Select Committee on Transport, Local Government and the Regions Memoranda


Memorandum by Land Value Taxation Campaign (TAB 20)

A.  REPLIES TO THE QUESTIONS

  Q1.  The role of tall buildings in achieving high densities in residential areas; the provision of offices for certain types of global companies; and as a means of enhancing the beauty of our cities;

  In general, the construction of tall buildings is uneconomic, since additional costs are incurred, for example, through the need for more sophisticated foundations, lifts, and design generally. There are also higher running costs, for example, the need to maintain lifts, higher costs for maintaining the external fabric of the building and additional costs of heating due to the greater exposure of external walls. Tall buildings would, in the normal way of things, only be constructed where land values were so high that these additional costs were justified. It is noteworthy that substantial extra subsidies were required to encourage local authorities to build high in the 1960s. In that the pattern of land development in Britain as a whole is distorted, with excessive pressure in London and the South East and lack of demand in much of the rest of the country, the commercial pressure for the erection of tall buildings is largely artificial and would not occur if the economy was better balanced over the country as a whole.

  Tall buildings are in general not necessary to achieve high densities in residential areas. Very high densities are possible even in two-storey developments; residential areas in the centre of Brighton, for example, consist of narrow fronted terrace houses constructed on plots of 65 square metres, ie 155 per hectare, and approximately 600 habitable rooms per hectare, in no more than two storeys plus basements. Even higher residential densities occur in the centres of cities such as Paris, in no more than four storeys plus basement and Mansard storeys.

  Global companies may wish to erect tall buildings for reasons of prestige; religious bodies have always done so! The domination of city skylines by prestige buildings puts across a certain message about the values of the community. The nature of that message is a matter for the community to decide.

  Whether tall buildings enhance the beauty of cities is not a matter the Campaign wishes to comment upon, considering it to be outside its self-imposed remit.

  Q2a.  Where tall buildings should be located:

  Tall residential, office and commercial buildings will inevitably be located where land values are highest; there would be no point in putting them anywhere else. They will also need to be placed where the transport infrastructure can provide the necessary access. Such infrastructure is both a response to pressures of location value and a cause of further rises as improved facilities attract people and businesses.

  Q2b.  What restrictions, if any, should be placed on the location of tall buildings, and how far they should be allowed to block existing views; and whether they should be clustered or dotted;

  The Campaign has no view on the visual effect of tall buildings. Tall buildings do, however, have a significant environmental impact, for example, through overlooking, the adverse effect on the microclimate due to wind funnelling, and the way in which such buildings generate pedestrian and vehicular traffic at ground level. This in turn has an effect on local land values. As a generalisation, tall buildings which are perceived as attractive by people on the whole, and by neighbouring businesses and residents in particular, will add to location values, whilst eyesores will have a negative impact.

  Q3.  Whether in the present movement to erect new tall buildings we are in danger of repeating the mistakes of the 1960s;

  Yes. The Campaign has no formal view but it is not difficult to argue that high density residential developments are only suitable for people who are aware of, and accept, the need to conduct themselves responsibly and with due consideration for others in close proximity. This will only happen if those people who live in such accommodation are there from choice and not because they have been allocated housing there. With regulations for new developments to include a proportion of "affordable housing" (ie allocated accommodation), there is a serious risk that disruptive people could be housed unsuitably, to the detriment of others in the neighbourhood.

  Q4.  Whether those making decisions are sufficiently accountable to the public;

  The Campaign is not in a position to comment upon this matter, except to note that all economic activity is ultimately reflected in land values, so that scrutiny of movements in those values is itself a means of gauging performance.

  Q5.  Whether the Government should have a more explicit policy on the subject.

  Yes. Where planning regulations permit higher densities of development, and there is a demand for that development to take place, then the land value released should automatically be collected for the community through a land value tax system and not, as at present, on an unsatisfactory hit-and-miss, one-shot basis, through section 106 agreements.

B.  FURTHER EXPLANATORY COMMENTS

1.  Aims of the Land value Taxation Campaign

  1.1  The Land Value Taxation 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 rental value of all land. This is referred to as land value taxation (LVT). The policy advocated by the Campaign would ultimately secure 100 per cent of the rental value of land18[19] for the Exchequer, but it is recognised that, as with any radical change in the tax system, a transition period would be desirable. The Campaign therefore accepts that the introduction of LVT would be phased in a series of deliberate steps.

  1.2  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 including devolved bodies in Scotland, Northern Ireland, Wales, London, and any future English regional assemblies, as well as existing local authorities.

2.  Summary

  2.1  LVT, provided that it was levied at a sufficiently high rate and accompanied by corresponding abatement of existing taxes, would promote rational decision making regarding the location and use of tall buildings, because the tax would greatly alleviate the problem of imbalance both between and within regions, by, in effect, creating tax havens where they were most needed. This would remove the artificial pressure for high density development in currrently favoured locations.

  2.2  By imposing a cost on land holding, LVT would encourage land owners to develop derelict inner-city areas themselves, or to pass them on to somebody else who would do so. If undeveloped or underdeveloped inner-city land were fully used, the pressures for constructing tall buildings would be greatly reduced.

  2.3  The current system of local government finance, based on the UBR and the Council Tax, penalises high quality development and rewards withholding and under-use. Land as such has no "carrying charge" and is the ideal subject for speculation, being non-reproducible, non-transportable and therefore "price inelastic". The present fiscal régime encourages mis-use of valuable land, making it artificially scarce and dear. This forces developers who decide to develop to seek to recoup their outlay on site acquisition by building upwards or, in the case of housing, cramming in as many dwellings as possible with tiny rooms in minuscule plots in order to maximise the amount of number of habitable rooms. The tendency today is thus, perversely, to have over-development side by side with underdevelopment. LVT, properly implemented, promotes rational development.

  2.4  LVT would provide an equitable means of paying for infrastructure since it would automatically capture external (ie non-farebox) benefits. Thus, infrastructure enhancements carried out in areas where there was a policy in favour of high buildings would lead to increases in the tax base.

  2.5  To promote rational decisions regarding the location and use of tall buildings, the Campaign therefore urges that all land in the United Kingdom should be valued frequently and accurately, in accordance with its optimum use within the current planning regulations, and made subject to an ad valorem land value tax, with existing taxes being phased out as quickly as practicable.

3.  The pattern of settlement within Britain as a whole

Regional Economic Imbalance and the Margin

  3.1  Land which has advantages over sites at the margin, commands Rent in proportion to its relative advantage vis-a"-vis all other land. Land Rent scoops this difference, leaving the returns to capital (considerations of time and risk apart) and to labour (experience and special skills apart) more or less the same everywhere within a nation or community. Because marginal land only just remunerates Labour and Capital, and leaves no surplus to go as Rent, attempts to levy conventional taxes at the margin have the effect of tipping economic activities at such locations into unprofitability. Potential wealth creation is stopped. At the economic margin, at the periphery, current taxes are destroying jobs. This is a principal reason why London and the South-East region act as a magnet for population and business, at the expense of the North, Scotland, Wales, the West and Northern Ireland.

  3.2  This is not just a matter affecting the edge of the wilderness, however. In practice, each occupation has its own effective margin; the point on the way out of town where shops give way to houses is one such margin. Marginal activities, in town as in the country, can be put out of business by taxation just as easily as those struggling at the literal margin of production. Thus, the more distant the activity is from the market, the greater is the impact of, for example, the motor vehicle fuel tax.

  3.3  Thus, an important reason why regional development policies have become necessary is to counteract the effects of taxes at the margin and make wealth creation possible. A complex system of grants and subsidies has spawned, directing taxpayers' money into selected projects and areas. This is hit-and-miss, open to abuse, and expensive to administer. It creates a regional "dependency culture".

  3.4  To recapitulate: conventional taxes cripple. At the true economic margin, where no Rent of Land is paid, the price at which goods are sold goes to reward only labour and capital. Where land has no economic value, any tax assessment based on land value must be nil, and hence no land value tax is payable. The margin thus becomes a tax haven and in the absence of any other taxes, production immediately becomes viable. This can, however, happen only if government is funded solely by collection of the Rental Value of Land. We accept that such a change cannot be made overnight, but a progressive switch from conventional taxation is a pre-requisite if the present "north-south" imbalance is to be redressed. Given a switch from conventional taxes to land value taxation, producers at the periphery can turn the tables on those at the centre, whether the centre is on the mainland of Great Britain or in Europe, for example, somewhere in the Ruhr. Similar advantages would accrue in pockets of depression in the prosperous South-East region—for example, South-East London and the Thanet area of Kent.

  3.5  Thus, a change from existing taxes to LVT would lessen the present geographical divide by reducing the overall burden of tax on people who are at present penalised by their location. In effect, LVT creates tax havens exactly where they are most needed. Sites at present sub-marginal would be brought into economic use, and this would enormously reduce the demand for land for all purposes—commerce, industry, housing, roads, etc—in the most congested parts of the country. This would reduce the artificial pressure for constructing tall buildings due to high land prices in certain places.

4.  Capture of Development Value

  4.1  Under a system of LVT, the valuation would be based on the full rental value of the site, at its optimum permitted use. Thus, increases in land value (betterment) arising from planning decisions would automatically be collected as a revenue stream, along with existing land values and betterment arising from all the other causes which influence land values.

  4.2  Furthermore, the system would contain a built-in compensation mechanism. Where the value of land was depressed by—for instance—planning blight, traffic noise, or the presence of listed buildings or other restrictions on its use, this would naturally be reflected in the valuation, and the landowner would be relieved accordingly.

  4.3  Thus, LVT is a payment for benefits actually received, and falls only upon values which can be enjoyed or realised. If planning restrictions prevented more intensive or rent-enhancing use, eg, requiring preservation of a garden, or limiting a piece of land to use as a golf course, or for agricultural purposes, the land value would be assessed accordingly. The introduction of LVT would not conflict with the existing system of planning controls; on the contrary, it would greatly reinforce the planning process by removing, or at least reducing, the financial incentive for overturning restrictions on development contained in existing statutory plans.

5.  For further information

  5.1  The London Rating (Site Values) Bill of 1938-1939 is an example of model LVT legislation. This would obviously have to be updated and adapted to suit present circumstances and to conform to the law in Scotland and Northern Ireland. Copies are available or may be downloaded.

  5.2  The URL is http://www.landvaluetax.org.uk/1939bill.htm

  5.3  Proposals for a transition from existing local taxes to a land-value based system are set out in the Campaign's publication "Options for Property Tax Reform. Copies are available or may be downloaded.

  5.4  The URL is http://www.landvaluetax.org.uk/lvtprpsl.htm

  5.5  Following a comprehensive study of local taxation, commissioned in 1986 by Brisbane City Council and chaired by Sir Gordon Chalk, KBE, LlD, formerly deputy premier of Queensland, a report was published in 1989 in which the committee strongly recommended that the city keep its existing system, based on site values. This is essentially the stance advocated by the Land Value Taxation Campaign. A copy of the summary of the Chalk Committee's two-volume report is available on request or may also be downloaded.

  The URL is http://www.landvaluetax.org.uk/brisbane.htm

  5.6  The interrelationship between land value taxation and planning was discussed in a submission to the Royal Town Planning Institute. The document may be downloaded; the URL is http://www.landvaluetax.org.uk/planning.htm


19   The term land is used here not in its legal sense but is given its meaning as defined in political economy, ie "that part of the material world other than human beings and the products of their labour". Back


 
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