CHANCELLOR RECEIVES PROPOSAL FOR RESOLUTION OF REPETITIVE BOOM AND BUST

The text of a recent letter by Claverton Members to the Chancellor (but this does  not necessarily represent Claverton’s view as a whole)

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

Chair

Coalition for Economic Justice

For further information contact

John Lipetz, 020 7794 5343, johnlipetz@hotmail.com Tony Vickers, 07950202640, tonyvickers@phonecoop.coop Dave Wetzel, 07715322926, davewetzel42@googlemail.com Robin Smith, 07786 078836, robinsmith3@gmail.com

Member organisations:

Labour Land Campaign (LLC)

Liberal Democrat Action for Land Taxation and Economic Reform (ALTER) Social Liberalist Party (SLP) Systemic Fiscal Reform Group (SFRG) School of Economic Science (SES) Land is Free (LF) Henry George Foundation (HGF) Land Value Taxation Campaign (LVTC) Professional Land Reform Group (PLRG) Christian Council for Monetary Justice (CCMJ) Global Justice Movement (GJM) The 1909 Group

Resolution passed by meeting of Coalition for Economic Justice November 2008

“The current economic crisis highlights, again, the inadequacies of the economic system which is unstable and deeply flawed. It is clear that events are demonstrating the common feature of repeated economic booms and depressions in the speculative rise in land prices.

In order to address this problem we need to suggest to the wider world that it is possible to create a new approach that delivers both economic justice and prosperity for all. This solution must be based upon the annual collection of land value for public purposes.

This meeting agrees that there is an urgent need to convince policy makers of this, and for them to develop (with our assistance) policies to capture unearned land values. Such policies would enable taxes on labour and enterprise to be minimised. Investment in necessary public infrastructure would thus be recovered for public benefit.

We believe, however, that it is unproductive at this stage for our respective groups to attempt to agree how to achieve this. An agreement by the main parties on the need for a nation-wide tax on the value of land would trigger completion of the registration and valuation of land within a single parliament. We therefore commit to trying to persuade all parties to agree to this being a manifesto commitment.”

3 Comments

  1. Reply

    I am a member of ‘Action for Land Tax & Economic Reform’ (ALTER) and help run their stall at Lib Dem Conferences. ALTER is one of the groups behind this event.
    It is estimated that 70% of the money that circulates is created in the form of loans ‘secured’ against ‘property’. They circulate as money until the loan is paid off. If loans stop the money money in circulation dries up. That’s what happened. That’s the origin of the credit crunch.
    The bubble came about by banks enticing people to take on higher and higher loans with more and more ‘affordable’ payment terms, e.g. interest only, self-certified income, low teaser (aka ‘fixed’) rates for a couple of years. They competed with each other until the loan to earnings ratio became unbelieveable. Then the bubble burst!
    The amount that an individual can borrow is income divided by interest rate. So, as rates fell borrowers became over extended. So did the banks when borrowers stopped paying. The £$ values were more than either borrowers or banks could stand.
    Land Value Tax would stop the process in its tracks. LVT would take some of the borrower’s income. There is then less that the banks could capitalise. In that way LVT could stabilise 70% of the currency that circulates.
    It would also provide public revenue, raised on the locations most able to bear it, and this would enable other taxes to be reduced.

    So that’s the way to prevent another property bubble. It doesn’t tell us how to get out of this mess though. Maybe see Chris Cook for a different form of finance.

    Bill Powell

  2. Reply

    this land tax needs to be applied to agricultural land to reduce the concentration of ownership in too few hands, dukes, earls, etc.
    especially bad in scotland.

    Land which is not used for farming by the owner should be taxed heavily.
    Be it derelict suburban fields or hill farms without sheep.
    Un used land is an affront to civilisation

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these <abbr title="HyperText Markup Language">HTML</abbr> tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>