TP5. Transport and Communications – Who Benefits and Who Pays?

The Problem – Transport and other forms of communication are among the most important factors in determining where a person is willing to live or to run a business. Any estate agent’s literature shows how important access to bus and train services, shopping centres, schools, good roads and recreation facilities are to the potential house buyer. Businesses are even more acutely affected by communications and transport – not just by major features but by minor matters as well. Moving a bus stop fifty yards along a road, or prohibiting parking, may make the difference between prosperity and ruin for a small shopkeeper.

Changes in transport and communications benefit some people, but they sometimes disadvantage others. A bypass is likely to benefit householders in the town because traffic congestion will be reduced – but it may damage shopkeepers and hoteliers who rely on casual trade. A new airport runway, designed to increase the number of flights, will benefit people who want the extra services, but it may blight homes situated under the flight path.

Usually the improvements only benefit a small proportion of the taxpayers who are ultimately paying for them, while people who were never intended to be beneficiaries at all make a huge profit. To give one example, the extension of the Jubilee Line of the London Underground to Canary Wharf was funded out of general taxation. People who never visit that part of London derived no benefit at all, yet lucky nearby landowners benefited by nearly £3,000 millions – though many of them never use the Jubilee Line at all.

All these changes are reflected in the value of sites. People say that the prices of “houses”, “shops” or “factories” are altered. That is an over-simplification. The price of the materials of which these structures are built is hardly affected at all. What alters is not the value of the bricks and timber and other equipment, but the value of the site on which the building stands.

No proper mechanism exists today either for compensating people who lose by such changes or for collecting revenue from those who make windfall gains which they have played little or no part in creating. True, people whose whole property has been taken away (e.g., for a road widening scheme) do receive compensation. On the other hand, somebody whose business is damaged by construction of a bypass, or whose once quiet home is disturbed by a new motorway a few yards distant, usually receives nothing. This is clearly unjust.

Changes in transport and communications often produce a very long-term effect indeed. In 1841, a rail link was established between London and Brighton. At the time, a good many people at both ends of the line benefited, vvhile a good many other people suffered from the effects of dirty, noisy trains. Those gains and losses largely continue to this day. Land values at both ends of the line, and all along its length, are still affected by something that happened more than a century and a half ago.

By the same token, closure of railway lines or bus routes also affects land values. When railways were shut down in the 1960s under the Beeching schemes, shopkeepers and hoteliers foundered in the regions which lost their rail services, while shopkeepers and hoteliers profited in places vvhich kept their rail links.

Public attitudes have changed dramatically since Beeching’s time. Most people now regard it as desirable that more use should be made of public transport to reduce congestion and environmental pollution from private cars, yet the road and rail companies argue that they cannot substantially improve services because the extra revenue would not meet the cost. Sometimes the dilemma is met by subsidising transport out of public funds. The old question arises: who benefits, and who pays?

A new approach

All the various changes in transport and communications affect one measurable item: land values. Sometimes they increase the value of people’s land, sometimes they decrease it.

This points to a way of ensuring that people who benefit from changing land values pay for the benefit they receive, while those who lose are compensated for the loss. At the same time, the burden which falls on the general taxpayer for making the changes will be greatly reduced and perhaps removed entirely.

The way of doing this is called Land Value Taxation, or LVT.  Under LVT, the site value of every piece of property would first be assessed. This assessment would not include the value of any building or other development on the land. A tax would then be levied in proportion to that valuation. At the same time, existing taxes such as income tax or VAT would be reduced.

The effect of LVT would be to deal automatically with the gains and losses occasioned by changes in transport and communications. Where there is a benefit, the valuation will rise, where there is a loss it will fall. LVT would be collected on a periodic, probably an annual, basis and it would be necessary to make frequent revaluations to ensure that changes were taken up as they occurred.

There is every reason for thinking that improvements in transport and communications will result in far more increases than decreases in land values. When these increases are creamed off by LVT, this will usually suffice to pay for the development and eventually yield a profit. Thus the ordinary taxpayer will be repaid for the investment in improvement. There will be no question – as there is today – of people paying money to provide transport improvements from which they derive only marginal benefits, or none at all – or even from which they actually lose.

LVT is based on a fundamental principle. When people derive benefit through some activity in which they have played no part, they ought to pay for the benefit; while when they sustain a loss they should be compensated for the loss.

Other benefits

In other Topic Papers in this series, we show that a great many other benefits will accrue from LVT, quite apart from the much wiser and more just way of paying for transport and communications