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Contents
PART TWO
In the first part of this two part article we looked at some of the background to LVT, its ideological providence, its proponents and even some countries that have implemented it.
In this part we will look at some of the practical and administrative considerations and also what impact it could have in the UK.
But first, here’s Milton Friedman!
Milton Friedman’s Endorsement: “The Least Bad Tax”
One of the most striking endorsements of LVT comes from Nobel Prize-winning economist Milton Friedman – a leading figure in free-market economics. Friedman, despite generally favouring minimal taxation, consistently spoke favourably about taxing land.
He famously remarked that “the least bad tax is the property tax on the unimproved value of land”, essentially echoing Henry George. This quote, sometimes paraphrased as LVT being the “only good tax” or the “least worst tax,” highlights that even a libertarian-leaning economist saw merit in it.
Why would Friedman, who disliked most taxes, single out land value tax as acceptable?
The reason lies in basic economics: taxing land does not distort incentives in the way other taxes do.
Because the supply of land is fixed – we can’t create more of it or hide it – a tax on land value doesn’t reduce the quantity of land available or discourage productive effort (as taxes on income or sales might). As Friedman noted, this was “the Henry George argument of many, many years ago”.
Of course, Friedman’s position is not an outlier.
Economists from Adam Smith and David Ricardo to modern times have recognised that a land tax is highly efficient).
But what is striking about LVT is the breadth of ideological support: left-wing economists like Joseph Stiglitz (who formulated the “Henry George Theorem” in public finance) agree on its efficiency, while right-wing thinkers like Friedman praise its incentive properties. This unusual consensus stems from the unique nature of land as a tax base.
Practical Considerations: Transparency, Evasion, and Administration
A key appeal of LVT is transparency.
Land is visible, tangible, and relatively straightforward to value compared to complex financial income.
In theory, every parcel of land has an assessed value that can be published on a public register, and a tax rate applied to it – simple and clear for all to see.
There are no convoluted deductions or hiding places for land value; unlike income or profits, land can’t be shifted to an offshore haven or concealed by ‘clever accounting’.
Indeed, advocates often call LVT the “unavoidable tax”: owners must pay it or eventually lose the land (since unpaid taxes result in a lien).
Wealthy individuals cannot easily dodge land tax – even if the owner of a valuable plot is an offshore trust, the tax still charges the site itself.
In this sense, LVT is hard to evade or avoid, as the asset is fixed in location and publicly known.
Administrative practicality is both a selling point and a challenge for LVT.
On one hand, administering an annual land tax is straightforward once a valuation system is in place.
Many countries already have property tax systems, so in principle it’s a matter of assessing land separately from buildings.
Modern technology (GIS mapping, statistical valuation models, sales databases) makes assessment easier and more accurate than it was a century ago.
Other nations’ experience suggests it’s quite feasible: Estonia, Denmark, and others regularly assess land values and send out tax bills.
The tax is simply a percentage of the land’s market value – easy to understand for taxpayers. Collection is usually efficient since land doesn’t disappear – delinquent taxes can be recovered upon sale or by eventual foreclosure.
Transparency is enhanced because the public can see how land is being taxed uniformly.
However, valuing land separately from improvements can be tricky.
In active markets, land value is implicit in property sale prices (land + building). Assessors must essentially estimate, for each parcel, how much of the sale price is attributable to location/land versus the structure.
Techniques to do this include analysing sales of vacant land, or using construction cost formulas to subtract building value.
It’s an extra layer of analysis that some tax authorities are not currently doing (for example, the UK’s council tax simply bands whole properties by value, albeit based on 1991 prices).
The “thinness” of pure land sales in some areas means assessors have to model land values – potentially a source of disputes.
Indeed, back in 1909–1910, determining site values led to many appeals and legal wrangles which bogged down the process. So, administrative complexity is a consideration. Experts note, however, that the precision of assessment, while important for fairness between individual taxpayers, is not critical for the economic benefits to hold.
Even an imperfect but broadly correct valuation system would capture the bulk of land value and yield the efficiency gains, as long as gross errors are avoided. With modern data science, mass appraisal of land is arguably easier now than ever.
Another aspect is that LVT is highly transparent in incidence: it is paid by landowners.
Compare this to, say, corporate tax – whose burden might fall on consumers (via higher prices), workers (via lower wages), or shareholders, not immediately obvious. With LVT, it’s clear that the landowner pays.
Over time, some of that burden may be capitalised into lower land prices (future buyers pay less for land knowing the tax is payable), but the tax is not “passed on” in the way a sales tax might be added to prices – because land rental value is set by market demand, an LVT generally comes out of the landowner’s rent income or asset value, rather than raising the cost of goods. This transparency can help citizens see who benefits from and who contributes to the public purse.
Avoidance of LVT could happen in subtler ways: lobbying for exemptions (e.g., agricultural land often gets exempted for political reasons), or pressuring for undervaluation.
But outright evasion (not paying) is difficult in the long run, since unpaid land taxes become a debt on the property.
International experience indicates compliance is usually high for well-administered property taxes.
The bigger issue is ensuring initial land valuations are done fairly and updated regularly – if not, inequities and public distrust can arise (as happened when Pittsburgh’s land assessments fell out of date).
The UK’s own council tax is a cautionary tale: property values have not been revalued in decades, making the tax regressive and arbitrary.
For LVT to work well, regular revaluation (say every 1–3 years) is ideal so that tax bills reflect current land values. This is administratively achievable (many countries revalue properties on rolling cycles or use indexing), but it requires political will to maintain, because rising land values would mean higher tax bills which can be contentious unless communicated properly.
Could LVT Replace Other Taxes in the UK?
Henry George’s dream was that a land value tax could raise enough money to replace all other taxes.
This remains a subject of debate and economic modelling.
How much revenue could LVT actually generate in a country like the UK, and could it fund most government services? Several studies and estimates shed light on this.
The total land value of the UK is enormous – driven by expensive urban and agricultural land.
Recent analyses have estimated the UK’s non-government land is worth on the order of £5-6 trillion in total.
If the government levied a modest land value tax, say 1% of value per year, that implies roughly £55 billion in revenue annually. £55 billion is a substantial sum. By way of comparison, it’s about the scale of the UK’s Council Tax and business rates combined, or roughly equivalent to a 10p increase in the basic income tax rate.
However, it is nowhere near the entirety of UK public revenue (which is around £900 billion a year in recent budgets).
To replace most other taxes, an LVT would have to be much higher than 1%. A 5% annual LVT on £5.5 trillion could theoretically raise around £275 billion, and a 10% LVT could raise £550 billion – now we are in the ballpark of major portions of the budget.
But such high rates would undoubtedly have dramatic effects on land values – a 10% would likely decimate capital land values as it would likely remove most, if not all, of the yield potential.
In practice, no country has tried to fund its entire budget through land tax alone in modern times.
What seems more realistic, and what most advocates today propose, is to use LVT to replace certain existing property taxes and supplement other revenues.
For instance, numerous economists have recommended that the UK replace its outdated Council Tax and business rates with a proper land value tax (or at least a modern property tax proportional to value).
The Mirrlees Review (a comprehensive study of the UK tax system by the Institute for Fiscal Studies) concluded that switching to a land value-based tax on residential and commercial land would improve efficiency and fairness.
It suggested doing so in a revenue-neutral way initially (so average bills wouldn’t spike, but there would be winners and losers: owners of high-value land in e.g. London would pay more, owners of low-value property less).
Such a reform could simplify local taxation and remove perverse incentives (like taxing buildings improvements, which current business rates do – essentially a penalty for developing property).
Mirrlees did not advocate trying to fund all government spending this way, but it saw land value taxation as an important component of a balanced system.
Some campaign groups (for example, the Labour Land Campaign or Georgist organisations) have been more ambitious, suggesting that over the long term LVT could allow reductions in income tax, VAT, or other burdens.
The Tax Justice Network argued that land values are a “vast untapped source of revenue” which could gradually replace taxes on “companies, trade and workers” – essentially shifting the tax base off productive activity onto monopoly rent.
Their view is that as LVT ramps up, it could offset cuts in distortionary taxes, boosting growth and making the tax system more progressive (since land ownership in the UK is highly concentrated in wealthy hands). However, others urge caution on how far LVT can go.
Richard Murphy, for instance, has argued that while LVT is useful, it is “not a panacea” and likely cannot raise enough to abolish all other taxes.
He points out that a modern economy’s value also comes from intellectual property, human capital, and other sources not directly tied to land – so focusing only on land would leave some tax capacity on the table. Murphy also worries about transitional difficulties and the political impracticality of truly replacing most taxes with LVT.
What do the numbers say?
The £55 billion from a 1% LVT gives a sense of scale. Council Tax and business rates together currently raise around £60–£65 billion, so a land tax of roughly that magnitude could replace them.
If LVT were, say, 2% of land value, it might raise on the order of £110 billion – now you could also replace stamp duties on property and maybe reduce other taxes slightly.
Going much beyond that, however, you start effectively socialising a very large portion of land rent, which, while arguably efficient, would be a revolutionary change that could face immense opposition and cause significant redistribution of wealth.
For example, a 5% LVT would likely cause land prices to plummet (as the capitalised value of future rents would drop), which might be good for prospective homeowners (cheaper house prices) but bad for current owners (loss of equity).
Managing that transition would require careful policy (perhaps gradual phase-in, or using some revenue to compensate certain groups).
In the UK context, moving toward LVT could start with relatively small steps: updating valuations and gradually shifting the basis of council tax from property values to just land values, removing distortions like stamp duty (a tax on transactions that discourages mobility) in favor of an annual land levy, etc.
Over time, if these reforms boosted housing supply and economic efficiency as predicted, it might enlarge the overall tax base.
But expecting LVT alone to fund an NHS-sized government is probably unrealistic without seismic changes.
Most realistic proposals envision LVT as a substantial part of a diversified tax system – potentially allowing significant cuts to other taxes, but not their total elimination.
George himself acknowledged in Progress and Poverty that even with all rent taxed, good governance would still be required to spend it wisely for public benefit.
Conclusion
The Land Value Tax is an idea with deep roots and contemporary relevance.
From Henry George’s 19th-century vision of a single tax that tackles poverty and inequality, to the real-world experiments in places like Hong Kong, Estonia, and Pennsylvania, LVT has proven its worth as a viable policy tool.
It aligns with economic efficiency – taxing something that cannot flee or shrink – and speaks to social justice by targeting unearned wealth in land.
If you have any thoughts or comments about this article then please do not hesitate to get in touch.
Historical attempts, like Britain’s People’s Budget of 1909, show both the promise of LVT and the formidable interests that rally against it.
Winston Churchill’s fiery speeches in support of land taxation remind us that debates over who should benefit from land are nothing new; they’re essentially questions of fairness that echo to this day.
Modern economists of all stripes, including Milton Friedman, have recognised the wisdom in taxing land values, calling it the least harmful way for governments to raise needed revenue.
Of course, implementing an LVT is not a magic wand.
It requires political courage, administrative investment in proper land valuation, and managing transitions so that the system is perceived as fair.
Certainly something to think about when you next get out the Monopoly board
