Angus Brown, OULC member, makes the case for a Land Value Tax as an economically sensible and potentially transformative measure.
One of the most radical ideas of the nineteenth and twentieth centuries, that we should tax the value of land and reap the benefits of unearned wealth for all, has gained surprisingly little traction in Britain, even as its more radical cousins – a graduated income tax, taxes upon inheritance, and the welfare state – have become political articles of faith. So why has this concept, accepted by figures as far apart as Milton Friedman and John McDonnell, failed to be realised save for in a handful of countries? In part, it is a testament to the continuity of land’s pervasive power over our politics, and our economy; in Britain today 50% of all rural land is still owned by just 36,000 aristocrats, while our largest land owner is formally the head of state by virtue of her birth. Yet it is also part of the wider failing of a political class sceptical of taxing unearned wealth, but in favour of taxing the fruits of people’s labour. As I shall set out, this turn of affairs is not only inefficient and uneconomical, it is also atrociously unjust.
For a theory which may sound rather utopian, the concept of a Land Value Tax is remarkably economically sound. The Land Value Tax would entail an annual tax imposed on the value of a property, but crucially not the value of whatever sits on that land (though this may be reflected by the house price) as this can reasonably be construed as rightfully owned property. Though seeming like a bureaucratically complex nightmare, there are already two workable methods of taxing land at our disposal. The Valuation Office Agency already regularly practices land valuation, while alternatively some proponents of the policy suggest a “self-valuation” of land, in which people are incentivised not to undervalue their land as this would reduce its market price and, crucially, allow the state to purchase it under compulsory purchase laws for far less than its “true” value.
As well as clearly being workable, a tax on the value of land also has several evident economic benefits: it would incentivise its more efficient usage by forcing people to sell off unused land as unprofitable and would encourage its development to the point of maximum economic utility. It is also arguably a more progressive system of taxation than most, as those who own more land will undoubtedly pay more tax, whilst it allows every member of the community to reap the benefits of rising land prices (often caused by the construction of large centrally funded infrastructure projects) rather than the lucky landlord, which is not only fairer, but makes it a priority for everyone for land values to be high and for local communities, by extension, to prosper. As Winston Churchill put it in a famous speech from the earlier more radical phase of his career: “Roads are made… services are improved… water is brought from reservoirs… and all the while the landlord sits still… He renders no service to the community… he contributes nothing to the process from which his own enrichment is derived.” Under the present system, a landowner derives profit from the improvement of the community as their land increases in value (and thus the value of rents or profits which can be extracted from the sale of land increases), and yet they do not pay any tax on this profit, even though it is derived solely from an inequitable distribution of land ownership. It is clear, then, that a Land Value Tax is an economically sound policy with wide-ranging support from economists of otherwise wildly varied opinions, and one which produces fair and progressive outcomes.
In addition to this solid economic basis for such a tax, there is also a considerable moral and philosophical basis for it. Historically the campaign for a Land Value Tax has been influenced by Christian moral sentiments, arguing that as all humans are “stewards” of the land gifted to them by God, no one person has the right to derive profit from land which is divinely sanctioned to be held in common. While such a religious argument has undoubtedly lost potency in the modern world, the case for a Land Value Tax has not. First, one should consider the kind of levelling effect which it would have, taxing people on a more progressive basis, and ensuring that every member of society contributes to its improvement with landowners unable to profit from infrastructure and public works projects paid for by all without being taxed. Secondly, there is a wider moral point that land value, as a form of unearned wealth based not upon one’s labour or value to society but on having inherited or purchased a static plot of land should not be taxed less than wealth earned legitimately as the product of one’s labour. Indeed, whilst it is obvious that one is the owner of one’s home, business premises, or any improvements made to land and should thus be allowed to derive profits from it, no one has made the land itself, and the value derived from it should thus be used to contribute to the common good and not just to personal or familial wealth. As Paine put it, “Men did not make the earth”, so why is it fair that any one man or woman alone should profit from it?
Despite what some supporters, such as Milton Friedman, have suggested, on its own the land tax would be insufficient in funding the requirements of a modern state, so it must be accompanied with other forms of taxation. Given this is the case, what should the revenue a land tax would generate go towards? One might argue that it should merely go into the central pool of state resources, or follow the Labour Party’s suggestion that it could be used as a replacement for today’s highly regressive, council tax system. But why not be more radical? In “Agrarian Justice”, Paine argues that as no individual has a more legitimate claim on land than any other, therefore rendering it unjust for anyone to derive a profit from land, all landowners should pay a sum back to each member of the community as compensation for the land they occupy. To the modern ear, this proposal sounds remarkably like a “Citizens’ Dividend” or “Universal Basic Income” funded by a tax on the value of land. These are two economic ideas increasingly gaining traction in left-wing circles, which leads one to wonder whether a Land Value Tax might make their realisation more possible.
It would cost the government £359 billion each year to give every adult in the UK a monthly payment of £579 (the same amount as Finland’s celebrated implementation of the Universal Basic Income); according to the Office of National Statistics the total value of land in the UK is £1.842 trillion, meaning that one would only require a land value tax of 6.6% to cover such a cost. This is a steep rate for a tax which normally peaks at around 2.5% (at least in Estonia), but would allow for the provision of an annual income of £6,948 to every citizen, (over £3,000 more than the UK currently pays to all unmarried and unemployed persons over 25). This is all to say that a Land Value Tax in Britain would have the potential to fund a significant, beneficial, and radical new programme which redistributes unearned wealth for the common good. It would also allow us to cut the £2.2 billion we already spend on unemployment benefits, as well as potentially allowing us to cut spending on other forms of state welfare (which, according to the Office of National Statistics, cost the UK government some £264 billion in 2016), thereby reducing the amount of fairly earned income taken by the state, while increasing tax on unearned wealth. Of course, a Universal Basic Income is not the only way to spend the gains of a Land Value Tax, but this example shows how such a tax would be able to reshape society for the better, allowing for the implementation of more substantial and evenly distributed forms of state welfare.
Finally, what does the future hold for the Land Value Tax and how close are we to seeing its realisation? Rather fortunately, we are currently living in an excellent time for supporters of this tax; it was adopted as a proposal in Labour’s 2017 manifesto (albeit to replace Council Tax rather than for more radical proposals like those found in this article), in the Green Party manifesto, and has significant support within the Liberal Democrats. Meanwhile, the SNP is currently engaging in large-scale land reform in Scotland (whose distribution of land is even more concentrated than in England and Wales). Beyond these parliamentary means one can find significant support (rather unsurprisingly) from the Land Value Taxation Campaign, as well as the more left-wing Labour Land Campaign which seeks to influence Labour to adopt a land tax. It is notoriously futile to predict the political future, but the prospects for a Land Value Tax seem bright, and it is not implausible to speculate that one may be adopted in Britain in the near future.
To conclude, a tax on land is an economically sensible, widely supported, and morally justified system of taxation, and one with radical potential to reshape contemporary British society. It would be hyperbolic to suggest that this would resolve all of the inequalities that exist today, but it would be a definitive step towards a more progressive system of taxation and potentially, welfare provision. This goal appears closer than ever with major support from theorists and politicians across the political system. While land ownership in Britain is still dominated by the super-rich and the aristocracy, whose wealth was acquired through conquest and exploitation, it is clear that for all citizens to reap the rewards of the earth equally, we must implement measures to ensure their fair distribution.