HCLG: Land Value Capture
The Housing, Communities and Local Government Committee is inviting evidence to be submitted before 25th March, 2025.
Below is a personal response sent by one of our contributors - the headings match the requirements outlined here.
How effective and efficient are current mechanisms of land value capture in England?
Both of the current mechanisms (S106 and CIL) requiring developers to contribute to local infrastructure are insufficient and relatively easy to circumvent. The absence of new medical centres on new developments is one of the most visible examples along with the industry that has grown up to advise developers on how to avoid their obligations.
The major developers in the UK have deep pockets and access to far more resources than local planning departments which now have insufficient staff and legal expertise to ensure that infrastructure obligations are bullet proof against future changes.
What alternative methods of land value capture might be most suitable for England?
An annual, flat rate, nationally determined, nationally collected, percentage tax, paid by the freeholder, on the open market value of all land, with no exceptions would capture all changes in land value as they occur and would be be simple to implement, fair and impossible to avoid
Would alternative mechanisms of land value capture deliver more affordable housing and public infrastructure than the current section 106/Community Infrastructure Levy regime?
Land Value Tax would replace all current property taxes and would ensure that local authorities have the funding to meet whatever obligation are placed open them and to meet the needs for new infrastructure as development is planned and implemented.
Attempts to capture land value on new developments, such as S106 and CIL, have failed at least since the end of World War II because of the power of developers and their ability to get round obligations. A Land Value Tax would make such measures unnecessary by enabling LAs to determine and fund whatever infrastructure is required.
Removing the Right To Buy, and allowing LAs to “Borrow To Build, would ensure that LAs have the funds to create the low cost social housing we need. Right To Buy has transferred over 40% of ex-social housing into the hands of private landlords and resulted in the current shortage of social housing at affordable rents.
“Affordable Housing” has never been “affordable” and, like other interventions in the housing market, such as “Help To Buy”, has artificially increased overall housing costs and boosted the profits of developers.
Land Value Tax makes it unnecessary to interfere with the housing market and would capture the increased value of land at every stage during development: from agricultural land, to “hope” land, to zoning, to planning and to final sale. At each stage, as value increases, so does the LVT captured.
This has the added advantage of ending land banking because developers will be paying full LVT and will be incentivised to get work done.
How could the benefits of alternative mechanisms of land value capture be realised across England, including regions with lower average land values?
The Land Value Tax percentage rate would be the same across the UK and would be collected centrally by HMRC – a massive saving over the 300 plus LAs that collect Council Tax.
Unlike S106, CIL (and many other taxes) Land Value Tax is impossible to avoid because land can’t be hidden off shore, we know who the freeholder is, we know the value of the land and there are no exceptions.
The revenue from Land Value Tax would be distributed according to need so those rural LAs where services are spread across wide areas, or LAs with particular needs as a result of social deprivation or lack of economic development, would receive full funding for all the services they are obliged to provide.
Regions with high land values will pay more, those with low land values will pay less. This in itself will help to spread economic development throughout the country since business will always go where costs are lowest.
What are the economic and practical opportunities and challenges of pursuing land value capture policies in England?
The only realistic objection to Land Value Tax is a political one – how do you get those in high value areas, who will pay more in LVT than they do in Council Tax, to agree?
Similar concerns were raised when, through phasing out over ten years, both the Conservative and Labour Party governments brought an end to Mortgage Interest Relief at Source (MIRAS).
There are three responses to the objection:
The Utilitarian Principle states that "The most ethical choice is the one that will produce the greatest good for the greatest number." Creating a fairer society, where those with the most, contribute most, requires change, but should a tiny minority stand in the way of something that benefits the overwhelming majority?
Land Value Tax would be phased in over ten years so there would be no sudden changes and there would be plenty of time for people and the market to adjust.
Those who genuinely cannot afford to pay any increase in Land Value Tax over Council Tax will be able to defer payment of the balance until the property is sold or transferred.
No one will have to move or lose their home because of Land Value Tax.
What mechanisms of land value capture have been effective internationally?
The Danish billionaire Anders Povlsen built up the worldwide Bestseller retail chain and holds over 220,000 acres of land in Scotland where he is committed to environmental protection and wildlife introduction.
He pays LVT on his land in Scotland and the LVT revenue goes to Denmark, not to Scotland because Denmark uses LVT but Scotland doesn't.
Danish families benefit from LVT paid on Scottish land and Denmark publishes freely available online maps of land holdings and their value - it updates those maps every day!
Denmark, like other Scandinavian countries, manages its natural resources for the benefit of all citizens, not just for the wealthy minority.
Land is owned by us all through the crown and, according to the Office of National Statistics, is our most valuable asset – representing over £7 trillion out of £12 trillion of our national wealth.
Should reforms to land value capture be pursued through changes to the current section 106/Community Infrastructure Levy regime, or by introducing a new mechanism?
S106 and CIL, along with all artificial interventions in the housing market, would become unnecessary following the introduction of Land Value Tax and the full funding of Local Authorities who are in the best place to determine what infrastructure changes are required for new developments Full funding, along with Borrow To Build, would ensure they have the money to provide everything required.
What changes to planning law and guidance would be needed to introduce a new mechanism of land value capture?
Land Value Tax captures all changes in land value and does not require changes to planning law and guidance.
Would new methods of land value capture be compatible with human rights legislation, regarding property rights?
Land Value Tax has no implications for human rights legislation, property rights or privacy rights.
Details of land holdings are maintained by the Land Registry and the data is already publicly available. The Land Register, currently 89% complete, will have to be completed and land values will have to be added by the Valuation Office Agency - a task it has done in the past and which it currently does for Council Tax banding and business rates assessment.
Land Value Tax will not require any changes to land holding rights under freehold or leasehold.
How could different mechanisms of land value capture complement the Government’s ongoing planning reform agenda, including delivery of New Towns and the release of ‘grey belt’ land for development?
Land Value Tax is independent of whatever decisions government makes to provide land for development.
Land Value Tax removes the need to reform or replace artificial (and failed) mechanisms, such as S106 and CIL, since it provides funding for LAs to create the necessary infrastructure required alongside developments large or small.
Overall, would reforming land value capture support or distract from the Government’s target of delivering 1.5 million new homes by the end of this Parliament?
Land Value Tax simplifies everything: it scraps existing unfair taxes, it funds LAs to provide infrastructure and social housing, it ends land banking and profiteering, it redistributes economic development and it enables the government to work alongside LAs to determine where new developments should take place.
Putting LAs in charge of creating local infrastructure, and providing them with the funds to do so, will go a long way towards making the cooperation between local and national government run smoothly – and reduce some of the objections LAs have towards being dictated to by central government – they will know where the money is coming from to do their job!
Speculation increases the cost of land which has become the major cost in creating new homes. Land Value Tax captures all changes in land value as soon as value changes and the revenue generated allows LAs to provide the services we all share.