Skip to main content

Land Value Tax in action

From the BBC:

Leader Sir Ed Davey put forward his “sovereign green wealth fund” proposal at his party’s spring conference. He said the government raised £9bn last month from auctions to build wind farms on the coasts of England and Wales.

The “sovereign green wealth fund” is an irrelvance here. What triggers a tax and what the government does with the proceeds are two entirely separate topics. If it’s a good idea to tax the extraction and use of fossil fuels [and it is], then it’s a good idea, however the proceeds are spent. If it’s worth spending money on improving the environment, then it’s worth spending, however the taxes are raised.

£9 billion is a lot of money but it’s just Land Value Tax. The operators subtract likely costs from likely income for the duration of the licence and pay most of the unearned surplus (the value of the location, which is really the value of the ‘free’ wind energy for which they pay a few pence per kWh, which is no different from paying for coal for an old-fashioned power station) in the auction.

And having committed themselves to paying £879 million a year for the next ten years (source: Blackpool Gazette), they have every incentive to go ahead with construction, so the tax encourages economic activity.

If only they applied the same logic to onshore wind farms, instead of subsidising them, which are ultimately subsidies to large landowners (so negative LVT).


That’s exactly the same as the £22.5 billion which Gordon Brown raised from the 3G auctions. Radio frequencies are ‘land’ in economic terms. Nobody created them and the government protects people’s right to use certain frequencies to the exclusion of others, the same as land would be worth nothing to you if you had no exclusive access. The users pay in accordingly.

From the previous link…

Sky’s Ian King says the infamous 3G auction of 2000 that raked in more than £20bn killed investment in our mobile infrastructure.

This is complete nonsense. The bidders might well have overbid (underestimated costs or overestimated income) but once paid, it’s a sunk cost and has no bearing on future investment.

Worst case, a bidder paid too much and goes bankrupt and the liquidator sells their 3G licence at a lower price to a competitor, who has then paid the ‘correct’ lower amount and is not deterred from making the necessary investment. The opposite is also true: if a lucky bidder underpaid, he can flip the licence to a competitor for the ‘correct’ higher amount, bank a windfall gain and the competitor makes the necessary investment. Mobile phone coverage in most parts of the UK is excellent and the consumer prices are very competitive IMHO, so clearly nothing bad happened. And the same applies to wind farms.