Skip to main content

An Open Letter to the Chancellor

The Campaign is a member of the Coalition for Economic Justice which has new sent an open letter to the Chancellor on proposals for ending the boom-bust cycle, with an invitation to the Seminar to be held at the House of  Commons on 24 March.

Friday, February 13th, 2009
Dear Chancellor,
Proposing a long-term resolution to repetitive economic crises
I am writing this open letter to you on behalf of the Coalition for Economic Justice (CEJ). In response to the seriousness of the current economic crisis a number of think tanks, charities and pressure groups across the political spectrum recently decided to join forces as the CEJ. We propose the introduction of an annual Land Value Tax (LVT) to replace or reduce existing taxes on enterprise and labour in order to prevent future economic crises and alleviate the current one. The resolution below, passed at our first meeting sets out our broad position. (Set out at the foot of this letter is a list of the organisations concerned.)
Every economic crisis in living memory has been preceded by an unsustainable and speculative rise in property values, commercial/industrial as well as residential. The link between property values and bank and building society lending is strong and causal. Excessive lending fuels property prices.
We recognise, of course, that you and your colleagues in government are concentrating on the difficult task of dealing with the current turmoil. We support much, if not all, of the measures you are taking to restore confidence in the current economic climate, provide for effective credit systems, introduce proper controls on the financial sector and re-establish a sound economy. Our concerns are concentrated on the need to avoid future crises and to provide long-term security and equity to the economy. However, members of the coalition can already offer proposals that will begin to deliver a clear path out of the current economic situation.
An annual tax on land values – it is the land element that causes property values to rise – would exert a restraining influence on property values and give the government some control over this key determinant of economic stability. Such a tax would also cut the ground from under excessive and imprudent bank lending and remove much of the speculation in land.
In the present market economy the justification for a rise in prices is that it brings forth increased supply. As the land supply is fixed there can be no such increase. As economists from Adam Smith onwards have recognised, land is a monopoly. Rising property prices therefore serve no useful economic purpose. As such, they are the natural and obvious target for taxation. The LVT thus collected on an annual basis would help to reduce those taxes, many of which are unpopular (eg council tax and stamp duty), including income tax, national insurance and business rates which directly discourage production.
LVT is a progressive tax falling most heavily where the benefit to the community is greatest and most lightly where the benefit is least. As the tax is based on permitted land use – not on current use (or
non-use) value – LVT will penalise those who hold land out of use. It will therefore encourage land use and stimulate economic activity.
With LVT introduced, there will be little or no incentive to speculate in land and hence property. Much of the credit which currently supports land (property) values would no longer be needed and would be available to finance the production of goods and services. LVT is easy and cheap to collect and difficult, indeed virtually impossible, to avoid.
A development land tax, or its latest manifestation, the community infrastructure levy, being a one-off levy on development which inhibits land use, has virtually all the disadvantages that an annual LVT does not. We would be glad to expand on this.
In our view the economic case for the introduction of LVT is a very strong one. So, indeed, is the ethical case. Since the community has created the enhanced land value it is only right that the Government (through an annual LVT) appropriate it for uses, eg infrastructure and local services, that benefit the whole community. We recognise, however, that the political basis for taking this forward, while feasible, requires deeper consideration. We are available to work with you and your colleagues to facilitate its development.
We have set out our views in the hope that you will meet the following requests:
* We are arranging a 2 hour seminar on the subject; “Collecting land value to achieve economic justice – a challenge to Parliament”.
This will take place at 5pm on Tuesday 24th March in Committee room 15 at the House of Commons. You or one of your Ministers are invited to attend and speak. We would appreciate it if your key civil servants on this subject would attend and, if they wish, participate; and
* That you or the appropriate Minister, together with the relevant senior civil servants and economists, agree to meet a group of us in advance of the seminar to discuss this matter in further depth.
I look forward to receiving your response and hope it will be positive.
Yours sincerely
 John Lipetz
Coalition for Economic Justice