On the other hand, the Committee were assured that, given a charge on the increased value of land likely to be created, there would be no difficulty in obtaining the necessary funds without Government assistance. When the pressure of the unemployment problem became acute, and not before—and then it was, of course, too late—the Government turned their attention to this problem, and have guaranteed the interest upon new capital to be expended on a few of these railway extensions, but instead of charging the guarantee upon the increased value of land, they have charged it upon the pocket of the tax-payer. The most striking instance is that of the tube railway from Charing Cross to Golders Green, now being extended under Government guarantee to Edgware. Those who provided the original capital have never received any return upon their money, yet millions have been put into the pockets of the owners of what was undeveloped land now served by the line, and now that the extension is being carried out with the tax-payers’ guarantee, the land-owners will again reap the benefit untaxed.
The development of the natural resources of our country was one of the promises held out by Mr. Lloyd George to the electors in 1918. Schemes were ready, and are still in the official pigeon-holes, for the production of electricity on a very large scale both from water power and from coal, which would not only provide employment, but cheapen the cost of production in all our industries. France, Italy, and other countries are at this moment carrying out similar schemes whereby they will relieve themselves to a large extent from dependence on British coal. But here, four years of Coalition Government have left us practically where we were. In France, although in many respects her social system seems to me less enlightened than our own, the power of the land-owner to obstruct enterprise and development is by no means so great. Land Reform in this country is a necessary preliminary to the fulfilment of Mr. Lloyd George’s promises. Development at the public expense without such reforms will result chiefly in further burdens upon the tax-payer and further enrichment of the landowner.
Rating Relief for Improvements
This brings me to the last, and in my opinion the most important branch of the Land Question, that relating to the reform of our system of rating and taxation. I am myself an ardent supporter of the policy which I think has been rather unfortunately named the Taxation of Land Values. The vital point about this policy is not so much that we should tax land values, as that we should leave off taxing buildings and other improvements of land. The policy would be better described as the Relief of Improvements from Taxation. Its economic merits seem to me so obvious as hardly to require examination. It is only because the present system has been in force for over 300 years that it can find any supporters. If any one were to propose as a useful means of encouraging the steel trade or the boot trade, or as a desirable method of taxation, that a tax of, say, 50 per cent. should be imposed upon the value of every ton of steel or every pair of boots turned out in our factories, he would be rightly and universally denounced as a lunatic. Yet this is the system which ever since the days of Queen Elizabeth has been in force with regard to the building trade and all other industries which result in the production of improvements upon land.
As long as land remains unused it pays no rates or taxes, whatever its immediate potential value. But the moment it is brought into use, as soon as a house, a factory, or a railway is built upon it, or it is drained or planted—rates and taxes, which in these days often exceed 50 per cent. of its improved value, have to be paid, without regard even to the question whether its use is successful in yielding profits or not. Familiarity with this system, instead of breeding the contempt which it deserves, has bred a kind of passive acquiescence which is exceedingly difficult to shake. Even such a champion of our land system as the Duke of Bedford years ago in his book, The Story of a Great Agricultural Estate, perceived the absurdity, although he was apparently blind to the remedy and to the application of it to some of his estates which are not agricultural. He converted an ordinary arable field into a fruit garden, and discovered that his rates were promptly trebled by reason of his expenditure. Striking, but, nevertheless, everyday examples may be found if we see how the system works out in urban districts. If a new factory is built, rates and taxes are immediately levied on the full annual value of the building, which is a direct charge upon production, and has to be paid before a single person can be employed in the factory. It therefore not only restricts the possibilities of employment, but has to be added to the price at which the goods can be sold.
The Lesson of the Slums
Or take the illustration of a slum area. Each tumble-down tenement is rated and taxed on the assessment based upon its annual rental value. In many places in the central parts of towns the total of these assessments is less than the sum for which the whole site could be sold as a building area, nevertheless if all the tenements fall or are pulled down the site may remain vacant for years and no rates or taxes are paid. But if substantial and decent buildings are erected on the site, immediately the assessment is raised to their full annual value. The individual or public body that has cleared away the slum and erected something decent in its place is thus immediately punished for doing so, with the result that such a thing is seldom done except at the public expense. The remedy for all these absurdities is quite a simple one. No one disputes that the sums necessary for municipal and imperial taxation have got to be provided. The question is, in so far as they are to be raised from lands and buildings, how can they be assessed most fairly and with the least injury to trade and commerce? They should be assessed upon the value of land which is not due to any effort of the owner or occupier; they should not be assessed upon nor increased because of any buildings which he may have erected or any improvements which he may have carried out.
This question was closely investigated by the Land Enquiry Committee appointed by Mr. Lloyd George in 1913. They were unanimous in condemning the existing system and in regarding the one which I have just described as the ideal. They were, however, met by great difficulties in its immediate practical application, because, owing to the long prevalence of the wrong system, an immediate and total change would bring about rather startling alterations in the value of existing properties. The Committee closely considered these objections, and a number of alternative methods of bringing the change into operation gradually and without these drastic changes in value were put forward. The one which immediately suggested itself as the simplest, and from many points of view the most desirable, was to leave the rates and taxes of existing properties on their present basis, to impose them at their present rate on the annual value of all unoccupied land, but to exempt from rates and taxes all future buildings and improvements of every kind.
To illustrate the way in which this would work, let us revert to the case of a block of slum property. As long as it remained in its present condition the existing valuation based upon the annual rent obtainable for it would apply, but any parts of it which now are or may hereafter become unoccupied, would, instead of escaping as they do now from all rates and taxes, contribute on the basis of the value of their sites, which would be assessed at an annual rent for the purpose of comparison with the existing valuations, at least until the capital values of the whole rating area could be ascertained. If any improvements were carried out the assessments would not be raised on that account, as they would be under present conditions, and if a whole area were pulled down, replanned and rebuilt, the assessment instead of being based, as it would be to-day, on the annual value of the reconstructed property, would be based upon the site value alone. Gradually in this way site value would become the prevalent basis of assessment. “It is obvious,” as the Committee said in 1913, “that unrating of future improvements is from the economic point of view of far more importance than the unrating of existing improvements; if we want to encourage new buildings and new improvements, what is really important is to ensure that new improvements (not old ones) shall be exempt from the burden of rates.” The Committee were, however, compelled to reject this suggestion at that time on the ground that “it would cause an unfair differentiation between the man who had already put up buildings or improvements, and the man who put up buildings or improvements after the passing of the Act.” But as between buildings and improvements which existed before the war and those which come into existence under post-war conditions no such unfairness could operate, because the increase in the cost of building even to-day is greater than the benefit which would accrue from the unrating of improvements. The present is therefore the unique opportunity for bringing into force this much-needed reform in the most effective way, free from the difficulties which had to be met in 1913. If it had been carried out immediately after the Armistice it would, in my opinion, have done more than anything else to solve the housing problem, and even now it is not too late. In fact, in view of the present unemployment it would be most opportune. Incidentally it would soon render unnecessary the renewal of the Rent Restriction Act. I understand that something on these lines has been introduced in New York to meet a similar problem.