This is sensible from Andy Burnham
This is not to say that Andy is sensible, nor that this idea is going to be well implemented. But as a basic idea yes, this is a good one:
Andy Burnham is set to bring in a land value tax if he becomes Britain’s next prime minister.
Huzzah, etc.
The basic observation is that any and every tax introduces distortions into the economy. Things that do not happen because of the existence of the tax that is. This is known as the deadweight cost of the taxation - things that do not happen because we are taxing. We would prefer to be taxing with lower, the lowest, deadweights. We have a pencil sketch of deadweights too, in ascending order - repeated taxation of unimproved land, consumption, incomes, corporations, capital and then at the very top, the most costly per revenue raised, transactions taxes. So, roughly, land value tax, VAT, income tax, corporation tax, foolishnesses like a wealth tax and proper idiocies like stamp duty.
At the time, Mr Burnham said he would use the revenue of a land value tax to abolish stamp duty altogether.
This is the correct idea, move the necessary revenue raising from a method with very high deadweights to something with much lower. This makes us collectively better off with the same tax revenue. There are claims that LVT can in fact have negative deadweights. So, good, let’s do this.
We do think it unlikely that the implementation will be good, that’s sadly true. The tax should be upon the land plus whatever permissions there are to do something with it. But not upon any buildings or improvements to it. Further, the rate - not the amount, the rate of that value - needs to be the same for all land. An acre of Mayfair, a piece of a farm in Lincolnchire, the scrag end of a heather moor in the Lake District, the public park, the area of outstanding natural beauty, all must pay the same rate. Farmers must be paying just like everyone else - and that part we simply do not see any British government doing.
But, still, the base idea has merit. So, we’re saying so.
Tim Worstall