From the vault: The failure of the land value tax
Implementing it in Britain destroyed the then-dominant Liberal Party.
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In the late nineteenth century, the ideas of American economist Henry George were popular around the English-speaking world. His best-known work, Progress and Poverty, examined the importance of land in economics and proposed taxing land value as much as possible. It sold several million copies and was one of the best-selling books of its era.
Across the Atlantic from George, the wealthy landowners who dominated British politics predominantly supported the Conservative Party. In response, their opponents, the Liberals and Irish nationalists, increasingly harnessed tenant agitation for political support and with it, support for land taxation.
George’s argument was perfectly timed for the Edwardian left. Local government was in crisis as new infrastructure enabled people to move out of the city center while budgets were burdened with ever more statutory obligations. The existing property tax base could not be managed. By the early 1900s, Progress and Poverty was more popular than Shakespeare among Labour MPs.1 In 1910, the Liberal government of Henry Asquith implemented a tax on increases in land value and undeveloped land with a view to reforming Britain’s system of property taxes.
Asquith’s gambit failed spectacularly. Britain in the early 1900s became a case study in how administrative complexity can derail land value taxation. The tax cost more to administer than it collected, and it was so poorly worded that it ended up becoming a tax on builders’ profits, leading to a crash in the building industry. As a result, David Lloyd George, the man who introduced the taxes as chancellor in 1910, repealed them as prime minister in 1922. The UK has never fully reestablished a working property tax system.
This history serves as a cautionary tale for modern Georgist sympathizers who believe a land value tax will solve the world’s housing shortages. While Georgists argue that land markets suffer from inefficient speculation and hoarding, Britain's experience reveals more fundamental challenges with both land value taxes and the Georgist worldview. The definition of land value was impossible to ascertain properly and became bogged down in court cases. When it could be collected, it proved so difficult to implement that administration costs were four times greater than the actual tax income. Instead of increasing the efficiency of land use, it became a punitive tax on housebuilders, cratering housing production.
Worst of all, it not only failed to solve the fundamental problem with British local government – that it had responsibilities that it could not afford to cover with its narrow base – but actually contributed to the long-term crumbling of the property tax systems Britain did have.
Not all countries failed as spectacularly as Britain, dooming not only the land value tax itself but also the existing property tax system it replaced, but few countries have successfully implemented a land value tax. Most countries that claim to have land value taxes, like Australia and Taiwan, exempt the two biggest uses of land: agriculture and owner-occupied housing.2
You can read the rest of this article on here and the rest of the issue here.
This article originally appeared in the latest issue of Works in Progress, Issue 18.
Samuel Watling is an incoming PhD student in Political Economy at the University of Chicago.
Jonathan Rose, The Intellectual Life of the British Working Classes (Yale University Press, 2001).
Although Denmark, perhaps alone among countries, does have a land value tax that is close to theoretically pure.
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