Every economic crisis in living memory has been preceded by an unsustainable and speculative rise in property values, commercial/industrial as well as residential. The link between property values and bank and building society lending is strong and causal. Excessive lending fuels property prices.

The rise in property prices is in fact a rise in the land element of the price, since the cost of building materials, and builders' wages, has risen hardly at all. An annual tax on the rental value of land would exert a restraining influence on property values and give some control over this key determinant of economic stability.  Such a tax would also cut the ground from under excessive and imprudent bank lending and remove much of the speculation in land.  With LVT introduced to reduce taxes on enterprise and labour, an overall tax increase is not required.

In the present market economy the justification for a rise in prices is that it brings forth increased supply. As the land supply is fixed there can be no such increase. As economists from Adam Smith onwards have recognised, land is a monopoly. Rising property prices therefore serve no useful economic purpose. As such, they are the natural and obvious target for taxation. The LVT thus collected on an annual basis would help to reduce those taxes, many of which are unpopular (e.g., council tax and stamp duty) as well as income tax, national insurance and business rates which directly discourage production. 

LVT is a progressive tax falling most heavily where the benefit to the community is greatest and most lightly where the benefit is least. As the tax is based on permitted land use - not on current use (or non-use) value - LVT will penalise those who hold land out of use. It will therefore encourage land use and stimulate economic activity. With LVT introduced, there will be little or no incentive to speculate in land and hence property.  Much of the credit which currently supports land (property) values would no longer be needed and would be available to finance the production of goods and services.  LVT is easy and cheap to collect and difficult, indeed virtually impossible, to avoid.

In our view the economic case for the introduction of LVT is a very strong one. So, indeed, is the ethical case. Since the community has created the enhanced land value it is only right that the Government (through an annual LVT) collect it for uses, e.g., infrastructure and local services, that benefit the whole community. We recognise, however, that the political basis for taking this forward, while feasible, requires deeper consideration. Within our member organisations (most of which are listed in the left hand column of this web page) there is a wealth of knowledge and expertise on this matter.

Introducing LVT is much more than changing tax it is about fundamentally re-orientating the economy to encourage productivity activity and discourage and minimise "rent seeking" where wealth is acquired meaning through having control without providing any service. The diagram below by Chris Beech attempts to show the holistic effect of the change on the whole economy.

CEJ: Our Mission