‘Let’s seize this moment to raise a cry for that greater vision — of an economy that lifts us all towards a future worth fighting for.’ From avaaz.org.

Avaaz.org is an online, global community of people that is dedicated to moving the world’s economy forward with their ‘Jobs and Justice’ campaign. In the second week in December, Gordon Brown will meet with French President Nicolas Sarkozy, the new G20 chairman and urge him to launch a campaign for global job creation. The avaaz.og site has a special message from the former UK Prime Minister.

Many governments are responding to the global recession by cutting public services, thus putting more people out of work and increasing poverty. This method was already tested during the Great Depression and it only deepened the economic crises. This is the right time for a ‘bold, history-making idea’ on a global scale.

When New Labour came to power in 1997 they were pledged to cut poverty, yet during the 13 years of Labour government the gap between rich and poor in the UK continued to widen (this was not unique to Britain). When they came to power in 1997 Blair and Brown were warned that unless they made certain fiscal reforms there would be another property crash towards the end of 2007, just as there had been under Nigel Lawson at the end of 1989. As late as his budget speech in April 2007 Brown was repeating ‘we will never return to the old boom and bust’.

We draw attention to this not to denigrate Brown – we believe he sincerely wants to cut poverty. The problem for him and us is that he does not know how. He had 13 years in government and failed in his objective so why should he now be able to unless he changes his approach. As Albert Einstein put it: ‘The world cannot get out of the current crisis with the same thinking that got it there in the first place’. Brown bears some responsibility for the mess the world is in now so he is not going to get us out of it unless he changes his approach. Although it is not easy for any of us to change our minds we believe it is possible, but it is going to require a reform of the order of the abolition of slavery.

Poverty is caused by a flaw in the free market economic system and poverty will never be abolished until we face up to what is causing it. Just as slavery was regarded as part of the natural order, so we regard private property in land as part of the natural order. Let us explain what we mean.

When we buy a house it is made up of two components, the bricks and mortar and the land on which the building is situated. The building is the product of labour and rightfully is the property of the builder, but the land was not made by him. It is the free gift of nature, not to the ‘owner’ of the site, but to humanity, and not just this generation. Our legal system and economic theory do not distinguish these two distinct and very different elements.

To illustrate why the difference matters, take the slogan Oxfam have used for many years:

‘Give a man a fish and you feed him for a day
Teach him to fish and you feed him for life’ (this could be equated with Brown’s job creation mission)

The relevance of the land issue is this: if the fisherman, having learnt his trade, goes off to fish he will find a sign up on the riverbank saying ‘private property’. So he will have to pay the landowner a fee before he can exercise his newfound skill, but the owner did not create the river, the fish or the riverbank, so what right has he to demand a part of the catch? His right to do this is granted by our legal system thereby creating a privileged class of people who can charge rent for allowing access to ‘their’ land. The extension of the right of private property to the free gift of nature is the major flaw in our legal and economic system and divides humanity into the haves and have-nots. In most countries around the world some 5-10% of the population own 70-80% of the land. By collecting the rent, landowners enjoy an unearned income and grow richer and richer while those without land struggle to earn a living.

As John Kay put it recently in the  Financial Times

‘You can become wealthy by creating wealth or by appropriating the wealth created by other people. When the appropriation of the wealth is illegal it is called theft or fraud. When it is legal economists call it rent-seeking.’

Henry George in his famous book Progress and Poverty showed how the rent-seeking power of landowners could be removed through a tax reform that would have many other benefits as well. No one would be deprived of their land, but they would lose the power to make others pay for the privilege of using what nature has granted free to all of us.

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‘…which are the least bad taxes? In my opinion, the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.’ Milton Friedman

The recent publication of the Mirrlees Review highlights the urgent need for simplification of the British tax system. The Review calls for an overhaul of a system that is ‘opaque and unnecessarily complex’ (1). Sir James Mirrlees, Nobel Laureate and chair of the Review, says ‘[the tax system] discourages saving and investment and distorts the form they take… Some of the recommended reforms involve tweaks to current policy, others involve radical change’. (2) He admits that some of the changes would be politically difficult, and in defence of the recommended rise in VAT he states, ‘the key element is that this is part of a package. Benefits and rates also have to be changed. I’d like to think people would understand.’ (3)

The Times reported that with regard to housing tax, the Review concludes that ‘stamp duty [should] be scrapped in favour of a council-tax type payment that rises in line with the value of the property’, (4) thus accruing the benefits locally.

In Chapter 16 of the Review, the possibility of land taxation is considered:

‘Land and property should be thought of as distinct bases for taxation, although in most countries taxes are levied on the combined value of property and the land on which it is located. William Vickrey, a Nobel Prize- winning economist, argued that “The property tax is, economically speaking, a combination of one of the worst taxes—the part that is assessed on real estate improvements …—and one of the best taxes—the tax on land or site value”. Later in this chapter, we argue that there are in fact good reasons for taxing housing as well as the land on which it stands; but as far as business property is concerned, Vickrey had it exactly right.’ (5) For more on LVT by Vickrey, see Land-Value Taxation (Shepheard-Walwyn 1999).

The Review lists several benefits of LVT:

- it is equivalent to taxing economic rent and therefore doesn’t discourage positive activity taking place on the land
- land is in fixed supply; the supply does not respond to the price and cannot be influenced by tax
- land has an unchangeable geographic location; it should be a natural source of finance for local government
- ownership of land can usually be easily established, and it cannot be taken to tax havens
- the tax captures benefits which otherwise accrue to landowners, through no effort of their own but through external developments

The Review refers to Winston Churchill’s support of Henry George’s proposals for a land value tax (as outlined in a previous post on this blog):

‘Winston Churchill, speaking in the House of Commons in 1909, put this argument eloquently: “Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains— and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived.’(6)

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This article was originally printed in ‘Land and Liberty’, published by the Henry George Foundation.

John Stewart is the author of three political novels: Prime Minister, Visitors, and The President, in which he explores the contemporary relevance of Land Value Taxation. He has also written a biography of Andrew MacLaren MP, Standing for Justice.

WITH THE possible exceptions of Pitt the Younger and Gladstone, few Prime Ministers have received such detailed biographical attention as Winston Churchill. Every facet of his life has been analysed, yet his vigorous support of the 1909 land value levy appears to have been generally forgotten. But, it would be wrong to maintain that historians have been wholly silent on the matter. Randolph Churchill, for one, in the second volume of the major biography completed by Martin Gilbert, records Churchill’s sentiments in pretty clear terms. Here he is addressing the Scottish Liberal Association in Edinburgh:

The roads are made, the streets are made, the railway services are improved, electric light turns night into day, electric trains glide to and fro…and all the while the landlord sits still. Every one of these improvements is effected by the labour and at the cost of other people – yet his [the landlord’s] land value is enhanced. When the land is eventually sold, it is sold by the yard or inch at ten times, twenty times or even fifty times its agricultural value…(1)

According to Sir Robert Ensor, author of the Oxford series volume England 1870-1914, the detail of the land value duty proposed in the 1909 budget was anything but swingeing:

...the Land Value duties – a duty of 20 % on the unearned increment of land value, to be paid whenever land changed hands, and also a duty of a halfpenny in the £ on the capital value of undeveloped land and minerals.

Hardly draconian, but of course it was the thin edge of the wedge, and seen to be so, and, indeed meant to be so. The land owning classes, with the peers at their head knew this. Sir Robert Ensor writes that they violently objected to the complete valuation of the land of Great Britain; and the more violent they were, the more democracy became persuaded that they objected for sinister reasons. (2)

Here are Asquith’s words, recorded by Geoffrey Lee in The People’s Budget:

I still believe, as my Chancellor of the Exchequer said on February 1914, in the necessity, first of all, of the valuation, and next, as a consequence of that valuation, and as a proper purpose to which it should be applied, the taxing for public purposes, both imperial and local, of the site value of land. (3)

Both imperial and local indicates an Empire wide application, but war came in August. No wonder Geoffrey Lee subtitled his book An Edwardian Tragedy.

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MARK BRAUND is author of The Possibility of Progress. He has worked in the private, public and voluntary sectors, and spent three years as an advisor to the government of Mozambique. The book, his first, is the product of several years’ research and a deep interest in what motivates people, how individuals shape society, and the future prospects for humankind. He is a freelance writer and many of his articles have appeared on Guardian.co.uk / Comment is Free.
www.markbraund.com

In The Possibility of Progress (Shepheard-Walwyn, 2005), Mark Braund argues that conventional politics has become increasingly unable to address the concerns of ordinary people. He puts forward a genuine alternative which combines the dynamism of the free market with the ideals of socialism; a new approach to economics which promises fair shares for equal effort without threatening individual freedom.

His argument is even more pertinent five years on. Having experienced a severe economic crisis and a change in government, it has become imperative for politicians to present a solution to the social injustices we are facing.

The Labour leadership contest has now been resolved, and Ed Milliband has a fresh opportunity to choose an alternative approach to the old ways of Labour and the capitalism of the coalition. In an article for the Guardian, published online on Saturday, Braund argues that ‘If the Labour party is to have any purpose going forward, it needs to present itself as the distinctive and unique party of social justice’. The advocacy of Land Value Taxation is a way to achieve this. Andy Burnham has already come out in favour of reforming the tax system and the idea of LVT is now entering the mainstream press. It must be considered as a serious contender as an alternative to a failing system. As Braund makes clear, LVT should be adopted ‘not just as another tax and not as a quick way of plugging the deficit or raising revenue to fund a growing welfare bill. LVT should form the centrepiece of a strategy for transforming the economy so that more people have access to genuine economic opportunities.’

A Land Value Tax would seem naturally to align with Labour ideology. It ‘should be sold as a tax on unearned wealth’, and would ‘[strike] at the very foundations of elite wealth and privilege.’ It is a wholly democratic tax that would offer a solution to the problem of unequal and unfair wealth distribution.

The outcome of the Labour leadership contest, while perhaps shocking and disappointing for some, provides the party’s new helmsman with a unique opportunity. Ed Milliband should not be afraid to come out in favour of a radical alternative.

Article quoted: ‘Land Value Taxation; a Genuine Alternative’ by Mark Braund, www.guardian.co.uk/commentisfree, Saturday 25th September 2010.

This paper examines how we might apply the Law of Rent today and the potential this can have on the provision of public services, taxation and a rational distribution of wealth.

In the paper ‘The Law of Rent – the concept’, it was suggested that if we understood the Law of Rent then the business of collecting taxes would be much easier and more efficient, and we could reduce the national debt and budget deficit in a very short time.

This paper sets out to explain how these objectives might be achieved.

The Law of Rent, as defined by the economist David Ricardo in 1809, states: ‘The rent of land is determined by the excess of its product over that which the same application can secure from the least productive land in use.’

Economic rent is a surplus – a value or a part of production that is not wholly due to labour but rather the location of where the labour takes place. A shop assistant in Oxford Street will make many more sales than an equally hard working person in Brentford High Street. The surplus production (extra sales) is solely due to the location of the store. Some plots of land are more valuable than others due to the facilities invested for the benefit of the community – transport links, etc – and the desire (and therefore competition) for businesses and individuals to occupy the best sites. M&S will pay a high rent for the benefits they receive from occupying their Marble Arch site because of the high footfall. Mr & Mrs Smith will pay a premium (estimated at £16,000) to buy a house in the catchment area of a good school.

Now we have to ask ourselves how is location value created? And who has a just claim to it? Simplicity is the key. Supposing a bombsite in central London had been held out of use from 1945 until the present day, its value would have increased a thousand fold. Yet it is the exactly the same plot in both size and position. It has not benefited society one iota. It has contributed nothing to production or the wealth of society. But it is now – even as a derelict site – worth millions. How has this value been created?

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In the Preface to his Principles of Political Economy and Taxation David Ricardo wrote:

‘… without a knowledge of [the law of rent], it is impossible to understand the effect of the progress of wealth on profits and wages, or to trace satisfactorily the influence of taxation on different classes of the community’

In Ricardo’s Law Fred Harrison illustrates, with reference to Britain, how the failure of economists, policy-makers and politicians to understand the Law of Rent impacts on wages, profits and taxation. In the essay below, Michael Hawes provides a short explanation of the concept of the Law, also known as ‘Ricardo’s Law’ after the economist who provided the first scientific explanation of how it works.

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The Law of Rent, as defined by the economist David Ricardo in 1809, states: ‘The rent of land is determined by the excess of its product over that which the same application can secure from the least productive land in use.’

What does this sentence mean and what possible relevance can an obscure theory propounded by a near forgotten stockbroker have in the complicated economic structure we live in today? The answer is that if politicians understood this simple proposition it would make their job of collecting taxes so much easier and more efficient. In fact they could reduce the national debt and budget deficit in a very short time.

The first thing we have to understand is that the term ‘rent’ as used by the classical economists is different from the term we use today to describe payment for the hire of a premise, tool or piece of equipment. Economic rent is a surplus, not a charge.
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by Adrian Hoare

George Osborne has invited the public’s views on what might be done to help the country out of its current financial crisis. It is to be hoped that he will seriously consider all that is suggested; he needs to be looking out for ideas that are different from those that have hampered genuinely sustainable economic development for decades. He would do well to bend his eye in the direction of the taxation system; not to see if a little tweak here and there might increase revenue without too much pain but to look at the fundamentals.

We do not design road vehicles with unround wheels but we have an economy with comparably unsuitable features. The only circular motion is in those ideas that set off in promising directions, only to return to their starting point.

In 2007 we suffered a financial earthquake. It would be foolish in the extreme to rebuild our economy upon the same foundations whose weakness led to the catastrophe. The banks were blamed and they were certainly very irresponsible. So too were the government(s) who failed to impose sufficiently robust regulations on them, to prevent them from their own stupidity. It is said that the banks could not be allowed to fail because they are vital to the economy. The logical argument following from that is that the banks should be nationalised or at least kept under close regulation, however much they howl about it.

It is openly admitted that there is a financial economy and a real economy. Something is wrong there. Without a real economy there would be no need for banks.
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Take the example of a parent and child: it is possible both to punish and to love when the punishment is directed to the good – that of teaching the child right and wrong. However, if one claimed to love a person while exploiting them, the spectre of hypocrisy would immediately arise.

It is sometimes said, albeit cynically, that the rich help the poor in order to enjoy their privilege with a better conscience – a barren attitude, considering the generous response to disaster appeals, yet one that may conceal some truth.

The Christianity of Wilberforce could not live with the barbaric injustice of slavery. For, how could you love your neighbour as yourself if you enslaved him? Yet many lived with such a system. It was simply how it was, so the mindset of the status quo was left unquestioned.

Today, it is a common cry that the rich are getting richer while the poor still languish.  Secular, socialistic governments have tried to mitigate with subsidies and benefits, yet little changes. Indeed, after thirteen years of Labour Party rule, the gap between rich and poor has widened. Yet both the previous and the current government would claim to be benevolent in intention. No doubt they are, but the fact remains that poverty remains to blight most corners of the kingdom.

The elements of nature are given to all. None are labelled with predestined ownership. To claim the Sun’s light, or the air we breathe, would be ridiculous. And the gentle rain from heaven, as Shakespeare calls it, falls on all, alike. However when it courses on the land as rivers, the element of ownership enters. For land, the fourth great element, is subject to the law of real estate – in other words, private ownership. This is man’s decree, not nature’s, for nature gives her elements free.

Here man departs from nature’s law and the consequence is inequity. Sometimes this inequity is grotesque, with palatial mansions and teeming ghettos living in proximity. Yet such is the world order, the mindset of the status quo that no one questions.

Who would call this just?

How can we profess to love our neighbour when we perpetuate this gross inequity in our midst? Yet, the mindset of the status quo has ruled for centuries. With custom so ingrained, it’s not surprising that the glaring parent of inequity is left unchallenged while socialistic answers are adopted. Yes, centuries of custom are convincing, but we might well ask – how many years does it take before a wrong becomes a right?

‘Poverty is not a normal state of society. It is a disease produced by the stupidity of men.’ Andrew MacLaren

Standing For Justice, A Biography of Andrew MacLaren MP by John Stewart

visit Shepheard-Walwyn site

If the claims of David Cameron and Nick Clegg are to be taken at face value, here in the UK we now live under a radical transforming government unprecedented in its progressive ambition.  Of course, there is nothing in the coalition agreement to justify the hyperbole, but there may be a glimmer of  hope. For the first time since long before the last coalition was dissolved in 1945, the cabinet now boasts three members who are on record as supporting the principle of land value taxation (LVT), a radical and potentially transforming policy if ever there was one.

If you visit the website of Lib-Dems ALTER (Action for Land Taxation and Economic Reform), you will discover Chris Huhne is its president, and Nick Clegg and Vince Cable are both vice-presidents. Huhne and Cable have a long record of speaking out for LVT: In his 1990 book Real World Economics, Huhne wrote, “the morality of taxing gains in land value seems very clear”.  And in his forward to Tony Vickers 2007 book, Location Matters, he says “Neither the property market or the tax system are fit for purpose in the modern age without a carefully constructed land value tax.”

For his part, Cable, in his foreword to ALTER’s 2009 book, The Case for a new People’s Budget reminded us that LVT is already part of Lib-Dem taxation policy.  Their manifesto included a commitment to replace business rates with a system based on site values.  Cable goes on to say “this is only a first step towards a wider system for taxing land value.”

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Faced with a huge deficit and the need to act quickly, what should the Chancellor do? Of course we do not like the present tax system, which is a major cause of all the present problems. Cuts are part of the solution. But there is no gain if those who lose their jobs then spend months unproductively on the dole, and it could – probably will – lead to social unrest. The real problem, the one that has brought this dire situation about, is that we have taxed that which we ought not to have taxed, and left untaxed that which we ought to have taxed. But even within the limitations of the present tax system, there are things a Chancellor can do to help, and things that will make matters worse.

What he most definitely should not do is raise VAT. It is as much of a Jobs Tax as National Insurance, and can only push people out of work, which will also add to the government’s benefit bill. It will also mean that the government will have to put up benefits rates as these are linked to retail prices.

We suggest that the Chancellor begins with a bit of a tax cut, by raising thresholds for Income Tax and National Insurance to the equivalent of working a 40-hour week at the national minimum wage, on the principle that people earning subsistence wages should not have to pay tax. This was, after all, a Liberal Democrat manifesto committment, and it needs to be implemented as quickly as possible.

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