A basic income paid to all citizens and funded by a land value tax would create the foundations for a fair and prosperous society and avoid ugly social and political tensions.
History seems to be repeating itself in the developed economies of the world with the rise of the far right in much of Europe and the deeply racist campaign of Donald Trump in the United States. This has followed a decade (or longer) of increasing wealth inequality and stagnant or falling incomes for many people, resentment for which is either targeted at immigrants, political elites or anyone else who might present an easy scapegoat.
The real challenge (it’s not immigration)
The real cause of this increasing division, however, is the increasing wealth extraction from the productive economy by landowners and other monopolistic asset owners. Their numbers have expanded in modern times to include many homeowners (especially those who have climbed the ‘property ladder’ over many years) and amateur ‘Buy to Let’ landlords, but their wealth extraction is increasingly debilitating the real economy. Wages now account for barely 50% of GDP in the UK and only 42% in the USA, so those doing the work are sharing in a smaller and smaller share of the profits. It is not uncommon to hear stories of people’s homes earning more than they do (in 2015 average London house prices rose by over £50,000, whereas average wages are just over £34,000). This, of course, is a source of great joy to the person in receipt of the property price windfall, but is a symptom of how those who produce the value in the economy are not receiving the reward, which instead is going to landowners and other extractors of wealth. As a result productivity is poor, growth is sluggish (if really there at all) and the whole show can only be kept on the road by increasing levels of debt (both public and private).
A Basic Income, funded by a Land Value Tax would go a significant way to addressing both sides of this problem. The Basic Income would significantly supplement the income of those doing the work (or who are no longer needed to do the work), while the Land Value Tax would make the wealth extraction much less lucrative. It would also, in effect, funnel resources away from rent extraction and back towards the productive economy, ultimately making everyone better off.
Under the Transformation Deal set out here, this would be mean a LVT charge at the equivalent of 3% of the property value (more for commercial property, less for agricultural land), and a Basic Income payment to all adult citizens of £4,800 per year (more for pensioners, less for 16-21 year olds). The LVT would fully fund the Basic Income and this would represent a justifiable and equal distribution of the country’s underlying wealth to all citizens.
So what’s stopping it from happening?
The obstacles here are almost entirely political. Those who own the land and access to the air, seas and other common resources rather like an economic model that sees them receive rents (free payments) for doing nothing. Below are a few examples of what I mean:
- Agricultural landowners saw the value of their land increase by over £200bn between 2004 and 2014, helped in no small way by the subsidies of over £3bn each year (mostly to the largest landowners).
- The value of commercial property in the UK grew by around £100bn in 2014 alone. Some of this would have been improvements to buildings and other physical capital, but most is almost certainly owed to a rise in land values.
- The average UK home owner saw their property value increase by £21k between 2013 and 2015 without lifting a finger
- The Banking Sector receives implicit subsidies of at least £30bn per year, for which it pays nothing. This isn’t counting the permission to create deposits or charge interest on loans, which are the basis of its entire business. Nor does it include the hundreds of billions spent on the bailout of the banks after 2008.
- Other businesses receive an estimated £14bn of corporate subsidies each year
- Around £15bn per year pumped into land prices via the Help to Buy scheme
- £60bn of low cost lending to banks to lend on to small businesses as part of the Funding for Lending Scheme
Together the recipients of these rents are numerous and powerful and include millions of homeowners, especially those who bought their first home before the year 2000, as well as powerful building companies, large landowners and the banking community (so basically the bulk of those who have the votes, all of those who own the land, and most of those who control the money). Overturning the power of that alliance is a pretty daunting task.
The solutions are also political
But what if this extraction could be reversed, so that instead of subsidising and protecting the wealth extraction listed above, we taxed it? The flow of resources could more appropriately be directed towards every citizen in equal measure, supporting the incomes of ordinary people, and reducing the returns on unproductive activities such as land speculation.
The rent-seekers who are taxed would undoubtedly complain that it cannot be right to take money from them and simply give it to everyone for nothing in return, but this is precisely what they have come to expect from the rest of the economy. Landowners purposefully buy land in order that they can establish a monopoly on the use of that land and force up its price thus ensuring a transfer of wealth to them for nothing in return. This is especially true of the UKs largest housebuilders who largely sit on, rather than build on, the land they own.
This deal would increase the incomes of tens of millions of ordinary people including homeowners – the average owner-occupier household would pay approximately £5,600 in LVT, but receive over £10,000 in Basic Income, clearing an annual gain of £4,400.
The political establishment that perpetuates the rent-seeking economy can be challenged, but only by ordinary citizens claiming what is rightfully theirs.
The simple justification for this is that all UK citizens are equal shareholders in their country’s natural or common resources, and therefore should benefit equally from their value.
This land is your land, this country is your country. You should not be forced to work half of your life just to earn the right to occupy a part of it. The wealth it represents is yours as of right and you should claim your fair share of it.
The way forward here is not to get angry and focus that anger on your favourite ‘bad guys’; it is to demand payment for your share of your country’s natural and/or common resources. Only then will be begin to see a fair settlement for all citizens and a properly functioning economy. And just maybe an end to the more unpleasant political consequences of an unequal and unfair economy.