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This website acknowledges that land is free – as free as sunshine, air and water. However, the further fact is that we think it can be owned, and this has a serious effect on the distribution of wealth.

That land is free by nature cannot be disputed.

It is here when we arrive, and we cannot take it when we leave. By natural law, all must have equal rights to its use. But we have devised  a system of absolute ownership with the right to charge a rent to a user. This is completely entrenched in the law of the land.

Of course, man must be able to use land for a reasonable term so as to be able to bring his product to completion and sale, and also to continue in business. The use of certain pieces of land bring benefits, either due to fertility, or more importantly, due to facilities provided by the community around.

So the question is, how to recognise the freedom of land, wbookshile providing security of tenure, and return to the community the result of its efforts as they apply to each piece of land. If we do not upset the laws we have too much, so much the better.

The method for collecting revenue supported by this website is a levy of a site value each year on each site. Although termed a tax, it is really a return to the community for the benefits attached to each site, whether negligible or enormous.

The following Topic Papers explore some of the implications of this proposal. The general intention is to name a particular problem, then to show how it might be dealt with under site value taxation.

The consequences of not recognising natural law are growing. The heavy burden of land prices and the increasing gap between rich and poor are problems that will have to be dealt with.

Please note; Signed Articles must be considered personal views of the contributors, and not necessarily the views of Landisfree.

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SA82. Radical Tax Reform by Duncan Pickard

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RADICAL TAX REFORM: THE ANSWER TO TAX EVASION, BUDGET DEFICITS AND WELFARE CUTS

The governments of almost all countries have budget deficits and increasing national debts. The taxes* they currently collect are unable to meet the increasing costs of health and welfare provision for their older people and for the care and education of their young ones. Because the taxes they impose on earned incomes, employment and trade have severe negative effects on economic activity, the bases of the taxes are reduced, which means that different sources of revenue are needed. Heads of governments have signed up to international projects, initiated by the Organisation for European Co-operation and Development (OECD), to prevent multinational companies and rich individuals from avoiding and evading taxation by relocating their money to countries with very low levels of taxation. They see this as an easy way to obtain more revenue. Dwyer (1), in his essay “Tax Dodging and the Coming Tax Wars” has described the problems involved   when trying to collect taxes from companies and individuals who move money from one country to another. He has emphasised the failure of politicians to see the futility of their plans. International projects to “wage war on tax avoidance” are fundamentally flawed because they are illegitimate in International Law. Individual countries are able to enforce laws only within their territorial boundaries. No sovereign state must obey others and so can not be obliged to collect taxes on their behalf. Exhortations by politicians to the chief executives of multinational companies to ‘pay their fair share of taxes’ are correctly met with the response that they pay all the taxes that they are  legally obliged to pay. It is the legal duty of the directors of companies to maximise the financial returns of their shareholders and to comply with that they have to minimise the amount of tax the companies pay using all legal avoidance measures which are allowed.

It should be obvious to experienced politicians that their reliance on tax systems which are outdated, over-complicated and are severely disadvantageous to employment and enterprise should be replaced by a system which is suitable for the purpose of obtaining all the funds for the essential functions of government. Hoping for significant improvements from tinkering with tax systems which have a long history of failure is ludicrous. There are examples of countries where tax revenues are obtained in sufficient amounts without detrimental effects on economic activity and with little or no avoidance or evasion. They are Singapore (2)and Hong Kong(3). They derive most of the money needed for government from the collection of ground rent. They have few natural resources, but they have no annual budget deficits and high levels of economic prosperity.

The collection of ground rent for the necessary functions of government was proposed by Adam Smith in 1776 (4) and William Ogilvie in1781 (5). It was supported by David Ricardo (6) and John Stuart Mill (7), and the theory was refined by Henry George (8) in “Progress and Poverty” (1879). He called it the ‘Single Tax’. I shall refer to it as Annual Ground Rent (AGR) which includes the economic rent of natural resources such as the electromagnetic spectrum and mineral and fossil fuel deposits as well as the ground on which we stand. Classical economists subscribe to the four tenets which a tax system should have, they are :-  1. It should not hinder employment or trade and so reduce the total fund from which the tax or charge must be paid. 2. For fairness, the amount of tax or charge levied should be related to the ability to pay and for justice, earned incomes should not be taxed whilst unearned rental incomes are left untaxed. 3. A tax or charge should be cheaply and easily collected so that the costs of administration are as low as possible. 4. There should be no opportunity for avoidance or evasion.

*The Oxford dictionary defines ‘Tax’ as ‘a contribution to state revenue compulsorily levied on individuals, property or businesses’.

The collection of the annual ground rent is the only fiscal charge which complies with these four tenets of taxation; most of the fiscal systems in use around the world fail miserably in comparison.  An important feature of AGR is that it provides incentives to enterprise and trade by optimising the use of land. Almost all cities have areas of land which are derelict and disused; they contribute nothing to the creation of wealth and increase the cost of using other land whether to rent or buy, because they make useable land scarce. A large area of land in the countryside is also unused or underused. By making an annual rental charge for occupying such land its owners would either make use of it or allow someone else to use it. Without the need for income taxes and sales taxes (such as VAT), employment and trade will increase and costs of production will fall (9).

Those who advocate “wars on tax cheats” to collect more tax by international co-operation stand to be accused of behaving like a physician who  repeatedly treats the symptoms of a disease and does not look for its cause and never finds a cure. They opt for what they think is the easiest target without evaluating what is needed for the target to be hit or whether they have chosen the correct target. Instead of trying to raise more from existing taxes by trying to devise more effective ways of enforcement, they should be thinking of better methods of collecting the revenue they need. The tenets of taxation listed above should be on display in every politician’s office.

The economic case for the collection of the economic rent of every country to provide for its necessary functions is invincible. The reason why it is rarely used is due to the failure to overcome the claims of those with vested interests in retaining the status quo, who are usually a minority of the population but possess the loudest and most strident voices.  The importance of gaining or retaining political power always over- rides plans for radical change. Election manifestos contain vague promises of ‘fairness’, ‘justice’ and ‘working for the many, not the few’,  with no commitments to the radical tax reforms which are needed. In Britain many years ago all the revenue for government was obtained from those who owned the land.(10) Gradually, taxation has been shifted onto the earnings of those who work, leaving most of the unearned rental value of the land to be collected by those who own it. It is not very long ago that ownership of land was a necessary qualification for having the right to vote or be eligible to be elected to parliament. The laws pertaining to the imposition of taxes were made by landowners. Reference is often made to “The Law of the Land” which should be called “The Law of the Landowners”.  The bias towards protecting the privileges of landowners has even been backed by the European Court of Human Rights. It declares the ‘right of everyone to the peaceful possession of his property’ but this only applies to a person’s existing possessions. It does not extend protection of property rights to include the right to property for everyone. Therefore it is not a universal human right.

In the United Kingdom, a significant shift of the burden of taxation towards earned incomes and away from unearned incomes began about fifty years ago with the abolition of Schedule ‘A’ Property Tax whilst  exemption from tax on mortgage interest was retained. The shift was accelerated twenty years later with greater emphasis on the ambition for a “Home – Owning Democracy”. The government introduced the right of council house tenants to buy their homes at heavily discounted prices. Banks were allowed to provide mortgages for house purchase, a function which had been dominated by Building Societies whose lending capacity was limited by the amount of money which savers had deposited with them. This restrained rises in house prices. Their business model was based on the requirement for borrowers to have the ability to repay what they had borrowed. They were averse to taking risks and defaults were few. Lending by banks was very different. Instead of close scrutiny of borrowers’ ability to repay, banks increasingly relied on the value of the collateral against which the mortgage was secured. So long as house prices were rising, the amount of money they were prepared to lend also rose. Banks were not restricted by the amount savers had on deposit because their fractional reserve facility allowed lending to rise with the demand for it. Residential property became the most profitable form of investment and many peoples’ net financial worth was gained more from the increase in the price of their houses, or more accurately, in the price of the land on which their houses stood, than from paid employment. The preference of lenders for investment in landed property meant that those who wanted to invest in productive industry found it very difficult to obtain financial backing.

The increase in the price of residential property is almost all untaxed, unearned income, a fact which is ignored by politicians and officials in the Treasury and the Bank of England. The high and rising price of houses is seen to be beneficial to the national economy because as more money is spent on houses, the higher is the GDP and the more politicians congratulate themselves on the success of their economic policy. The shortcomings of GDP as an index of economic prosperity are well known but the resistance to the adoption of a better index is formidable, from owners of residential property, the financial sector and politicians (11). Nothing is produced by much of what is included in GDP. For instance, money which is spent on land does not produce more of it and money which is wasted on projects which fail, adds to GDP, as does the cost of repairing the damage caused by natural disasters although there is little net gain to the national wealth.

A much better measure of economic prosperity is the amount of Annual Ground Rent in a country.   One of the natural laws of economics states that as the population grows and production increases, the demand for land rises, which inevitably increases its economic rental value. AGR is the surplus which remains from wealth production after labour and capital have received their just returns for their contribution to the production of wealth. All national governments should be obliged to collect the relevant statistics and publish the size of their AGR. They would then know the amount of revenue available to satisfy their necessary budgetary requirements, and could abolish all the harmful taxes which impede employment and trade, only retaining taxes on detrimental activities such as smoking and excessive alcohol consumption.

It is accepted by most economists that countries should never aim to have an annual budget surplus. “That such a surplus would normally lead to a weak economy is obvious. When the government has a surplus it is taking away from the purchasing power of its citizens more than it is adding back through its spending. Thus, it is contributing to a lack of demand”. (12) This statement needs to be challenged because it does not take account of the harmful effects on employment and trade of income taxes and general sales taxes. If government revenue is obtained from AGR and harmful taxes abolished, the resulting increase in wealth creation will produce sufficient growth in economic rent (AGR) for a budget surplus, which can be distributed as a national dividend and there will be no lack of demand.

Politicians refuse to accept that they are responsible for recessions and the consequent damage to the lives of their citizens (13). By wilfully ignoring the importance of speculative investment in land in the recurrence of booms and recessions, they persuade themselves that such events are inevitable and unpredictable. Instead of using their political power to prevent them, they react afterwards with stimulants, such as ‘Quantitative Easing’ to correct for ‘excessive exuberance’ or ‘market failure’. It is little wonder that the former governor of the Bank of England was unable to provide an adequate answer the Queen’s question, “Why did nobody see this (recession) coming”? All recessions are preceded by booms in landed property prices as speculative investors, encouraged by exemptions from taxation sanctioned by the government, bid prices up above what people can afford. A crash inevitably follows (14).

How have Singapore and Hong Kong managed to achieve the economic prosperity which has made them envied by others? Hong Kong was fortunate when the ‘ barren rock’ was leased from China in the nineteenth century because the ownership of the land remained with China and anyone who wanted to occupy land in Hong Kong had to lease it from the British colonial authority on the island. As the population grew and production increased, the prices bid for leases increased and the colonial authority used the money to fund the provision of basic services. The prosperity of Hong Kong had spectacular growth in the decade from 1961 under the supervision of its Financial Secretary, John Cowperthwaite. He refused to impose tariffs or give subsidies and he called his economic policy ‘positive non- intervention’ and said his job was to see that no economic harm was done. All the measures of social progress showed marked improvement, such as the rate of unemployment, literacy and the average age at death.

Singapore’s history of prosperity dates from the county’s achievement of independence in 1965. According to Phang Sock Yong of Singapore Management University, the city state flourished because its economic model contained ‘elements of (Henry) George’s land value capture. Singapore passed the Land Acquisition Act in 1966 which gave the state broad powers to acquire land. In 1973, the concept of a statutory date was introduced, which fixed compensation values for land at the statutory date, November 30 1973. State land as a proportion of total land grew from 44% to 76% by 1985 and to about 90% in 2015. Rents that accrued from economic growth were invested in more and better infrastructure and taxes that damaged the economy were held down’.

After adopting the radical reform I have described, the need for “a war on tax cheats” will disappear. Multinational companies which are involved in large increases in the production of wealth by their innovations and investments, automatically increase the amount of AGR, which currently adds to the price of landed property or disappears abroad. With taxes on employment and trade abolished, unemployment will be minimised and wages will rise. All employers, including the multinational companies will be in competition for labour, and the enormous cost of welfare provision for the unemployed and underemployed will be greatly reduced. Governments will no longer need to persist in their futile attempts to impose taxes on the profits of corporations and the elusive money of rich individuals, most of whom make profits from expensive residential property on which they rarely pay tax.

References:

  1. Dwyer,T. (2016) Tax dodging and the Coming Tax Wars, in Rent Unmasked, ed. Fred Harrison, Shepheard-Walwyn, London.
  2. Sandilands, R. (2016)The Culture of Prosperity, in Rent Unmasked, ed. Fred Harrison, Shepheard- Walwyn, London.
  3. Purves, A. (2015) No Debt High Growth Low Tax, Shepheard-Walwyn, London
  4. Smith, Adam (1776) The Wealth of Nations. Glasgow Edition, Oxford, 1976.
  5. Ogilvie, William (1781) Essay on the Right to Property in Land, in Birthright in Land, Othilla Press, London, (1997).
  6. Ricardo, D. (1818) Principles of Political Economy and Taxation, Prometheus Books, London. (1996).
  7. Mill J.S. (1886) The Principles of Political Economy, Longmans, London.
  8. George, Henry (1879) Progress and Poverty, Robert Schalkenbach Foundation, New York, (1979).
  9. Gaffney, M. (2013) Europe’s Fatal Affair with Value Added Taxation, Groundswell, www.masongaffney.org
  10. Harrison, Fred (2006) Ricardo’s Law, Shepheard-Walwyn, London.
  11. Fiorentini, L. (2013) Gross Domestic Problem, Zed Books, London
  12. Stiglitz, J. (2016) The Euro and its Threat to the Future of Europe, Allen Lane, London.
  13. Harrison, Fred (2015) As Evil Does, Geophilos, London.
  14. Harrison, Fred (2005) Boom Bust: House Prices, Banking and the Depression of 2010, Shepheard-Walwyn, London.

Duncan Pickard BSc. PhD. Was a lecturer at the University of Leeds until 1990, he then took up farming full-time. He has farmed in Scotland since 1992 in partnership with his wife and two of their sons and their wives. They own 650 acres and farm another 1,000 acres on contract or on short-term leases. Dr. Pickard is the author of Lie of the Land (2004), Land Research Trust.

                                                      

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SA 81. All taxes come out of Rents, by Rumplestatskin.

Received via Prosper Australia.

Mason Gaffney has for years been describing the nature of economic rents and its relation to taxation. His key idea, which would have been uncontroversial prior to the rise of the neoclassical school, is that all taxes come out of rents (ATCOR). This means that a single tax on the rents earned from ownership of natural resources can always provide sufficient taxation revenue.

Let me explain.

To do this I first need to be clear about why rents are not a feature of current mainstream economic reasoning.

You may not realise it, but in the neoclassical market model capital inputs are all leased by firms, and compensated are their marginal contribution to production. This leads to a very circular analysis and an inability to properly understand the concept of rents.

For example, when we whittle our way through the production chain down to the landowner, who has one input, land, the neoclassical framing say that this owner rents their land inputs, which are compensated at their marginal contribution to production. Okay. So she rents off another person who owns the land, who we then model as renting from another person, and so on.

The buck never stops.

That’s what happens when you conflate land and capital into a single input. They nee to be treated differently because land is not an output of any production process, unlike capital.

When you allow the buck to stop at ownership of land and natural resources, you get a very different picture of the economy. One in which the taxation capacity of rents is not limited their current value. As Gaffney points out, when we “lower other taxes, the revenue base is not lost, but shifted to land rents and values, which can then yield more taxes”.

Henry George made this argument concisely a mere 130 years ago when writing in 1881 about the fund from which taxation is drawn

It may seem like a truism to assert that the only fund upon which taxation can draw is that made up by the produce of the community, and that to multiply the places at which it is tapped is not to increase its capacity to yield.

To be more clear I will use a very simple and abstract example to show how reducing taxes on wages increases the taxation capacity of land.

Imagine two households – household A owns all the land, and household B rents the land on which their home sits from household A. It’s a big abstraction, but I need to make this point clearly.

The renting household earns $70,000pa in wages, and pays 10% of that in taxes.  The government raises $7,000 via taxes on incomes each year, meaning the net income of that household is $63,000.

Household B bids up to 15% of their take-home income on their preferred housing location, meaning they pay $9,450 in annual on rent for the land on which they reside. They pay all the costs of building and maintaining the structures on the land.

Household A, which owns all the land, does not work and receives as their income the $9,450 in rent paid by household B. If the market interest rate is 5%, that means the value of the land on which household B resides is $189,000.

The total surplus in the economy is the wages plus taxes plus rents, or $70,000 in this case. Remember, we don’t want to double count the $9,450 as wages, because in real terms, they are merely what is left over after paying taxes and rents. I summarise this setup as Scenario 1 in the table below.

Now consider what happens when the total tax burden is shifted to land.

This means that household B has more money to spend on rent because tax is not taken from their wages. If they continue to bid up to 15% of their income on housing location the rent is now $10,500 (shown as Scenario 2 in Table 1). The annual rent received by the land owner is 11% higher because taxes have been removed from wages, which increased the taxation capacity of their land.

To maintain a constant $7,000 tax revenue a land tax rate of 10% is required [1].

A third scenario drives home the idea that all taxes come from rents. In this case taxes are removed from wages and added to rents, but household B bids up the rent to a point where their real wage is identical. They now pay $16,450 in rent, which is the sum of the rent and taxes they paid in Scenario 1.

The land owner then pays the taxes and is left with an identical income. Thus, we can see that it is technically possible to switch all tax revenues to land without affecting the incomes of different actors in the economy.

The following table summarises this example economy under each taxation scenario.  In reality, shifting to land taxes would involve something between Scenarios 2 and 3.

We also need to think carefully about this result in terms of debates about housing affordability and land taxes as a possible solution.  While Scenario B has a much lower land value, both of these scenarios have land occupation costs of 15% of take-home wages.

What makes housing Scenario 2 more affordable is that the 85% of wages left over after land costs can buy more goods than in Scenario 1. 11% more in fact.

This exercise has demonstrated that indeed whatever current taxes are being raised can be raised through a single tax on land and natural resources. It provides a brief and very simplified look at the mechanisms whereby reducing taxes on labour increase the taxable capacity of land, and the distributional impacts of doing so.

Please share this article. Tips, suggestions, comments and requests to rumplestatskin@gmail.com + follow me on Twitter @rumplestatskin

fn[1]. Which we ascertain from solving the two equations:

value =(rent-tax_amount)/i

tax =value*tax_rate

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SA 80. The Housing Crisis and the Common Good, by Joseph Milne

Why do we have a housing crisis in the UK? Why is it that a wealthy country, increasing in wealth each year, cannot provide enough housing for its citizens? I am sure you know of the latest figures which show that fewer and fewer young families can buy a home, and that more and more are forced into rented housing with very little security. In 1990 about two thirds of people aged 35 purchased their own homes, now it is just over one quarter. Fewer and fewer young people can afford to even save up for a deposit, let alone get a mortgage. In the 1970s a home cost about three times one person’s income, and that was about the amount the old building societies would lend. Now a home is about ten times the annual income of one person.

The standard answer offered by the politicians is that we need to build more houses, because there are not enough. It is simply market forces at work, they claim. If there is a shortage, then prices rise. But this is a false explanation. What is happening is that more and more people are forced to rent their housing because they cannot buy a home, and rents are also rising and being exploited, so they are not a cheaper alternative to buying. Over the last three decades the proportion of net income spent on rent has risen from 20% to 45%, and in London even more. Now this is not due to a shortage of houses, but to an increase in land speculation and turning houses that were once privately owned into rented homes. So instead of houses being regarded as homes for our citizens to live in, they have become investments for speculators. And these speculators have gradually gained a monopoly on housing, while at the same time ordinary people no longer see a home as a place to live, but as an investment for profit. They too have become speculators. The government ‘Help to Buy’ scheme has increased house prices and made the situation worse, without building even one new home.

One further factor is that most of the social housing built in the 50s and 60s which provided rented homes at modest prices for nearly half the population were sold off and many have since been bought up by speculators and are now at the high end of the rented market. This meant that an alternative low rent option was removed by government policy and everyone was forced onto the commercial market, which in turn now acted as a monopoly. Obviously the large cheaper rented housing sector once acted as a lever to hold down the prices of the private sector. At the same time, when the building societies loaned only up to three times the annual income of one earner, there was a natural limit on the general cost of housing. It remained at about 25% of net income. But with the regulation on banks removed in the 1980s they entered the mortgage market and soon were lending at higher times the annual income of the borrower. This in turn encouraged the buy-to-let market, which often got lower rates of interest than home owners. This also meant that bank lending for production decreased while lending for housing speculation increased. Then it all toppled down in 2008 with the crash of the banks. This was the inevitable and predicted result of the ideology of deregulation and land speculation. It is economics without ethics, a purely parasitic economy which created no actual wealth.

I am sure most of us here know all this, but it is helpful to get these facts and figures clear before we start examining the deeper causes of the housing crisis. Given these facts and figures the standard response of the politician is to say, this is just the free market working in its natural way and eventually it will adjust and the housing problem will go away. When they say this, they actually have no idea how the market works and are speaking an empty doctrine. There is nowhere on earth a place where speculation on housing has adjusted and brought down the cost of housing. There is now the same housing crisis in New York as here in London. So a major challenge we must now confront is that the standard economic theories of market adjustment misdescribe how the market works. This is something the Nobel Prize winning economist Joseph Stiglitz has often pointed out. And things are even worse when both the right and the left believe in this false doctrine, the right arguing that the market will adjust by itself, and the left arguing for state intervention. How can either side provide a remedy if they have a false theory of the market and of basic economic laws?

One of the main reasons modern economic analysis goes astray is because it tries to observe the economy in a purely mechanistic way. It seeks to reduce the market to mathematical models. This means that any aspect that is not so reducible is eliminated from any account. According to this modelling it makes no difference if a product for the market is apples or organs for transplant. Such modelling is a kind of pseudo-science, an attempt to reduce human community to material mechanisms. The consequence of this approach is to open an unbridgeable gap between so-called ‘market forces’ and natural justice. The greater part of modern legislation is drafted in order to mitigate the unjust consequences of this gap. Even so, such legislation is resisted by blind adherence to a false notion of the free market. Take the resistance of the tobacco industry to restrictions on smoking in public spaces for example. According to the mathematical modelling, the tobacco industry makes a substantial contribution to the economy and produces jobs. The mathematical model does not take into account the human consequences of market activity. So governments have to try and pick up the pieces and mitigate the human consequences of indifferent market forces.

Why should market forces be in conflict with natural justice? Is a society naturally in conflict with itself? No other species acts against itself in this way. So why is it that the human species is the only species that creates an environment hostile to its own existence? Why must it endlessly need to mend the harm it inflicts upon itself?  There have been theorists who hold that this must be so, such as Thomas Hobbes in the seventeenth century and Herbert Spencer in the nineteenth, who attempted to reduce human nature to biological urges of self-interest and competition. But if society is, as they maintained, a state of conflicts of self-interest, why hide this truth behind the idea of ‘market forces’. Why not simply say ‘market conflicts’ if that is what is really meant by the ‘free market’? That would explain why market forces act against natural justice.

There are those who accept this crude notion of society, but this does not explain why there is in every human being a sense of natural justice that knows it is wrong. It is this sense of natural justice that seeks to mitigate the consequences of the so-called ‘free market’. The sense of natural justice accepts that we are collectively responsible for the wellbeing of society. Even the criminal fears natural justice!

But at this time we are also having to respond to the harm our market activity is doing to the environment and to the ecosystem at large. If our modern economy is harming the earth itself, this is showing us something neither the mathematical models nor the Hobbesian or Spencerian biological or mechanistic analysis account for. It shows that the very conception of the market society is contrary to nature, contrary to the biosphere in which we live. That is to say, it is unlawful, against the laws of nature, and that the laws of nature as conceived in the Age of Reason and the Enlightenment are misconceptions. This is important, because the founders of classical economics built upon these misconceptions of nature. And, indeed, this conflict between the market and natural justice is present in their writings – in Adam Smith and John Locke for example, and later in the contradictions between the early and later writings of Herbert Spencer.

This conflict in their works lies precisely where it now lies – a conflict between the market ideology and our relation to the earth. It was overlooked that the earth is our dwelling place. It is not a market resource, and describing it as such introduces the first and greatest distortion in economic theory. The early economists recognised that the three basic components of an economy are land, capital, and labour. In this they were correct. Land is the place where capital and labour are applied. But first of all land is the human habitat, our natural home. It is also the source of all material used by labour in production. But this habitat and this source is already given by nature. Nobody makes it. Nature provides our dwelling and our sustenance. And this is what is meant in economics by ‘land’. Land is just the same for the Bushman of the Kalahari Desert as for the dweller in the great city of London.

Capital and labour are the human contribution to the creation of wealth. Nature gives the land, while previously produced wealth provides the capital, and labour applies the skill and effort. Capital is not money. It is the tools and resources used in making things, such as the carpenters hammer and his wood.

The early economists recognised this simple threefold division. But then they got into a great muddle over how the earth, the land, our habitat, becomes someone’s private property. If it is given by nature, how can any individual claim ownership of it? That was the question the American Indians put to the European invaders. And even more to the point, how can any individual claiming such ownership demand a fee from anyone who needs access to it? The early economists could not get round this problem. They admit there cannot be any natural right of land ownership, but say that, since the appropriation happened generations ago it is too late to remedy it. In other words, time turns an injustice into a justice, or at least into an injustice we must live with. So land ownership is justified by whoever takes it first and we must live with the consequences forever.

Now if this applies to land, why not also to labour? Can that also become private property? That question was also too awkward to answer, and slave ownership held out for a long time before it was abolished. The slave-owners made the same arguments as were made as for the appropriation of land. In modern economic theory the land, given by nature, is no longer distinguished as an economic element but counted as part of capital. And in this way the difficulty of the early economists is made to conveniently disappear. Through a misclassification land becomes someone’s capital. As a distinct contribution of nature it is no longer an economic factor. This earth, now called capital, is the environment we are destroying. Consider: Does not an owner have the right to destroy his own property if he wishes?  And is there not a curious contradiction in the ecologists calling this the ecosystem or the biosphere, and the economist calling it capital? For one it is the whole of nature, for the other it is private property. This is a contradiction that no amount of economic sophism can get round. We are living in an age in which we assume we are not the inhabitants of nature along with all the other creatures.

If we can see that the premises of modern economic theory are false or defective, and if we see further that belief in these false premises has harmful consequences, then are we not called upon to reason through these consequences and see if they indicate a remedy? But before we can begin to seek remedies to these consequences we need to clearly understand how they arise. We must resist the temptation to jump to remedies without fully understanding the problem. This is what our current politicians tend to do, either arguing that market forces are self-adjusting, or that the state must take over everything. This kind of leaping to solutions without understanding the problem is thoughtless and irresponsible. But also notice carefully that both these thoughtless solutions maintain the same basic falsehood – that the earth or land may be property. The only debate between them is whether private individuals, companies, or the state should be the proprietor.

So, let us be cautious and reason through the consequences of the ownership of land. And here the most obvious example is the present housing crisis. Nothing illustrates more clearly that we are living in an economy in which we are inflicting harm upon ourselves. As citizens of the United Kingdom we are collectively denying ourselves a basic right of citizenship – the right to homes in our own democracy. Why are houses so expensive? Why does the same house become more and more expensive over time? And why do governments say the rise is house prices indicates the economy is growing when in fact it is causing poverty and homelessness?

This is not so hard to work out. A house in London compared to a similar house in Blackpool will be ten or twelve times more expensive. Why is that? The reason is obvious. The difference in price is the difference in land value, not the house itself. An empty site in London could be worth twenty or thirty times more than a mansion in Blackpool. So it is not really house prices that keep rising, but rather the land they stand on. Now, how did the owner of the land give it that value? How do house owners in London give their properties more value than house owners in Blackpool? We know perfectly well that it is not owner who gives it that value. He might get the value, but he did not create it. It is in fact the surrounding community and its public facilities that creates the value of the land the house stands on. It is the amenities of a great city like London, with its infrastructure, arts and culture and history, that create the land value, and Blackpool simply does not have all these things. In other words, it is the surrounding community that creates the value, not the owner of the property. And when the owner sells the house, he receives the value that the community created for that property. And the buyer, seeking that value created by the community in London, is prepared to pay the seller his high price. And in that transaction no contribution has been made to the economy by the buyer or seller. The current housing market is simply pyramid buying and selling.

This is even more obvious for rented homes. The landlord in London receives in rent the value that the community of London creates. He is not providing this value, he is charging for access to it. And it is because he can charge for access that he makes the investment in rented housing in the first place. One might say that the largest proportion of rent is a toll or levy for access. But that toll or levy does not go to the provider of the benefits, which is the community at large, but is appropriated as private income by the landlord or property speculator. To put that in other words, the British tenant must pay a private individual for his right to settle in Britain. The landlord, in his turn, can charge the highest price he can possibly get. And at this time this is an increasing proportion of the tenant’s wages. This in turn reduces the tenant’s spending power, which in turn harms the general economy. Further, the landlord may neglect the house he is letting, demonstrating that the rent is not for the home itself but for the land it stands on.

Compare this to renting anything else. If I rent a car, for example, I receive the benefit the agent provides. I do not pay him for access to the roads, which the community provides, just the use of the car. And his cars do not increase in value with time through ‘market forces’, but rather they decrease in value. His is a legitimate return on his investment as he is charging only for what he actually provides. If he were to charge more, then a competitor would enter the market charging less. If there is anything favourable in the modern competitive market economy that does involve ‘market forces’, then it tends to press prices downwards. So we must ask, why does this not happen in the same way with housing? The answer is simple. In housing one is paying someone for something the seller does not provide, but which is provided by nature and the community at large. And nobody can produce more land, so private ownership of any land is monopoly.

The difference between the rented car and the rented house is that the rent on the house is a charge for the use of the land. As the house grows older it deteriorates and requires upkeep, while the land stays the same but gathers value from the surrounding community. In London, for example, property at the new Crossrail stations has risen 40% in value, so the landlord increases the rent and appropriates the added value. The tenant, in effect, is paying the landlord for access to the new station, even though it was not him that provided it. Indeed, it was the tenant’s taxes on his wages that paid for it.

I hope it is now clear that ‘land’ plays a distinct part in the economy and cannot be classed as capital. The land is what nature gives, just like the air or the sunshine. It cannot be made into private property and citizens compelled to pay the owner for the right to dwell there. This is where there is a deep conflict between current economic theory and natural justice. If a foreign nation charged a levy on every British subject for dwelling here, we would protest – just as King Arthur did against the Roman Tribute in the Arthurian legends. Yet we accept the right of our own citizens to do it to us, who might as well be foreign invaders. Indeed, in London the prime sites are now largely owned by overseas landlords, which our politicians call ‘city investors’. How can we be a sovereign nation if the very land we live on is owned by foreign investors?

This, however, is the consequence of the false economic doctrine that land can be private property. What nature provides freely for all creatures cannot be appropriated by a private individual who then charges for access to it. As I said earlier, the classical economists, such as Adam Smith or John Locke, as well as the French Physiocrats, realised that land cannot be privately appropriated, and that if it was, it would cause huge distortions in the economy, rendering great wealth to one section of society and driving the other into poverty. They realised this. And we now see it very clearly, not only here in the UK but around the world, for example in New York, as I mentioned earlier, where the cheapest home in the desirable areas is more than 10 million dollars. The poorer people are being driven out by rising rents, just as is happening here in London, and soon we shall have a crisis of service providers who can no longer live in the city they serve. I mean doctors and nurses, firemen, policemen and so on. They are being driven out because their wages cannot cover New York or London rents or house prices. And yet they are the people who sustain the infrastructure of the city.

Now it is one thing to see the scale of the problem and its consequences, but another to see a just remedy. Building more social housing, if done on a large scale, would indeed help enormously, as it did in the 50s and 60s until the Thatcher government gave the tenants the right to buy, and who eventually became speculators. There are other schemes, such as cooperative ownership, shared ownership, and these ideas are helpful and would certainly mitigate the problem. Also the reintroduction of fair ‘rent control’, which was abolished in the Housing Act 1980, would make a big difference. Ethical companies, such as Cadbury or Clarks shoes, once built fine homes for their employees. Clarks also built schools for their employee’s children, libraries, and swimming pools. These companies were inspired by Quaker principles and they showed that natural justice and economics worked perfectly together to the advantage of all.

But these examples do not address the root of the problem. And this puts us in a similar position to the classical economists like Adam Smith who saw the remedy but lost their nerve in properly advocating it. They saw that ‘rent’ actually belonged to the community whose presence created it. That is to say, rent was the natural revenue for common or government expenditure – which is to say that a ‘natural tax’ arises spontaneously in any society to provide for its common services. This means that tax put on wages or on the production of wealth is harmful to the economy, and especially so when the natural revenue is privately appropriated as unearned income through land speculation.

But for some reason this simple truth remains very hard to grasp. It is no accident that modern economic theory classifies land with capital, or as Thomas Piketty does, simply includes it in the definition of ‘wealth’. That is even worse because ‘wealth’ is what labour produces, and so it cannot include land. There is a great fog that somehow makes the most fundamental economic laws elusive and hard to grasp. One of the reasons for this is that, in our modern age the ‘market’ has become our culture. We have come to conceive society primarily in terms of acquiring wealth. It makes no difference if we are left wing or right wing. This raises a philosophical question rather far above the heads of economists, of how it happened since the seventeenth century that the human ‘self’ became conceived as ‘proprietorial’, and that the relationship of the human person to things became that of ownership. Life is all about acquisition. That is where Adam Smith broke faith with his perception of how the economy works. He defined the aim of life as the ‘pursuit of luxury’. In his times, and ever since, that has been taken as the true aim of human life. This meant he could not follow through on the question of land ownership. Indeed, he argued that the basis of all property is ‘self-ownership’, and that the application of labour to land extends self-ownership into land ownership. It is on this basis that he says that, since such ownership has already occurred, it cannot be undone. Buying land, on this basis, further legitimizes it through legal contract.

Although Smith’s argument is fallacious, on a deeper level it persuades because it confirms and extends the prevailing notion of self-ownership and self-identity. The idea that the human person owns themselves, which began to take root in the sixteenth century, has entirely eradicated the ancient conception of humanity as part of nature. This is something the north American Indians understood, or the Kalahari Bushmen or Australian Aborigine’s. They saw that land belongs to no one. It is the free gift to all, and indeed it is sacred. And this is still the Christian view of nature, affirmed in the recent Encyclical of Pope Francis, On Care for our Common Home.

In recent times the proprietorial notion of selfhood has extended to include companies and international corporations. They have taken on the legal status of a ‘person’ and all the rights of a person. This in turn has effected patent law, where now an international company can patent a newly discovered plant or its genetic code. This has enormous consequences in farming and medicine, to state the most obvious. It gives the patent holder a monopoly over crops and pharmaceuticals. And this transcends all national boundaries. In the light of such ownership the sovereignty of a nation is meaningless. Yet the private ownership of a plant species or its genetic code, or a modification of that code, is no different than the private ownership of land. It is ownership of nature.

There is not time to follow through on all the implications of this proprietorial notion of self and our relation to the earth or nature. The most important thing to appreciate is that it is the hidden assumption behind the notion of free market forces. There are no ‘forces’ in the market apart from human desires and actions. The argument that market forces will balance out any harmful consequences is really nothing else than to grant full reign to the ruthless acquisition of property. That is what it is in practice. And because the hidden assumption behind it remains unseen, it may be argued that any intervention in the ‘self-regulation’ of the market will result in loss of investment and loss of jobs. Strictly speaking, that would mean that regulation of food standards, or of medicines, or animal welfare and so on is unnecessary. As we said earlier, the greater part of modern government legislation is there to mitigate the harmful consequences of ‘market forces’. Our Welfare State came into being for that reason, and likewise the abolition of slavery and child labour. Justice and the common good tugs against the free reign of acquisition and monopoly. The very idea of the proprietorial self is in conflict with natural justice and the common good.

If, as I suggested earlier, the greater portion of rent is the natural revenue for governmental functions, then it is clear that there is no need for the state to take over ownership of the land, which is merely changing one proprietor for another. So we may rule out any form of communism. On the other hand, there is no need to rule out ownership of land as such. All that is required is to collect the rentable value of that land as government revenue. This would return to the community the common value created by it. At a stroke it would remove all land speculation. And, as I hope I have shown, it is land speculation that is the cause of the housing crisis in the UK.

A major difficulty in this, which I am sure you have already noticed, is that it would cause house prices to fall. The seller would no longer be able to claim the future rentable value of the land as he does now in his selling price. For the mortgage holder this is going to appear as a great loss. This is a standard critique of the introduction of a land tax. But it relies on false reasoning. If the price of all houses falls, then the vendor will pay less for the new house he purchases. And instead of paying a mortgage at interest, he will pay a land tax into the community. Also, the implementation of a land tax would remove the need for all other taxes on wages or on industry. This in turn would remove the need for complex tax administration and reduce the cost of government administration. On present estimates the amount collected through a land tax would be roughly equivalent to what is presently collected through taxes on wages and industry. The only real and profound change would be that unearned income from land speculation would cease, which means that something like 30% to 45% of wealth would no longer be siphoned off from the economy as unearned income.

If the price of food or cars or computers fell, everyone would rejoice. But if the price of a home fell, there would be an outcry. This shows how land is not a commodity like any other, but a claim upon what cannot legitimately be claimed.

This is the most elegant and just solution to the present housing crisis. It is not a new idea but was discovered by the early economists, and is now being revived by leading modern economists such as Joseph Stiglitz and Fred Harrison, and also fine journalists such as Anna Minton in her recent book, Big Capital: Who is London For? There she exposes the devastating effects of land speculation on the poor, and how the land market is being used for money laundering by international criminals. You may have seen her on the Channel 4 News when she was one of the people interviewed after the Grenfell Tower fire, where the surviving tenants remain homeless amid huge luxury home developments. She argued for several solutions to the housing crisis, such as building more social housing and also introducing a land tax to put a stop to land speculation. But I am afraid the politicians who believe in the unfettered free market cannot hear this truth. And really, this is the problem. Out of blind faith they cannot listen, and this is because their faith is in an ideology rather than in understanding the actual laws of economics, or any care for natural justice. Money has become more important than people or the citizens of our nation.

We are left with a stark choice. Seeing growing homelessness all around us, and people being forcibly removed from London to other cities, are we not obliged to choose between private gain and natural justice, between speculation and the common good? Must there be a necessary conflict between a flourishing economy and the common good?

If there is such a conflict, surely it is worth enquiring into and seeking a harmony between them. According to the ancient philosophers, from Greece, or India, or China, it is a natural human concern to seek justice, and there is a law in the very fabric of human society that determines how well it will flourish according to how well it seeks justice. We find it in Thomas Aquinas, who says that if someone is destitute, then the laws of property are suspended and that person is entitled to take from those who have what he needs to sustain himself. In other words, the legal realm is always a working compromise before natural justice or divine providence. The highest law is pure goodness. That ultimately is the measure of society. Here we are, in Friends House, where the Quakers believe in the divine essence of every person. Imagine if economic theory and ethics were based on that noble idea? Could we then have a nation built on mutual exploitation and pretend this happened through some ‘invisible hand’, or the mechanical ‘ropes and pulleys’ of Hobbes’ conception of society, ordering all things and making poverty and homelessness legitimate?

It is said that economics is the dismal science. But this is only because it has been divorced from the human realm and the dignity of the human spirit. Any economic theory that does not join the creation of wealth with justice will represent a false analysis of society. Any conception of a nation which abandons the poor to homelessness is a false analysis of nationhood. A nation, a society, is only a nation or a society when it includes all its people into citizenship. To be exploited by a housing market that exists only for money-making is to be made into non-citizens – both for the exploiter and the exploited. A citizen, by definition, is one who contributes to the common good.

My whole argument is that the private ownership of the land, of our common habit, distorts the natural laws of the economy, and it is this distortion of the natural order that brings about the destructive divide between rich and poor. If there is to be a truly free market, then it must conform to the laws of nature and remove any legalised distortions which deprive anyone from equal right to the earth. It is the same distortion of our natural relationship to the land that lies at the root of the present destruction to the environment. Society is not outside nature and nature cannot be commodified without dire consequences to all livings things.

Whether or not I have convinced you that the land, our Mother Earth, can be private property or not, I hope that I have at least found agreement with you that the present housing crisis in the UK, and spreading world-wide, is the most fundamental economic and social problem facing us at this time, and that it is a manifest injustice. As Tolstoy said long ago, if our relationship with the land is wrong, then all else is wrong too. Nothing makes this clearer than housing. How can you be a citizen with nowhere to live, or if compelled to give more than half your income to a land speculator? If that is so, then you do have to ask with Anna Minton, Who is London For? Is the city for the people who live there, or for speculators who siphon off its wealth?

As I am speaking on behalf of the Henry George Foundation, let me close with a quotation from him which he wrote over a hundred years ago in 1884:

Our fundamental mistake is in treating land as private property. On this false basis modern civilization everywhere rests, and hence, as material progress goes on, is everywhere developing such monstrous inequalities in condition as must ultimately destroy it. As without land man cannot exist; as his very physical substance, and all that he can acquire or make, must be drawn from the land, the ownership of the land of a country is necessarily the ownership of the people of that country — involving their industrial, social and political subjection. (Social Problems, Chapter 18)

 Question Time

  1. Q. How would my home be secure if the Land Tax was introduced?
  2. A. The reply I gave to this question was a bit misleading. I said that one would bid for the land. This would only be the case for unused land, or for businesses as in Hong Kong, for example, where the government owns the land. But in the UK a home owner would simply be charged a land tax in the same way as they currently pay Council Tax. They would remain the freehold owner of the land. I are not proposing state ownership of the land.

Q. If the government collected the land tax, how would corruption be prevented?

A. In a democracy it is up to the voting citizens to assure government acts for the common good and is not open to corruption. This would be the same if the land tax was introduced. However, since the relation between this form of taxation and government would be direct and clear for all to see, and no privileges or advantages could be obtained through loopholes or tax evasion schemes, citizens could hold government more accountable and play a fuller role in government. Also, since tax would be based on land value, the revenues collected by government would be fixed by land values, and therefore limited. All government income and expenditure could be clearly accounted for. It would be for the community to decide what common uses it should be put. It would not be used to redistribute wealth.

  1. Q. What practical things can we do to bring about the introduction of the land tax?
  2. A. A change on this scale would be possible only if the nation wanted it. It is no use trying to introduce such a change against the consensus of the people, and least of all where there is huge vested interests in keeping the present unjust tax system. What is needed is for citizens to understand the justice of a land tax, and the injustice that follows from land speculation. A nation flourishes according to the degree to which it understands and values justice. This would seem to be a natural social law. We find it in Plato and the Greek philosophers and also in the ancient Chinese and Indian philosophers. So all we can do is seek to educate ourselves and others. But also, it is the responsibility of every citizen in a democracy to understand justice and seek to establish it throughout society. In a democracy it is no use blaming governments for things that are wrong. Being a citizen is being responsible for the common good. If we do not do that, then we are not really citizens.
  3. Q. How would the land tax effect a block of flats?
  4. A. Again my reply was not that clear as I suggested that all homes should be beautiful. What I meant by this was that the ugly tower blocks we now see in the city, whether for social housing or luxury apartments, are all the product of land prices and land speculation. It means many homes get crammed into small spaces. Modern UK homes are now the smallest in Europe, a direct effect of land speculation and the lack of responsible government building regulation. But land tax would fall on the freehold owner of the block of flats just like any other land use. But a land tax would bring marginal sites into use, and so homes would naturally spread out and not be artificially distorted by land speculation. The price of a house would be governed by the actual costs of building and not by the land value. Presently the land value is about 80% of the purchase price of a home. It takes some vision to see how housing would change for the better with the introduction of the tax on land and removal of all other Cramped and ugly homes, built for land speculation, would cease to be built and would no longer be desirable.

Joseph Milne

editor@landandliberty.net

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SA 79. The “housing crisis” is no such thing, by Mark Wadsworth

The ‘housing crisis’ is no such thing. It is a ‘transfer of wealth’ crisis

Reprinted from “Young People’s Party” submission to the Intergeneration Commission.

The current state of the housing market is not a ‘crisis’ – something that suddenly happens because of unforeseen forces outside the government’s control – but the inevitable result of quite deliberate changes in government housing policy over the last thirty years, i.e. the dismantling of the old system.

There is no lack of physical housing in the UK. All we are seeing is a massive transfer of wealth (via house prices and rents) from younger generations to those lucky enough to have inherited land, or acquired it cheaply in the past (the Baby Boomers).

YPP is a modern progressive party, but we have not forgotten the lessons of the past – for most of the 20th century the UK simply did not have a ‘housing crisis’, and there is no mystery as to how this happy state of affairs was achieved.

No UK government since the Liberal government of 1909 was ‘Georgist’, but there was a tacit acceptance that there has to be a limit to how much wealth could be transferred from the many to the few via land ownership, which was and still is highly concentrated in very few hands.

So while we have never had Land Value Tax as a major component of the tax system, for most of the 20th century there was a bundle of policies that had a similar effect on the distribution of housing wealth. And the bundle worked: from 1945 to the 1980s house prices and rents were relatively low and stable; owner-occupation levels increased rapidly from 30% to 60% and the number of social tenants increased from 20% to 30%. What is less often mentioned is that the number of households renting privately fell from 50% to under 10%.

So, what were we doing right until the 1980s, and what has changed since then?

  1. The government had been controlling rents since 1918 with a series of Rent Acts. Landlords could only collect some of the location value so a lot of it went to tenants or first time buyers for ‘free’ and as of right. The 1988 Housing Act ended rent controls and rents have been rising faster than wages ever since.
  2. Rent controls reduced the amount which landlords were prepared to pay for a home, making it much easier for first time buyers to compete. Until s21 of the 1988 Housing Act was amended in 1996 to make no-fault evictions much easier, banks were unwilling to lend to buy to let landlords. After the change, leveraged speculation by ‘investors’ became the norm.
  3. The private home building sector cannot be relied on to build enough homes to keep prices down. They are profit maximising enterprises and their profit maximising level of output is to dribble one new home onto the market for every nine existing homes that are bought and sold each year. So if there is a downturn in normal market activity (2008 onwards), then developments are mothballed. Schemes like Help to Buy and its predecessors since 2009 have merely pushed up prices without increasing the rate of new constructions. There is a school of thought that by easing planning restrictions, more homes will be built and prices will come down. The fact of the matter is that the large home builders control land banks with planning permission for ten years’ worth of supply, and they make more profit from land price gains than from building homes.
  4. Rent controls are a blunt tool with their own unintended consequences (lack of supply). In the medium term, their major impact was not keeping rents down for private tenants but – by making the housing market unattractive to private landlords – making it much easier for tenants to buy their own homes.
  5. So local councils built 150,000 units of social housing each year until the 1970s, which were relatively easily available at very affordable rents. Council house building fell to a trickle in the 1970s and until the council house sell-offs, there was no need for Housing Benefit and mortgage lenders earned nothing from the social housing stock. One-third of council homes sold off are now rented out privately at rents inflated by Housing Benefit payments.
  6. There were mortgage restrictions to stop first time buyers entering into a borrowing arms race and bidding land prices back up to their unregulated value. Until the 1980s, the average loan-to-income multiple was as low as two. Nowadays multiples of over four are the norm and deposits have to be much higher. The deposit required to buy a home in London is about as much as it would have cost to buy that home outright twenty years ago.
  7. To prevent homes in the more expensive areas being sold to the cash rich owner-occupiers for their unregulated value, there was Schedule A taxation of notional rental income (until 1964) and Domestic Rates (until 1989) which were highly progressive – the tax on the most valuable homes was a hundred times as much as on the cheapest. Abolishing Schedule A taxation while retaining MIRAS was a major factor in the house price bubble of the early 1970s. The government had to mask the following real terms house price crash with hyperinflation – which in turn led to the UK’s ‘lost decade’. Replacing Domestic Rates with the short lived Community Charge (aka Poll Tax) and then Council Tax was a giveaway for those in large or valuable homes and further pushed up prices.
  8. Also worth a mention is that for most of the period, rental income was taxed at higher rates than employment income. Over the last thirty years, income tax rates have come down and National Insurance contribution rates have gone up. Buy to Let Landlords only pay income tax, so this has shifted the tax burden from landlords onto workers and businesses.
  9. Until 2009, the Bank of England base rate was set at a market rate (it tracked 3-month LIBOR), which was good for savers and kept a lid on house prices. Since then, the base rate has been kept artificially low – below inflation, merely to sustain the house price bubble and subsidise the financial sector, all at the expense of older savers and younger people who would like to buy their own home.

Many Baby Boomers have conveniently forgotten how they benefitted from all this and genuinely believe that they are somehow morally superior to those born after 1975 or so because they ‘rolled up their sleeves and paid off the mortgage’.

They are blind to the fact that they could buy their homes relatively easily because all these policies kept house prices down to affordable levels. They did not even pay off their mortgages out of taxed income – their interest payments were subsidised via MIRAS, so a large chunk was paid out of untaxed income.

Having benefitted from the old system when they bought, the Baby Boomers made massive tax-free windfall capital gains (albeit often only on paper) when the tried-and-tested policies were phased out, with entirely predictable results:

  • The number of households renting privately has doubled since the early 1990s, from an all time low of 9% back up to 20% of all households today and the number of social tenants has fallen to 17%.
  • Owner-occupation levels have fallen from 71% to 63% over the last fifteen years and this is a continuing trend. Owner-occupation rates for the under-40s are half what they were twenty years ago.
  • Housing Benefit now costs the taxpayer £20 billion a year, half of which goes to private landlords, twice the amount they pay in income tax.
  • House prices have more than doubled relative to earnings – from a long-term average of three-times-earnings to over six-times-earnings today.
  • The banking sector has swollen to a dangerous size, lurching from one crisis to another (being bailed out by taxpayers and savers every time) and dragging the whole economy down with it.

Policy recommendations

YPP’s preference would be to adopt a ‘Georgist’ tax system, with lower or no taxes on output and employment, earned income and much higher taxes on location values (Land Value Tax). This would ensure a fairer distribution of the benefits of land ownership (as under the old system), with an average working household being considerably better off, with the added benefit that the productive economy will grow much more quickly and sustainably.

Failing that, and at a bare minimum, YPP would like to see the old system reintroduced:

  • Replace existing taxes on residential land and buildings (primarily Council Tax, Stamp Duty Land Tax and Inheritance Tax) with a flat Land Value Tax (akin to Domestic Rates) and reform Business Rates into Land Value Tax and extend it to home builders’ land banks.
  • Reduce National Insurance contribution rates and the main rate of VAT and increase income tax/corporation tax rates to match.
  • Reintroduce rents controls and rent caps for private tenants
  • Increase construction of social housing for truly affordable rents.
  • Banks and building societies to cap residential mortgages at three times main income or twice joint income.
  • Abolish Help to Buy
  • Phase out Housing Benefit payments to private tenants i.e. private landlords
  • Abolish tax relief for interest paid for private landlords
  • Increase the Bank of England base rate to inflation plus 1%.

None of these suggestions are ‘pie in the sky’. They are based on what worked so well in the past. We are more than happy to discuss the finer details of all these recommendations if required.

We are – of course – well aware that a shift to LVT will have to be a gradual process, carefully managed in administrative and political terms. A robust system of valuations can be done quite easily; but there will have to be a deferment option for low-income pensioners; relieving measures for recent purchasers who find themselves in negative equity; protection for bank depositors; and equal and opposite reductions in other taxes so that most households realise that they are better off and their annual tax savings more than make up for a one-off fall in house prices.  These principles apply even if only our less radical suggestion of going back to the old ways is adopted.

 

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SA 75. A Note on Swedish Taxes, by Tony Vickers MScIS MRICS

Purpose.         This note was initially prepared for the UK Liberal Democrat Party’s  Tax Commission. The author had heard that Sweden incorporates an element of property taxation within its income tax system and also has a very modern, map-based property tax and local income tax (LIT). The Party currently favours LIT but also wishes to develop its longstanding policy of land value taxation (LVT) by modernising existing property taxes. The reason for studying Sweden is that both its Tax Board and Land Survey Department are internationally renowned for the efficiency and transparency with which their land information and property tax systems work together. This note is based on an earlier version specially prepared for the Tax Commission: a more technical and theoretical discussion of the subject can be found shortly at www.landvaluescape.org

Summary.      The Swedish tax system operates with a highly centralised administration. Direct taxation involves a single annual tax form each for individuals and companies but all taxes – including property taxes – can be paid off through earnings. Almost everyone pays local income tax (which averages 29%) whereas only people on above average earnings pay state income tax of around 20%. Continue reading

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SA 74. Homes Vic by Emily Sims

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Like most 30 somethings with a substantial HECS debt and an addiction to avocado on toast, I am an aspiring first home buyer. I’d love to buy the home I currently rent: a daggy 1960’s ‘six-pack’ flat on a main road in Footscray. It’s currently valued around $360,000. To put down a 20% deposit, I’d need to save $72K. A daunting figure for a single woman on a not-for-profit’s payroll.

Much less daunting is $18K. This is the 5% “genuine savings” I require to apply for the government’s shiny new shared equity scheme, HomesVic. HomesVic enables first home buyers to access 25% equity funding towards residential property. Government-backed shared equity schemes have existed in W.A and S.A for a number of years. The initial pilot will include 400 first home buyers, buying new or established homes in strategic locations specified by the government. Footscray is on the list.

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SA73 Public Revenue Without Taxation by Peter Bowman

Public Revenue Without Taxation.

Introduction

It is now widely recognised that the free market system provides a self-organising process that enables a more efficient allocation of a society’s resources than alternative arrangements based on the implementation of pre-conceived plans by central authorities. At the same time the market system offers much greater individual economic freedom and the opportunities for individuals to fulfil their potential in society.

In a free market, transactions are voluntary and are undertaken between a willing buyer and a willing seller. There are many independent buyers and sellers who can compete on quality of service and price. Prices are the outcome of the law of supply and demand, and the overall outcome under a prevailing set of conditions is a condition of stability and optimal allocation.

And yet, when it comes to the provision of public services, which in a modern economy can account for around half of the total economic activity, an entirely different mechanism is used which in many respects is the antithesis of the market system. Goods and services are often made freely available and corresponding costs are met mainly by taxation: “a compulsory contribution imposed by a public authority, irrespective of the amount of service rendered in return”.[1] For these services there is now no willing buyer or seller, no competition and no price mechanism. If one traces back the origins of these arrangements and, in particular the varied and complex methods of taxation employed to collect revenue required to pay for the services, it is found that they are rarely due to the application of sound economic principles and more often are the result of short term political expediency. Continue reading

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Short Sighted Benevolence

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Star, London 27th April 1917.

This cartoon appeared in the radical London evening newspaper, The Star, must be understood in its context.

At the time of the Great War, Britain was very far from self-sufficient in food production, and the then German submarine campaign, which had been stepped up in 1917, seriously threatened external supplies. It was very important to do everything possible to increase home food production. At that time (unlike today) the large majority of farmers were tenants, and many of them were quite poor. Agricultural labourers, who were employed by the farmers, were much more numerous than now, and most of them were even poorer. Until 1917, there was no control on rents which an agricultural landlord could exact from his tenants.

When this cartoon was drawn, Rowland Prothero was President of the Board of Agriculture in the Coalition government. Legislation was being passed which controlled agricultural prices and also – for the duration of the war – farm rents. The cartoon suggests that, in the long term, any benefit designed to help the farmer would accrue to the landlord.  Roy Douglas

 

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