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Land Tax Debate at East Midlands Conference

November 4, 2014 12:47 PM
By George Smid - Chair Corby
Originally published by East Midlands Liberal Democrats

On the 1st of November East Midland Regional Conference passed unanimously a motion for the next government to introduce Land Value Tax (see below).

George Smid with Vince Cable

George discusses Land Value Tax with Vince Cable MP

George Smid introduced the motion with a story:

A and B strike a bargain and each agree to put £500 per month into a kitty. At the end of the year both of them agree to buy a car. With a surprise A realises that not only the total value of the car is now allocated to B, but also whilst B can use the car free of charge A must pay additional money if he wants to use the car.

Such a bargain is not fair. But again and again a similar bargain is repeated over and over across the whole of the country: both A and B pay £500 tax, their taxes are used for building a bridge (say). B owns the flat which the bridge leads to and A is renting the flat. The flat, with a good connection over the river, increases in value, the increased value leads to a higher rent for A. A pays twice: taxes and increased rent. B benefits twice: by the increased value of his assets and by the increased income from his rent.

Land value tax eliminates such unfairness. The increased benefits of B are reflected in his increased contribution. The tax will be measured from the now increased value of the land upon which the flat is built. It is in the nature of property values that the differences in the value of the property is the difference in the value of the land. A comparable common brick cost you 50p wherever you are. But the price of a building plot certainly very much depends on where it is.

Now a real life an example.

Churchill (1909) described a real life example how 'a bridge was freed and toll removed': All those people who used the bridge were saved sixpence a week, but within a very short time rents on the south side of the river were found to have risen about sixpence a week, or the amount of the toll which had been remitted!

George then stressed that LVT therefore addresses half of the LibDem election motto: it creates fairer society. How will LVT address the other half - stronger economy?

There was a lot of newspaper coverage about UK GDP rising and UK economy pulling out of recession. Not so much coverage was spent on the fact that most of us (GDP per head) are poorer than in 2008. An economy which is growing in total but only a few people fully benefit whilst the rest are paying more is not a 'stronger economy'.

The story of A and B illustrated how the product of A & B's labour is captured by B only. If A and B were the whole economy, the result would not be a stronger economy. At best it would be the same strength (B richer by the same amount that A is poorer). To address the imbalance we need Land Value Tax as Adam Smith (1776) advocated over 200 years ago: "Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground."

To support LVT by historical evidence George took Hinckley as an example:

In 1086 Hinckley was considered a very large centre with 69 households comprising of 42 villagers, 16 smallholders, 8 slaves and 3 freeman - The taxable value was 14 geld units. Geld was a tax based on 'hide'. Hide was the size of the land, large enough to support a family - a perfect example of Land Value Tax in 1086! (See Doomsday Book)

Ancient Sumerians taxed land 5 thousand years BC! Interestingly with their canal irrigation network they taxed the land according to the value drawn from the infrastructure provided.

Historical experience supports LVT. Why do we then rely on income tax which can be cheated, transferred, dodged, deferred, and avoided? The truth is that income tax is an anomaly. An income tax was introduced in 1799 to pay for the Napoleonic wars. By contrast LVT is fair, tried and tested.

There are other advantages to LVT:

  • It can't be moved offshore,
  • It can't be hidden from the view,
  • It will be easy to collect.
  • It will lead to more efficient use of land, helping to deliver affordable houses, avoiding boom and bust of property fuelled cycles
  • It will lead to more effective use of capital and will redistribute the investment into infrastructure fairly.

George ventured the view that LVT is the only proposal on the table to start addressing UK National Debt: The total land value in the UK is £1,84 trillion total UK debt is £1,26 trillion - 1% LVT would pay it off in 68 years (not counting interest payments and other variables).

But most importantly - LVT gives Liberal Democrats a political advantage, it gives us narrative, it sets us apart from the other parties and it puts forward radical new proposals - we could be leading the debate to which some bright sparks from left and right are also coming to. By introducing LVT we will be able to replace council tax, business rates and stamp duty. We will create locally defined and locally collectable tax, empowering communities. More people will be taken out of taxable income altogether, income taxes for the rest will be reduced.

Millennia of land value tax, only 215 years of income tax, new economic arrangements, Liberals leading from the front.

George's rallying cry was: Conference - be bold, be radical, be revolutionary - support the trusted form of raising revenues, support LVT. The first step to make the society fairer and the economy stronger with opportunity for everyone

(Note: Only the story of A & B was actually presented during the conference for the lack of time. Summing up was carried by William Davison)

THE MOTION:

Land Tax Motion for East Midlands Regional Conference

This conference applauds the Liberal Democrats in government for implementing policies on fairer taxes including:

  1. Raising the threshold before people start paying tax to £10,500, saving over 1.7m East Midland taxpayers £800 per year, and taking a further 200,000 of them out of paying Income Tax altogether.

  2. Funding these changes by measures that ensure the wealthiest pay a fairer share, including a bank levy, a higher rate of capital gains tax, a General Anti-Abuse Rule and the closing of a number of tax loopholes that unfairly benefited only the very wealthiest in society.

However, more must be done in order to build the stronger economy and fairer society that the Liberal Democrats strive for, so call on the Liberal Democrats to use the next parliament to introduce a Land Tax that will:

  • Provide the government with revenue to further reduce taxes on the lower paid, potentially raising the Income Tax threshold to the living wage level of £15,000.
  • Discourage land banking and incentivise the use of existing brownfield sites, to ensure that derelict areas such as Leicester City's Frog Island, Duckworth Square and the Friar Gate Station site in Derby and Nottingham's River Island and Old Cattle Market areas are redeveloped and put to productive use.

  • Encourage businesses to develop and improve their properties rather than punish them with tax rises as the existing rates system does.

Land Value Tax levies tax on the location value of the land, not on buildings and other works. It puts a price on land hoarding but does not bear down on building renewals. We call for the Land Tax to be one of the main priorities in the 2015 manifesto.