Select Committee on Transport, Local Government and the Regions Appendices to the Minutes of Evidence

Memorandum by the Land Value Taxation Campaign (PRF 03)



About the Land Value Taxation Campaign

  The Land Value Taxation Campaign ("the Campaign") is a non-party organisation which was established with the aim of securing legislation which would fundamentally change the basis of public revenue in the United Kingdom. It proposes that existing taxes on wages, goods and services should be progressively replaced with a property tax on the annual rental value of all land. This is referred to as Land Value Taxation (LVT) and is defined and explained in the attached appendices 1 and 2. The Campaign would wish to see 100 per cent of the land value collected in this way.


General Background Considerations

  1.  The Land Value Taxation Campaign believes that confusions arise through imprecise definitions of "land", or rather, through indiscriminate use of otherwise precise definitions. Whereas at law, "land" means immovable property ("real property"), the Campaign uses the word in its meaning in political economy (the whole of the material universe outside of man and his products). A landowner in economics is not necessarily the freeholder. Anyone with a beneficial interest in land (a holding which could be let or sold at profit) is to that extent a landowner. Popular usage more nearly corresponds to the Campaign's: people do not normally think of houses, factories and farm buildings as "land". To add to the potential for confusion, book keepers drawing up balance sheets regard land as capital, which in political economy it definitely is not.

  2.  The Land Value Taxation Campaign considers that this confusion has implications for a wide range of policy issues, including transport, and is one of the reasons why they are apparently intractable.

  3.  Although the Campaign was established to promote the case for a national land-value tax, we would point out that, as is the case with all forms of property tax, LVT is suitable for all tiers of government and could be readily adapted to any multi-tiered structure, for example that resulting from Scottish devolution or the Greater London Authority; thus local expenditure on transport infrastructure would give rise to an increase in both the national and local tax bases.

  4.  We point out en passant that Land Value Tax is morally justified, being in accordance with the "benefit principle"; land values are created and sustained by the presence and activities of the community today—any arrangement made in previous centuries is of little relevance since land value rests on the assumption that public services and a state of civil order will be maintained today and for the foreseeable future. Railways provide a good example of the operation of this principle.


LVT—Relation to Transport

  1.  Land Value Tax at a substantial proportion of the annual rental value would, amongst other things, collect much of that element of land value which is attributable to transport infrastructure and operations. This constitutes the "external" (non-farebox) benefit due to, for example, the construction and operation of railways. Were this value to be collected as public revenue, not only would railway investment be put on a sounder footing than at present; there would also be a yardstick for prioritising the economic benefits of projects and setting appropriate ceilings on expenditure.

  2.  It has become apparent that the private sector is not able to fund all the investment in railway infrastructure to satisfy public aspirations. It is also evident that the Treasury is reluctant to invest in railways, a situation which would change if the investment gave rise to a direct increase in the tax base, as would be the case if a national system of Land Vale Taxation was in place.

  3.  When a railway is constructed or upgraded, the users pay for the service they receive through fares and freight charges. But there are other beneficiaries—the owners of land served by the route, who also gain, as is well attested by property owners; a spectacular recent example is the Jubilee Line Extension, which has boosted property values across a swathe of the capital.

  4.  Infrastructure improvements sometimes have an adverse effect on land values; this would be reflected in the LVT assessments and thereby provide a compensatory mechanism in such circumstances. This should help to reduce objections to new proposals.


Answers to the Questions

1.   Will this new approach, which includes placing the emphasis on the negotiation of changes and short extensions to existing franchises, rather than on the awarding of new long-term contracts ensure that rapid improvements in the safety, punctuality, reliability, comfort and frequency of services are achieved?

  1.  Given that a substantial proportion of the investment results in off-system (non-farebox) benefits, when such investment no more than the farebox gains to the investor, the incentive to invest is to that extent diminished.

  2.  Such an approach will encourage "make-do-and-mend" rather than substantial investment. This is not necessarily a bad thing. Older equipment is proven and its performance tends to be reliable. Refurbishment of rolling stock can produce improvements quickly, provided that longer-term uncertainties and other requirements do not create blight; the "deadline" for mark 1 rolling stock, for instance, has discouraged investment and major maintenance, with the result that passengers have had to travel in vehicles which have deteriorated to the point of dilapidation.

2.   Will this new approach secure investment in additional network capacity and other improvements to meet both the long and short-term needs of the railways and whether the sums allocated to rail investment remain adequate in the light of events since the publication of the Government's ten-year plan for transport?

  1.  We would suggest not, again because a substantial proportion of the investment results in off-system (non-farebox) benefits. A good example of this is improvements in infrastructure and train services on the Chiltern Line, which have significantly boosted property values in the areas served.

  2.  We have severe reservations about the methods used to establish which projects should be included in the programme. Ultimately, the economic benefits of such projects turn up as land value enhancements, and these constitute the most reliable measure of the economic benefit and justification for infrastructure enhancements and developments. In that this methodology has not been used to prioritise schemes, we are not satisfied that the plan has been optimised. Thus, for example, there is no real way of deciding whether a particular sum of taxpayers' money would be better spent on a single, high-speed rail link or invested instead in a number of urban light or heavy rail schemes.

3.   Will this new approach provide the framework for major infrastructure enhancement projects to be taken forward now that Railtrack is to focus on the maintenance and renewal of the existing network?

  In view of the above, we believe not.

4.   Will this new approach transform the SRA's leadership of the industry, its day-to-day management of franchises and the way in which it assesses and awards new and extended contracts for passenger services?

  Again in view of the above, we believe not. If the present train operator franchise system is retained, we believe that the SRA will be unable to adopt an effective leadership role for the industry until it is in a position to go out with "shopping lists" which expressly set out what is required of franchisees. In order to do this, the SRA needs to be in a position to know what kind of service improvements represent value for money and what do not. This requires the SRA to adopt a model in which the rail service component of land values is assessed and acknowledged as the measure of the public value of railways. Having established this, it becomes possible to determine what services are required and to put a sensible ceiling on the size of the exchequer contribution, bearing in mind that LVT will, amongst other things, capture for public revenue the external benefits brought about by new and improved train services.

5. Will this new approach improve the poor state of industrial relations in the railways?

  The Land Value Taxation Campaign has no formal view on this issue. However, in that LVT would put the railways on a much sounder financial footing, we would expect conditions of employment and morale to improve at least commensurately.


Further Comments

  1.  The Campaign would not claim that it is possible to determine a high degree of accuracy that component of land value which can be attributable solely to railway operations. In the most densely populated areas of the country, we would suggest that it is a considerable proportion of total land value, since the prosperity of cities such as London and Brighton is almost entirely dependent on the existence of railway services. Statistical techniques are available which enable the effect of specific factors such as railway operations to be extended from total land value, to an accuracy better than an order of magnitude; hence it is also possible to forecast, in broad terms, the effects of particular projects.

  2.  If a system of land value taxation was in place, this would provide a clawback mechanism whereby increases in land value due to infrastructure improvements, subsidy, etc, would be returned to the Exchequer. Not only would this provide the Treasury with the incentive, at present lacking, to invest in rail projects; it would also provide a rolling fund for further improvements if desired.



Appendix 1—Definition of Land Value Taxation

  A1.1  LVT is a tax on the annual rental value of land. The valuation is the current annual market rental value of the land alone, disregarding buildings and other improvements.

  A1.2  Each unit of land is assessed at its unimproved site value, with all surrounding land taken as being in its existing condition.

  A1.3  All land, including vacant and agricultural land is subject to the tax, and the valuation is on the basis of optimum use within whatever permissions and constraints apply.

  A1.4  In practice, LVT would operate in much the same way as the present national non-domestic rate, with the difference that no land would be exempt and buildings and other improvements would in effect be de-rated.

Appendix 2—Definition of Land Value


  The following definition of land value is that given in Section 3 of London Rating (Site Values) Bill, 1939. [1]

  The annual site value of a land unit shall be the annual rent which the land comprising the land unit might be expected to realise if demised with vacant possession at the valuation date in the open market by a willing lessor upon a perpetually renewable tenure upon the assumptions that at that date—

    (a)  there were not upon or in that land unit:

      (i)  any buildings, erections or works except roads; and

      (ii)  anything growing except grass heather gorse sedge or other natural growth;

    (b)  the annual rent had been computed without taking into account the value of any tillages or manures or any improvements for which any sum would by law or custom be payable to an outgoing tenant of a holding;

    (c)  the land unit were free from any incumbrances except such of the following incumbrances as would be binding upon a purchaser—

      easements; rights of common; customary rights; public rights; liability to repair highways by reason of tenure; liability to repair the chancel of any church; liability in respect of the repair or maintenance of embankments or sea or river walls; liability to pay any drainage rate under any statute; restrictions upon user which have become operative imposed by or in pursuance of any Act or by any agreement not being a lease.

    "works" does not include any works of excavation or filling done for the purpose of bringing the configuration of the soil to its actual configuration;

    "road" does not include any road which the occupier alone of the land concerned is entitled to use.

Henry Law Esq

Hon Secretary

September 2001

1   Copies of the full text of the Bill are available on request from the Campaign, which distributes it following consultation with Messrs. Dyson, Bell & Co., and the Clerk of the Journals, House of Commons, confirming that there was no objection to distribution. Back

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