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The History and Principles of Land Value Tax

Presentation by Mark Wadsworth to UKIP Bromley Branch

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Premiership footballers’ pay

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Anderson/Ricardo’s Law of Rent

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Commercial rents

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House prices and rents vs. wages

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House prices vs. wages(2)

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Closeness to London

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Footballers – inelastic supply

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Footballers – increased demand

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Land – fixed supply

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Land – increased demand

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House prices, wages, rents

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House prices increase faster than wages

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House prices since 1953

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Land – reduced supply

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New housing since 1953

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Land use in the UK

• Farmland and grassland – 63%• Mountains, heaths and bogs – 16%• Woods and forests – 12%• Coastal and freshwater – 3%• (of which 13% is classed as green belt)• Urban - 6%

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Land – reduced interest rates

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Do rising house prices make us richer?

• The parents have made a £100,000 paper gain• The adult children are looking at an extra

£100,000 mortgage each!• The paper gain is no good to the parents – unless

they remortgage and run up further debts• The extra mortgage is a real cost to the adult

children – they’ll pay an extra £200,000 in mortgage repayments.

• Who benefits from all this? The banks!

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Do rising house prices make us richer?

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Do rising house prices make us richer?

• Rising prices are based on supply restrictions and a credit bubble

• Credit bubbles always burst in the end• That’s no good for the economy• Taxpayers and savers end up bailing out the

banks• We’ve been having these 18-year boom-bust

cycles since the early 19th century, possibly longer

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UK tax revenues (forecast 2011-12)

• Taxes on wages and profits - £419 billion• Taxes on land values and wealth - £73 billion• Fuel, alcohol and tobacco duty - £59 billion• Other receipts - £37 billion• Total revenues - £588• Total spending – £710 billion• Deficit spending - £122 billion

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Not at all taxes are created equal!

• Some are intended to discourage certain activities (smoking, drinking, gambling)

• Some are rationing measures (fuel duty)• Some are user-charges. Land Value Tax is a

kind of user-charge.• Some are jealousy surcharges• Most of them have huge dead weight costs

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Supply and demand in a free market

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Dead weight costs (1)

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Dead weight costs (2)

• Higher prices for consumers• Lower income for businesses• Less employment, more unemployment• Tax evasion – so honest people end up paying

even more• Off shoring, outsourcing• Deficit on balance of trade

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Dead weight costs (3)

• Worst is VAT (a tax on ‘value added’ or ‘gross profits’)

• Next worst is National Insurance (a super-tax on wages)

• A flat tax on all incomes would be preferable to these

• A flat tax on land values has no dead weight costs

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The Laffer Curve (1)

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The Laffer Curve (2)

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Dead weight costs (4)

• Nobody really knows what the dead weight costs of VAT, PAYE, income tax and corporation tax are

• At a minimum, they are about £200 billion• That’s over ten per cent of GDP!• This is on top of the dead weight costs of all

the rules and regulations (another ten per cent of GDP).

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Who said that Land Value Tax was the best kind of tax?

• Adam Smith• David Ricardo• Tom Paine• John Stuart Mill• Karl Marx• Henry George• David Lloyd George• Winston Churchill• Milton Friedman

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The Poor Law Act 1572

• Introduced a tax on land owners in each Parish, called the ‘Poor Rate’

• Agricultural Rates were scrapped in 1929• Domestic Rates was directly descended from

this, scrapped in 1990• They still have Domestic Rates in Northern

Ireland instead of Council Tax.• Business Rates are still going strong – the

closest thing we still have to Land Value Tax

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The People’s Budget 1909

• The ‘Terrible Twins’ David Lloyd George and Winston Churchill pressed hard for a Land Value Tax in the 1909 Budget

• The landed aristocracy in the House of Lords blocked this

• There were two General Elections in 1910• The Parliament Act 1911 prevented the House of

Lords from voting on taxation• Conveniently for the aristocracy, the 1914-18 war

intervened

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Land – without Land Value Tax

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Land – with Land Value Tax

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Land – with a subsidy

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Land – phasing out a subsidy

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Commercial land - Business Rates

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Commercial land – Land Value Tax

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Housing – Council Tax

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Housing – Land Value Tax

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Advantages of Land Value Tax

• Has no dead weight costs• Is easy and cheap to collect, easy to avoid and

impossible to evade• It encourages efficient use of land and buildings• Leads to low and stable house prices• Dampens credit bubbles and the boom-bust cycle• Discourages NIMBYism, makes being a landlord less

lucrative and so increases the number of owner-occupiers or home-owners

• Could replace most other taxes

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A modest proposal… (1)

• Council Tax - £26.1 billion• Council Tax Benefit - £(4.8) billion• Stamp Duty Land Tax - £5.8 billion• Stamp taxes on shares - £3.3 billion• Capital gains tax - £3.4 billion• Inheritance tax - £2.7 billion • Insurance premium tax - £2.9 billion• TV Licence fee - £3.1 billion• Total £42.5 billion

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A modest proposal… (2)

• The total value of UK housing is about £4,000 billion• Why not replace Council Tax, Inheritance Tax etc

with a Land Value Tax of about 1% on the value of all housing (at today’s prices)?

• There’d be no need for an extra ‘Mansion Tax’• According to Eric Pickles, it would only cost £5 per

home to do the valuations• This would be similar to Domestic Rates in Northern

Ireland (0.7% of 2005 values), where they also have a roll-up option for pensioners

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Who’s opposed to this? (1)

• Large landowners• Bankers• MPs with second and third homes• Politicians who know that rising house prices

creates an illusion of wealth and keeps them in government until the next bust

• Newspapers get a lot of advertising revenue from banks and estate agents

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Excuses they use...

• “What about a widowed pensioner with a small income, still living in the family home?”

• Winston Churchill had tired of hearing this one over a century ago

• Of course we will have exemptions or discounts or a deferment option for pensioners!

• Or even better, increase the state pension.