Last September, The New Statesman launched a campaign for land reform with a flurry of thought-provoking articles arguing that movement to a more just and inclusive society is impossible while land ownership remains so unequal. Introducing the campaign, an editorial suggested "this ought to be natural territory for a third-term Labour government". As none of the major parties mention land reform in their election manifestos, the campaign clearly has some way to go. But if a three-term Labour government is to leave any permanent legacy of improved social justice, the land question must be forced onto the political agenda during the lifetime of the next parliament.
Recognising the obvious inequity of 70 per cent of land in Britain being owned by less than 5 per cent of the population, two types of solution were offered in these pages last year: the imposition of a land value tax, and radical changes to the planning laws. These are not mutually exclusive alternatives however, both would be key elements of a progressive land policy. But popular support for either is unlikely without greater understanding among the electorate - and among politicians and the economists who advise them ---- of the impact of concentrated land ownership on the capacity of the economy both to generate new wealth and to assure its equitable distribution.
It was David Ricardo, a close contemporary of Adam Smith, and a key figure in classical economics, who first demonstrated the consequences of concentrated, or monopoly, land ownership in a free market economy. His Law of Rent explained how, as the economy advances, a growing proportion of the additional wealth generated is allocated by the market mechanism to the owners of land as 'economic rent' at the expense of the providers of capital and labour. If people are denied access to land, they are left with no option but to work for someone else, and entrepreneurs need only pay the minimum necessary to attract workers from a large pool of landless labour. An alliance is thus forged between landowners and capitalists which ensures most of the spoils of economic advance are divided between them, while the landless majority - those who commit most of the labour effort - are left poor, insecure and often destitute. Ricardo's analysis persuaded him that poverty, and a growing gap between rich and poor, were inevitable side-effects of the free market, and his pessimistic conclusion has coloured economic thinking ever since.
The market economy emerged from the industrial revolution unchallengeable. It was the unfettered workings of the free market that had enabled the creation of such immense wealth in so short a space of time. Landowners and the new industrial middle class routinely blocked any legislation that threatened either the hegemony of the free market or the privilege of monopoly land ownership. It was left to the early Fabians to point out that the dreadful poverty of the masses which accompanied industrialisation was a direct consequence of Ricardo's law of rent in action. In recognition of this, there was great support among early socialists for land nationalisation, but it was Henry George's idea of a tax on land values which would become the focus of legislative efforts to address land monopoly and its consequences.
George argued that the economic rent received by landowners was an unearned income. In prosperous times, a landowner need do nothing with his land and still enjoy an increase in its value, simply as a consequence of a dynamic and expanding economy. This unearned income was, in reality, the result of the combined efforts of all who worked, but instead of being returned to individual providers of labour and capital in proportion with their relative contributions, it ended up on the balance sheets of landowners. George believed this unearned income should be treated as common wealth, and shared among all members of society. To this end he proposed that land values be collected through a tax on economic rent. This would not only force landowners to make their land available for productive use, but would ultimately lead to a more equitable distribution of land among the population, and reverse the trend whereby wages were forced down.
George's proposal was not for an additional tax. He believed that a tax on land values could ultimately replace taxes on incomes and profits which, as most business people and economists are quick to point out, act as a constraint on economic activity. His mechanism was designed to remove an inherent imbalance which had, since the dawn of agriculture, left the economy unable to provide sufficient opportunities for gainful employment. Under these conditions, not only was poverty inevitable, but the extent of poverty was bound to worsen with economic advance. And so today, among the developed nations, we see the greatest poverty and inequality in the richest country: the United States.
There were several attempts to introduce a land value tax in Britain in the early part of the last century. In 1909, the House of Lords overturned a 250 year tradition by rejecting Lloyd George's budget because it contained provision for a land value tax. The showdown between the Lords and the Commons eventually resulted in the passing of the first Parliament Act in 1911. In the decades that followed, interest in George's solution declined in the face of growing demands for immediate action to relieve the suffering of the poor. This was reflected in the replacement of the Liberals by Labour as the party of social justice. Nonetheless, Labour chancellor Philip Snowden's attempt to introduce a land value tax in his 1931 budget very nearly made the statute books, only to be scuppered when a run on the Bank of England's gold reserves persuaded many Labour MPs that it would not be wise to pilot a scheme which had yet to be properly tested, in the midst of a severe depression.
Given what Ricardo taught us about the inevitable consequences of land monopoly in a free-market economy, there are two ways to tackle poverty. The first is to tax those with sufficient incomes, in order to provide for those without, and to otherwise interfere in the market to reduce the polarising effects of economic advance. We know this reduces economic efficiency, causes resentment in those who work hard, and often breeds alienation and despair among the excluded. The second option is to arrange the economy so that everyone has access to sufficient economic opportunities to provide for themselves. Collecting economic rent through a tax on land values would not only facilitate this economic reconfiguration with the minimum of pain, it would provide considerable public revenue to fund those economic functions which are not well suited to private provision, and also enable investment in infrastructure projects which benefit everyone. Land value taxation (LVT) is not a form of land nationalisation; it is a mechanism which ensures the economic value of land and natural resources is distributed fairly among the population. What possible moral argument is there for the current entitlement of a minority to the vast unearned, untaxed wealth which comes with land ownership?
In the twentieth century, aided by the dubious teachings of neo-classical economics - which generally ignores the implications of Ricardo's law - all the western industrialised nations chose to tax incomes and profits, and to leave the economic rent of the landowner completely untaxed. Today, the social fabric is held together by tax-funded public spending, and political debate focuses on how to reconcile the twin objectives of improved public services - which voters increasingly demand, and economic growth and stability - which society requires, but which is undermined by the demands of conventional taxation. The debate rages on as if there were no alternative.
The landed aristocracy which blocked Lloyd George's attempts to introduce LVT has now been ejected from the upper chamber, but the electorate seems no closer to recognising the transforming potential of taxing land values. Other forces are clearly at work to keep the idea of land reform off the political agenda, but whereas only a few years ago anyone suggesting LVT as a solution to social and economic problems would not be taken seriously, there are now clear signs of a shift: The Green Party has already made LVT a central plank in its strategy for improved social justice and environmental sustainability, media coverage is on the increase, and word even seems to have penetrated the corridors of power:
In her 2004 Review of Housing Supply, Kate Barker suggested that LVT was "a good method of raising revenue, without distorting behaviour." Unfortunately, instead of picking up on this observation, the Treasury appears more keen on her proposal for a planning gain supplement, which is simply a fresh dressing for the failed development land taxes which were attempted four times between 1947 and 1976. In terms of encouraging socially and economically productive land use, LVT and the planning gain supplement are quite different creatures: LVT forces unused land into use by charging the landowner regardless of whether he does anything with his land: in order to avoid a loss, he must either sell up or bring his land into productive use. The planning gain supplement charges developers as soon as they are granted planning permission; in many cases it would encourage landowners to sit tight and watch their land appreciate, and it would actively discourage new house building, especially of affordable homes.
The current housing crisis is a consequence not only of Ricardo's law in action, but also of planning regulations which restrict the amount of land available for housing or commercial development to less than 7 per cent of the total. By restricting the amount of land for development, only the wealthy minority derive any benefit, in the shape of accelarated increases in land values. Current planning laws are designed to satisfy the aesthetic imperative to preserve the countryside, instead of the moral imperative that everyone be entitled to adequate and secure housing. Social justice requires us to transcend our 'nimbyist' tendencies. Even in this densely populated country there is no shortage of land. We could easily quadruple the land available for development and quadruple the amount of space set aside for national parks. Let us not forget that most of those who argue against development in rural areas - be it new housing, new enterprise, or wind turbines - -- come from that privileged section of society, members of which are able to choose where they live. Why should their objections be pandered to when a million children in Britain suffer inadequate housing?
Land value taxation does not just offer a solution to the housing crisis, and provide a means of funding public services at levels sufficient to ensure the quality of service we now demand, it also offers the basis for a new model of economy in which everyone has a stake, and in which the economic interests of no one need be subordinated to those of the super-rich elite.
It is symptomatic of an immature democracy that come election time, no ambitious politician dare argue the need for radical change to economic arrangements or social institutions. All parties make great play of their desire for greater economic inclusion, but none will acknowledge that these aspirations are quite unrealistic without structural and institutional change. That change has to begin with land reform because land is the foundation upon which the economy is built. The arguments for land reform, and the economic theory behind them, are not complex. Very few people stand to lose from the introduction of LVT and changes to the planning laws; many millions stand to gain. Democracy is supposed to serve the interests of the majority. Currently it does not, but if all those who would benefit from land reform became aware of the possibilities, things could rapidly change. It may not figure in this election, but during the lifetime of the next parliament, by the end of which all parties will be in desperate need of new ideas, its time may finally come.