Value of land increases without working for it; burden of taxation falls on pay of hard working people. TAP BLOG 8

25 November 2016

Taxpayers Against Poverty affordable housing campaign BLOG 8

As value of land increases landowners become wealthier without working for it; so the burden of taxation falls on pay of hard working people.

In his last bog of this series Fred Harrison argues that the UK laws create unequal treatment leading to ill health and an early death for too many. Landowners become wealthier, without having to work for it, as the value of their land increases but that income is not taxed. Therefore the burden of taxation falls on the salaries and wages of working people paying income and council tax.  He argues that this inefficient way of taxing a nation loses money that could be spent on infrastructure, building affordable homes, welfare and the NHS – called “deadweight loses”. Unless the Treasury admits the scale of those loses any affordable housing policy is built on sand.

You can't put land in tax free overseas banks so let them pay ground rent to the State and abolish council tax, business rates, VAT, stamp duty and other inefficient taxes.


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Deaths by Acts of Parliament

Fred Harrison, Executive Director, Land Research Trust

Over 200,000 people die prematurely in Britain every year because of conditions created by Acts of Parliament. That is the assessment by Prof. Michael Marmot, the world's leading authority on the social conditions that lead to deaths that could be avoided if people’s life chances were not prejudiced by circumstances beyond their control.

The unequal treatment meted out under the laws of the land is registered in the housing market: unaffordable rents, over-crowding and sub-standard dwellings occupied by millions of families expose people to the stresses that fore-shorten their lives. Victim families are concentrated in areas where life expectancy on average, across the country, is curtailed by nine years.

The housing market is rigged by the tax rules which privilege the owners of land and prejudice the prospects of those who rely on their labour for their living. But why can't the government’s welfare provisions keep up with the needs of those who are marginalised by the tax regime? As I explained in my first blog in this series, the land market operates like a sponge. It soaks up the increases from economic growth (hence the rapid increase in house prices compared to wages). This curtails the nation’s net income – the taxable economic rents that we all help to produce – available to help those who are in genuine need.

As fast as the economy grows, the claims by landlords and the vendors of the existing stock of houses rise even faster. So cash-strapped governments are not able to keep up with the need for warm, affordable housing for every family in Britain. But why blame Parliament and its choice of tools for raising revenue? Take the case of George Osborne's so-called reform of the stamp duty payable on the more expensive houses.

Last year, this tax raised just over £300 million. There was a shortfall in the anticipated revenue of £330m. Now compare this revenue to the losses attributable to the tax. The losses were estimated by Oxford Economics, and they amounted to nearly £1 billion. So for every £1 raised, the nation lost nearly £3 through what economists call deadweight losses. These are the losses to wealth and welfare that would have accrued, if a more efficient method had been employed to raise the revenue. They are called “dead weight losses”.

Those losses, reports Oxford Economics, manifested themselves in the form of fewer house sales, a drop in social mobility, a decline in economic activity in the housing market (removals, renovations) and 14,000 fewer jobs.

How could the £300m that did flow into the Exchequer have been raised without causing all that distress? By a charge that was confined to the economic rent that reflects the value of the sites beneath the dwellings. Economists agree that an Annual Ground Rent does not distort behaviour, and therefore does not impose losses on the population at large.

DO SUCH statistics leave you cold? Then let's translate those costs into human terms.

According to Prof Marmot, who heads the University College, London Institute of Health Equity, the evidence clearly demonstrates that unaffordable and sub-standard housing, which go hand in hand with poverty and inequality, increase the risks of drug addiction, alcoholism and obesity. These, in turn, curtail people's lives.

Prime Minister Theresa May has referred to the 9-year average gap in life expectancy between rich and poor. But that national average disguises a more frightening contrast in the prospects faced by newly born babies.

  • Glasgow: the gap in life expectancy between low-income Drumchapel, and nearby East Dunbartonshire, is 13 years.
  • North London: the gap in life expectancy between those living in one of the wards near the Tottenham football ground, and the London borough of Kensington and Chelsea, is 17 years.

There is one way only to characterise this loss of life: deaths by Acts of Parliament.

The feudal aristocracy created and evolved Parliamentary politics to serve their self-centred interests. The so-called “unwritten constitution” was shaped so that they could decrease the revenue collected via the traditional Land Tax. But how could governments fund their public services? To do so, they had to shift the burden of taxation on to working people's wages. By the early 19th century, just 4% of Exchequer revenue came from the Land Tax the rest from pay. .

Governance guided by the Mother of Parliaments came to rest on a doctrine of taxation which profited the owners of rent-generating assets, at the expense of those whose lives depended on their labours.   

HAS THE time come to challenge what I call a culture of cheating (in As Evil Does, 2016). We need a national conversation informed by two pieces of information, without which the rent seekers will continue to run rings round everybody.

Every year, when the Chancellor of the Exchequer publishes his budget,

  1. Parliament should insist on being provided with an updated estimate of the deadweight losses inflicted on the nation by the Treasury's choice of tax tools. So that politicians can be held to account for their stewardship of the nation's affairs,
  2. Parliament should maintain a register of the nation’s net income (the rents people could pay for the use of land and natural resources).

Armed with these two statistics, Parliament can be held accountable for decisions taken on our behalf. Without that information, no one knows whether changes to the laws of the land are being made on behalf of the welfare of everyone, or on behalf of those who have the means to manipulate power for their private interests.