OPEN LETTER TO THE CHANCELLOR OF THE EXCHEQUER
It has been said that a politician looks to the next General Election, while a statesman looks to the next generation. I am asking you to be a statesman: to set in motion a policy which tackles the cause of such matters as the widening gap between the richest and poorest in our society, the high unemployment and low wages in rundown areas of the country, the recurring cycles of boom and bust, and the misery of house repossession. Perhaps your first response will be that your urgent job is to get this country out of a terrible economic mess. I do not dissent from such a view; but the proposal I am making is wholly consistent with dealing with that problem – indeed, it will help to stop that problem recurring in the future.
Our present taxes have disastrous unintended consequences. They restrict economic activity by imposing what is, in effect, a fine on the production of desirable goods and the provision of needed services. They are particularly damaging to small new businesses struggling to establish themselves, and to regions of the country which are already damaged by their distance from markets and suppliers, by poor local infrastructure or by poor transport connections. The complexity of those taxes provides ample opportunity for legal tax avoidance and for illegal tax evasion. They prevent would-be entrepreneurs from setting up businesses in situations where they see that a small potential profit will be wiped out by the extra cost imposed by these current taxes. Thus do our present taxes limit production, reduce competition and increase the cost of goods for the consumer. They reduce jobs, diminish real wages and make us all poorer.
Such taxes are not only damaging to the economy. They are also unfair for several reasons. They are easy for the wealthy to avoid. Compliance costs associated with PAYE and National Insurance – a tax for practical purposes – consume a larger proportion of the time and money of small businesses than of large ones. Indirect taxes like VAT are particularly hard on those with least money to spend, including people living on State-provided welfare benefits.
The tax which I am asking you to introduce would not have any of these adverse effects. It is called Land Value Taxation, or LVT. It is a charge for the occupation of a plot of land, assessed on the value of the site alone, and not the buildings or other “improvements” which have been introduced on it by human activity, or the work and investments which people have applied to it.
The value of a plot of land is a measure of the competition to occupy it.The extent of that competition depends partly on the advantages given to the site by nature, and partly on the advantages given to it by the presence and work of the whole community over many generations. Natural qualities like fertility and the presence of mineral deposits, or a good view, raise the value of a site. So do factors like good transport facilities, the proximity of schools with a high standard of teaching, the presence of a skilled workforce, easy access to shops, theatres and open spaces. All of these qualities, natural and human, owe little or nothing to the activities or the presence of the individuals or corporation currently in occupation.
The application of Land Value Taxation would commence with a valuation of all privately-held land. That valuation would exclude any “improvements”, such as buildings or crops, which have been introduced by human effort. When the valuation is complete, a tax would be imposed, related to that valuation The valuation would be revised at intervals – perhaps annually – and the extent of that tax would gradually be increased. At the same time other taxes would be reduced. As with all taxes, no doubt there would be some “hard cases” which the legislature would seek to protect; but the presence of such “hard cases” should not deflect you from considering the general merit of the proposal.
LVT, which is essentially a land rent – a payment to the community for an unearned benefit given by nature or created by the community- will work in a completely different way from our current taxes. It cannot operate as they do – as a sort of fine, and therefore a deterrent, on useful activities like the production of goods, or useful investment, or the provision of services. Because LVT is based on the value of a piece of our planet which is visible to all, it cannot be evaded or avoided, and is therefore cheap both to assess and to collect. LVT would help to regenerate run-down areas of the country, places with low land values. People seeking to set up businesses there will pay a low rate of land value tax and at the same time benefit from the reduction and eventual elimination of other taxes that land value taxation will make possible. All this will lead to the production of cheaper goods for the consumer and more jobs and better remuneration for the producer. Longer term benefits will be less unemployment, more homes with affordable price tags, jobs locally and better transport.