“The Earth […] was made to be a Common Treasury of relief for all.” — Gerrard Winstanley, 1649
“Ground rents are a still more proper subject of taxation than the rent of houses […] It would fall altogether upon the owner of the ground rent, who acts always as a monopolist” – Adam Smith, The Wealth of Nations
Introduction
Council Tax and Business Rates are broken. Council Tax is still anchored to property valuations made in 1991, and is generations out of date. A family in a modest Hampshire terrace can pay a higher share of the value of their home than the owner of a mansion two villages over. Business Rates, meanwhile, punish the shopkeeper who invests in their premises and reward the landlord who lets a high-street unit sit empty. Between them these two taxes discourage improvement, hollow out our town centres, and fall hardest on those who can least bear the weight. The need for a fairer system of local taxation is ever more pressing in the wake of recent Council Tax rises, often above the statutory limit in many Wessex councils.
Wessex Regionalists’ response to this worsening crisis is clear: abolish Council Tax and Business Rates, replacing them with a Land Value Tax.
The replacement tax proposed here is a simple one, though it will be embellished with the ability for Councils to adjust rates for different land uses. In a devolved setting, a Wessex Assembly would use powers of a kind the Scottish Parliament and Welsh Senedd have held since their creation, to reform the local taxation framework. In the meantime, we will support any attempts by the central government to do the same for England, and use all levers for exemptions and reductions locally within the existing Council Tax regime, to ensure that the lowest earners are shielded from the worst effects of recent rate increases of this regressive tax.
Wessex Regionalist Policies
Short Term — campaigning within the UK — Wessex Regionalists will:
- Support any central government attempts to abolish Council Tax and Business Rates, replacing them with a Land Value Tax levied on the annual rental value of land (minus improvements, buildings, etc.);
- Support transitional protections for asset-rich, income-poor households — in particular pensioners in long-held homes — through deferral against the estate rather than forced sale;
- Work within the current framework of Council Tax rates, exemptions, and Council Tax Reduction schemes to ensure people most in financial difficulty are affected as little as possible by forthcoming Council Tax rises.
Long Term — in a fully devolved region — Wessex Regionalists will:
- Legislate through devolved government to replace Council Tax and Non-Domestic Rates across Wessex with Land Value Tax, at rates set by local authorities within a regionally-mandated range – initially, from 10% to 50% of annual rental value;
- Set the tax base as the annual rental value of the site, in its existing permitted use, ignoring buildings and improvements;
- Allow local authorities to vary the rate applied to different types of plot within bands agreed by the regional Assembly so that local priorities can be reflected in local tax schemes;
- Permit local authorities to apply higher multipliers to long-term empty homes, second homes, derelict buildings and vacant commercial sites, so that hoarding land becomes more expensive than using it;
- Permit lower multipliers where the local authority wishes to reward socially or environmentally desirable uses, such as genuinely affordable housing or community-owned premises;
- Redistribute some LVT revenue from local areas with higher land value to areas with lower land value where revenue neutrality with existing council tax/business rate receipts cannot be achieved within the given range.
Analysis
Why the present system fails
Council Tax was introduced in 1993 as a hurried replacement for the Community Charge / poll tax. It was always a compromise: part property tax, part head tax, banded rather than proportional, and based on a snapshot of values taken in April 1991. More than thirty years on, those bands have become absurd. The Institute for Fiscal Studies estimates that at least one half of properties in England are now effectively in the wrong Council Tax band. A semi-detached house in Reading that was worth £80,000 in 1991 may now be worth £450,000 and pay Council Tax in the same band as a near-identical house that has risen less. A £3 million home five miles away sits in Band H and pays no more than a Band H home worth a third as much. The tax is regressive: as a share of property value it falls more heavily on lower-value homes, and as a share of income it falls more heavily on lower-income households.
Business Rates are, on paper, a tax on the rental value of commercial premises, which is closer to the right idea – but, because they tax the whole property including the building, they penalise any shopkeeper who refurbishes, extends or invests. A landlord who lets a unit stand empty pays reduced rates; a tenant who opens a shop pays the full whack. The result is the familiar blight of boarded-up high streets from Salisbury to Southampton, while the landowners who hold those units wait patiently for prices to rise.
Both taxes share a deeper flaw: they treat land and buildings as a single thing. Yet the two are fundamentally different. Buildings are made by people; land is not. Buildings depreciate; land appreciates, largely because of what the surrounding community does — the school that opens, the railway station that reopens, the park that is protected. Under the present system, the public pays for the improvements and the landowner pockets the uplift.
What a Land Value Tax looks like
A Land Value Tax is a recurring charge on the annual rental value of a plot of land, assessed as if the land were bare and available to its existing permitted use under the current planning framework. It is not a tax on buildings, nor on the business or household that occupies them. It is a standing ground-rent payable to the community, in recognition of the fact that the vast majority of the value of a plot is effectively created by the community – through public infrastructure investment, planning rezoning, and population growth – rather than by the titleholder.
The base is the Annual Rental Value (ARV) of the site. Competent valuers can determine the ARV of any plot in Wessex using the same methods already used to value commercial rents, agricultural tenancies and residential ground rents. Similar systems are already in use in Denmark and Estonia. Unlike the 1991 capital valuations that underpin Council Tax, ARVs can be updated frequently — annually, in the digital age — without upheaval. A map of Wessex divided into valuation zones, with a published ARV for each zone and each permitted use, is well within the reach of a competent regional administration.
Since site value, not building value, is the base, a family who extends their kitchen, installs solar panels or converts a loft will not see their bill rise. A household, however, that sits on a large development plot while the town around it builds new schools and roads, and whose land rises in value, will pay accordingly. This ‘unearned’ uplift is recaptured for the public, rather than siphoned off to private hands while the lowest earners continue to pay the same or higher rates.
Local variation in rates
A single regional rate would be a blunt instrument; wildly variable local rates would lead to a divided region. Our proposal is that a rate range would be set region-wide – on aggregate 30% capture of annual rental value in Wessex would be needed to replace Council Tax and Business Rates, so a range from 10-50% would give broad leeway to local authorities to set their own rates within this. WR would also devolve to local authorities the ability to vary the rate applied to various types of plot, within parameters agreed by the regional government.
As such, three kinds of variation are envisaged:
- Vacancy: long-term empty homes, second homes, derelict buildings and vacant commercial sites should attract a higher multiplier than otherwise-comparable plots in use. Land value tax already disincentivises speculation, but this effect can be enhanced with these variable rates: it directly addresses the perverse incentive that currently rewards landlords for keeping high-street units empty.
- Social and environmental desirability: where a local authority wishes to reward a particular, socially-beneficial use — genuinely affordable housing, community-owned premises, a site managed to a recognised environmental standard — it may apply a lower multiplier. Reductions in revenue on this side, would be recovered from the vacancy multiplier, on the other, in the same area.
- Geographic: as above, individual councils would be able to adjust their rates within the 10-50% band, as needed where local land values vary.
The Wessex Assembly would have the power to intervene to mandate high-value localities to pay towards a regional pot for redistribution, where and only where this range would be insufficient to replace existing council tax/business rate revenue in a single council.
Deferral schemes for the cash-poor
One concern with the implementation of Land Value Tax is that cash-poor, asset-rich individuals and families may find themselves paying more tax where land value has risen around them through no choice of their own. WR would allow councils and local authorities to implement their own schemes for deferred payment of LVT – until death or resale of the property – for those deemed to be cash-poor, asset-rich – particularly the elderly, pensioners, and those with long-term health conditions.