Mick Scrimshaw on Land Value Tax

By Mick Scrimshaw on June 3, 2017

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Labour are suggesting that there needs to be a review of Council Tax. This is due to the current system being based on property values from about 30 years ago and that therefore produces many anomalies. For example - lower value properties (i.e. most in the Kettering constituency) can pay proportionally more than really expensive ones. Therefore the review is actually quite a sensible idea in itself.

But Labour are also saying that this should be done in conjunction with business rates, which is also a good idea given that in 2020 local Councils will directly receive business rates to make up for not getting any grants from central Government any more. This has been Government policy for some time but as yet the Government has not indicated how this will work other than very broad terms. This is causing uncertainly in town halls across the land because they are unable to make any long term financial plans.

However one thing that is known is that Councils may be given the power to reduce business rates which they currently cannot do. On the face of it that seems like a good idea, apart from the fact that it could easily cause neighbouring authorities to try out do each other in racing to the bottom in an attempt to attract investment. This would lead to one of two things - either even greater reduced services, or more likely huge and unfair Council Tax rises for residents.

So it is in this context that the idea of a wider review is being floated. Many experts and analysts favour a Land Value Tax as a much fairer system and it would do what it says: impose an annual tax on land based on its market value. For residential properties home owners would pay a tax based on the market value of the house (since this would generally reflect the value of the underlying land) in the same way they currently do with Council Tax. The press stories about a tax on gardens are misleading because clearly gardens are already taken into consideration under the current system.

Meanwhile, businesses would pay an annual tax based on the value of the business premises, including the land. This would replace business rates. One important distinction being that Land Value Tax would be based on the full value of the commercial land, not just the buildings and this would hopefully encourage more commercial development and less land-banking where developers sit on land for years hoping its value will increase. This is seen as much more efficient therefore and The Institute for Fiscal Studies for example has therefore argued that business rates (on property) be replaced with a full Land Value Tax in this way to encourage landowners to develop their land in the way I mentioned above.

The idea of a Land Value Tax has has a lot of support from experts and economists as taxing land is seen as practical and non-distortionary because land is an immobile asset. A wealthy person can’t move his or her land offshore to avoid the tax inspectors in the way that they can with stocks and shares.

Land Value Taxes are also widely seen as fair, since urban land and residential property market values usually rise due to improvements in local infrastructure, which are paid for by all taxpayers. Under a Land Value Tax, some of this uplift in wealth flows to the local community rather than accruing entirely to the lucky landlord.

For the vast majority of ordinary homeowners they would see no difference what-so-ever and certainly no extra tax on your garden as some press reports seem to be saying.

In fairness a review on this scale would take a long time so it is not possible to predict any outcomes. However the best guesses at the moment are that if you own a single residential plot up to the value of around £120,000 then you would almost certainly see a reduction in your bills. For moist people though they would expect to be paying an amount roughly the same as they currently do. The big losers would be people who own extremely valuable property or more than one property and in particular who own a vast property empires.

With all this being said, Labour’s only commitment is to look into it simply because it has been tried in places such as Denmark where it apparently works very well. I suspect the panic and outrage in the press is more to do with the surge for Labour in the polls than anything else and there are certainly no plans to double or treble Council Tax bills which some of the more alarmist headlines seem to be suggesting.

Mick Scrimshaw is the Leader of the Labour Group at Kettering Borough Council, the Shadow Cabinet Member for Finance at Northamptonshire County Council. He has a public record of standing up for Kettering as a County Councillor for the Northall division in Kettering, Northants and since May 2015, a Borough Councillor for the William Knibb ward. He is a keen cyclist and also runs a family business with his wife.

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