SLRG’s director writes in The Times Thunderer column, 13 April 2020.
After the pandemic, the last thing we need is a return to ‘business as usual’. A new start – to fund rather than repress the renewal of the economy – requires a fundamental revision of the way government raises its revenue.
Current taxes suit the owners of UK sites. After all, property remains the best performing investment. But what we’ve created is a skewed fiscal environment in which those renting their homes or business premises receive no share in the unearned bonanza and the population is forced to tolerate starved public services, unsustainable private and government debt, suppressed enterprise, low wages, high rents and an abused environment.
There is a way to boost productivity that would sustainably fund the country’s emergence form the pandemic, and which offers all producers a fair share of the UK’s productive capacity. But it’s not Sir Keir Starmer’s proposal to fund recovery with a wealth tax. A wealth tax does not distinguish between earned and unearned income. We need policies that create jobs; not ones that reduce employment. That can only be achieved by replacing the tax policies that were conceived to privilege a minority.
The UK needs to collect and pool the rent of land and natural resources instead of taxing wages and enterprise. Scottish Land Revenue Group (SLRG) economists estimate that half the UK gross income is produced by everyone working in partnership, plus what is provided free by nature. This is the UK’s ‘net income’.
That net income should be the basis of government spending. But such was the historic ‘achievement’ of land owners that the proportion of state revenue collected from the land tax fell from 100% to 5% by the 1840s [R. Cobden, Hansard]. This obliged Parliament to shift taxes onto the people who produced wealth: employees and entrepreneurs. Result? Two centuries of repressed production, lost productivity and a host of associated crises ranging from starved public services to homelessness, social fragmentation and a ravaged environment. All placed in sharp relief by coronavirus.
The replacement revenue is Adam Smith’s Ground Rent. Choosing Annual Ground Rent (AGR, aka LVT) would ignite a new Scottish Enlightenment, release enterprises to produce a much larger shared surplus and end the land speculation at the root of so many of our troubles.
Holyrood must ask the right questions of its retained experts. One of them, Nobel Laureate economist Joseph Stiglitz, affirms: “…it is highly efficient to tax rents because such taxes don’t cause any distortions…A stiff tax on all such rents would not only reduce inequality but also reduce incentives to engage in the kind of rent-seeking activities that distort our economy and our democracy.” The Price of Inequality (2012).