21 October 2008

Land Value Taxation Without Valuation

As I've said previously, I like the principle of land value taxation (ideally paid out in full as a citizens' dividend). In discussions I've had with people who aren't convinced by the idea, the major concerns relate to the valuation methodology and the possibility that government corruption could skew the valuation process.

With a statistically based system, working from market data, I believe the potential for government manipulation of the system could be all but eradicated, but I recently came across a brilliant suggestion on Anti-Citizen One's blog which would go one step further and take the government out of the equation completely. The suggestion was to let the landholder produce his own valuation of the land.

Having read the suggestion, here's how I see it working. The government would set the LVT as a percentage of the sale value of the land. The landholder would then have to submit his own valuation saying how much he would be prepared to sell the land for, so if the tax rate was 2% and the landholder valued the land at £100,000 the annual tax bill would be £2,000.

Now, if you are looking at it like I did, you are probably thinking that there is a massive flaw, in that the landholder, unless he is incredibly honest, will value the land at £0. This is the where the next part of the system would come into play. If somebody offered the landholder his stated valuation, he would be obliged to sell at that price, so undervaluing the land he holds would put him in danger of having to sell the land for less than he is really prepared to.

The buyer would only be buying the right to exclusive use of the site, not the previous occupier's property, so the previous occupier would be free to take every brick and plant from the land and leave a completely bare site for the new landholder.

The government would have no involvement in the valuation process, the landholder would be entirely free to produce his own valuation of exclusive rights to the land and the system would ensure that his assessment is honest.

I suspect that this approach might be a bit too radical to introduce as a first step, but it could still be introduced as a back up to a system based on a more traditional valuation system. The government could set the rate of LVT and carry out the valuation, but if somebody felt their valuation was too high, they could set their own instead, on the understanding that they would be obliged to sell to anybody who was prepared to meet that valuation. As a first step I think that would be a good one.


Jock Coats said...

Yeah - Tony Vickers (ALTER Chair) suggestd this a while ago too. I can't put my hands on my copy of his "Location Matters" but I think he mentioned it in that too.

In practice, once the LVT culture is embedded, I don't see valuation being that much of a problem - after all millions of people do self-assessment of income for taxation purposes and the tax authorities seem to cope!

If it is collected at the lowest possible level too - the parish perhaps, then people will knwo fairly well when someone's undervaluing their land!

Thanks for the link to Anti-Citizen One too!

Mark Wadsworth said...

Paul, I know that you are the paramilitary wing of the LVT movement, but this is going a tad too far: if you live in a terraced house or semi or flat, you cannot possibly take the bricks with you.

In the very long run, if you played the game often enough, yes, you would probably come out at the right answer, but there'd be too much aggro in the interim and it would bring LVT into disrepute.

I'd prefer to let the market decide; the insurance/rebuild cost for most sales is recorded anyway, so we knock that off the actual selling price, do the same for all sales within a postcode sector (or whatever smaller unit you choose), average it out over plot sizes and Bob's your uncle.

Paul Lockett said...

I think both approaches have their benefits.

The self-assessment approach has the benefit of being based on an undeniably genuine market valuation, as it would be what the title would exchange for between a willing buyer and seller. It would also allow for more frequent revaluations, as you could allow landholders to change their valuation at any time.

The downside of that is that it requires more input from the landholder than they would possibly want to give.

I'm leaning towards the idea of using the two systems side by side. You could set the LVT according to the assessed valuation, but allow landholders to go down the self-assessment route if they felt that the valuation was too high. That way, the issues surrounding the valuation of plots for which there is a less liquid market wouldn't be such a concern.