Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by the Henry George Foundation (EMP 27)



  Empty homes represent wasted land, buildings and lives. They are a symptom of market failure and of an economic system skewed geographically and in favour of those who control natural resources (such as land) at the expense of those who create wealth through application of labour and capital to land. Most existing policy measures are expensive and somewhat futile palliatives.

  Recent reports commissioned by Government and others have recognised that a necessary (if not sufficient) area of policy that addresses problems of urban renewal, economic justice and sustainability is tax reform. However the New Labour Government has so far chosen to ignore recommendations in this area which would greatly help in the field of housing.

  This paper recommends specific short-term measures that Government could take without delay, which would start a process of far-reaching reforms leading to better housing, quality of urban environment and economic justice. In this the Henry George Foundation is supported by Friends of the Earth, the Town & Country Planning Association, the Fabian Society, the Green Party and the Liberal Democrats.


  Unlike buildings, which consist of man-made materials that need maintenance, lose value over time but can be replaced, land is finite in quantity, unique in location and cannot be made or replaced. A specific site acquires value not through what its owner does, but through a combination of its natural fertility, its location relative to economically significant features (stations, schools) and the actions of other site owners. Our system of land tenure, by treating ownership of land in the same way as ownership of buildings, inequitably grants home owners/occupiers (and all land owners) unearned financial rewards as well as proper rights of possession: "quiet enjoyment" of home life and opportunities for wealth creation and self-improvement (including improvement to the fabric of their homes).

  Currently the increase in house prices (ie land value) in the south east adds to the wealth of the home owner more in one day than an average worker could concurrently earn, pre-tax. Yet the general quality of housing stock continues to deteriorate, while there are huge shortages of housing in parts of the country. In other parts, loss of employment has led to migration and high levels of vacancy. House prices in some areas barely reflect the cost of buildings, ie there is negligible land value. Unaffordable homes in the south exist a few hours' drive from unsaleable houses in the north.

  We believe that the existing tax system, by failing (on the whole) to distinguish between wealth earned and wealth acquired unearned, helps create many urban problems: unemployment; dereliction; destruction of communities; and unfair advantages gained by homeowners in areas of high employment, at the expense of first-time buyers and those moving from economically depressed areas. Those who improve their properties can be taxed more highly upon revaluation for rates or upon sale. Those who neglect their properties gain from tax exemptions. The whole country suffers.

  This is not just a housing problem but we believe that focusing on empty homes will give the quickest results across a wide geographic and policy area range. It is self-evident that both aspects of the housing crisis described above link to urban degeneration, social and racial tension and many other problems of urban life, such as lack of funds for transport investment (since the money is locked up in land values and exploited by "free riders" using it as collateral elsewhere). The Urban Task Force (UTF) expressed the issues—and the link to land values—as eloquently as any recent study.

  Our solution is, in the longer term, an annual tax on the "unimproved" value of land sites. This land value taxation (LVT) is used by many countries, such as Denmark, Australia, South Africa, Hong Kong and some cities in the USA. It has many forms. Most importantly, we see LVT not as an additional tax but as a replacement to other taxes that hit "goods" like wealth creation and urban regeneration. Waste, on the other hand, is "bad": empty homes and idle land are an affront to society at large.


  The Henry George Foundation (HGF) commented (Vickers, 1999) at the time on aspects of the UTF report Towards an Urban Renaissance, (Rogers, 1999) in particular on the annex Fiscal incentives for urban housing: exploring the options (KPMG, 1999) commissioned by the UTF and published separately.

  The UTF considered and rejected both a greenfield tax and other forms of one-off levies on owners and developers whose land gains in value as a result of planning decisions. We endorse their view, in the light of the three failed attempts by previous Labour Governments to introduce such economic instruments. These are "land taxes" but not land value taxation (LVT). (Blundell, 1994). Much ill-informed criticism of LVT confuses it with these failed policies, which have completely different economic effects. Instead of taxing development (which, on the whole, we want) we should tax the failure of owners to develop or occupy land in accordance with democratically expressed Local Plans and public policy objectives.

  In a section on Land Assembly the UTF concluded (p 225) that "a scheme for taxing vacant land" should be prepared, noting that such a Vacant Land Tax (VLT) works well in Japan and elsewhere. They also noted that LVT has the same effect in other countries, which most commonly use it as a "split rating package", with a tax on land values at a higher rate than that on the rental value of the building premises. They recommended that VLT, like LVT, would only work if the value were based on "optimum use" within a particular locality. This would make the tax in, say, Chelsea or Surrey much higher than the tax on the same size of urban site in areas with low land value.

  The UTF did not say whether the VLT/LVT would be a local or national tax. However they implied that it would be a source of local government finance:

    "Thinking about the longer term, and in view of the growing requirement and expectation to recognise the value of land as a finite resource, there is the more fundamental issue of whether our current system of commercial property taxation—the Uniform Business Rate—is the best system to help us manage our scarce land and buildings resources over the first half of the next century. We are not the first to consider this question. The Layfield Committee Report on Local Government Finance considered the merits of site value rating back in 1976 and concluded that "the practical difficulties would be formidable". Nevertheless, experience overseas suggests that it may be time for a re-consideration. A mixed rating model could provide us with an alternative way forward. This is, however, a question for others to consider in more detail."

  In the KPMG annex, it was stated of LVT/VLT that it was "potentially very powerful", "easy to understand", and "flexible". It was graded as the most effective fiscal option at Government's disposal, in terms of the disincentive it would give to continued holding of vacant land (and, by implication, buildings).

  However on the down side KPMG suggested that "there may be valuation issues which have to be addressed", that it was "not suitable for all parts of the country", that it "discriminates against areas where market is weak" and against "genuine need to mothball". These points can all be dealt with (Vickers, 2000).


  Immediately the UTF reported, the Town & Country Planning Association (TCPA) commissioned a series of expert workshops to discuss openly those fiscal measures which KPMG had looked at for the UTF under Treasury-in-confidence terms. HGF was involved in some of these. The result was a report A Taxing Question, one of whose authors was an adviser to the House of Commons Environment Committee (Evans & Bate, 2000). One of the five recommendations of this TCPA report was that Government should undertake research into LVT, which the authors saw as potentially the most effective policy to help achieve sustainable urban development.

  In December 2000, the Fabian Society's Commission on Taxation and Citizenship, under the chairmanship of Lord Plant, published its report Paying for Progress (Jacobs, 2000). This had a whole chapter on LVT, which it saw as a species of environmental taxation. Whilst reserving judgement on whether it should be introduced immediately, they endorsed LVT's advantages. They said that there should be a series of pilots of the kind of split-rate local property tax that has only spread to some twenty run-down cities in Pennsylvania since the Layfield Committee reported a quarter century ago. The Commission recommended these pilots should be local authorities with differing economic conditions.

  A month later, a report commissioned by the American Lincoln Institute of Land Policy published research by a British pair: planner Professor Nathaniel Lichfield and valuer Owen Connellan. Land Value Taxation for the Benefit of the Community: Proposals for Legislation and Practice contained practical ideas for implementing LVT as a local tax (Lichfield & Connellan, 2000). It is one of six reports commissioned by the Lincoln Institute since 1995, which are being combined into a book due out in early 2002.

  In its Budget Briefing to the Chancellor in March 2001, Friends of the Earth (FoE) also recommended LVT, calling for Government to invite bids from local authorities to pilot a split-rate property tax gradually replacing UBR. FoE sponsored a seminar at the Greater London Assembly in April on Sustainable Taxation. HGF commissioned a study of attitudes towards "The Green Tax Shift Imperative" following this seminar. The findings of this research will be published shortly, with the proceedings of the FoE seminar.

  The Institute of Revenues, Rating & Valuation (IRRV) sponsored three of its members' participation in a study tour of Pennsylvania's split-rate cities in March 2001, led by the Chief Executive of HGF. Study Tour members also included a town planner, land information specialist, valuation tribunal member, economist, and Labour and Liberal Democrat LVT Campaign members. The report of the Study Tour will be published before the end of the year.

  Liverpool City Council on 14 June 2000 became the first local authority for at least sixty years to ask for permission to pilot LVT in place of the Uniform Business Rate (UBR). Minister Beverley Hughes has expressed interest in the work that Lincoln Institute is funding and, at the launch of the Urban White Paper in London, did not rule out Government in due course picking up on the UTF recommendation of VLT. However the Department has continued to state that it does not believe VLT or LVT would work and simply repeats the arguments that the UTF used when calling for further studies.


  There is no doubt that LVT works elsewhere and surveys by HGF (Vickers 2000, de Wolf & Beardsley 2001) have showed that taxpayers in Britain think it should also work here. The most impressive and immediate effect—even before the tax is levied—would be a boost to construction within developed urban areas, mainly in housing.

  This is not just theory: a recent study showed that between 1975 and 1999 those cities in Pennsylvania (PA) that adopted split-rate LVT have experienced 16 per cent (on average and after discounting other factors) sustained higher level of construction activity for every 1 per cent that their tax on land values is higher than the tax on buildings (Tideman & Plassman, 2000). We know of no studies that indicate opposite effects and several that endorse this.

  For example Harrisburg, state capital of PA, was a "basket case" for empty homes, lost jobs and population and one of the ten most distressed cities in the US in 1980 when it opted for LVT. Yet on several occasions in the 1990s it was voted one of the most liveable cities in the US. The number of empty homes dropped from over 4,000 in 1978 to 450 in 1998.

  In Pittsburgh, where the tax on land was ratcheted up significantly between 1975 and 1990, by the latter date it was reported in the Washington Post that shelters for the homeless were being closed because "it was rare to see someone sleeping in the streets".

  Philadelphia, PA's largest city and the only one with a council having comparable powers to a British city, has the highest tax on wages in the US. Local income tax has seen a flight of jobs and people from the city to suburbs. About a quarter of the city's buildings and land are derelict or under-used. The City Controller, seeing the benefits that other PA cities have had from LVT, is publishing proposals this month for introduction of split-rate property tax as soon as a reassessment of property values is carried out. He intends to go beyond the split-rate and to use LVT to replace wages tax. His proposals are endorsed by the local Realtors (estate agents) Association because they are confident that the tax reform will lead to revival of construction and property sales (Rubin & Cooke).

  Ten other US states are at various stages of activating or introducing legislation on LVT. Sponsors of the legislation include the equivalents of our Chambers of Commerce, Federation of Builders, Local Government Association, Society of Local Authority Chief Executives, Mortgage Lenders and legislators of all parties. American experts in LVT have also regularly visited Russia and other former Soviet republics to help moves to introduce LVT there.


  Without question or hesitation, Government should end all tax exemptions that exist for owners of vacant property. Certain types of industrial premises, second and empty homes and commercial properties without occupiers at present benefit from total or partial Council Tax or business rate exemption. It should at least be in the power of local authorities to remove these exemptions, where there is a need for housing and empty buildings and derelict sites are a problem. Such a power need not prevent reforms of the planning system and/or strengthening of Compulsory Purchase Order powers: these are inadequate alternatives in the context of this Inquiry but have merits for other reasons.

  Government should also, within the next Parliamentary session:

    1.  Include provision for a new class of property tax payer, the "beneficial owner", in the forthcoming local government bill;

    2.  Instruct the Inland Revenue's Valuation Office Agency (VOA) to prepare plans for separate valuation of land and buildings for the next 2005 revaluation for business rates;

    3.  Sponsor research into better ways of using publicly funded and held geographic information (GI) to link planning, valuation and property tax systems and consider releasing VOA data, suitably anonymised to protect confidentiality, to the property market;

    4.  Invite councils to join Liverpool and propose plans to pilot LVT in various forms, perhaps initially on a very limited scale as part of Business Improvement Districts (BIDs).

  If BIDs seem unrelated to empty homes, the link is this: most of the perceived problems around LVT relate to property law, valuation and billing techniques and processes. A small number of time-limited trials by willing partnerships of local authorities and business groups would enable these problems to be ironed out and provide the evidence necessary for Government to decide whether to proceed nation-wide with a reform of property taxes generally.

  LVT does not have to be a substitute for only business rates. It could also replace the Council Tax or other national taxes. HGF believes that the best long term solution to the empty homes problem is the replacement or alleviation of other national taxes (income tax, corporation tax, even VAT to the extent the European Union allows) which hit less wealthy areas and sectors of the economy disproportionately. A national LVT would level the tax playing field and to a large extent obviate the need for use of central grants for equalising the revenue potential of regions, companies and individuals.

  We visualise a time when, to use a phrase of American Green campaigner Alanna Hartzok (speaking at a seminar at the GLA earlier this year—see below) all members of society "keep what they earn and pay for what they take". A huge proportion of national wealth is currently expended non-productively on benefits, subsidies, tax compliance (by government and taxpayers) and unsustainable development, largely as a result of disfunctional taxes. Property taxes cost twenty times less to collect than other taxes. LVT corrects market failure in land and housing, its benign effects would reach very widely into many other areas.


  HGF is an economic and social science research and educational charity, with links to over twenty similar foundations world-wide, some in countries that have LVT. It has published the international journal Land & Liberty for over a hundred years, chronicling world events linked to land and tax policy and economic justice. It is a member of the International Union for LVT and Free Trade, an NGO registered at the UN, whose office in London HGF shares.

  In April 2000, to help promote a wider debate and research about the use of "resource rents" for public revenue, HGF launched the Progressive Forum (PF). A year later it instituted corporate membership of PF: FoE, TCPA and Kingston University were the first to join. PF members benefit from access to all its publications, past and present. A Political Economy correspondence course, library index and selected journal articles are among the PF facilities on the Internet at We plan to launch our own "PFI" (Progressive Forum International) next April at the World Congress of Surveyors in Washington DC.

  HGF's Chief Executive, Tony Vickers, was last year invited to enrol as a postgraduate research fellow at Kingston University's School of Surveying. He has been a David C Lincoln Fellow in LVT at Lincoln Institute since 1999 and was a founder member of the Association for Geographic Information (AGI) in 1989. His 2000 book Questions around The Smart Tax, setting out how LVT might be introduced in Britain, is published electronically at He convenes a diverse group of academics, policy consultants and property professionals as PF's Advisory Committee. He is collaborating with Transport for London and the VOA in aspects of his research.

  HGF aims to provide the focus and forum for research in this area, in the UK and Europe. It is appointing a research co-ordinator in 2002 to help link work in London and Liverpool on the study of the land value phenomenon.

  PF undertakes research and outreach to professional and academic bodies and individuals who share an interest in its subject area, through conferences and seminars. HGF itself undertakes publishing and educational work, also engaging in the political process, such as this response to a Parliamentary Inquiry. In Scotland, we act through Land Reform Scotland, which we help to fund.


  Andelson, R V (ed 2000) Land Value Taxation Around the World, third edition, Blackwells, Oxford

  Beardsley, D & de Wolf, M (2001) LVT Survey (unpublished report for HGF)

  Blundell V H (1993) Essays in Land Economics London: Economic & Social Science Research Association

  Evans R & Bate R (2000) A Taxing Question London: TCPA

  Hartzok, A (1997) Pennsylvania's Success with Local Property Tax Reform: The Split Rate Tax American Journal of Economics & Sociology 56(2):207-214; New York: Robert Schalkenbach Foundation

  Jacobs, M (2000) Paying for Progress Report of the Commission on Taxation and Citizenship, London: Fabian Society

  KPMG (1999) Fiscal incentives for urban housing: exploring the options Report for the Urban Task Force, London: DETR

  Lichfield, N & Connellan, O (2000) Land Value Taxation in Britain for the benefit of the community: Proposals for legislation and practice Working Paper, Cambridge, MA USA: Lincoln Institute

  Plassmann, F & Tideman, N (1999) A Markov Chain Monte Carlo Analysis of the Effect of two-rate Property Taxes on Construction Journal of Urban Economics

  Rogers, R (1999) Towards an Urban Renaissance Report of the Urban Task Force, London: E&FN Spon

  Rubin, A M & Cooke, G (2001) unpublished letter to Jonathan Saidel, City Controller, Philadelphia from Greater Philadelphia Association of Realtors

  Vickers, A J M (1999) Paying for Urban Renewal (unpublished paper in response to Urban Task Force) London: Henry George Foundation

  Vickers, A J M (2000) Preparing for Land Value Taxation in Britain Working Paper, Cambridge MA USA: Lincoln Institute.

September 2001

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