Dear Mr Darling,
No doubt you receive a great many letters from people who suggest ways in which taxation should be changed. Most of them, I should guess, are written by people who are advocating that they should pay less tax and (by implication, though this is seldom stated) that other people should pay more. This letter is not of that kind. It advocates a different kind of tax to replace a large part of existing taxation. Almost everybody in the country would benefit in one way or another.
I am sure that you will agree that there is a great deal wrong with our present taxation system. For one thing, the cost of running it is enormous, and so the amount of tax collected is a good deal greater than the amount which eventually finds its way into Government funds. Then, there are huge "compliance costs" which have to be paid by private businesses in administering taxation requirements, and this must make them less efficient and successful. Another defect of our taxation system, not wholly unrelated to this, is its immense complexity and the relative ease with which a lot of people can either escape paying tax which they are lawfully required to pay, or else find some legal dodge which nobody ever intended to apply in the way that it does. They discover that a few hours spent with a clever accountant are financially more rewarding than a much longer period of productive work. No doubt, if you could close all these loopholes, and receive all the tax money that people are expected to pay, you would be able to announce a lot of tax reductions which would please nearly everybody.
Another fault of our tax system, I am sure you will agree, is that taxes often produce side-effects which were never intended. This applies particularly to indirect taxes like VAT. No doubt it is intended that the tax should fall not on the vendor but on the consumer; yet in practice the cost runs right through the whole system. Sometimes the tax tips the balance between what the consumer is prepared to pay and what he can't afford, so he doesn't buy the goods at all. If the consumer does buy them, he demands more wages. The consumer's employer can only meet the wage demand by increasing the price of the goods he sells, which gives everybody who wants to buy those goods an incentive for more wage demands, and so on. Even indirect taxes like income tax produce unintended side effects of a similar kind, as a big gap develops between what the employer pays in wages and what the employee receives in take-home pay. Sometimes this means higher costs for the consumer, sometimes it means that the employer doesn't take on as many employees as he would wish, and there is unemployment. The taxpayer, or the National Insurance payer, is then required to produce money to keep people in enforced idleness.
All this, no doubt, you know and deplore. I suggest that there is a way round the problem. A tax can be introduced which is cheap to collect, impossible to evade or avoid, which doesn't generate unemployment and doesn't generate distortions of one kind or another throughout the economy.
The tax to which I am referring is called Land Value Taxation, or LVT, which is designed drastically to reduce the objectionable taxes, and in some cases probably to replace them altogether. To bring L VT into effect, it is first necessary to assess the "unimproved" value of every site of land, urban or rural, in the country. The assessment would discount the value of all the "improvements", such as buildings, machinery, fertilizer, crops, drainage and so on, which people have put on or into the land. Once the assessment is complete, a tax would be levied on the basis of that assessment. At first the percentage of the valuation taken in L VT would be small, but it would gradually be increased. At the same time it would be possible to reduce the other taxes. Valuers assure me that the valuation could be done quickly and cheaply, provided that they are not asked to provide a lot of extraneous and unnecessary information. Thus the great bulk of the tax collected would go to the Exchequer, and there would be hardly any leakage. Furthermore, there is no way of hiding land, and so it would be impossible to evade or avoid the tax.
More impressive still, LVT cannot produce adverse effects on the economy, essentially because it is impossible to pass it on. If two people are producing similar goods from site carrying different land values, there is no way in Which the producer on the more expensive land can put the burden of his L VT on the price of his goods. What determines their price is the effect of competition with other producers.
If you decide to promote L VT, no doubt you will need to discuss its likely effects with Ministerial colleagues. If they appreciate those effects, they should be willing to support it as well, for not only is L VT preferable to most other taxes as a means of raising revenue, but it would have an astonishing number of beneficial effects which other taxes do not have.
A vital function of L VT will be to bring idle, or semi-idle, land into use. I do not mean that land which is held out of use for planning or other environmental reasons would be forced into economic use. Green Belt land, SSSls, Conservation Areas, public parks and so on will remain undisturbed. When planners decide that a particular piece of land should only be used in some particular way, that will necessarily affect its value and therefore the L VT which can be charged.
But truly idle land will be brought into use. In most cities, for example, there are areas of urban decay which are a nuisance to others living or working nearby. Again, attention has been drawn quite recently to the practice of some supermarkets who acquire nearby land simply in order to exclude rivals who would compete for custom. Yet again, in much of the countryside there are developers' "land banks" where development is currently forbidden by planning rules, but which have been acquired in the hope that those rules will eventually change. In such cases, land is held out of use for essentially speculative reasons. With L VT, these areas would be. brought into the best permitted use, because their owners would not wish to hold on to taxed land from which they are deriving no benefit. When idle land is brought into use, that will create a demand for labour and capital. That will reduce unemployment and generally improve the economic and aesthetic value of the areas affected.
LVT will also benefit housing policy. Some of the idle brownfield land will be used for housing, without needing to encroach on Green Belt land .. As you know, land values are a major element in house prices, in some areas representing much more than half of the price. In parts of London, the cost of the land is three or four times the cost of building a house there. That makes it exceedingly difficult for many people, particularly young people, to buy their homes. If the land element in house prices were collected as a tax, house prices would drop dramatically and purchase would become much easier. Other taxes would, of course, be greatly reduced.
Another important result of L VT will be its effect on transport and communications. Better transport and communication facilities raise land values. The cost of new roads, or of better bus and train services, would be defrayed by the extra L VT collected. People who benefited would pay for the benefit received; anybody who lost would be compensated automatically by reduced LVT. Similar considerations apply to other changes in amenities - whether they are brought about by public authorities like schools or hospitals, or whether they are brought about by private enterprise, like a new supermarket which makes shopping easier. In such cases, too, people who benefit from the changes will pay through increased L VT, while those who lose will be compensated by reduced L VT.
I ask you to consider all this. LANDISFREE, the body on whose behalf I am writing to you, has brought out a considerable number of other Topic Papers which will explain the workings of particular aspects of L VT in more detail. We can also put you in touch with other organisations with similar ideas to ourselves, who can provide other kinds of literature, What is being advocated is not a new, untried, idea. It is already being applied, albeit only partially, in many parts of the world.
Yours sincerely,
A TAXPAYER
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