HCLG: Local Government Finance
The Housing, Communities and Local Government Committee invited evidence to be submitted before 27th January, 2025.
Below is a personal response sent by one of our contributors.
In my own Local Authority, South Derbyshire, a small fairly dilapidated cottage has recently been sold and pays £2154 on Council Tax Band D in 2024/2025. In Westminster a house on Band D would pay £973 and a mansion which recently sold for £95 million on Band H would pay £1946.
Something is seriously wrong.
Westminster is a wealthy and compact area with relatively low calls on its services. Rural authorities have to provide services across large areas and LAs with areas of severe social deprivation have very high calls for services.
This is unfair.
On average Local Authorities receive only 37% of their funding from Council Tax, 10% comes from their share of Business Rates and the remaining 53% comes via grants and other sources.
Almost all the services LAs are required to deliver are defined by national legislation yet over the last decade or more LAs have seen their funding drop by over 40% in real terms causing them to dig into reserves, to sell-off publicly owned property, to reduce services and to find other ways to raise cash.
LAs should be 100% funded by national government.
The only simple and fair way to do this would be to replace all property taxes with a nationally determined, nationally collected, flat rate Land Value Tax, paid by the freeholder, on the open market value of all land with no exceptions.
I have recently read the Revenue Budget Report 2024-25 published by Derbyshire County Council and the thing that leaps out from the 149 pages is the ludicrous level of complexity. I have been in business for over 40 years and it is obvious from reading this document that the items covered have grown up piece-meal over many decades – it is a mess – I would fire anyone who presented me with such a mess.
This is NOT a criticism of Derbyshire County Council – over the 50+ years I have lived here I think they have done very well with the resources they have available. This is NOT saying I am happy with the level of service provided (far from it - everything from the closure of social care services to potholes is a disgrace and organisations dependent on LA grants are closing every day), it is simply that I understand the position they have been forced into by governments of all parties.
I have been in business long enough to recognise that there are times when it is best to scrap what exists and start afresh. I think now is that time with LA funding.
Replacing all property tax with Land Value Tax would be simple (it’s the same percentage on the value of all land with no exceptions), fair (those with the most will pay most and 83% of us will pay less) and it is impossible to avoid – you can’t hide land!
LVT would also be the first genuine move towards “levelling up” (the rest have been politically motivated sticking plaster). It would provide the same levels of service nationwide and would be a huge step towards resolving the North South Divide where wealth is concentrated in the South East.
As well as providing 100% of LA funding it would also spread economic development more fairly since business will go where costs are least – and these will be areas where LVT is lower because land values are lower.
In addition to the same LVT rate nationwide, LAs will be free to add supplements to deal with things such as holiday homes, second homes, airbnbs, land held by overseas entities etc. This will provide them with the funds to build homes for local people at affordable rents.
All the objections to LVT are dealt with on the web site:
landvaluetax.co.uk
and the only objection that frightens politicians is what to do about the tiny minority (under 1%) who will pay over 10% more than they currently pay in Council Tax. These people tend to be large and powerful landholders or located in the wealthy parts of the country where land values are high.
There are two simple ways to overcome this objection and to mitigate the effects of LVT.
LVT can be phased in over ten years (just as MIRAS was phased out over ten years) so there will be no sudden changes and people, and the market, will have time to adjust.
Those who genuinely cannot afford to pay the difference between Council Tax and LVT can defer payment of the balance until the property is sold or transferred.
No one will have to move home because of LVT.
LVT will also be a major cost saving since instead of being collected by over 300 LAs it can be collected by HMRC and there will be no need to chase the churn of “occupiers” since LVT is paid by the freeholder not by tenants.
Once valuation is done (by the Valuation Office Agency which has done the job in the past and currently handles valuations for Council Tax and Business Rates) it will have far fewer appeals than Council Tax and it will have no exceptions. No exceptions means no loopholes and no tax avoidance industry finding ways to avoid payment. Land cannot be hidden in a tax haven, the freeholder is known (recorded by the Land Registry) so LVT is impossible to avoid.
Collecting a tax is entirely separate from how government spends. There need be no reductions in LVT for any reasons and those who require help can be covered in other ways such as through the benefit system.
LVT is in use elsewhere in the world and the most obvious example is right here in the UK.
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.
Anders pays LVT on his land in Scotland. The LVT goes to Denmark, not to Scotland. Denmark uses LVT, Scotland doesn't. Danish families benefit from LVT paid on Scottish land. Denmark publishes freely available maps of who holds land, along with its value, and it updates those maps every day!
Is there any reason why we don't do the same while providing 100% of the funds LAs require?
Please see the landvaluetax.co.uk web site for more details about LVT, answers to frequently asked questions and responses to all known objections to LVT.