A new land tax is the only efficient and fair way to bring Britain’s finances back into lineby P L / March 23, 2010 / Leave a comment
The Duke of Buccleuch and Queensberry on his estate: 0.3 per cent of Britain’s population owns 69 per cent of its land
Consider these three facts. One: Britain is struggling to recover from a crisis caused in large part by a huge property bubble. Two: unemployment is painfully high. Three: the government has a huge gap in its finances. So, what would you raise taxes on?
Astonishingly, Labour is proposing to raise already high taxes on labour, through an increase in national insurance contributions. Finance fails, so workers pay—this is not only unfair, it will also damage future growth by making labour more expensive. Existing income tax and national insurance already increase labour costs by half, causing unemployment. Raising taxes on something the government wants to encourage—hard work—is perverse.
Another option is taxing harmful things, like carbon emissions. A charge of £30 a tonne could raise around £16bn and reduce emissions. Even better, if the tax per tonne rose as emissions fell, it would ensure a steady source of revenue. But still bigger gains could come from taxing an unproductive asset at the heart of our most recent bubble: land.
Britons have long seemed addicted to property speculation. Yet swapping more or less the same stock of houses with each other cannot logically create riches for society as a whole. Indeed, it has huge costs because it diverts funds from productive investment—while the resulting boom and bust can cause havoc. Taxing land could curb property bubbles, and encourage productive investment elsewhere.
It would work by valuing all land holdings every year (based on recent market transactions in the same area) and imposing a charge. If this was raised when land values were rising fastest, it would take the steam out of any bubbles without affecting the rest of the economy, as interest rates do. And whereas taxing income from work is wasteful—if less is produced, no tax is raised on the lost output—land supply is fixed. No matter how heavily you tax it, land cannot be spirited away to a tax haven.
Land already accounts for the bulk of property values, especially in expensive places like central London. But taxing its value, rather than property or any improvements to it, would not penalise people who do up their home. It would also encourage the development of vacant and derelict land. Unlike stamp duty, a…