible locations), not the owner’s own actions.
As to what is meant by economic rent, or, more precisely in in this case, land rent, definitions include: the difference between what land (or other factors of production: labour and capital) currently earns and what it would do in its next best use, regardless of the acts of the owner; and payments to a factor of production (including land) greater than the minimum needed for it to be supplied.
George’s single tax on land – meaning that it would replace and render unnecessary other taxes – involved taxing land rent at a 100% marginal rate, minus an allowance to prevent plot abandonment to obviate any need for the state to take ownership and to lease it out with accompanying risks of inefficiency and corruption.
Conceptually, if a land plot fixed in supply and is taxed according to its best possible use regardless of its current use, its owner to prevent financial loss will either put the land to that best use or sell it to someone who can or will.
A tax on land, in theory, is the most economically efficient tax, predicated on the assumption that the supply of land is perfectly inelastic or zero – its supply does not change at all in response to any change in its price.
In accord with that assumption, owners of land plot(s) cannot respond to the imposition of the tax by restricting its supply. Alternatively, if did respond by increasing its price, demand will fall returning the price again to its previous level.
The tax will be completely borne by its existing owner, therefore: its imposition will not alter or distort economic decisions concerning the current or subsequent use the plot is put, save that where the tax is levied on its best use, the plot owner will be incentivised, as noted above, to put it to that use.
If its value rises as result of a future change in its use, any consequent higher land tax liability will follow and not cause that change in use, avoiding – unlike other forms of taxation – economically harmful deadweight effects.
The 2011 Mirelees Review of Taxation defined deadweight loss, albeit less eloquently and less fired by belief than did George, as follows:
“By increasing prices and reducing quantities bought and sold, taxes impose losses on consumers and producers alike. The sum of these costs almost always exceeds the revenue that the taxes raise — and the extent to which they do so is the deadweight loss or social cost of the tax”.
Wider costs of tax collection and avoidance can also add to the deadweight cost of tax.
On the other hand, desired ‘merit’ (lower consumption of drink, alcohol, gambling, sugar, or other products deemed harmful) or externality (taking account of pollution, congestion or other effects resulting in costs not borne by the producer) impacts that can produce positive social benefits or ameliorate externality disbenefits that may subtract from deadweight cost.
Mirelees went on to emphasise, however, that reform should be driven by the core objective of minimising, as far as possible, the deadweight loss of the overall system.
George himself likened a single tax on land rent to “removing an immense weight from a powerful spring”, because it lifted the need for other taxes on labour, production, and on exchange: taxes that would otherwise reduce effort, output, trade, consequently constricting the community’s wealth.
Workers instead would keep the full fruits of their labour, capitalists their full return on capital, generating more income, investment, and wealth.
Such a tax would therefore “drive (rather than) act as a fine on improvement” in a dynamic and self-sustaining cumulative process. Landowners whether building or improving an orchard, homestead, or factory on a plot would pay no more in tax than they would if they kept it in its former unimproved state.
That would be true regardless of the cost of any improvements made, which would no longer have to absorb the input cost of other taxes on materials and labour.
George also identified that the incidence of a tax (whom its actual economic burden will fall) will not necessarily correspond or vest with the economic agent – whether company or individual – that formally pays it in cash.
In a telling, and ever timelier, answer to his own rhetorical question as to why – if a tax on land values is so beneficial – does the government resort to so many other taxes, he replied that it was the only tax that cannot be passed on to others: borne by landowners, it provides that group with a powerful interest to lobby and resist its imposition.
In contrast, businesses feel less need to oppose taxes, such as levies on inputs that they can then ultimately shift to consumers, especially when they “come in such small amounts, and in such invidious ways, that we (the consumer) do not notice them”.
Indeed, one could imagine how scathing George would be on the default propensity of modern UK governments to indulge in stealth taxation, such as tax bracket creep: the insurance premium tax fits his diagnosis to a tee.
National insurance employer contributions that increase the cost of labour – depending on the relative market power of firms, workers, and consumers – reduce wages to a point lower they could have reached otherwise and increase consumer prices: deadweight effects.
Land value taxation thus offers to bridge the socialist or communitarian nostrum that unearned wealth based on ownership of nature’s bounty (land and natural resources) should be harnessed for the benefit of the community with that of the premise that wealth-creation requires the lifting of economically burdensome and incentive-sapping taxation (deadweight) effects on business and individuals.
George’s prognosis that governments would be reluctant to impose a single tax on land however has proved almost entirely correct, however, for reasons that later Sections will explore.
2 The Modern Gradualist Georgist Approach
Contemporary advocates of a Georgist approach to taxation straddle the UK political spectrum, encompassing the Labour Land Campaign, the Alter Group of the Liberal Democrats, and the Scottish Land Revenue Group.
Free market-oriented think tanks, including the Institute of Economic Affairs and the Adam Smith Institute, have also expressed past support for the principle along with many, if not the majority, of mainstream economists, including in the UK, the independent and influential Institute of Fiscal Studies (IFS), most notably in its flagship 2011 Mirelees Review.
The American Nobel Prize winner in a 2015 paper, Joseph Stiglitz, linked the enormous widening of wealth inequality in America since 1980 to two main causative factors: first, changing tax, education, health, anti-trust, regulatory, and monetary public policies; second, to an explosion in economic rents, especially land rents and values (expressed in rising real estate values).
He ascribed rising land and real estate values as the main driver of the increased wealth-output (and income) ratio recorded across most advanced economies since 1980, noting that productive capital (contributing to future growth of output, profit, and wages) is only a subset of total wealth, 42% of which was owned by the top 1%, with the top 0.1% owning 22%.
He concluded that such an unequal distribution and ownership retards and hinders economic and social opportunity, providing an underpinning reason why contemporary America, far from being the ‘Land of Opportunity’, offers to most of its people one of the lowest levels of equality of opportunity amongst the high-income countries.
Moreover, as land is a store of value dependent on its future expected value, land prices are prone to untethered self-fulfilling rises, resulting in speculative bubbles that, in turn, can and often do give rise to wider economic instability with its attendant costs.
Stiglitz, endorsing George’s arguments that Section One summarised, concluded that: “a tax on the return to land, and even more so, on the capital gains from land, would reduce inequality, and by encouraging more investment into real capital (plants, machines, research and development), actually enhance growth”.
Recent relevant data tends to vindicate George and Stiglitz. A dataset produced by the Organisation of Economic Co-operation and Development (OECD) found that across its membership the share of total non-financial assets taken by land was within the 40-60% range.
The UK Office of National Statistics (ONS) May 2022 national balance sheet estimates, covering the 1995-2021 period, puts the value of UK land (exclusive of the value if dwellings and other building structures that may be built upon it), in 2021, at £7.0 trillion (seven million million), around 60% of the UK’s assessed total net worth.
Table 2 of the same estimates reports that the total value of produced non-financial assets (best proxy for productive capital) was £1,684,803million in 1995 when the total value of land (non-produced financial assets) was £1,066,725million, but by 2021 that position was transposed, with land accounting for £7,011,740 compared to £5,100,144 million of non-produced financial assets (capital).
A July 30th 2022 Economist opinion piece noted that in 2020 the world’s largest asset class, real estate, accounted for around 68% of the world’s non-financial assets – a category that includes plant and machinery as well as intangibles, such as intellectual property.
It went on to argue that, whether in the ‘West or China’, such rising values are tending to divert capital from productive uses, constricting both national business investment and productivity, before concluding that taxing and reducing land values could counteract that adverse trend with beneficial macro-economic effect.
A pure land value tax (LVT) is now usually defined as a periodic and recurring charge on the assessed (usually rental) value of a demarcated parcel of land (plot), exclusive of the value of what may be built upon it.
Modern such treatments invariably shun the original Georgist conception of a near 100% tax on land rent, in favour of a more gradualist approach, where it is phased-in over several years to reach rates usually closer to five per cent than 100%.
The primary reason is practical. The sudden fall in land and housing asset values that could be expected to follow the announcement of a near-100% tax on land value, along with the associated wider economic uncertainty, would almost certainly produce irresistible political pressures for the quick repeal of such a tax; pressures, in practice, that would prevent its introduction in the first place.
Tony Vickers, in a paper for the Liberal Democratic aligned Action for Land Taxation and Economic Reform (Alter) pressure group, while recognising that a pure LVT introduced at a low starting rate would yield total proceeds insufficient to replace all other taxes, noted that its rates could be increased over time and that such phasing was preferable to successive failed post-war attempts to use betterment taxes or other more complex instruments to tax planning betterment gain.
Applying assumptions that all land plots would be revalued annually and taxed at a LVT set at one per cent of their assessed capital value in their “optimum permitted use” (except agricultural land, valued at its existing use), Dave Wetzel (formerly the Greater London Council’s transport chair in Ken Livingstone’s early eighties administration, who led on the Fare’s Fair Programme that although was ultimately vetoed by the Law Lords set an important marker), in a paper for the Labour Land Campaign (LCC), posited that such a LVT would yield £50bn – a figure then based on a 2017 Office of National Statistics (ONS) £5 trillion valuation of all UK land.
If that rate was then progressively increased to four per cent over a “two-term ten-year Parliament” the LVT yield would commensurately rise to over £200bn, enough, Wetzel argued, to “abolish” national insurance contributions (NICs), council tax and business rates, and to allow income tax “to be significantly reduced or eliminated altogether for low and some middle-income earners”.
Updating to a 2021 seven trillion-pound land value subject to a one per cent pure LVT, would potentially generate £63bn (63 thousand million) per annum. A four per cent rate would raise c£250bn per annum.
Such projected LVT receipt levels compare with 2021-22 VAT tax receipts of c£143m, total National Insurance Contributions (NICs) of c£160bn and Pay as You Go (PAYE) income tax receipts of c£193bn.
Such figures should be considered as a consciousness-raising indicative examples of the potential of a LVT, insofar that they simply assume that a stated percentage tax on total land value, as reported in the National Accounts, will be realised – which itself assumes that plot valuations in practice (assuming necessary valuation arrangements are put in place) will total up to the NA estimate; will be accurate and non-contestable to a point that the tax can be collected; and that the LVT and the expectation of progressively rising LVT rates will have no impact on future land values, as will the impact of changes in the macro-economic environment on such values.
The projections will also depend on the likely time lag between LVT levies and countervailing tax reductions, and the overall political feasibility and sustainability of such a programme.
In more technical contribution that addressed some of these issues (mainly at an econometric modelling level), the former Bank of England senior advisor and LSE professor Charles A Goodhart (the originator of Goodhart’s Law: when a measure becomes a target, it ceases to be an good measure) with other distinguished American economists, in a 2021 Centre for Economic Policy Research (CEPR) discussion paper, recommended that a Land Value Asset Tax (LAVT) should be levied on the capitalised value of future after-tax land rent values inclusive of price appreciation, in accordance with “a tax on a stock, the capitalised value of future after-tax land rent values inclusive of price appreciation.”
Using American institutional data, they modelled that over a 20-year period, such a LAVT reaching a rate of around 5.5% in 0.5% increments – assuming balanced budget tax cuts on labour and asset incomes – would spur output gains of close to 15% and 3.4% in welfare gains.
Such a gradual speed of implementation, according to the authors, would smooth the windfall and cash flow impacts of the proposed LAVT and accordingly alleviate political opposition to it.
Increasing the LAVT rate further up to a 20% – a rate they perceived as a cap consistent with political feasibility – would generate higher gains and raise up to 55% of total tax revenue.
The largest proportional gains, however, would still be realised at low LAVT rates, and remain large until a 10% LVT rate was reached.
The flame of George’s vision has begun to burn brighter again, with mainstream economists increasingly joining dedicated and longstanding disciples of disparate political backgrounds.
Very rare does one encounter both groups waving the same torch, inducing the almost exasperated gasp as to “why can’t the politicians simply bite this golden bullet”.
Two of the more immediate apparent issues are now addressed, the valuation of land for LVT purposes, and the institutional environment (in the UK context) that is a major determinant of actual change in land values.
Henry George’s proposed 100% tax on land rent was a theoretical construct that largely ignored practical issues of implementation, including the assessment of the value of diverse plots in their best use that tend to change over time.
The paucity of observable land price data generated at scale by a functioning competitive market means that even today direct measurement of land prices by government agencies is the exception rather than the rule.
Without such measurement, estimation of plot land value to a degree of accuracy that can command confidence and legitimacy for LVT purposes becomes even more difficult.
EuroStat provides useful background from a national accounts (NA) perspective on some of the underlying valuation methodological issues.
South Korea provides one of the few exceptions. Since 2006 it has been mandatory for real estate agents brokering transaction, involving residential buildings or land, to report actual transaction prices (ATPs) to the relevant local government body within 60 days.
The ATP data – as elsewhere, only a small proportion of plots are traded each year – is then compared with publicly appraised and noticed prices (PNPs) that are secured from an annual sampling survey inspection process.
Both sources are then used to value delineated plot(s) at market prices or market price equivalents for land taxation and compensation purposes.
Across many Organisation of Economic Co-operation and Development (OECD) countries, available information is instead largely restricted to real estate values – combined land and structure/dwelling (CV) plot value – and involve the use of indirect land value estimation methods that require the estimated separation of land and CA values.
Estimating the land-to-structure (LSR) ratio and the residual value of land are the two main approaches taken.
The ONS advised in a March 2022 methodological paper that the UK uses the residual approach for NA purposes. This is because estimates of residential investment are only produced at the national level in the UK, while the value of land varies considerably both within and across its regions.
This residual approach takes CV as the starting point of the calculations using the available Valuation Office Agency (VOA) and HM Land Registry data.
Because English dwellings were last valued for council tax purposes in April 1991, historic valuations are converted into current prices using regional price indexes based on the Land Registry data.
Estimates of the net capital stock (gross new and improvement investment, depreciated or consumed according to set assumptions) value of the dwelling/structure is then subtracted from the plot CV, to produce a residual land value estimate.
It is an imperfect process, largely replicated for non-domestic business property, that suffers from a range of methodological and data source problems.
Given that urban use values can rapidly change, a pure LVT would require regular, if not annual, land value valuations for tax liability to be computed accurately and transparently.
Both VOA and Land Registry data sources fail to identify accurately all dwelling and property attributes including area and neighbourhood, condition, and other characteristics, with resulting inaccuracies.
The ONS is seeking to make to improve CV estimates before reviewing the relationship between CV and underlying land values.
It plans to publish updated indicative estimates of land underlying dwellings and land underlying other buildings and structures by the end of 2022.
Goodhart and colleagues recommended that the building residual valuation method should be adopted instead. This is where the value of its land in its highest and best use is subtracted from the market value of a development plot (combined value of land and building/structures placed on it) to obtain the residual value of the building rather than the land element of the CV.
The land residual method, they observe, can undervalue land value. The valuation of the buildings (based on their depreciated construction cost) tends to take insufficient account of their on-going locational (in contrast to their physical) obsolescence, citing, as evidence, the widespread conversion of centrally located commercial property to residential use in the United States.
American conditions may not apply across other national planning environments. Also, the building residual model presupposes an accurate mechanism to measure the land value directly or, at least to separate the respective values of the land and structure within the combined plot value.
Many LVT advocates argue for plot valuations to be based on their capitalised rental value, pointing out that the Valuation Office Agency (VOA) already compiles and updates – at roughly five-year intervals – a rating list for each local authority in England and Wales.
That process involves the computation of an estimate of the annual rental of all its non-domestic properties, based on their individual locations and attributes (see Section Six: LVT and Business Rates).
Such an annual list with input from the Land Registry could then be extended to include the boundaries of each property and its area measurements, which could assist any future move to the separate valuation of plot land and building elements.
The government in October 2021 indicated an intention to shorten that valuation cycle to tri-annual, as a possible (tentative) first step to annual valuations.
Where there is a will, there is the way, as the saying goes: the overriding problem is that such will has largely been absent.
Garnering and harnessing the political will of sufficient strength and resilience to put in place a pure LVT linked to the wider political acceptability and feasibility of pure and partial LVT variants is the real challenge that later Sections will consider.
Valuation methodological issues are a related subsidiary albeit significant issue, insofar that a pure LVT to be acceptable and sustainable would require accurate land valuations, notwithstanding these are likely to be contestable, regardless of their methodological robustness.
Take prime estate in the West End of London: the valuation for LVT purposes of an eighteenth-century square used for mixed residential and business purposes is still likely to prove far from straightforward and simple, where different forms of beneficial ownership that can often be obscured by opaque legal arrangements would need to be unravelled and tracked.
That said, legislation was recently brought forward and expedited to crack down on the flood of ‘dirty money’ into Britain in the wake of Russia’s full-scale invasion of Ukraine.
A new register will now require anonymous foreign buyers to now disclose the beneficial owners, with verified information, to Companies House — before any application to the UK’s land registries can be made.
Its relatively rapid and seemingly worked-through implementation suggests what can be done – given the will to do so amid and engendered by the existence of wider amenable political circumstances.
Politicians will probably need to mould such circumstances to support LVT introduction, when their commitment and willingness to do that is not present or apparent currently.
The institutional environment
Although the supply of land in total might be finite and fixed, and thus perfectly inelastic in supply (excepting reclamation, or loss due to natural calamity or natural process by flood or erosion), uses to which a plot can be put and hence its value or price are subject (and can vary) not only with its own physical characteristics, (topography, soil fertility, and other factors impinging on the cost of bringing into, or changing a particular use), but, crucially, also with the related institutional and other processes that govern how it is regulated, traded, and then used.
In the UK, the planning system largely governs the institutional framework in which land is traded and used.
It attempts to reconcile competing – and often conflicting – economic and social objectives, including the enhancing of urban amenities, the preservation of green belts around towns and cities, as well as the wider environment, including National Parks, designated areas of natural beauty and other green spaces, the provision of adequate transport, education, and health social infrastructure, as well as the meeting of additional housing requirements.
The planning system determines changes in designated development use, including the intensification of an existing building use, the redevelopment of an existing use, as well as the switching of use from, say, agriculture to residential use. Planning permission for change of use usually crystallises changes in the plot’s development value.
The supply of land for business or residential use, therefore, is not completely fixed in the contemporary UK environment. The supply responsiveness of land for specific development purposes can vary significantly according to local and national planning policy processes and their application.
These processes can add time and other costs to the development process. The current value of hectare of agricultural land is c£22,000; when attached with a planning permission for residential development across many areas its average value will tend to exceed £2m: a hundredfold increase; on the face of it indicating a massive windfall for any lucky farmer waking up one morning and finding that their land has been zoned for residential housing.
It is, of course, not quite that simple. The farmer will invariably need to share that gain with a development partner prepared to invest in the cost of obtaining planning permission.
Section 106 planning and affordable housing obligations and infrastructural levies, as well as infrastructural servicing costs, and then construction cost, will sometimes eat into some of that apparent return, which can, however, remain substantial.
The degree to which a LVT will be partly or even predominately borne by plot owners will still largely depend how price inelastic that supply is: the lower the price elasticity of land supply (when the demand for residential or other use is more price elastic or sensitive), the higher will be both the potential development value and taxation potential of that plot(s).
The empirical delineation of such relative elasticities is incomplete and uncertain, however, varying with area and with the reservation (lowest) price each individual landowner will willingly sell an individual plot(s).
The measurement of land rent that could potentially be available for taxation continues to constitute a central problem in LVT design and implementation, especially in interaction with the prevailing institutional environment, in this case the planning system.
In that light, valuations would need to take account of all current planning conditions and rules relevant to each site.
The government’s 2020 Planning White Paper proposals to move towards to a zonal rules-based system have largely been kicked in the long grass. The planning system in England and Wales is likely to remain to a significant extent discretionary based, contributing to valuation uncertainty.
It follows that a treatment where each plot is valued according to its “highest and best use” or its “optimum permitted use” consistent with applicable planning and zoning rules, it would be set (such as land in current agricultural use but zoned for housing use) with reference to a postulated value that subsequently may not be necessarily realised.
Assuming that planning permission would be granted in line with an assumed zonal valuation could also consequently risk rejudging that decision, giving rise to possible to compensation claims from landowners not securing the planning permission they could argue was consistent with its zoning, although the application of that assumption would tend to act as a nudge, rather than a non-resistible shove, for them to progress change to “optimum permitted use”.
Even though option or other agreements between developers and owners could provide an indication of market valuation of ‘hope’ values based on the expectation that a change in planning use sometime in the future will secure permission would be hypothetical and even more uncertain in realisation.
Another consideration is that a pure LVT levied at a gradually rising rate within the one to five per cent range is not really designed to capture high levels of windfall gains or land rent as defined by Ricardo, as understood by George, meaning that it is likely that planning gain windfalls would still need to subject to other development levies, such as Section 106 affordable housing requirements.
In short, real-world conditions are far more complex than was the case when George proposed his single land tax solution.
Section Three shows that governments across America and European industrial countries – at least in practical policy terms – to all intents and purposes were largely unreceptive to his solution – and have remained so since.
A twist in that tale is that Georgist prescriptions have been successfully applied in high density East Asian urban environments – in a customised society-specific fashion – during the last third of the twentieth century.
3 George’s international legacy
Expectations of the transformative potential of LVT have greatly outreached outcomes.
The use of land value taxes started from a low base around the turn of the twentieth century (Japan had already established one) and have since tended to recede.
LVT practice in local municipalities in the United States (US) – Pennsylvania in particular; Denmark, and then New Zealand – are often touted as positive examples of LVT application, when, in practice, they provide testimony rather to its limited application.
Post war outlier exceptions are concentrated in post war East Asia, including the four east Asian ‘economic tigers’ – Singapore, Hong Kong, South Korea, and Taiwan – which enjoyed sustained annual economic growth rates of seven per cent across recent decades.
Singapore’s application of Georgist principles from its beginning as an independent city state combined with their centrality to its chosen development model and institutional arrangements, provides an exemplar example of effective integration of land assembly, planning, taxation, and housing policy development.
Its exceptional geographical and political institutional characteristics suggest, however, limited direct replicability.
United States (US)
LVTs have tended to metamorphose into wider combined taxes on property that include the value of the structures built upon a plot, and – depending on their design and the frequency of revaluations – of any subsequent improvements made to such structures.
The United States (America) is a prime example. Its cities and states over time have levied property tax variants rather than a pure land tax, before progressively ceding to pressures to reduce their limited coverage and incidence.
That receding trend is not difficult to understand. In 1978, Proposition 13 – a ballot referendum measure in California – capped property taxes to one per cent of a property’s assessed value and that to its original purchase price (rather than its current market value), save for an annual allowance of two per cent. Owners in areas of rapid house price appreciation, such as San Francisco, were thus given a disincentive to move.
Proposition 13 encouraged similar measures across states and localities. It also discouraged state and municipal politicians – fearing similar local taxpayer revolts – from going down the LVT road.
Local governments have tended to become a prisoner of the local homeowner vote: modern American democracy as it has turned out is hardly as George envisioned.
The exception (or possibly the exception that proves the rule) is Pennsylvania. Municipalities there, however, have primarily applied a split-rate tax (a partial LVT where land is separately taxed at a higher rate than is the buildings sat on it), rather than a pure LVT.
One demonstration example in that state often cited is Harrisburg, whose city authorities in 1982 more than doubled the tax rate on land while reducing it on buildings.
The city, according to economist Jerry Jones, in another Labour Land Campaign paper, subsequently enjoyed a rejuvenation in economic activity, in housing supply, and in public revenues.
Another is the former steel city of Pittsburgh. After it lowered taxes on buildings relative to land in the late 1970s, the city experienced a reported ‘building boom’ that ameliorated the impact of deindustrialisation, at least in comparison to other deindustrialising cities, such as Detroit.
The City of Altoona in central Pennsylvania is notable insofar that between 2011 and 2016, according to the Federal Highways Administration (FHA), it was the first and only city in the US to rely on a pure land value tax, alongside 16 cities and two school districts that levied a land tax together with other taxes on buildings (partial LVT), including, presumably, Harrisburg.
In Altoona, a split-level tax was levied on 20% of assessed land plot values in 2002; the plot rate on buildings was concurrently reduced to 80%. The land plot rate was then increased annually by 10% as that on buildings was reduced by 10%, until, in 2011, it became a 100% tax on the land value of the plot and zero on buildings: a pure LVT.
The FHA reported that the assessed value of all land in Altoona accounted for one-seventh that the combined total value of its land and of buildings (real estate value).
The corollary of that low proportion was that the pure LVT tax rate needed to increase sevenfold to match the revenue that the predecessor combined property tax generated.
More generally, where land plot values represent a relatively low proportion of total combined land and building value, a pure LVT must be charged at a much higher rate across a much lower base (on land only, rather than combined land and structure value) to secure the same amount of revenue or yield that a previous combined land and building property tax did or would need to.
In Altoona, notwithstanding its higher LVT rate, 72% of its municipal payers faced a lower tax bill than they previously did under a combined tax regime.
Property owners with land valued less than one-seventh of the total assessed combined land and building value of their plot paid less in total. Conversely, owners with land valued at more than one-seventh of the combined land and building value of their home paid more, as did owners of vacant or underdeveloped plots.
Taxes on agricultural land were not changed under this new land value tax regime.
But no clear link between the LVT and positive subsequent urban outcomes across the city were established – at least by the official FHA evaluation.
In short, the Altoona LVT did not prove a magic bullet and was shelved in 2016. The demise of Altoona LVT , according to its mayor, resulted from two main reasons.
First, the continued existence of other county and the school district-imposed property taxes narrowed the scope for LVT to generate its own incentives, accounting as it did for just a small fraction of the overall property-related tax take.
The second and related reason was that residents and businesses struggled to understand the potential benefits of moving to or investing in the city that the LVT potentially offered.
Its novel exceptionalism meant that businesses might have been deterred from investing by the apparent relatively high rate of tax on land plots, not understanding that as the plot tax rate on buildings was zero, the effective plot rate was usually lower than was the case previously and elsewhere.
City officials noted that the LVT attracted interest from national media and “places as far away as England and elsewhere in Europe intrigued by land value taxes”, underscoring the need such informational perception failures to be overcome in the future.
The FHA noted that the it possibly did improve distributional outcomes, helping to push up property values in a low value area, and encouraging, at the margin, some intensification of use with associated greater economic activity, concluding that a LVT is: “is well suited to established cities and smaller growing cities where there is a need to build new mixed-use infill projects… regular reassessments are essential with the land value tax if municipalities need additional tax proceeds”.
Across the Atlantic, in Denmark a land tax accounted for around 50% of local and national government revenues, calibrated to an agricultural yield benchmark historically based on what could be grown on the best quality land. That was in 1903 before it was abolished.
Subsequently, the secular tendency has been for income and other direct taxes to increase as proportion of public revenues.
Direct personal taxes now account for over 50% of its public revenues, the highest of any OECD country (see OECD link reference below).
A separate tax on land value remains alongside a wider property tax calibrated to property values, where a higher marginal rate is levied on higher value properties.
According to the most recent relevant Organization for Economic Cooperation and Development OECD publication data published in 2021, property taxes represent a relatively insignificant feature in the country’s taxation landscape, not discordant with a wider international long-term trend where “Between 1965 and 2019, the share of taxes on property fell from 7.9% to 5.5% of total tax revenues on average across the OECD (Figure 6). Canada, Israel, Korea, the United Kingdom and the United States had property tax revenues that amounted to more than 10% of total tax revenues”.
In this high-income Scandinavian country blessed with an enviable taxpayer-funded post-war welfare state, where high levels of direct taxes that might otherwise be expected to be distortionary and inefficient finance high levels of social expenditures that tend to reduce labour costs, supported by high levels of social solidarity, LVT appears more as historical anomaly than a transformative tax instrument, as envisaged by George.
That said, its property and land tax design may well offer pointers for future incremental property tax reform across the UK and elsewhere.
A more detailed and updated case study would be helpful in that regard.
A study of the New Zealand (NZ) land tax noted that from 1894 that it was levied on land value only. The following year it provided around three quarters of total land and income tax revenue.
But fast forward to 1965, its revenue had dwindled to a mere 0.5 per cent of total land and income revenue.
By 1982 only five per cent of its total land value was taxed, reflecting a secular trend for the national LVT to wither on the vine. Agricultural and land residential land had been effectively exempted from its base, before it was finally abolished in 1992.
Instead, local property rates provided the principal source of NZ local authority revenue, while income and other taxes provided the primary base of national taxation revenues.
Some NZ local authorities do, however, continue to impose their own limited land tax. Although these are informed by comprehensive property valuations carried out triennially by the central government, the total yield of all NZ property taxes, including land taxes, by 2018 only totalled around 2% of its GDP – close to the OECD 1.9% average, but less than half the c4.1% recorded for the UK.
Local land-value taxes are common in Australia, but residential property is mostly exempted, thereby restricting their base and yield.
The legacy of Henry George in many ways has shone far more brightly in Singapore than it has in his native New York.
A British colony until 1959 when it became self-governing, Singapore then became fully independent from Malaysia in 1965 as a sovereign city state.
Its subsequent story is one of remarkable rapid economic transformation and success, moving from low-income poverty to high income self-sustaining success.
According to the Charter Cities Institute per capita income increased, staggeringly, from c$428 in 1960 to $65,000 in 2018 and is an exemplar of “excellent governance’’ among planned cities.
Singapore like Hong Kong, hemmed in by the sea, was forced to grow by necessity upwards rather than radially, generating exceptionally high urban population densities of over 6,000 persons per square kilometre, notwithstanding that since 1960 land reclamation enabled the extension of its spatial area by a quarter.
It is one of only a few jurisdictions in the world to have successfully implemented a comprehensive system of land value capture mainly through the direct state ownership and leasing of land. Hong Kong’s development also involved the government leasing and collecting land rent from state-owned land.
The resulting revenues helped to induce a virtuous cycle where development unlocks the funds necessary to bring forward the infrastructure needed to unlock further productive development.
From the outset, in accordance with the Georgist principle that no private landowner should benefit from development financed or supported by the community, government land ownership in Singapore largely prevented individuals from capturing rising land values and rents.
Its Land Acquisition Act 1966 provided broad powers to state and other entities to compulsorily acquire land for any public purpose where, “in the opinion of the Minister, it is in the public interest to do so”, at a price that disregarded the contemplated future value of the subsequent development.
A massive and systemic transfer of land from a small number of wealthy landowners to the state followed. Subsequent rises in land values generated by rising and concentrated levels of economic activity were then captured by the Government and used for infrastructural investment. The state continues to own c80% of the city state land mass.
Singapore’s example (as is Hong Kong’s) is one of effective land reform and state ownership and value capture by proactive state direct action – in its case helped by a stable wider macro-economic and political environment.
As such, it can be broadly characterised as a state capitalist model that is wedded to free trade principles, welcoming to foreign inward investment.
Although Singaporean taxes are low by advanced economy standards, it still levies VAT (GST), income taxes, stamp duty, and other taxes, including a property tax that is progressive (rates increases in line with value thresholds and differ between owner-occupied and non-owner-occupied residential properties) based on annual rental value.
The long-term stewardship of land assets by the Singaporean state underpins its widespread provision of 99-year leasehold homeownership to its citizens; an investment in social capital that, in turn, supported its wider economic model, which aimed to keep wages and other business costs low to make Singapore an attractive investment opportunity for foreign firms.
An Asian Development Bank study of Singaporean housing policy provides more detail on the relationship of Singaporean housing policy to its wider economic success.
Between 1961 to 2013, the Housing and Development Board (HDB) – the public housing authority – built more than one million high-rise housing units. It functioned also as a housing finance intermediary, harnessing domestic savings through housing-linked accounts.
Singapore’s public housing was primarily sold to middle-income buyers. Purchasers not only possessed the right to live in their flat, but also sell it on at a market-rate price, or to lease it to a tenant until their 99-year lease expired.
Despite the high levels of state land ownership, rising house price and affordability still proved a problem – land is sold or auctioned at market value for housing – forcing the government to introduce a package of ‘anti-speculation’ measures in 1996.
These included capital gains taxes on the sale of any property within three years of purchase, stamp duty on every sale and sub-sale of property, the limitation of housing loans to 80% of property value, and limiting foreigners to non-Singapore-dollar-denominated housing loans
And, since the noughties, a series of purchase grants tied to household income were introduced that allowed the HDB to price its flats more responsively to a household’s ability-to-pay.
HDB also provides public housing for rental, comprising smaller units, such as one- and two-room flats. They are mainly provided for lower-income households and to those waiting for their purchased flats, and, as such, are attached with lower income requirements compared to units offered for sale.
Reportedly, almost all employed citizens own their home, subject to age and other social eligibility restrictions.
These can be restrictive, however. Young people needed to marry or wait until they attained the age of 35 to qualify, for instance. Economic migrants making up c15% of the total population are not eligible for HDB housing.
4 A Panacea Stillborn in the Twentieth Century
“The landlord who happened to own a plot of land on the outskirts or at the centre of our great cities ……sits still and does nothing. Roads are made, streets are made, railway services are improved, electric lights turn night into day, electric trains glide swiftly to and fro, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements I effected by the labour and at the cost of other people. Many of the most important are effected at the cost of municipality and of the ratepayers. To not one of those improvements does the land monopolists as a land monopolist contribute. He renders no service to the community, he contributes nothing to the general welfare…the land monopolist only has to sit still and watch complacently his property multiplying in value”. Winston Churchill, The People’s Rights, 1909.
“Henry George failed…because he had been studying the world as it had been for generations and centuries, and arrived at certain conclusions on that basis, and the conclusion he arrived at was that land was practically the sole source of all wealth. But almost before the ink was dry on the book he had written it was apparent that there were hundreds of different ways of creating and possessing and gaining wealth which had either no relation to the ownership of land or an utterly disproportionate or indirect relation”.
Winston Churchill, Speech to Parliament, 5th June 1928, quoted in Churchill Project.
Henry George had published Progress and Poverty in 1879 into a rapidly urbanising and industrialising democratic society marked by high levels of immigration and internal migration, yet, unlike Britain, in terms of population, was still predominately agricultural and rural based.
The last Section showed that George’s prescription of a single tax on land removing the need for all other taxes, ushering in an era of plenty and equality according to desert, proved more a chimera than a panacea in his own country and its closest economic peers.
At some levels conditions appeared potentially ripe for the introduction of a Georgist land tax given rising democratic pressures to protect the majority from poverty amidst riches, while government expenditures remained below 10% of GDP until the turn of the century with commensurate taxation requirements.
This Section considers why his single tax idea was stillborn. Although mainly using Britain as a case study, parallels with his native land are clearly discernible, including that of other issues dominating political discourse and attention, the associated lack of sustained political focus, the lack of a powerful electoral coalition in favour rather than opposed, and the institutional lack of capacity as well as willingness to implement it.
The growing importance of government within the economy necessitated by the First World War and resulting increase in expenditure and taxation requirements then largely resigned the Georgist agenda to the status of historical curiosity.
Britain, as the nineteenth century wore on, was increasingly imbued with the democratic influences that post-Revolutionary America already possessed.
The Conservative Disraelian 1867 Reform Act had given the vote to all householders and to those paying more than £10 in rent in towns – enfranchising some of the urban working class for the first time. Gladstonian Liberal legislation in 1884 did likewise for rural workers.
In Britain, the numbers of urban workers increased absolutely and relatively as a proportion of the total franchised population. By 1874 trade unions had already sponsored two working class Liberal MPs.
Trade union membership spread both in size and reach during the next two decades to encompass the unskilled majority.
Urban riots involving workers and the unemployed attracted heightened political concern. Joseph Chamberlain, ex-Mayor of Birmingham, when Liberal President of the Local Government Board during the mid-1880s, for instance, made speeches that yanked together the inequities of inherited wealth inequality to the need for “property to pay a ransom for its security”, presaging Winston Churchill twenty years later.
Yet Chamberlain and other like-minded Social Liberals diverted the focus of their attention to Irish Home Rule (the cross-cutting Brexit issue of that era), displacing the development of a socialistic liberal agenda based on Georgist principles, responding to embryonic demands for the state to intervene to provide at least some minimal level of social protection and security at least to the ‘deserving poor’.
By the turn of the century Chamberlain had reinvented himself instead as the leader of the Liberal Unionists propagating a tariff reform and imperial preference political programme.
By then socialist-oriented political organisations, such as the Marxist Social Democratic Foundation, and then in 1893 the Independent Labour Party (ILP) had formed to further the specific class interest of workers politically. Intellectuals wishing to translate nascent collectivist responses to Victorian laissez faire into more concrete and universal policy programmes also established the Fabian Society.
Along with the trade unions these and similar organisations together provided the nucleus of the Labour Representation Committee soon to become the Labour Party, which would replace the Liberal Party as the main electoral alternative to the Conservative Party.
The government’s need to finance both growing social and military expenditures, including on a rudimentary national insurance system for working men, and on a basic non-contributory old age pension of five old shillings payable at age seventy, as well as on battleships or ‘Dreadnoughts’ to keep pace with the growth of the German fleet, provided the fiscal backdrop to the 1909 People’s Budget.
Its prime movers were the humbly born Welsh chancellor, Lloyd George, and, following his switch to the Liberals from the Tories, the President of the Board of Trade: the more aristocratic Winston Churchill.
Both in their speeches excoriated, as did George, the inequity of poverty spreading amid abundance, highlighting, very much on Georgist lines, the ability of landowners to expropriate the benefits of rising land values generated by community actions and investment, such on water supply and streetlighting.
The 1909 budget, on top of an increased and more progressive income tax, including reliefs for those at the bottom and an additional supertax for those at the top, also proposed a land tax.
At a time when one per cent of the population, some 33,000 people, owned two-thirds of its wealth, a Georgist LVT that could be levied on a wealthy minority for the benefit of the franchised majority (excluding women until 1918) appeared an attractive proposition for a radical government to grasp.
Although it provoked sharp opposition from the opposition and the Conservative dominated House of Lords, the Liberal Prime Minister, Sir Henry Campbell-Bannerman’s pledge “to make the land less of a pleasure ground for the rich, and more of a treasure-house for the nation” resonated with the growing democratic tenor of the age, seemingly aligned on Georgist lines.
But Lloyd George struggled to persuade parliament to introduce a workable LVT that could be implemented quickly. He seemed himself confused as to how it would work.
His package included a 20% tax on the unearned land capital gains revealed on sale, a capital levy on unused land, and a reversionary tax when leases expired, making the proposals more akin to a development tax than a pure LVT.
It presaged post war – and similarly unsuccessful – efforts to tax betterment gains rather than representing a distillation of Georgist principles into a practical policy programme. It was soon abandoned in 1920 on the stated ground of valuation difficulties.
Instructively, in the light of the waxing and waning of Chamberlain’s Georgist star twenty years previously, many historians consider that the radical Liberal duo had had touted a land tax more to provoke the House of Lords so to reject the People’s Budget – and thus set up a ‘People versus the Lords’ election that their then party expected to win – than it was a committed effort to shift the tax base onto landed wealth.
Boris Johnson’s 2019 efforts to provoke the Commons to dissolve Parliament and so precipitate a ‘Get Brexit Done’ election that he banked on then to return him with an unassailable majority, perhaps, provides a modern political example of that same, and far from uncommon, political phenomenon.
And, in any case, free trade versus tariff reform continued to compete for hegemonic political attention, fragmenting political alliances that could otherwise focused on Georgist land reform.
The Georgist moment – even if it had really existed – had passed. Most of the additional tax ultimately raised after the two People’s Budget elections were sourced through income tax.
The fiscal institutional environment
For much of the nineteenth century, custom and excise duties, along with the ludicrous window tax (which had the deadweight effect of householders blocking in their windows – an effect sometimes still visible in Georgian houses and terraces) accounted for most of the government’s revenue in Britain.
In 1874 – five years before George published Progress and Poverty – customs and excise contributed £47m to the government’s total revenue of £77m, which itself accounted for approximately six to seven per cent of Gross National Product (GNP).
A national income tax had been first introduced during the Napoleonic Wars, was made permanent in 1842, increased temporarily to meet the exigencies of the Crimean War, and then reduced and applied at a low rate for the remainder of the century. It was not paid by the bulk of working population.
Its imposition, requiring personal information to be provided to the state was perceived as a potential threat to personal freedom, contrary to the prevailing liberalism of the age.
Across continental Europe, industrialisation was accelerating across the nascent national state democracies. Growing nationalism, militarisation, power rivalry, and political upheaval followed in its slipstream.
Bismarck increased military spending to further his Prussian territorial ambitions embracing a greater Germany. The first national insurance scheme (funded on a tripartite basis by workers, employers, and the state) for workers, as well as old age pensions, was introduced during the 1880s to stave off discontent and to build up solidarity within a fledgling fragile democratic national Germany polity.
The First World War then dramatically further spiked-up public expenditure requirements in the UK as did earlier the Boer War in a more muted way.
Income tax rates reached an unprecedented 52%, even though much of the needed revenue was borrowed.
Across the Atlantic, federal income tax in America was introduced in 1913. Although its standard rate in response to wartime financing demands was temporarily increased to six per cent alongside a surtax rate that reached 77%.
As a federal state, local and state taxes remained relatively more significant within a fiscal environment where multiple local government bodies collected over half of all federal, state, and local government revenues. In Britain they accounted for over a third.
Wallis characterises the American fiscal environment the period between 1840 and the early 1930’s as one dominated by local government deploying property taxes as its main revenue base.
It was not until the Great Depression the trend began for the federal government to become more active and increase its share of total government expenditures and revenues as it shouldered increased infrastructural, defence, and social security, expenditure requirements
In the aftermath of the First World War in Britain, or its deluge, as one historian put it, the world had changed. A freshly universally franchised working-class population that had borne stoically the sacrifices required by the first ‘total’ war, no longer was prepared to tolerate precarious poverty and squalor as a way of life.
Wartime levels of taxation, which in incidence largely fell on high income households, could not be returned to pre-war levels. Surtax remained in place, as it did until 1973.
Peacock and Wiseman, authors of a 1961 seminal study of UK public expenditure 1890 to 1955, described that as a “disturbance effect” – where expenditures previously considered desirable, but politically difficult, to introduce become possible, using the graphic metaphor that “It is harder to get on the saddle on the horse than to keep it there”.
Clark and Dilnot termed it, perhaps, more precisely as a “ratchet” effect: in short, war-related imperatives ballooned public expenditure up; the subsequent post war level, although reduced, remained substantially above its pre-war trend level.
War-related social upheavals also imposed new and continuing obligations on governments, forcing governments and their populations to focus on latent problems, such as poverty and poor housing impacting on population health that undermined national economic and military capacity. This Peacock and Wiseman described an ‘inspection effect’.
Appendix Table A-6 reports their computed consistent historical total government expenditure as a percentage of gross national product series, recording that percentage as around 12.5% during the Edwardian era compared to c9% in 1890 (with a disturbance or ratchet jump to 14.4% in 1900 related to Boer War spending requirements).
Although it then dropped back from the over 50% wartime levels to c26% in 1920, it remained ratcheted-up during the inter-war years at more than twice Edwardian levels, notwithstanding government efforts to trim back some social expenditures as part of ill-advised attempts to balance the budget – efforts that in 1936 would be exposed to the critique of James Maynard Keynes.
The experience of the 1917 Russian Revolution had concentrated post war government minds on the need to placate an increasingly non-deferential and potentially rebellious electorate. Increased public spending on social services was perceived as an ‘antidote’ to a revolutionary virus that threatened to replicate domestically.
In that light, the 1919 Addison Act provided for ‘Homes for Heroes’. It introduced generous government subsidies for new public housing with generous space and quality standards, supported by an imposed duty for local authorities to provide such housing, where local housing conditions required it.
Although these subsidies were trimmed back as part of an economy drive, later Housing Acts provided a workable subsidy framework that allowed four million new homes to be built during the interwar years.
Winston Churchill by then had pivoted back to the Tories. As Chancellor of the Exchequer in 1927, he was using his formidable powers of exposition in Parliament to make the argument (quoted at the beginning of this Section) that its consideration of a LVT would simply divert attention from the current and pressing imperative to develop new needed forms of taxation on Britain’s industrial economy.
But given the wider context of the UK in the 1920’s and the part that Churchill played in its economy and politics – including his suppression of the 1926 General Strike and his reimposition of the deflationary gold standard – it could be that he was simply re-exerting the interest of the prevailing ruling class, of which he was such an eloquent and colourful member.
Income and other taxes, not LVT, across both sides of the Atlantic emerged as primary tax sources to finance the upward step-change in public expenditure and hence revenue public requirements, although income tax only began to be paid by most peacetime working households, however, after the Second World War.
Phillip Snowden, chancellor in the National Government did seek to introduce a LVT in his 1931 budget, briefly enacted in that year’s Finance Act, but at the limited rate of one penny for each pound of the land value for every unit of land in Great Britain.
The Hansard record of the time provides some pointers as to why legislators were reluctant to give it traction: limited revenues relative to the costs of collection; valuation challenges amid doubts over of relevance of a Henry George single tax LVT given the massive rise in public expenditures and revenues that had occurred during the intervening fifty years; as well as the spread of individual home ownership on plots with relatively low land values.
One MP observed that Henry George, in effect, had extrapolated from the particular –dramatically rising land values of virgin land that due to their (Californian) location were ripe for development – to a general principle that did not hold in inter war Britain.
Following the 1931 election, conducted in a period of political tumult as the Great Depression took grip, Snowden’s half-hearted land tax, lacking any real political wind or momentum behind it, was soon repealed.
Labour MP and LVT campaigner Andrew MacLaren did introduce a private member’s bill in 1937 but that, too, was defeated.
Soon afterwards in 1939, across the Thames, Herbert Morrison, leader of the London County Council, began to progress a Land Value Tax Bill before that was scuppered by the outbreak of the Second World War.
That conflagration resulted in another unprecedented but unavoidable spike in government spending, borrowing, and taxation, with government expenditure this time reaching 72% of national output.
When Churchill was elected Prime Minister in 1951, government spending was stabilising around 40% of national output – a historic peacetime high.
The introduction of a LVT did not seem even to cross his mind as a practical policy or taxation tool to raise the revenues that a modern emerging welfare state required.
Why was a Georgist LVT was stillborn?
An academic economist turned permanent secretary in an influential post-war and multi-edition book declared that the: “writings of Henry George, although still enjoying a wide circulation, have ceased to command much attention or to be an important force in the world today. They are no longer considered even so dangerous by the academic economists as to be worthy of vituperation or rebuttal. And, in the working class movement they have long since been superseded by other theories”.
Eric Rolls, History of Economic Thought (p.386, 1992 Penquin fifth edition; first edition published in 1938)
Rolls, put the “meteoric rise and almost equal rapid exhaustion of (George’s) power” down to “his mixture of oracular presumption, insistence of a single idea, and muddle-headedness on economic problems”.
That may have reflected the academic consensus of the time but such a dismissal of George’s ‘single idea’ (although echoing the 1927 Winston Churchill quote, reproduced at the heading of this Section) now comes across as short-sighted.
A much more rounded understanding of why a Georgist tax on land rent did not take off and continues – at best – to be left on the political backburner, is required.
In a 2019 paper Whitehead and Crook assert that the: The simplest models of land taxation (starting from Henry George, 1879) assume that land is homogeneous, its total amount is fixed and that all land will be taxed at the same rate. If that is the case the price of land is demand determined by the highest valued use and any tax will simply have to be absorbed by the landowner. The same applies to taxing increases in land values. However, this model bears no relation to the real world. As only a small part of total land is actually developed, more land can be made available as prices increase and land can be taken out of development if taxation makes it unprofitable. More importantly land has very different attributes and therefore the highest value productive use differs between plots – so planning and taxation will modify both the total amount of land made available and the allocation of land to different uses.
George could not be expected to have foresight of future foreign institutional systems, nor was he offering an analytical abstract economic model with consistent micro-foundations. His work was rather a call for action based on analysis and argument.
Polemical over-simplification is not an uncommon characteristic of such works. It is a fair charge that can be laid at George’s door.
That said, his central theoretical construct of capturing land rent through the imposition of a near 100% tax to avoid what are now commonly called the deadweight effects of other taxes is coherent on its own terms based as they were on Ricardo and others, made more cogent as the wider tax burden as a share of national output and average household budgets has grown.
As Section Three noted Georgist ideas in essence have been successfully implemented in Singapore – a point that Rolls ignored or escaped his notice.
What George neglected to consider carefully was that taxable land rent will differ between plots. He did not specify how liability would be determined and collected with reference to the institutional environments of his own time and place.
He did correctly predict that vested interests were quite likely to capture government and smother his proposed LVT at birth.
Federal and state governments chose or had earlier chosen to give land grants to railroad and other moguls at sub-market prices, rather than auction at market prices or introduce a LVT.
They likewise offered large tracts of virgin or Indian dispossessed land in the Great Plains and West through Homestead Acts to settlers (but often purchased by land speculators) at rock-bottom prices.
There was an economic rationale for this. Government lacked the wherewithal or taxable capacity to plan and fund such economic infrastructure and relied instead on private corporations and individuals to drive development. A less legitimate reason wa that many if not most legislators enjoyed getting the associated bribes, kickbacks, or donations that often followed.
Indeed, during a period when national politics in America was notoriously corrupt, clientist, and ‘spoils-based’, it is not apparent that a 100% tax LVT would be electorally popular or understood by a still largely rural and agricultural population. Farmers of varying holdings were electorally significant, while Homestead settlers, as landowners could not be expected to welcome it.
Prussian aristocratic landlords, large American landowners, or the English aristocracy basking in an Edwardian Indian summer of privilege were other powerful interests standing in the way of a Georgist tax within their own societies.
Politicians then, as now, pursue multiple objectives for mixed motives that often conflict. Their short-term focus, subject as it is to contingent events impacting on their own ambitions and interest, makes it difficult for a single overarching idea or principle to retain traction and momentum.
In 1883, Henry George, himself, highlighted continuing immigration into a now often ‘overcrowded’ country whose lands had filled up, as a primary issue, asking in a shrill, and to our ears seemingly racist, voice: “What, in a few years more, are we to do for a dumping ground. Will it make our difficulty any the less, that our human garbage can vote?”. Hugh Brogan, p393, the Penquin History of the United States, (new edition.)
Policy programmes or initiatives, most particularly an overarching one like a Georgist LVT, if they are to be implemented, must first command and then maintain hegemony and attention for a prolonged period.
The fleeting flirtation of Chamberlain and Churchill with an incompletely and vaguely conceived idea of a land tax lacking institutional machinery to implement, demonstrated that in Britain.
In George’s America, cyclical depressions with deflationary wages and agricultural prices often necessarily became of paramount political concern. During such times, with railroads, corporations and farmers going bust, a 100% LVT would be as welcome as a bullet in the head.
Tariff reform, as for example in the 1892 presidential election, became a pressing national political issue there, as did the relative arguments for, and the respective interests advanced by, keeping to the Gold Standard, moving to a bimetallic standard, or simply relying on a paper ’Greenback’ fiat currency.
Obstacles or crisis events, more generally, (such as Ireland Home Rule in the nineteenth century; the Great Depression in the early twentieth; the Global Financial Crisis (GFC) of 2008-009; and, most recently, the Covid pandemic) can rear their head out of the blue, as do other internal and external shocks, such as the agricultural depression of the late nineteenth century and the current cost of living crisis.
The subsequent cumulative rise in public expenditure and taxation requirements that marked the last and hitherto this century mean that shifting the tax burden onto a single land tax has now become akin to turning a tanker around in a tumultuous sea of economic and political uncertainty, rather than bringing a horse to water in a nineteenth century agricultural community when even that proved not possible.
5 The Feasibility of a Modern Gradualist LVT
It follows that a sudden transformation to a single Georgist LVT simply won’t happen. Modern democratic economies and societies are just too complex and encumbered with accumulated institutional baggage and entitlements.
Indeed, putting one eggs into a LVT with stated single tax ambitions, given the uncertainty of future events impacting on the economy and their short term to medium term interaction with such a future LVT, would render it an unwise hostage to fortune that would be almost certain to be shot down politically before it left the runway.
The experience of the 2017 general election is not promising in that regard. The manifestos of the Labour Party, the Liberal Democrats, and the Green Party included (very outline) proposals for a LVT, with p.86 of the Labour manifesto announcing that: “We will initiate a review into reforming council tax and business rates and consider new options such as a land value tax, to ensure local government has sustainable funding for the long term”.
Carol Wilcox of the LCC later noted that such a “mere mention of ‘considering’ LVT in their 2017 manifesto did for the Labour Party. Along with the dominant Tory press, headlines blazing from every high street and supermarket – Your Council Tax will treble and House Prices will plunge – leaflets were pushed through millions of doors. It may have lost Labour the election”.
Most LVT advocates in recognition of such practical political difficulties, propose an incremental phased-in approach that can command sufficiently strong support to get off the starting blocks.
Goodhart and colleagues, for instance, in their study recommended over a 20-year period a gradual rise in the LVT rate from 0.5% to 5.55% that would result in both substantial output and welfare gains and allow reductions in other taxes.
According to their modelling, to raise 55% of American public revenue (on a balanced-budget assumption), enough to allow income taxes to be abolished, the LVT rate would need to be increased to 20% – a level they considered represented the limits of political feasibility.
This Section identifies the main issues and possible problems connected with even such an incremental approach within a UK where land underlying dwellings has progressively accounted for a rising and increasing predominant share of national wealth.
Wealth and the British Housing Story
The inter-war years saw the establishment of a secular trend of displacement of private renting by owner occupation, across England especially. It was fuelled by a growth in salaried employment, in building society mortgage finance and in the availability of cheap land suitable for speculative and, in some cases, public housing development.
In the forefront of that trend were railway companies wishing to offer affordable new suburban semis in areas that their new lines had now made accessible: a prime example was the Metroland created around the Metropolitan line that now crossed Middlesex before reaching Buckinghamshire.
A landowner was now less likely to be a distant aristocrat or plutocrat, but – especially across southern and other areas left relatively unscathed by the Great Depression – could hail (at least as mortgagees) from a growing group of humbly born salaried workers, possessed with rising aspirations to escape into more virgin territory from the crowded dirty cities, forging a fresh future for their usually young families.
The post-war economic expansion amid accompanying full employment amid growing mass affluence that brought most wage earners into the income tax base also allowed increasing numbers to step onto the housing ladder. By the early seventies owner occupation was the majority tenure.
During the Thatcher era of the 1980s, the financialisaton of the economy (encompassing the globalisation and international integration of national capital markets, the liberalisation of domestic financial and credit markets, and the mounting and related importance of financial services within the economy), the right-to-buy programme coupled with the cessation of council building programmes, all turbo-charged the tenure.
Under New Labour, helped by a reducing but stable interest rate trend, it touched a peak of c70%, before receding.
Growing numbers of young people were priced out by real house prices – responding to the rise in monetary demand for housing enabled by a liberalised mortgage market offering loans at rising income and house price multiples – rising much faster than their incomes, while supply failed to keep pace and become progressively more inelastic in supply.
Nevertheless, extolled by both Labour and the Conservatives as the natural and default tenure of the aspirational majority, homeowners have become and remain an increasingly pivotal electoral swing constituency.
Rising real house prices rises – most marked in areas of buoyant economic activity and rising house prices, largely concentrated in London, the home counties, the south-east, and other places within commuting distance of secure well-paid sources of employment, where new supply was constrained by the planning system and by market failures in an increasingly concentrated housebuilding industry.
Housing wealth owned by households (composite value of dwellings and of underlying land) across those areas has progressively taken larger shares of national net worth (wealth).
Meanwhile the real construction cost of building new homes changed relatively little, meaning that the value of the land underlying dwellings accounted for most of that rise, with increased housebuilder profits also taking a share.
According to a ONS March 2022 methodological paper, land in 2020 was the most valuable asset in the economy, estimated at £6.3 trillion in value – nearly 60% of the UK’s net worth, with land underlying dwellings accounting for £5.4trillion of that value.
Table 11 of the latest May 2022 ONS national balance sheet estimates indicates that the value of land underlying dwellings owned by households as a proportion of total land and structure value (including dwellings) rose from 25% in 1996 to 68% in 2021.
Although such estimates should be considered with caution due to valuation and other uncertainties, it is undoubtedly true that residential land has assumed an increasing share of national wealth at the expense of produced non-financial assets (proxy for productive capital).
Significant implications follow. First, it provides evidence in support of commentators, such as Stiglitz, who argue that increased land values can dampen investment and productivity, as well as incomes, increasing wealth of the paper rather than the productive kind.
Second, it strongly suggests that across high value areas in the UK, the pure land value (land underlying dwellings) will often exceed 70% of the combined land and building residential plot value, presenting a sharp comparison to the one seventh that Section 3 reported as prevailing in Altoona, Pennsylvania, when a pure LVT was applied there. The ONS does not break the UK data down regionally, unfortunately.
Third, such high land values strengthen the potential scope and capability of a pure LVT levied at relatively low headline rates to raise enough revenue to be replace council and potentially other taxes; but, by the same token, the incidence of such rates will still be high in cash terms with associated saliency and political acceptability implications.
Political acceptability and feasibility
Given the uneven distribution of house prices, the replacement of, say, council tax, with a pure LVT levied on the value of land underlying dwellings is likely to involve the creation of myriad gainers and losers, sometimes involving significant magnitudes, across the ‘Middle England’ households and older aged groups.
Taking an average priced c.£500,000 house in London and some other high value areas, assuming a 70 per cent land value (underlying the dwelling, excluding its value), a one per cent annual pure LVT would come to £3,500 (the rate roughly required UK-wide to secure proceeds approximate to the current council tax), rising to £14,000 if a four per cent rate was levied.
Even the revenue-neutral rate could prove a problem for homeowners with limited disposable income, net of housing, childcare, and other essential expenditures, as it would be for asset-rich but income-poor pensioners. It certainly would at higher rates.
Where it was believed that the tax will be levied and phased-in as announced and not repealed in short order by a future government – its impact would also be capitalised into capital losses, proportionate to its incidence.
Changes that impose large, unexpected losses relative to previous expectations can be considered ‘unfair’ insofar they infringe the ‘legitimate expectations’ of owners at the time when they purchased their asset.
A LVT introduced at a low but gradually increasing rate should dampen house prices and not precipitate a crash, however.
Nevertheless, combined with a recession impacting on income and employment or with other shocks, that outcome remains possible and is one that is likely to be highlighted by opponents.
Impacts on individual household and business budgets mitigated by transitional arrangements, variable rates, allowances, exemptions, reliefs, and deferments until death or sale of property or by other payment holidays, would tend to cloud and blunt the potential beneficial effects of a LVT, wedging new layers of complexity and confusion into the overall tax and benefit system, reducing net revenues in the process.
‘Gaming’ of the process by economic actors to minimise their tax liability under such transitional arrangements could also undermine or subvert the core intention of reform.
Essentially, a trade off exists between maximising revenue raising capacity of a LVT (and ability to replace other taxes) and minimising its possible lumpy salience, its volatility, and overall cash flow impacts that could surpass the immediate ability-to-pay capacity of individual taxpayers.
The introduction of a LVT gradually and in partial form, perhaps as part of a wider and long-term reform to council tax or business rates introduced on a revenue-neutral basis could postpone many of the putative benefits of a pure LVT, but could still come with feasibility issues.
In that light, the Scottish Local Government Finance Review published in 2007 that “although land value taxation meets a number of our criteria, we question whether the public would accept the upheaval involved in radical reform of this nature, unless they could clearly understand the nature of the change and the benefits involved….”.
Goodhart and colleagues, recognising that, argued that: the overarching issue is that the bridging the gap between economic efficiency and political acceptability requires extensive public consultation, education and communication…to include short, accessible and realistic examples of the effect of the reform on different types of taxpayers, which for the vast majority will show that the gains from lower taxes elsewhere will far outweigh the losses from higher land taxes.”
That tends to gloss over, however, the ‘rough-and tumble’ way that new proposals are examined by the media, especially during the heat and sound of an election campaign when voter perceptions are prone to be moulded by untrue or partly true selective slogans and soundbites.
Unfortunately, the current political environment is geared to garner electoral support based on attitudes and perceptions, not to expound sound policy development supported by painstaking preparation in a process more conducive to the education of the electorate of the long-term benefits of a LVT.
The failed attempt of Theresa May to explain her plan to reform adult social care financing during the 2017 General Election, forcing its ignominious withdrawal after a media onslaught provides a salutary lesson in that regard.
Politicians of the mature industrialised countries – with England an exemplar example –have also become increasingly beholden to the electoral clout of the greying homeowner vote.
They can be expected to be extremely wary that potentially affected voters will take with more than a pinch of salt any promise that income tax cuts (in any case less attractive for retired households with limited incomes) sometime in the future will more than offset the publicised here and now impact of a salient pure annual LVT; many are likely to perceive it simply as a bigger council tax bill.
Such voters, many of whom plan in the future to bequeath their home to their children, can also be expected to react negatively to media-magnified fears on the impact such a LVT will have on its future value.
Any prospect of a successor government reversing introduction of a LVT would add to uncertainty with attendant adverse consequences.
Threats to do so could undermine its prospects of success from the start, sowing doubt as to whether the gradual benefits – notwithstanding that they could, indeed, accumulate exponentially over time – justify the short-term political hassle and risks involved.
A new government is likely to be dogged by vocal campaigns from those that would lose from its introduction, by other contingent political squalls, and by other pressing priorities; all can be expected to intrude and quite likely to knock off course a smooth LVT transition or phasing-in.
A revenue raising LVT reform, on the other hand, can be expected to induce correspondingly stronger political opposition.
In the absence of both overriding commitment and an effective and sustainable political counter strategy, the likelihood remains that it risks remaining as stillborn as it was in the nineteenth century.
That said, the increased proportion of residential property value taken by the underlying land does also mean that alternative reforms of council tax that address directly its current regressive vertical and horizontal inequity and efficiency, could offer a proxy to a LVT.
A proportional tax on total property value, as proposed, for example, by the Fairer Share campaign at a 0.48% rate, which they estimate would be sufficient to allow the abolition of Land Stamp Duty tax, seems credible in that context.
6 LVT and Business rates: line of least resistance?
“The property tax is, economically speaking, a combination of one of the worst taxes — the part that is assessed on real estate improvements — and one of the best taxes — (the part based) on land”, William Vickrey, Nobel Prizewinning economist
“Taxing business property inefficiently discourages the development and use of business property. If possible, it would be better to tax the value of the land excluding the value of any buildings on it, which would have no such effect …. is such a powerful idea, and one that has been so comprehensively ignored by governments, that the case for a thorough official effort to design a workable system seems to us to be overwhelming…. and significant adjustment costs would be merited if the (current) inefficient and iniquitous system of business rates could be swept away entirely and replaced by an LVT”…and that “a much stronger case for having a separate land value tax in the case of land used for non-domestic purposes”.Institute of Fiscal Studies (IFS) Green Budget 2014
Business rate (BR) reform or abolition, at least at first glance, seems to provide a potential line of least resistance to the introduction of at least a partial LVT.
BR is a tax predominately on economic activity operating from fixed premises, assessed according to the assessed rental value (RV) of such premises rather than on turnover or profit.
Its deadweight impacts, acting as a fixed cost, thus potentially weigh down particularly heavily on the investment and employment decisions of small business owners, although the smallest do get relief (see below).
Although such rental (rateable) values in principle should revalued according to a five-year cycle, in recent years revaluations have been delayed due to the external shocks of the GFC and of Covid.
The relative infrequency of five-year valuations, even when they occur, mean that RVs tend to become outdated as the cycle progresses, while subsequent revaluation adjustments induce uncertainty and often volatile changes in BR liability with associated cash flow problems for many business owners, leading to further adverse deadweight impacts.
The last revaluation came into effect in April 2017, when April 2008 assessed values were replaced with April 2015 assessed values – a seven-year gap that straddled the 2008-10 GFC.
Significant change in relative valuations between locations occurred in the meantime, requiring transitional and dampening arrangements to mitigate consequent impacts on business budgets.
BR is also an unpopular tax for these reasons. As such, it attracts quite general attention – at least at the conceptual, if not at the detailed implementation level – providing some political head of steam favourable to reform.
The 2019 Labour Party manifesto retained the option of a land value tax on commercial landlords to replace the existing system of business rates.
In September 2021, Rachel Reeves, the shadow chancellor, announced that Labour “will cut and eventually scrap business rates” as part of wider plans to set up an Office for Value for Money with a remit “to tax fairly, spend wisely and get the economy firing on all cylinders”.
But she did not spell out, however, how the BR system would be reformed and what arrangements would replace it and whether they would include a LVT, or the timescales involved.
Liberal Democrat policy is for business rates to be replaced by site value taxation, as “a first step towards a wider system for taxing land value”.
The 2019 Conservative manifesto specifically committed to a ‘fundamental review’ of the business rates system.
The relevant findings of the HM Treasury Review published in October 2021 are considered later in this section.
The current system
Business property comprises the building structure (which can be altered, used more intensively, or extended) and the land (which is fixed) that it sits on: business rates constitute a tax on both composite elements.
They are charged on all non-domestic properties, subject to reliefs or exemptions for the smallest businesses (those with a RV less than £12,000 are exempt and those with a RV above that but below £15,000 receive tapered relief), and are collected by local authorities. Agricultural land and outbuildings are exempt.
BR raised during 2019-20 approximately £30bn across the UK (£25bn in England), about 3.6% of total current public receipts (TBC).
The liability of each business premise is its rateable value (RV) – based on its notional annual rental indexed for inflation – multiplied by a government prescribed multiplier, which in 2021-22 was 0.51 (in England) for most business properties.
The National Valuation Office (NVO), using a set of economic and locational assumptions, assesses the RV of each business premise for each successive valuation cycle.
It does not currently assess the proportion of the assessed combined value of each business premise (land and premises) that is taken by the land underlying the business premises (excluding the depreciated value of the premises).
That land or site value can vary sharply, as it does for residential land, with its location and connectivity.
RVs are generally much higher in London and across other economically buoyant urban areas, although regional variations in business land values tend to be more muted than they are for residential land.
What might take its place
A potential window of opportunity might exist therefore to design a LVT that could redistribute the burden/incidence to richer landowners and away from productive businesses, so generating associated static and cumulative macro-economic gains and/or increased public revenues.
The IFS in its 2014 Green Budget review of business rate taxation concluded that because the demand for business premises is much more responsive to price than is its supply that over the long run, the incidence of such a LVT in practice will be mostly passed on to the owners of properties via lower rental income.
An annual LVT could also extend the tax base by taxing empty sites, encouraging their development.
The review did, however, also caution that over the short run, downward rigidities in property rents linked to contracts and leases could result in its incidence falling on the occupiers and users of business premises.
This is because BRs are currently generally paid by the business occupier in accordance with their lease or other contractual arrangement with their landlord that often include five year no downward movement rent review clauses.
Such a LVT could be levied on the freehold landowner of business premises rather than its occupiers, although this would presumably require some statutory redrawing of the that contractual framework.
This incidence impact issue is likewise relevant to residential tenants; the ability of landlords to pass on the tax should be limited – at least in the longer-term – if, as theory predicts, house prices fell because of the tax; but, on the other hand, especially in the short term, a shortage of suitable alternative rented accommodation and the costs of moving, as well as tenancy contractual arrangements, could well allow the landlord to pass on at least some of the cost of the tax onto current or new tenants.
The IFS went on to note that a periodic four per cent LVT on land value could replace business rates on a revenue-neutral basis, phased-in over several years.
Other commentators have proposed variations, such as a two per cent LVT tax while retaining half of business rates, allowing a shorter phasing-in period.
A June 2022 ONS methodological paper concerning the valuation of land underlying other buildings and structures advised that such land was estimated to be worth £869bn in 2021, accounting for 12% of the total c£7trillion value of UK land. Just over half (51%) of that £869bn value was estimated to come from property subject to business rates.
Using those estimates, a pure LVT levied on the value of land underlying business premises would need to be set at seven per cent to raise c£30bn of revenue – approximating to the recent BR total yield across the UK (869*0.51*0.07=c30).
Any phasing-in period would likely need to be accompanied by mitigations shielding businesses – likely to be concentrated in London and other high value urban centres –from suddenly facing higher bills.
Such arrangements, however, could risk undermining the effectiveness and efficiency of any reform.
As in the case for residential land, the same trade-off between softening potential and actual opposition and reducing the need for transition arrangements while maximising net public revenue and economic efficiency gains, remains.
A revenue-neutral scheme while still helping to reduce deadweight loss and to increase efficiency in relation to the use of business premises, is still likely to throw up gainers and losers.
Gainers may well outnumber the losers in numbers, but the latter often tend to be most vocal and possessed of greater lobbying and media influence powers.
Any significant reform involving a business premise LVT is also likely to require a Parliament or more at least to implement.
Even that timescale assumes that reform is implemented early in the life of a government elected with a secure majority that was prepared to treat the reform a core legislative priority, had already a scheme up its sleeve to give to civil servants to work up into well drafted legislation, and it was implemented in parallel with the necessary supporting valuation arrangements.
The HM Treasury Review of Business Rates, published in October 2021, however, recommended that the current system is retained, explicitly rejecting the adoption of an alternative LVT, as advanced by the IFS above and others, concluding that the arguments made in its support: “are outweighed by a lack of evidence (concerning its) benefits, the significant practical challenges of introducing (it), and the probable adverse impacts in relatively high-value areas such as city centres”.
It did, however, announce the government’s intention to move towards more frequent three yearly valuations of business premises, starting in 2023, as well as to “carefully consider the case for an annual revaluations cycle, in the longer-term” based on capital values.
Incremental tinkering of the existing arrangements rather than radical BR reform accordingly appears on the cards as currently laid.
That could change with the arrival of a new Prime Minister in September 2022, given that commitments during the leadership contest to reduce taxes, at least in the absence of cuts to public service funding, appear to be built on very shaky public finance foundations.
In that light, a BR reform that could be presented as furthering the Levelling-up agenda in a way that is economically efficient and friendlier to smaller businesses as well as provide a potential to secure more net public revenue, could become an increasingly attractive political proposition.
In any case, any move to a regular one-year revaluation cycle should help to underpin an emerging overlapping technical consensus more favourable to the future rolling out a wider partial or pure business rate LVT underpinned by regular and accurate valuations.
These would need involve the ONS and NVO working in closer partnership to allow these to include separate valuation of business premises and the land underlying them.
The Labour Party and Rachel Reeves may likewise find it politically expedient to frame up their stated ambition to abolish BR to include a partial BR LVT.
Even a limited transitional business rate reform involving at least a partial LVT (which seems the most promising line of political least, but still possibly significant, resistance) aiming to redistribute from landowners to business owners and ultimately to consumers – a process that over time should raise more net revenue – needs to be clearly explained and justified, however, and be driven by clear and understood objectives.
6 Concluding comments
The Real Crisis of the Fiscal State is the mismatch between the public expenditure requirements of the UK and the political and electoral willingness for them to be met through forms of taxation that are efficient, sufficient, and transparent.
Honest and deep debate on public funding requirements matched to sources is accordingly avoided, invariably subverted instead to short-term political presentational purposes. The recent Conservative Party leadership contest recently showed that in spades.
The impoverishment of public services and an almost default governmental resort to hidden stealth or inefficient forms of taxation is the inevitable end-result.
The public deficit overhang left by the government’s response to the Covid pandemic combined with continually rising real demands for social expenditures generated by an aging society, and quite likely in the future by post-Ukrainian invasion defence expenditure increases (Liz Truss committed to raise it to 3percent of GDP), underscores the impending fiscal imperative to develop forms of taxation that are efficient and equitable, as well as sufficient and sustainable.
An accelerating secular trend for land values to account for ever-rising shares of national wealth across many high-income countries and the UK in particular and its relationship to tardy investment, productivity and growth outcomes has helped to interest re-awaken in a modern Georgist LVT (phased-in gradually) across informed economic circles.
The analysis of Henry George in terms of its translation into practical policy may have suffered from its over-simplification and lack of engagement with the institutional environment.
Nevertheless, based on the pioneering work of the founders of economics as an academic discipline, it has been supported and even vindicated by such recent trends, as well as by modern modelling that a switch from direct and indirect taxes on labour, goods and services, and firms in favour of a LVT would generate substantial direct economic gains in a cumulative self-sustaining manner, as well as dampen speculative activity and wider cyclical instability.
The experience of Singapore has shown that long-standing economic and social returns can be achieved by suppressing private land speculation and the capture of rising land values for public benefit.
Yet obstacles to the effective implementation of even a gradual modern LVT, notwithstanding its huge potential latent benefit, remain formidable within current political environments.
The main ones can be headline summarised as follows:
- Its benefits are potential and uncertain and will be sensitive to the contingent wider macro-economic and political environments that it is rolled-out into, subject to unforeseen shocks and events that could well blow a gradual LVT off course, given that future certainty concerning its retention and future progression is necessary for its benefits to be realised;
- Its introduction as a planned flagship programme in the first place would carry substantial short-term electoral political and electoral risks linked to its perceived immediate incidence impact on homeowners; these are likely to deter its political adoption;
- Measures– including revenue-neutrality – designed to mitigate above are likely to blunt some of the beneficial impacts of a LVT, introduce new complexities and uncertainties, and underscore concern as to whether its potential long-term benefits would justify the political risks and upheaval costs incurred in the short-term.
- Comprehensive and accurate valuation arrangements that need to be put in prior place presuppose at least a nascent political commitment to introduce a gradual LVT that is currently lacking.
Perhaps, most seriously, for a LVT to raise enough revenue to significantly reduce the need for economically more harmful taxes in a UK context, it would need to be levied on residential land and at rates that would increase bills for many households above what they currently pay in council tax – a very problematic political proposition.
Yes, such a tax would allow other net taxes to be reduced to the point that the net tax burden of most such households would be reduced. But that, indeed, would be in the future (unless the any short-term transitional shortfalls in public revenue were met by borrowing) not at the time of initial implementation: in short, possible jam tomorrow, but pain today.
Given that, politicians, even of a reforming bent, might well conclude that an incremental non-revenue raising reform of the current council tax system, focused on relieving some of its most pressing regressive inequities, such as its regional incidence (the occupier of a lower-value dwelling in the North or Midlands, for instance, can pay as much as a much higher value dwelling in London), presents a more appealing and realistic option, with its potential to chime, for instance, with a wider ‘Levelling-Up’ agenda.
A combination of such a reform – as was noted in Section Five, the increased proportion of residential dwelling value taken by the underlying land means that a proportional property tax has become a closer proxy to a LVT – with the business rate reforms discussed in Section Six, is probably the best that can be hoped for and would be greatly beneficial in their own rights, and consistent with possible LVT progression over the medium term.
Any move to more frequent and accurate valuations, facilitating the separate valuation of land from buildings and structures, would offer a supporting step in the that direction.
Wider progress will ultimately depend however on both government and opposition politicians recognising and addressing honestly the Real Crisis of the Fiscal State.
That at present must be considered a hope rather than an expectation.