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Taxed to dereliction

Most proponents of land value tax these days do not appear to understand the theoretical background to what they are advocating. This is usually revealed when they talk about a wealth tax on land, or propose that the tax should be levied as a percentage (usually between 1% and 5%, of the selling price).

The primary value of land is its gross annual rental value. The point about gross value is that the rental value includes rent already taken in tax. This was at one time well understood; the old local authority rates were based on gross value. Gross annnual value (GAV) was the rateable value, comprising actual rents plus rates payable, the charge being a percentage of the GAV.

Land value tax (LVT), properly administered, is a percentage of the gross annual land value, ie the rental value, excluding any buildings or improvements. In the case of farmland, actual rental value is usually little more than the value of the land itself, the difference being improvements such as farm buildings, drainage works, boundary walls, etc, which must be ignored in the valuation. Marginal farmland, such as uplands sheep grazing, has a rental value close to zero.

The bulk of land value is of urban land, the most valuable being city centre land in the City of London and the West End, followed by land used for manufacturing, retail and warehousing. These values are constantly changing; for example, retail values are apparently falling due to the growth of internet shopping, which will raise the value of land which is suitable for distribution warehousing

There are large tracts of urban land which are worth next to nothing, mostly in the north and south-west of England, Wales and in Scotland apart from the main cities. This is of critical importance, because it applies not only to a tax on land values, but to all taxes. If the tax take exceeds the rental value, the land will eventually go out of use. The advantage of land value tax is that no tax is taken at marginal locations, they are, in effect, tax havens. All other taxes attempt to collect tax from business activities at the margin. This is of course impossible, and so potentially productive sites are taxed into dereliction. And there is the explanation for the UK’s grotesque regional economic imbalance.