Memorandum by the Land Value Taxation
Campaign (PRF 03)
PASSENGER RAIL FRANCHISING
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 todayany 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.
LVTRelation 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
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 beneficiariesthe 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
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
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
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.
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
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 1Definition 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 2Definition of Land Value
The following definition of land value is that
given in Section 3 of London Rating (Site Values) Bill, 1939.
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
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