The United Kingdom was once a manufacturing and industrial powerhouse. It produced automobiles, aircraft, machinery, steel and countless other goods at enormous scale. Today, the structure of the British economy is very different. Manufacturing remains important, but the UK has increasingly become a service and finance-oriented economy, while much of the production of goods once made domestically has moved overseas.
This decline has consequences beyond the number of factories operating in Britain. A strong industrial base provides employment, investment, technological capability and supply chains. It also provides a degree of national resilience. A country capable of producing vehicles, machinery and complex manufactured goods in peacetime possesses capabilities that can become strategically important in crisis and conflict.
The question, therefore, is not simply how Britain can produce more goods. It is how Britain can once again become a place where productive investment, manufacturing and employment are attractive enough to take place at scale.
One answer is often to simply reduce taxation.
Tax profits less. Tax wages less. Reduce the burden on companies that employ people and invest in Britain. If doing so makes British production cheaper, then perhaps more companies will choose to establish themselves here.
There is an obvious problem with this approach: the state still has to pay for the services and infrastructure that make an economy function. If taxation is reduced without replacing the revenue, the result is either reduced public services or increased borrowing, both of which are highly unpopular.
The answer, therefore, is not necessarily less taxation.
It is different taxation.
Taxation changes behaviour
Whenever we tax something, we create incentives and disincentives. Taxation is not simply a method of collecting money for the state; it changes the decisions people and businesses make.
Taxing income can influence how much people work, how they structure their remuneration and whether they take on additional responsibilities. Taxing investment can negatively influence where capital is placed. Taxing transactions can discourage transactions that might otherwise have taken place.
This does not mean that every tax is necessarily harmful or that taxation itself is undesirable. The state requires revenue, and many forms of taxation serve legitimate purposes.
The important question is instead:
What are the economic consequences of the tax we choose to impose?
A tax which discourages productive activity is fundamentally different from a tax which captures economic value without significantly discouraging its creation.
This is particularly important when considering the taxation of wealth. Taxes on mobile capital can create incentives for wealth and investment to move elsewhere. Governments can then introduce measures designed to prevent that movement, but these measures can themselves add further complexity and potentially discourage investment.
The objective should therefore be to raise the revenue the state requires while creating as few unnecessary barriers to productive activity as possible.
This is where Land Value Tax becomes particularly interesting.
The least bad tax
Milton Friedman described a Land Value Tax as the “least bad tax”, a useful way of framing the wider argument for it.
The argument does not have to be that LVT is a magical tax which produces no costs whatsoever. Every tax has consequences. The question is which taxes produce the least damaging consequences and which can potentially create positive incentives elsewhere in the economy.
Land is unusual because its total supply cannot be increased in response to taxation.
A tax on producing something can discourage its production. A tax on employing somebody can discourage employment. A tax on investment can discourage investment.
But taxing the underlying value of land does not make more or less land exist.
More importantly, much of the economic value of land is not created by the landowner themselves. The value of an urban site is heavily influenced by its location, surrounding infrastructure, nearby businesses, transport links, public services and the economic activity of the wider community.
A plot of land in the middle of a thriving city can be enormously valuable, while physically identical land in an isolated location may be worth very little.
The land itself did not create the railway station, the roads, the schools, the businesses or the surrounding population that make the first site valuable.
Land Value Tax seeks to capture some of that location value for the community which helped create it.
This is normally discussed in relation to housing and planning. That is important, but it is not the end of the argument.
The consequences extend much further.
The cost of housing is also the cost of labour
Consider the modern British worker.
Their employer does not simply compete with other employers for their time. The employer is also competing with the cost of living that the worker has to meet.
The worker needs enough income to pay for food, transport, energy and, most significantly, housing.
The cost of housing in Britain has risen dramatically relative to wages. Where a home once represented roughly four times annual earnings, the ratio has risen towards eight times in many parts of the country.
This matters because housing is not merely a household expense.
It affects the cost of employing people.
If a worker needs a high salary simply to afford somewhere to live, employers face greater pressure to pay higher wages. This is not necessarily because the worker has become more productive; it is because the worker's required cost of living has increased.
That creates a strange situation.
A business can be perfectly capable of employing somebody productively, but the cost of housing in the location where that business operates can make employing that worker considerably more expensive than necessary in a way that could be avoided.
This is particularly important in areas where productive jobs are concentrated and land is scarce.
If Britain wants to make itself more competitive for manufacturing, engineering and other productive industries, it therefore needs to consider not only the tax paid directly by businesses, but the wider cost of living faced by the workforce those businesses need to employ.
This is where LVT can form part of a much larger economic feedback loop.
From land reform to cheaper housing
A Land Value Tax creates a recurring cost for holding valuable land while leaving the productive improvements placed upon that land comparatively less heavily taxed.
That changes the incentive to hold land simply because it is expected to appreciate.
Combined with planning reform, this can encourage land to be brought into productive use and can make more development financially attractive.
The planning element is important.
LVT cannot build a house where planning law prohibts one from being built. If Britain wants to increase the supply of housing, reforming restrictive planning rules must therefore accompany the reform of land taxation.
The two reforms address different problems.
Planning reform determines what can be built. LVT changes the incentive to use land productively.
Together, they can create a system in which valuable urban land is more likely to be used efficiently rather than being left vacant, underused or held primarily for its appreciation in value.
Greater housing supply can then reduce the scarcity premium embedded in housing prices.
This is particularly important because much of the price of a house is not simply the cost of bricks, labour and construction. A substantial component is the value of the location on which the house sits.
If the supply of desirable locations is artificially restricted, the value of those locations rises.
If more homes can be built in places where people actually want to live, that scarcity can be reduced.
This does not mean that every house suddenly becomes cheap, nor that LVT alone guarantees a housing boom. Construction costs, infrastructure, financing, materials and planning constraints would still matter. Though the very purpose of the existing free-market is that the demand for construction creates plentiful opportunities for businesses and employment itself.
But it creates a powerful incentive in the right direction: tax the value of the scarce location rather than penalising the act of building upon it.
A cheaper workforce and a more attractive Britain
Now the connection to British industry becomes clearer, and it can be explained why Land Value Tax can be a shot of adrenaline not just to the housing industry, but to a nations business and industry in general.
Suppose housing becomes more affordable because Britain has substantially increased the supply of homes and reduced the speculative value attached to scarce land.
Workers then need less income simply to secure an acceptable standard of living.
At the same time, if the wider tax system is reformed so that some taxes on income, employment and productive activity are replaced with LVT either in part or in full, the cost of employing those workers can also fall.
The result is a potentially powerful combination.
Workers can be better off without businesses having to bear the entire cost through higher wages.
A worker who needs less gross income to maintain their standard of living can take home a similar or greater real standard of living while costing their employer less.
That is an appealing dynamic for investment.
The business becomes more competitive because its labour costs are lower.
The worker becomes better off because their housing and other costs are lower.
The state can still collect revenue because taxation has not simply disappeared; it has been shifted towards a less economically damaging base.
This is the central economic case for the reform.
The argument for a Land Value tax should therefore not be only seen as something as simple as:
“LVT makes houses cheaper.”
It is:
LVT can help reduce the cost of land, while allowing other taxes on productive activity to be reduced, creating a cheaper environment in which both workers and businesses can operate.
That is a much broader proposition.
Rebuilding industrial capacity
Britain's industrial decline cannot be blamed on one tax, one government or one policy.
The decline of British manufacturing involved many factors: international competition, productivity, industrial relations, management, technological change, investment decisions and the increasing importance of services. Britain's departure from the European Union also introduced additional barriers to trade with its largest nearby market.
These problems cannot be entirely solved by LVT alone.
But taxation and land costs are still part of the environment in which businesses make investment decisions.
If a manufacturer is considering where to build a new factory, it has to consider the cost of land, construction, workers, taxation, energy, transport and access to markets.
Britain cannot eliminate all of these disadvantages.
It cannot compete with every low-wage economy on labour costs, nor can it remove the geographical fact that Britain is separated from much of continental Europe by the Channel.
But Britain can make itself more competitive in the areas over which it has control.
It can make land more efficiently used.
It can make housing more affordable.
It can reduce the tax burden on productive activity.
It can make it cheaper to employ workers.
And it can maintain the infrastructure and public services upon which a productive economy depends.
That combination is much more realistic than attempting to revive British manufacturing through subsidies alone.
Why industrial capacity matters even when it is not immediately profitable
There is also an argument for maintaining productive capacity which goes beyond its immediate contribution to GDP.
Industrial capability can be strategically valuable.
During the Second World War, American automobile manufacturers demonstrated how existing industrial capacity could be redirected towards military production. Factories capable of producing vehicles and machinery in peacetime could be adapted to produce the equipment required by a country at war.
The exact requirements of a modern economy are different, and it would be simplistic to assume that a car factory can simply become a tank factory overnight.
But the broader principle remains.
A country with substantial manufacturing capacity, engineering expertise, skilled workers and established supply chains possesses options that a country entirely or partly dependent upon foreign production does not.
Manufacturing therefore has value not only because it produces goods and employment, but because it creates capabilities imperative to the long term endurance of a states survival.
The same principle applies to domestic resilience in peacetime.
A country which can manufacture a greater proportion of the goods it relies upon is less exposed to disruptions in international supply chains.
The objective should not be autarky. International trade is enormously valuable, and Britain will continue to rely on imports and exports.
The objective is instead to ensure that Britain remains sufficiently productive and industrially capable that it can participate in international trade from a position of strength rather than dependence.
The importance of workforce
There is another long-term consideration.
Many Western countries are experiencing declining birth rates and ageing populations. A smaller working-age population supporting a growing pensioner population creates a difficult economic problem.
A society needs enough productive workers to support those who are no longer working.
This makes the cost of raising a family economically significant.
Housing is an important part of that equation.
When young people cannot afford to buy or rent an appropriate home, family formation can be delayed. When both members of a couple have to work long hours simply to afford housing, the financial and time costs of having children can become greater.
Housing costs are not the only reason for declining fertility. Cultural changes, education, childcare, employment patterns and many other factors matter.
But reducing the cost of securing a home can remove one significant barrier facing younger households.
This is another reason why housing policy should not be viewed purely as a question of property prices.
It is also a question of whether young people can establish households, raise families and participate productively in the economy without an excessive financial burden that provides a disincentive on doing so.
And if greater housing supply is achieved through higher-density development in existing urban areas, it is possible to accommodate more people without simply spreading low-density development indefinitely into rural land.
That creates another potentially positive combination:
more housing, lower housing costs and greater capacity for population growth without requiring endless suburban expansion.
A positive feedback loop
This brings it all together. Or atleast, closer than any other “solution” we’ve conjured so far. There is no perfect, infallible policy that can have a positive feedback loop among nearly every sector, but there is something that is as close as we can get to that.
Britain's economic problems are not caused by one thing, and therefore they cannot be solved by one policy.
But tax reform can influence many of them simultaneously.
A Land Value Tax can shift taxation away from productive activity and towards the economic value of land.
Combined with planning reform, it can encourage the more efficient use of scarce urban land and support greater housing supply.
Greater housing supply can reduce housing costs.
Lower housing costs can reduce the income workers require simply to maintain their standard of living.
A lower required wage can reduce the cost of employing workers.
Lower employment costs, combined with lower taxes on productive activity, can make Britain a more attractive place to invest.
More investment can create more jobs, more production and greater industrial capability.
Greater industrial capability can improve Britain's resilience and productive independence.
And a more affordable country can make it easier for younger households to establish themselves and raise families, supporting the workforce required to sustain the economy in the long term.
None of these outcomes is guaranteed by LVT in isolation.
But that is not the claim being put forward.
The claim is that tax policy can either work against these objectives or work with them.
Britain currently taxes many of the things it wants more of: work, investment, transactions and production.
A Georgist-style tax reform would instead place much greater emphasis on taxing something that cannot be hidden, moved overseas or produced less of in response to taxation: the value of land.
The objective is therefore not simply to collect money differently.
It is to change the incentives of the economy entirely to go from decline at worst, stagnance at best, to a positive direction.
Instead of taxing the worker for earning more, tax the value of the location from which that economic activity benefits.
Instead of taxing construction, tax the land beneath it.
Instead of making productive investment more expensive, capture more of the economic rent created by society and public infrastructure.
The result could be a country in which workers need less income to live, businesses need less expenditure to employ them, valuable land is put to more productive use, and investment becomes more attractive.
That is why Land Value Tax deserves to be considered not merely as a housing policy, but as a potential foundation for a broader programme of economic renewal.
Britain does not necessarily need to tax less.
It needs to tax better.
And perhaps the answer really is as simple as:
Just Tax Land.
