SLRG – Focussing on Equality, Shared Prosperity and a Fair Society

Radical tax reform for national economic recovery after the pandemic

By SLRG’s Dr Duncan Pickard, Balmullo, Fife.

It is wrong to believe that we should revert to live as we did before the pandemic. The statistics of its incidence show that the poorest people have suffered far more than the rich and a mindless quest to ‘return to normality’ will result in further widening of the gap in health and welfare between rich and poor.

Our antiquated, complicated and unfair tax system is responsible for inequality. The rich minority are given generous tax concessions whilst the poor are obliged to pay the biggest proportion of incomes in VAT, the most regressive of all the taxes.

The government needs money to pay for goods and services such as education, the police, the NHS, and pensions. Current taxes, collected mostly from Income Tax, NIC and VAT, are insufficient to avoid budget deficits and increases in the national debt. It is impossible to increase these taxes without causing more reductions in employment and trade. Sufficient funds could be provided without economic and social harm if the tax system is radically reformed.

Income Tax, NIC and VAT are charged on what people have earned for the work they do. But there is a large potential source of revenue which goes to a minority of the population that they do not earn.

That is the annual rental value of the land they own, known as Annual Ground Rent or Land Value Tax. (AGR/LVT) The most valuable land is in urban areas because that is where most people want to live and work. Most house owners do not realise that they are landowners.
The large increase in the price of houses over the last four decades is in the price of the land on which they are built, not the price of the houses themselves.

The increases in land prices are not produced by those who own their houses, they come from the demands of those who need somewhere to live and the services provided locally, such as schools, public parks and hospitals.

The total annual ground rental value of the land and other natural resources in the UK is sufficient to provide all the funds for the necessary functions of government.

Instead of encouraging investment in landed property with subsidies and exemptions from tax, a responsible government would gradually rebalance the economy towards productive enterprise by removing the burdens of taxation from earned incomes and increasing them on unearned incomes.

Houses will never become affordable to young people by building more houses. No matter how fast you build, banks can create new credit even faster. Their fractional reserve facility allows them to create money from nothing to meet the demand from house buyers.

AGR/LVT will enable economic prosperity to occur and inequality to be reduced by allowing people to keep all they earn. There will be no need to continue seeking increases in GDP, which is a poor indicator of economic well- being and encourages the wasteful use of scarce resources.

Duncan Pickard SLRG, June 2020.