particular council tax, business rates and stamp duty land tax, which yield a total of
£60 billion per annum.
Council tax is the most regressive tax we have, where a single resident of a £10
million apartment in London pays barely more than an average family in Liverpool.
Stamp duty land tax, as well as being a heavy burden on home-buyers, creates an
unnecessary brake on useful transactions.
Business rates are based on buildings plus site value, so they are partly a tax on
working capital, which discourages investment. Business rates collect £30 billion per
annum and the total LVT bill would not be much different. However, since most
businesses rent their premises, there would be a significant transfer of liability for the
tax. This would, of course, be very unpopular with the owners used to receiving a
steady income from just owning an asset - that is literal rent-seeking.
It would be possible to raise the threshold on paying income tax significantly. This
could be seen as a relief to those paying a higher LVT bill than council tax, or else a
boost to consumer spending. The VAT rate could be reduced which would increase
consumer spending. There is a good case for using part of the LVT revenue for
expenditure on infrastructure. All useful public goods and services in fact increase
land values. One could then perceive a virtuous circle of increased public investment
leading to increased land values, producing increased revenue.
The barrier to introducing LVT is political fear, mainly of falling house prices and
unaffordable LVT bills. It cannot be denied that some living in high value areas with
small incomes or crippling mortgages could be badly affected. For these reasons it
may be necessary to reserve a portion of the revenue to provide transitional relief to
these owners, and perhaps to banks facing the shrinking value of their collateral.
“The barrier to introducing LVT is political fear, mainly of falling
house prices and unaffordable LVT bills”
The selling price of land will undoubtedly tend to reduce if LVT is introduced at a rate
high enough to have the necessary beneficial effects. This is partly because the price
will be discounted by the annual tax. At the same time more land and buildings will
come on to the market because it does not make commercial sense to pay LVT on
something for which there is no income stream – thus increasing supply. Developers,
in particular, will not be inclined to sit on their land banks.
But the benefits of lower land prices for the post baby boomer generation should not
be overlooked: affordable homes, farms and business premises and less debt. Banks
might also start to perform the useful function of lending for investment rather than
blowing bubbles.
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