When the current Chancellor, Sajid Javid, was responsible for housing policy he proposed a “tax” on the huge uplift in value that occurs when land gets planning permission:
In some places, especially the South East, go-ahead from the planners can mean that the land suddenly becomes hundreds of times more valuable. This a massive windfall for some lucky farmer or wily speculator. Javid’s plan was to split the uplift 50:50 between the landowner and the state.
It never happened, apparently because Theresa May blocked it. But is it a good idea?
Well, it’s better than nothing, but it’s quite literally a half measure. The uplift in value is entirely created by granting of planning permission. From a landowners’ perspective it is entirely unearned. If it’s wrong for them to get all of it, then why should they get half of it? Effective marginal rates on earned income can be higher than that.
At most, landowners should get a low multiple of the agricultural-use value — and everything above this limit should be used to tackle the housing crisis and to ensure that all new development is both beautiful and sustainable.
The other big hole in Sajid Javid’s 50:50 tax is that land value uplift issue doesn’t just occur when land is first granted permission for development. All sorts of things can push up the value of already developed land — for instance investment in new local transport systems or the fact that a particular area has become a hub of enterprise. It doesn’t matter if you’ve done nothing to contribute to these success stories, if you just happen to own property in the area, then you get to profit from other people’s hard work and investment.
Only something like a land value tax can ensure that what Winston Churchill called the “unearned increment” benefits the common good.
I hope that Boris Johnson not only reverses his predecessor’s policy, but goes much further and embraces the Churchillian principle of land value taxation.