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Another security breach

A document marked ‘Top Secret’ was found on a train yesterday. It appears to be the draft of a speech that is intended to be given by the next Chancellor. We publish it here so that the author can contact us and have it returned. It is encouraging to see that whoever wrote it clearly understands the problems facing the next Government. But is the solution tax or cuts?

There is no doubt in my mind that the only solution to the current financial crisis is tax reform. But where should any new tax be levied?

Crisis must be solved by tax, not cuts

How can we levy tax in a way that is fair to all – fair to the rich, fair to the poor, fair to the workers and fair to pensioners? After all, we have promised to provide sufficient revenue to maintain our front line services and support the recovery.

Tax is the challenge that awaits us as the incoming government. Tax is the reality that must be faced by the citizens of this country.

Let us start from a common platform.

All are agreed that what is urgently needed is jobs and work – the opportunity to earn a decent wage to support a family and keep a home. We want to decrease State dependency and increase self-dependence. So why do we make workers poorer by taxing their wages and spending.

All are agreed that unemployment, low wages poor housing require government support, but that the burden on the state is now so substantial that the drain on our resources means our borrowing requirement and national debt are out of control.

All are agreed that we need wealth creation to bring about a recovery. We need more houses, more commercial property development, more improvements to infrastructure and more opportunity for existing businesses to expand and new ones to become established. We need to reward enterprise, to encourage progress and motivate those with the business skills to put their talents to good use.

So what is to be done? Where can we offer most encouragement?

Boost for property development

One answer is property development. The reason why we have urban sprawl, vacant and under-used sites that prevent expansion and job creation is that there is no compulsion to use land to its full planning potential. Some landowners are content to hold land out of use, waiting for the price to rise so that they can make a bigger profit. Clearly this is contrary to the general good and must be discouraged.

We all know that taxes on wages and production are a double whammy – a disincentive to wealth production and the cause of higher prices resulting in those on low wages having to bear the heaviest burden. Taxation causes poverty; poverty demands mitigation; the cycle is self-defeating. Why do we continue with such an unintelligent system?

Today we have a choice. We can go on as before raising taxes that we know cause hardship and require a range of state benefits to hide the fact that millions live on or below the poverty line. Or we can start to abolish taxes on production and begin to reclaim a value that rightfully belongs to the community.

How can all this be achieved?

In short we must look at a new source of revenue. A source that is not destructive but constructive. A source that does not discourage production but encourages production, competition and new enterprises. A source that does not take from the poor or penalise the rich. A tax that does not rely on the ability to pay but on benefits received.

And that is precisely what I intend to do. To raise public revenue from benefits received.

Majority of Taxes to be abolished

My proposal may shock you, but as from June 1st 2011, I propose to abolish taxes, goods and services. This radical reform will require two things: first, adjustment in administration, and second a change of heart and mind by the nation itself.

The change I intend to enact will inevitably raise questions and cause concern in some quarters. But let me make it clear from the outset; this reform will not affect anybody’s rights or titles to their property; it will not take anything away that rightly belongs to them.

I know you will have a number of questions concerning my proposal, so let me give you an example what I meant earlier by ‘benefits received’. Take the Jubilee Line extension

A report published by Transport for London in 2004 suggested that the uplift in land values attributed to the Jubilee Line Extension was in the region of £2.8billion in the proximity of just two Underground stations – Canary Wharf and Southwark.

The question we have to ask is ‘what did the landowners do to add an extra £2.8 million to the value of their holdings? Surely this is unearned income? The landowners have done or contributed nothing. Yet they gain substantial benefits.

The community, through taxation, improves the infrastructure only to find that the benefits are taken by the landowner in increased land value! Rents go up. House prices increase. Is this fair? Is this right?

Now, since the community creates land value, then why does the community not receive the value? Why does it go into the pockets of the landowners?

Return to the community the value it creates

So let me come to point.

I intend to raise state revenue through a levy on land rental value. It will be called Land Value Taxation, but it is not really a tax – it is actually the antithesis of tax, being based on the rental value of unimproved land. All buildings and structures are excluded from the valuation.

Using land value for revenue has been highly successful in Singapore, Hong Kong and several cities in Pennsylvania. Harrisburg is a model example.

Before this change can be achieved here in Britain, a complete valuation of all plots must be undertaken. This can easily be accomplished by surveyors in a short space of time.

Now you will have noticed, I am sure, that earlier I indicated that property developers were to be provided with an incentive, and I now seem to be antagonistic towards landowners!

Let me assure you this is not the case. And I am confident that landowners will see the enormous potential for them in what I am proposing. We must remember that we need more houses, factories, offices and shops. Our land area is limited and we need to make the best use of it. Shifting the tax from production to land value will ensure that vacant and under-used land is fully utilised to its planning potential and that all new developments are built to the highest standards to provide the landlord with the maximum rent. The levy will provide the funds for continuous improvements in infrastructure. A win / win situation I think you can call it!

To encourage new business start ups and to ensure that the tax is not passed on, marginal land must be zero-rated.

Now, of course, there is a considerable amount of detail to be discussed and worked out. But we are fortunate in having the 1931 Budget, the proposal by Herbert Morrison for Land Value Tax in London in 1938, The Whitstable Reports of 1964 and 1973 and recent analysis completed by Glasgow City Council, Northern Ireland and the assessment by The Republic of Ireland to refer to as a guide.

Statement of Principles

So let me conclude by restating the principles behind my proposal:

What is Land Value? Land Value is the amount of money a person or organisation is willing to pay the owner of a plot, each year, for the exclusive use of the site, omitting the value of any building or improvements. The demand from prospective developers and tenants will determine the going rate for each parcel of land. Who creates Land Value?
The community creates land value by their preference for living or working on one site more than another. Many people want to live, work and have their business in the centre of a city, town or high street because it is more convenient in terms of travel and facilities, and there are more prospective customers in busy areas. For them the site value is high and they are prepared to pay the maximum rent they can afford. Others are prepared to occupy a site in the suburbs and pay less rent.

To whom does Land Value belong?

Since the community creates land value, it surely belongs to the community. And equally, it should be returned to the community to be used to improve public services and pay for government expenditure. But how can the community recoup the value it creates in a fair and just way?

The answer is a levy based on the annual rental value of the land alone. The levy will be a percentage rate that can vary according to the need for public service taxation.

To conclude:
under our present system a tenant pays the landowner for the investment made in buildings and services plus an extra payment that the landlord automatically attributes to location value. The landowner is rightly entitled to a fair return on the capital investment in buildings while the community is equally entitled to the value in land it creates.

Finally, let me stress that the levy I propose is not intended as a deterrent, not a burden not a penalty. It is actually a stimulus to ensure that all land is used to its maximum potential to encourage the production of wealth and thereby adding to the prosperity of the community. That is what we want. That is what will ensure that we restore our economic well-being and start to reduce our debt.

Now, I am sure there will be questions on my proposal! Who would like to go first?