|
Time to build on solid ground |
|
|
|
The fairest system for raising local government revenue lies under our feet.
Here Dave Wetzel, vice-chairman of Transport for London, argues why it is only right that the windfall gains of land development should be returned to the community.
TONY BLAIR'S government has had the political courage to create new forms of local administration in Scotland, Wales and London. What is needed now is for ministers to have the political courage to stand up to Whitehall orthodoxy and to give these bodies a new, radical and modern way to finance their activities.
Most taxes, like sales tax (Value Added Tax in the UK) and income tax, harm local economies. Sales tax pushes prices higher and even income tax induces workers (especially executives) to seek compensation through higher earnings. Taxes on buildings (business rates and Council Tax in the UK) deter the development of new and more modern structures, especially in areas crying out for regeneration. The UK system of levying half rates on empty commercial properties encourages people to use valuable sites inefficiently. Charging no rates at all on empty sites or buildings that can't be occupied is nothing less than criminal. It rewards owners for inactivity and even exhorts some to smash the roof of their building so it's impossible to use - an act that, in other circumstances, would lead offenders to prison!
Tax on investment income is passed directly onto borrowers, who have to pay higher interest rates on their borrowings like a mortgage or car loan. Unnecessarily high interest rates on business bank loans can be especially damaging for entrepreneurs, frustrating them from putting new ideas and business plans into practice. Of course, public services - nationally and locally - need to be paid for, but is there a way of raising revenue without damaging individuals and firms?
If we look at the effects of public services we find a clue to the solution. Don Riley, a property owner in South London has written a book examining the effect of the Jubilee Line extension on the capital's underground rail system. As well as opening up new opportunities for travel, according to Riley, this new line has also increased land values by £13 billion far in excess of the £3.5 billion it cost to build.
Other services also add to land values. Who wants to live or work in an area with no schools, health service, police, fire brigade, refuse collection, or street repairs? If the financing of local services was shifted onto land values not only would the economy benefit but also a new fairness would be introduced into national and local affairs. Land is a natural resource that existed before mankind walked the earth. Every person on the planet has a natural right to share in its wealth. It would mean that for the first time landowners would have an incentive to make better use of their sites encouraging local enterprise and trade.
Unlike most taxes, an annual charge on land rental values would be. Investment funds would be diverted into productive industry and commerce instead of sterile land speculation. The cost of homes and commercial premises would reduce, not only helping everyone to improve their position but also providing affordable housing for key workers. Increased trade and essential jobs would add to everyone's happiness and well-being. Land Value Taxation would provide a broader tax base for local government. It would cover empty properties and underused sites. Unlike Section 106 agreements, whereby developers give a one-off payment for a local facility at the time of receiving planning permission, LVT is totally transparent. A public register of land values - with no deals behind closed doors leading to accusations or suspicions of privileged treatment - would include all landowners who benefit financially from the planning gain.
Decisions by planning and transport authorities often lead to increased land values. It is only right that these windfall gains should be returned to serve the community. LVT is a sustainable tax it provides for public expenditure every year without damaging the lives of people. The cash economy that flourishes to avoid existing taxes would be eliminated at one stroke if site values were taxed. You can't hide land ownership. Placing a charge on land values would also enable the banks to lower interest rates as the supply of money for real investment increases, and the banking authorities would not be concerned by lower rates feeding into land/house-price inflation.
The British government auctioned exclusive use of the mobile airwaves, raising over £20 billion. It is an approach to natural resources we should all applaud and encourage the government to extend to other areas such as land values, and even landing slots at airports. If Gordon Brown, Britain's Chancellor, is really concerned about finding a solution to the problem of how to protect the economy from the current international crisis he might just realise the answer lies under his feet!
|
