Switch to land tax
17 March, 2017
• PEOPLE who run small businesses in Islington and who from April face massive increases in business rates imposed by central government, as well as ordinary people who will end up paying the extra taxes through higher prices, might like to consider the benefits of switching to a land value taxation (LVT) system, as advocated by the Green Party and as already practised in countries such as Denmark, the Baltic states and parts of Australia.
As many commentators have pointed out in the recent debate over business rates, taxing businesses according to the real estate they use is a crude and primitive system that distorts the economy.
A LVT system is much more logical and promotes better use of land across the country. LVT is highly efficient, as it does not affect economic activity, equitable as the wealthy tend to own more land, and very difficult to evade, as land can’t be hidden. It recognises land as a valuable and finite resource.
The arguments are complex but worth investigating. Such a tax is favoured by many theoretical economists.
The Green Party also advocates raising corporation tax on large companies from 20 per cent to 30 per cent – providing an increase in revenue that would allow the LVT rate to be much lower than current business rates.
Perversely, the government is in fact inclined to reduce corporation taxes. One advantage of raising revenue from corporation tax is that it is a tax on net profits, so new companies still finding customers and paying back debts may not pay any tax at all.
Business rates, on the other hand, are imposed at a flat rate regardless of the company’s profitability. It is possible that the new business rates bill for Islington, which will increase by £100million a year, will drive some small companies out of business.
Islington Green Party