- February 1, 2012
- Posted by: Mark Drakeford AM
- Category: News
Mark Drakeford: I am very grateful to those Members whose outstanding stamina means that they are still in the Chamber at this time on a Wednesday afternoon. Presenting a short debate is similar to the feeling of appearing on the set of The Mousetrap, where, every time you look up, one more member of the cast has departed. I am especially grateful to Mike Hedges for indicating that he would like a minute to contribute to the debate.
I hope to use the next 20 minutes or so for one of the purposes for which I think the short debate is most useful, namely to contribute to the gene pool of policy ideas that we have in circulation in Wales and to extend the level and range of debate that we have about some important matters. It is in that spirit that I bring forward the idea of a land value tax for Wales. The land value tax is a tax that would be levied on the annual rental value of specific pieces of land where the value is determined by different usages, for example, agricultural land or industrial land. It is, of course, an alternative to existing forms of taxation, not an addition to them. At its most radical, a land value tax would allow for the abolition of council tax, business rates and stamp duty land tax by introducing a levy on the annual rental value of every site in Wales, including all residential, commercial and farming land, as well as privately owned estates.
LTV would not just take the place of other taxes, it is different to—[Inaudible.] It is a progressive tax. Council tax, one of the main taxes that it would replace, is regressive, because it imposes a lower burden on the rich than on the poor, and imposes a lower burden on rich places than on poor places. LVT reverses that proposition.
The basis behind a land value tax is that the supply of land is fixed—as Mark Twain said, they are not making it anymore. As a result, it is inherently scarce. Its price value reflects three things: its scarcity value, the value of improvements made by the landowner and the value of improvements made by other people, particularly by people collectively through the public sector.
In modern conditions, those collective contributions almost entirely swamp the value of improvements made by the landowner. It is, therefore, right and fair that value created not by the landowner but mostly by national and local government should be taxed. To give a practical example, it has been calculated that the Jubilee line extension to Stratford in London has raised property values around the stations on that line by £10 billion. If only a small part of this windfall had been taxed, it would have easily paid for the extension.
At the same time, while those who benefit from that windfall increase in land values as a result of such development would pay more, those whose sites have suffered—there will be people whose land values have gone down as a result of housing being close to railway tracks, for example—would pay less. It is a form of automatic compensation without any complicated appeals system. In the same way, LVT would easily pay for many other much-needed infrastructure schemes.
What are the practical advantages of LVT? First and foremost, such a tax would be tricky even for the very rich to avoid. It is a hard task to hide land or to move it offshore to avoid being taxed, whereas incomes and other forms of wealth are only too easily disguised in that way. For economic institutions such as the Organisation for Economic Co-operation and Development, which is a strong advocate of an LVT, there are two other major advantages: land taxes increase long-term stability and growth by fostering more productive use of capital, and they stabilise Government finances by bringing in revenue efficiently and quickly.
So, a land value tax is cheap to collect and difficult to evade, it discourages speculative land holding, it encourages active use of land, it creates more job opportunities and it helps to create wealth. In Wales, technical advice note 6 supports one planet development—a policy approach that is sympathetic to land value principles.
Is it a practical proposition? We know that it is, because land value taxes are in operation across the globe. It is extensively used in Australia, Denmark and other parts of Europe. There are outstandingly successful examples in the United States of local authorities using a land value tax to regenerate run-down urban areas.
Whether it is a practical political possibility is a rather different question. I do not want to underestimate the problems of tackling taxation, especially in an economic downturn. The experience of a poll tax remains one that has scarred the collective memory of tax changes in the property field. Nevertheless, LVT has an impressive economic and social pedigree. Lib Dem supporters have included Vince Cable and Chris Huhne, and there is a lobby group within the Liberal Democrat party that has the promotion of LVT as its main policy aim. For Labour, Andy Burnham made it a centrepiece of his campaign for Labour’s leadership, describing it as being such an old Labour idea that it could be traced back to Thomas Paine. It is the official policy of the Green Party in Scotland, where research carried out late in 2010 suggested that a land value tax of 3.16p in the pound would generate enough cash to replace council tax and the uniform business rate, while leaving 75% of Scottish households better off in the process. We have heard from Simon Thomas that Plaid Cymru is also interested in LVT.
However, land value tax is not simply a policy of the radical left. Free market capitalists and mainstream economists such as Martin Wolf and Samuel Brittan have both argued the case in favour. On the right of the political spectrum, LVT has gained new traction in recent times in relation to problems in Greece. Put simply, it is quite difficult to move an Athens mansion, or a Belgravia mansion, offshore in order to avoid taxation. This may be a first, Dirprwy Lywydd, but I can report to you that, in the last half hour, through the wonder that is Twitter, I have received a message of encouragement from Nick Bourne, also saying that LVT is an idea worth putting into circulation in policy-making circles in Wales.
In Wales, LVT is an idea with a strong lineage. The idea was first seriously advanced inside the Labour Party by Keir Hardie in his 1906 manifesto to the people of Merthyr Tydfil and Aberdare. He said in that manifesto:
‘The slums remain, overcrowding continues whilst the land goes to waste. Shopkeepers and traders are overburdened with rates and taxation whilst the increasing land values that should relieve the ratepayer go to people who have not earned them.’
Three years later, a land value tax was intended to be the centrepiece of Lloyd George’s People’s Budget of 1909. However, it was defeated by vested interest in the House of Lords and property owners in the House of Commons. Now, in the era of devolution, there may be a chance for this uncompleted work to be brought to a conclusion in Wales. I do not want to anticipate what the Minister is about to say, but I would not be taken aback if she argued that the current settlement does not make it easy for such a reform to be introduced in the immediate future.
The whole issue of responsibility for taxation is very much a matter of current debate in Wales. I hope that, by raising the issue of a land value tax in the Chamber this afternoon, it can be brought to the attention of the Silk commission, so that it can consider if not land value tax itself, then at least the case for providing the National Assembly with powers to reform taxation in Wales in that way, should it choose to do so. Wales is the part of the United Kingdom with the longest tradition of radicalism; we have no difficulty in understanding the notion that land is common wealth, or a resource held in common. As a result of it being fixed and fundamental, it belongs to the people. Those who have the privilege of temporarily owning it, should pay something back for that privilege through a land value tax.
I hope that this afternoon’s debate will help just a little in getting that idea understood and debated, so that we can have some further serious investigation of how its practical implementation in Wales could begin.