THE BLOG

Labour's Leadership Contenders Should Think About Taxing Land

08/07/2015 11:31 BST | Updated 07/07/2016 10:59 BST

Public demand for better services requires increased revenue, but international market competition for capital and labour drives down the ability of any one country to raise either corporate or personal income tax. For any aspiring Labour leader, the issue of UK tax rates has become a straight jacket. The obvious answer has to be to raise revenue some other way.

What is needed is a commodity that can't be concealed or moved offshore. If it could help establish a political narrative around fairness and equality, so much the better. So perhaps Labour's leadership contenders should think of taxing land; the possession of which is one of the defining indicators in our country of the divide between rich and poor, powerful and powerless.

Land is a very odd commodity. Take an unattractive piece of agricultural land worth about £5,000 an acre and give it planning permission. Suddenly you have an asset that is worth more than a hundred times that amount. An acre of development land can fetch between £500,000 and £1m. Of course we all know that land is scarce in this crowded little island of ours...Only we're wrong; and it isn't!

In fact, of the UK's 60 million acres, only about 4million are actually used to house our 61million strong population. True: about 15 million acres could not be used - not everybody wants to live on top of Cadair Idris - so you have to exclude the forests, lakes, rivers and mountains, but that still leaves a good 41million acres.

Most people are surprised to find out that the myth of the crowded little island is just that - a myth. But not as surprised as when they find out that the people who currently pay land tax - (some £35billion of council tax and stamp duty) -- are the 99.4% of us crowded onto the 4million acres and the 160,000 families who own the remaining 41million acres receive from the public purse a subsidy of about £3.5billion every year. That's about £83 an acre every year from us, their fellow citizens!

These fellow citizens are the ones who can't afford to buy a home of their own because land is released slowly and selectively onto the market to restrict supply and artificially inflate prices. So the land owner benefits twice over. The current system subsidises a tiny elite not to make their land available for housing, but to hold on to it and ramp up its price. Breaking this perverse cycle is a key way of resolving the problems of generation rent. But it is also a way of raising significant revenue.

A Land Valuation Tax is a levy on the value of the land unimproved by buildings or other enhancement. The method is already used by insurance companies each year when they calculate your home insurance premium - they separate the cost of a total rebuild of the property from the value of the land itself. The principle is a simple one. It says that because the value of the land has been created by its proximity to the infrastructure paid for by the community: the schools and hospitals, the roads and railway stations - then that value should be captured by the community to be reinvested in public good rather than appropriated for private profit. And if that sounds like a Labour policy then so much the better!

The amount of tax raised could be substantial. An annual tax of just £200 per acre could raise £9billion: more than by putting an extra penny on income tax. The unpopularity of raising corporate or personal income tax has been a straight jacket constraining Labour's thinking on how best to invest and grow the economy. If Land Tax truly provides a way of breaking free from that constraint, then perhaps any future leader would have to be mad to want to continue wearing the straight jacket.