Currently the growth model of economics, as measured by GDP, is on a collision course with environmental limits. The idea of endless growth is incompatible with what Nature can provide. So what is the alternative? Reporting on the 1988 Conservative Party conference The Economist, in an article entitled ‘The Greening of Mrs Thatcher’, quoted her as stating: ‘No generation has a freehold on the earth. All we have is a life tenancy with a full repairing lease.’
The ‘full repairing lease’ implies a duty of care for the environment required of the landowner as argued by Polly Higgins in her Earth is our Business. A ‘life tenancy with a full repairing lease.’ implies a responsible attitude towards the earth rather than something to be plundered for its resources, leaving future generations bereft.
There is no evidence to suggest Mrs Thatcher was hinting at the economic reform advocated by Henry George when she said that ‘No generation has a freehold on the earth’, but if all we have is ‘a life tenancy’, it begs the question: who gets the rent? As the earth has not been made by landowners, giving them a claim of ownership in their product, why should the rent go to them? We are pleased when the value of our house goes up, but in fact it is not the value of the bricks and mortar that has risen but the land on which it stands – any homeowner knows that the house itself requires constant maintenance to keep its value. The value of the site on the other hand is the result of the efforts of society collectively. What could be more reasonable and just than that society should receive the rent? If it were paid to the government, not as owner of the land but as the caretaker of the nation, there would be no need to fund government out of taxation.
A legal duty of care for the Earth Fifteen years ago Polly Higgins abandoned her career as a barrister to campaign for an international crime of ecocide. Sadly she died of cancer on Easter Sunday at the early age of 50.
Over the last year or so there have been a number of articles broaching the subject of land-value taxation in the national press. The Economist (9th August) even suggested ‘The time may be right for land-value taxes’, but
there is also much misunderstanding about that a land-value tax (LVT) is.
In the first place it is not a tax. A tax was defined by Hugh Dalton, later Chancellor of the Exchequer, in his Principles of Public Finance as “a compulsory contribution imposed by a public authority, irrespective of the amount of service rendered in return”. An example will illustrate: the Jubilee Line extension to the London Underground system cost the taxpayer £3.5 billion. Millions of taxpayers who contributed to its cost will never use it. Those who use it for their daily commute or to go shopping pay for its use through their fares, but the big beneficiaries are the land owners along the route. They will have contributed to the cost as all other taxpayers, but the huge uplift in value of their land within a 100 metre radius of the 11 stations along the line was estimated to have been £13.5 billion. Properties beyond the 100 metre radius would also have benefited, but progressively less the further they were from the stations. The cost was born by all taxpayers but the ‘service rendered’ was not reaped in proportion to ‘contribution’. This is the nature of a tax.
With a Land-Value Tax (it is more accurate to regard it as an annual ground rent) there would be an equivalence between ‘contribution’ and ‘service rendered’ – the greater the services received, the higher the
contribution. The ground rent is a market estimation of the value of the services rendered. For example, the existence of a good school in a neighbourhood will increase property prices in exactly the same way as proximity to a station. It is not an arbitrary amount decided by government. LVT is therefore unlike a tax.
LVT differs from taxes in another respect. It does not distort economic activity. Some taxes, the so-called ‘sin taxes’ on tobacco, spirits and petrol, are introduced with the deliberate intent of discouraging certain behaviour by making it more expensive, but all taxes have this negative effect. They reduce economic activity. For example Stamp Duty discourages people from downsizing and affects adversely labour mobility. VAT makes goods 20% more expensive, thus reducing sales and affecting the viability of small businesses.
Further Reading: Public Revenue Without Taxation by Ronald Burgess Land-Value Taxation by Kenneth C. Wenzer By Dr Peter Bowman The market mechanism provides the most efficient way of allocating the resources of an economy. Yet public services, which can count for...
By John Symons: People debate endlessly whether or not Churchill would have supported Brexit. But what of the great man whom Churchill recommended to the King in 1942 as Archbishop of Canterbury? Which side would William Temple, perhaps the greatest Archbishop in the last century, have supported?
“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”
John Kay, Financial Times 27th Dec 2009
“If a free society cannot help the many who are poor, they cannot save the few who are rich.”
John F Kennedy, Inaugural Speech, Jan 1961
“If science is defined by its ability to forecast the future, the failure of much of the economics profession to see the crisis coming should be a cause for great concern”
“Today we live in a world that is divided. A world in which we have made great progress and advances in science and technology. But it is also a world where millions of children die because they have no access to medicines… It is a world of great promise and hope. It is also a world of despair, disease and hunger”
How Our Economy Really Works
– Why are so many trapped in poverty, when others are grossly well-off?
– Why are house prices continuously rising faster than inflation?
– Why do people so often find themselves in jobs that give them little sense of fulfilment?
– Why is a multi-national coffee shop franchise not actually making its money from coffee?
These questions have confronted the UK economy for decades without resolution by governments of the right or left. It is the failure of economics, the author argues.
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