Bob Kiley, former CIA officer, saviour of New York and Boston's subway system and now Commissioner of Transport for London, tells Land&Liberty why he supports a tax on land to fund public services.

Would you favour this if you had the power to do it? This touched on a weakness in the British system of municipal finance.

“I am believer in local government having a variety of tools in the toolbox. Not just one or two big ones, because then the tendency is to really overuse a useful tool. All things are subject to abuse, so if a mayor has many options and if he is transparent about what he is doing, then there ought to be a variety of ways in which to get it done.

“Land taxes are important because the value on which they're based historically has always been increasing. Arguably the entire community should be the beneficiary of part of the wealth that has been accumulated, because of that.

The philosophy and theory behind a land value tax is that it replaces other taxes. Could this act as the main tool in the tool box?

He agrees that it “might be, but that he isn't sure that he subscribes totally to the theory. He cautioned against overburdening the land value tax. The government would have to look at methods other than the present system for financing infrastructure, because a “massive investment is now required for the transport system.

Would you favour a “land levy on owners whose land values soar following investment in transport infrastructure, as documented in Taken for a Ride by Don Riley?

He says he does and that a land levy would be “an ideal way to go to fund Crossrail the London rail project now under consideration.

Would you consider this as a one-off payment to finance the scheme?

“I don't see how it can be a one-off. Let's take the Jubilee Line [extension] as an example, as we know what the values are. As Riley points out, if a small fraction of that increased value had been captured at the outset and securitised you could have built the entire Jubilee Line without central government assistance. You could have planned it and designed it in a far more rational way.

Backed by Ken Livingstone, Kiley has vigorously challenged the government's plan to use private enterprise in the running of London Underground.

This, he admits, when asked about his relationship with Gordon Brown, Chancellor of the Exchequer, has left him somewhat “out of favour.

There is a long history of land tax in the Labour Party, so might a land tax bridge the gap between Kiley and the Treasury?

“I would like to think so, yes. The reason why is that here you have a government that has chosen to say to the people at the last election: ’We are prepared to rise or fall on the basis of whether we can turn round this dreadful system of public service delivery in the UK. That's why we said we want to come to power, consolidated power, now we have committed ourselves to delivering it.'

“There is fundamentally a problem of economics at the heart of this. Can we afford any of this? If the answer is yes, then how are we are going to raise the capital?

“As long as the Treasury is in this mood of extreme frugality where nothing beyond 12 months seems to be fair game because of this concern about it going on the Public Sector Borrowing Requirement charts, then we're stuck in a cul-de-sac from which there is no real way out. The Treasury is obviously not beyond making major exceptions to its rules otherwise the Channel Tunnel would not have been built. This is another way in which they're using the value of that land as a kind of collateral for permitting the builders of this huge infrastructure project to go to the market place to raise capital through bonds. They recognise it, but they don't admit it, and therefore it's not really part of their policy toolkit.

So, do you have a meeting with the Treasury at some point?

“Crossrail will be a good excuse for having a meeting because there isn't anyone who has come up with a better idea for financing it than the use of land taxation.

Kiley has seen the land tax work and been a part of it, but he feels there is a problem in selling the idea to the public. The idea needs to be shaped “in a way that the ordinary person can feel more comfortable with it. That means bringing the argument down to earth a little bit and putting it in terms that people can relate to. I am a big believer in being able to show people what the benefit is and worry less about the mechanism and theory.

“Concentrate on the real problem, which is insufficient investment capital to serve real community needs and purposes. We have a classic dilemma on our hands in London, in that we have allowed our physical plant to deteriorate. We have been devouring our seed capital, the country has done well and is in relatively good shape. So if it's not too late, get access to the one tangible asset which undergirds all the other assets land. The community has a right to do it, almost an obligation to do it.

So how can the Henry George Foundation and friends help you win this argument for change?

“Well, I think by beating the drums, being noisy about it and having good links with those, like myself, who are unavoidably in the middle of this, so that some common cause can be developed. We don't necessarily even have to agree on every aspect of what it is we are talking about as long as the essential idea is one that we're comfortable cooperating with. This is a struggle about ideas, as well as how you squeeze value out of scarce space. We can't be so consumed in getting the idea perfect that we're never getting around to actually winning the political fight.

Kiley believes that funding public services needs to be tied into a new approach to local democracy.

During a Liberal Democrat fringe meeting recently he turned the cry of American independence “No taxation without representation on its head, saying London had “representation without taxation.

“There is a newly devolved government here and it really has almost no authority to raise revenue. There is the precept, there is the council tax and the mayor would ride on the back of the borough councils, so he really has no direct ability to raise revenue in a flexible way.

London, he points out, “is roughly the same size as New York. He adds: “The mayor there raises somewhere between $20 billion to $25 billion of tax revenue each year. Then he is still a bit of a mendicant monk in that he has to go all the way to federal government to get other resources. But the thrust of government is financed by local tax through a combination in New York City of the property tax, the city income tax and the state legislature grant on committed taxes. Here the mayor has no direct ability to do that he only controls the fares of the underground and buses.

Is this constraining your ability to act?

“Yes, I think it's circumscribing, constraining. One of the ideas behind strengthening local government is based on the premise that people who are elected to local government are more attuned to what voters want at a local level.

“Ken Livingstone is not necessarily attuned, by virtue of his office, to what British policy is in Iraq. By the same token the minister at a national level doesn't necessarily know what people in Wandsworth are thinking about. That's the whole idea, but if you are able to act on the basis of what your constituents would like you to do or not to do, you should have the ability to deliver the goods, which means you have got to be able to finance what people want, and that's missing.

The mayor favours congestion charges to alleviate the pressure on the roads in London; this would bring in income?

“Actually we don't have the congestion charge. There is a specific mandate, but that's what is crazy about this: central government said, yes you may charge, provided the revenue is used in a certain way. That just underscores the point. Why should it take a national statute to enable the mayor to do congestion charging?

With Gordon Brown inviting a debate on whether people are willing to pay higher taxes for improved services, the land tax option is a story that could run and run.