Why Rachel Reeves Should Implement a Land Value Tax – A Wealth Tax That’ll Actually Work

With Budget speculation brewing ahead of the Autumn Statement, many tax ideas will be thrown around - ten a penny. And before you stop reading under the sigh of “not another one!”, wait: I’ll explain just how much of a no-brainer this one is.

Murmurings that the Budget is set to include additional higher bands of council tax are welcome ones, but it's only plaster sticking on what is a broken and fundamentally regressive tax hastily cobbled together from the ashes of the dreaded poll tax. A few more bands won’t fix the core issues.

Without going into too much detail, as the value of a property gets higher, the rate of council tax paid as a percentage of the property’s value goes down. In a world where local authorities have stretched budgets, increasingly delivering more services to people with no property at all, especially in SEND and social care, the argument that councils should be funded by regressive property taxation becomes more repulsive.

A Land Value Tax (LVT), on the other hand, is levied as a percentage of the undeveloped rental value of any piece of land. It’s proposed as an alternative to council tax, business rates and stamp duty (and by some, even other kinds of tax). It’s often described by economists as a “perfect tax” across the political spectrum, but most notably for Labour, one of its biggest proponents is the now Welsh Cabinet Secretary for Finance and former First Minister Mark Drakeford, who has been a long-time advocate. In June, he launched a feasibility study on its implementation. It’s described as a “perfect tax” for a few reasons:

1. It’s progressive, unlike council tax. The higher the value of the land you own, the more you pay. Furthermore, it’s charged to the owner of the land and not to tenants.
2. It doesn’t create disincentives for legitimate growth. Private owners will be incentivised to bring disused properties back into use and develop them if required. It also better incentivises public investment in infrastructure, as this increases the value of the land around it and would, in turn, boost the tax take. Infrastructure projects could pay for themselves in many cases.
3. It’s almost impossible to avoid or evade, and there’s no need to guesstimate what the revenue will be. You can’t hide land or move it offshore and we already have a registry of who owns what and where. The supply of land is finite (unless we plan on reclaiming land from the sea). If you decide to sell it, the buyer will pay the same tax. As such, it is financially sustainable. Let’s not forget that land is wealth too, and an LVT would address the many practical concerns around blanket wealth taxes.

In practice, this will go a long way to restoring high street retail, creating jobs in every community both now and into the future, and will be one of the many prongs we need to address the housing crisis. It means a system where those who rely on benefits to get by won’t have to spend a huge proportion of them on council tax, where locally delivered council tax support schemes are inadequate. It also means higher-quality locally delivered services:

Drakeford has not only advocated its fairness but also framed LVT as a solution to an issue that has plagued the English side of the Severn Bridge for a long time. Many councils have racked up huge debts. Couple that with some poor local decisions as well as a pandemic and you end up as we do now, with some councils asking for over 10% increases to their council tax and the government’s announcement that it will write off £500m of Woking Council’s debt, of which it had racked up over £2bn during the Tories’ administration.

Frequent council bankruptcies and debt bailouts are certainly no sign of a sustainable system of local government finance. It’s one of many huge messes that 14 years of Conservative (and Lib Dem) government has left us to clear up, but we’re not going to fix it with regular “exceptional” interventions or fiddling with a few funding formulae.

When we’re faced with big political problems, a good question to ask is “What do other countries do?”. Look beyond Wales, where a truly progressive Labour government has been the lead of Westminster in several ways in the past, and I can count no fewer than 12 countries across the globe (including Australia, Denmark and Germany) where at least some part of it raises an LVT, and it’s increasing.

Furthermore, the government’s English devolution agenda could really be underscored here by allowing every local authority some real liberty to make local tax choices. The Tories’ legacy has left them with only the illusion of choice: raise council tax by the maximum amount allowed, as demand for services outstrips the funding sources. The government could add varied rates to LVT to address some of the pressing issues that we face, such as lower rates for agricultural, residential or highly biodiverse land.

While the practical outcome of Drakeford’s study is likely to only come after the 2026 Senedd elections, the Labour Government in Westminster has the time, and not to mention the parliamentary majority, to undertake an ambitious and progressive reform that the challenges of our day require. And before you think an LVT would be politically unpopular, even the Senedd Conservatives themselves agreed that council tax is too regressive and not fit for purpose. 

I say it’s high time we seized the moment. Campaigning on the doorstep, more often than not, the things people talk about are the services their local council delivers. Fixing our broken local and property taxation system is not only progressive and necessary, but it will also be hugely popular when the majority of local residents see they’re paying less and getting more from their councils for it. Chancellor Reeves, before you sigh, “not another one of these tax ideas”: this one looks like a goer.

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Cllr Cai Parry is a member of the Open Labour National Committee and is a Councillor on Runnymede Borough Council. Beyond this, his day job focuses on policy in the Adult Social Care sector, and he’s a member of the Young Fabians and Labour Students Executives.

All blog posts represent the views of the author alone and not necessarily those of Mainstream.