TP28. Taxation and the Environment

This mighty burden of taxation means that fewer useful things can be done to help the environment. – Technology and legislation may have profound effects on the environment, good and bad.

Environmentalists, who are vigilant about these matters, have given less attention to the part taxation plays in the destruction or preservation of the environment, yet its role is crucial. Taxation could be beneficial, but current taxes are harmful.

Suppose that a local authority wants to employ somebody to clean up street litter. Unemployed people in the area would gladly do the job for a few pounds an hour. Although perennially strapped for cash, the Council would still be prepared to pay that wage.

Sadly, the Council will also have to pay enough to cover the cleaner’s income tax and National Insurance contributions. All of this enormously inflates the amount that the Council will have to find. A large gulf appears between what the employer must pay and what the employee will receive. Result? The Council will decide not to employ a cleaner. Another potential worker, eager to earn money, will remain jobless, and the streets will remain squalid – to the annoy­ance of everybody in the area. Examples of this kind are legion.

To protect the environment, we need conserva­tion workers. Again, the amount which the employer must pay will greatly exceed what the workers will receive. We need people to conduct research into environmental problems; the same applies, but this time there is more involved. The researchers require apparatus and various other materials for their investigations, and they probably need a car to drive to sites for field work. Purchase of the materials required involves the initial cost, plus a reasonable profit for the manufacturer, plus various taxes which must all be added to their cost. This mighty burden of taxation means that fewer things can be done to help the environment.
But there are also things which are not taxed, which might be taxed with beneficial effect. By far the most important of these is land. ‘Land’, in the sense in which the word is used here, means all natural resources, but does not include ‘improve­ments’ like buildings, crops, machinery, drainage and so on. Most towns have a great deal of unused or under-used land: sites which are derelict or have empty buildings on them, or sites which are not being put to the best potential use – symptoms of ‘inner-city decay’.

When large areas in the middle of a town are held unused or under-used, builders and developers seek land elsewhere. They covet green belt land on the outskirts of the town. Such pres­sure may be resisted, but the pressure will frequently succeed and the green belt will be nibbled away. Why do the owners of vacant or under-used land in the middle of town not release it for development? Often because they hope eventually to sell it for development at a much higher price than it would realise today. In other words, they are speculating on rising land values. These landowners can afford to wait; it costs little to hold land out of use by comparison with the gains they expect to realise in the future.

Suppose, however, that there were an annual tax on all land. Not a tax on the buildings or other developments, but on the site itself, and related to the value of that particular site. This is known as Land Value Taxation of LVT. The owner of vacant land in the middle of a town would pay exactly the same whether he developed it or not.

If other people developed the land around it the value of the site would increase and he would pay more land value tax still. The landowner would be encouraged to put a profitable development on the site in order to meet his tax bill, or else dispose of it to somebody who would.

Landowners can afford to wait; it costs little to hold land out of use by com­parison with the gains they expect to realise.

LVT is also important to protect SSSIs (Sites of Special Scientific Interest) and the like. Today, a landowner will often fight hard to stop his land being designated in that way, because this will reduce his freedom to use it as he wishes, and will also reduce the market price if he decides to sell it. If the land is so designated, the landowner will often allow it to deteriorate, hoping that eventually it will lose its SSSI status. With LVT, he will be automatically compensated for designation as an SSSI because his land tax will be reduced; while he will have nothing to gain from the land becoming more saleable, because the LVT will then automatically increase.

Another aspect of the same problem is the existence of ‘land banks’. Aware that a particular piece of green belt is deteriorating, an environmentalist will try to discover who owns the land. This can prove difficult.

Often the land is part of somebody’s ‘land bank’. A builder or developer has acquired it, knowing full well that it cannot be developed as the rules stand today; but anticipating that, sooner or later, it will be released for building. Not only has he no interest in keeping the land in good ecological health, but he has every interest in allowing it to become derelict; so that, eventually, local people will be quite happy to see it released for building. Even an SSSI may be degraded in this way.

However, suppose that the owner of the ‘land bank’ were taxed on the basis of the site value. He would find himself paying taxes on land from which he was deriving no benefit; and the greater the prospect of development became, the more he would be paying. So – like the owner of the derelict inner-city land – he would have a powerful incentive to release it to somebody who would develop it properly within the limits laid down by green belt law. And, in future, builders would be deterred from cornering land for ‘land banks’.

So LVT will help the environment in several ways. It will become possible to reduce the various taxes which prove to a greater or less extent harm­ful to the environment, without an overall loss of revenue. LVT will simultaneously encourage people to make the best use of their land within the limits imposed by planning law.

LVT will also reduce the pressure on planning authorities to encroach on the ‘green’ environment. And LVT will make planning law more just, for it will ensure that planning decisions no longer result in disastrous losses or unmerited windfall gains.

Suppose, however, that there were an annual tax on all land. Not a tax on the buildings or other developments, but on the site itself, and related to the value of that particular site. This is known as Land Value Taxation of LVT. The owner of vacant land in the middle of a town would pay exactly the same whether he developed it or not.

If other people developed the land around it, the value of the site would increase and he would pay more land value tax still. The landowner would be encouraged to put a profitable development on the site in order to meet his tax bill, or else dispose of it to somebody who would.

Further reading

Ronald Banks Editor, Costing the Earth (Shepheard-Walwyn, London 1989. This contains several aricles on environmental questions including Fred Harrisons “Ecology, plitics and the nature of rent”, also Duncan Pickard, “Farm, Wood and Forest Land” etc)

Richartd Body, Our Food, Our Land. Why contemporary farming practies must change (Rider, London 1991)

Graham Harvey, The Killing of the Countryside (Vintage 1997)

Marion Shoard, This Land is our Land, The struggle for Britains countryside(Gaia Books 1997)