This week the Labour Party came under fire in the press over reports that it would introduce a tax on land value to replace council tax and probably business rates if elected next week.

The reports first appeared in The Telegraph and apparently stem from a single line in the party’s manifesto, stating that a Labour government would “initiate a review into reforming council tax and business rates, and consider new options such as a land value tax”, and from the advocacy of the Labour Land Campaign (a cross-party working group which has run for several years). Apparently extrapolating from this, a number of newspapers this week ran with stories suggesting that a land value tax could affect Britons with large gardens, as rates would be charged based on land value, not taking into account any buildings on the land (the press therefore dubbed this a ‘garden tax’).

According to the reports, only landowners would be charged under such a tax, and at two rates: one for those owning a single property and a higher rate for those with property portfolios to encourage good use of property, and discourage developers and landowners from holding large portfolios of empty buildings. Farmers would be taxed based on the land they own, though as renters would be exempt from the tax, presumably tenant farmers would not have to pay under this tax regime either.

Responding to the reports, the Labour Party has vehemently denied that it has plans to introduce the tax, and a land value tax is only mentioned as a possible area of investigation for tax reform in the party's manifesto, which was released two weeks ago. A spokesperson for the party said on Wednesday that the land tax story, as reported, "is an outright Tory lie designed to distract from an actual policy at this election which is Theresa May's dementia tax that wants to rob pensioners of their homes.”

The spokesperson said, “Labour has not discussed a so-called 'garden tax', does not have a 'garden tax' in its manifesto, will not introduce a 'garden tax', and does not recognise any of the claims being made by the Tories."

The Labour Land Campaign think tank has been very supportive of a land value tax, and although this is only an advisory group and doesn’t have the power to draw up policy pledges for the Labour Party, the group has won praise from senior Labour figures.

Disproportionate response to ‘mild proposals’

In terms of farming, the Land Campaign has acknowledged that a land-based tax in the UK would lead to a reduction in land value in some areas, but the think tank points out that the current EU subsidy regime has artificially inflated land prices and rent, so that the subsidies, rather than supporting farming, end up as more unearned income for the owners of farmland and are disproportionately paid out to the wealthiest landowners.

The Campaign suggests that a land value tax would reduce land prices and - consequently - rents, and, if substituted for income tax, could lower the costs of employing farm workers. The group believes this could result in more effective support for small-scale farming and easier access for new entrants, reversing the current trajectory of the industry towards older farm managers, and more consolidated landownership.

However, in the think tank’s own response to reporting on the supposed tax, Labour Land Campaign Chair Anthony Molloy said, “When a policy is being criticised, it is worth looking at who is doing the criticising. Nowhere is this more true than with Land value taxation for which the few citizens who will lose out happen to direct not only the party of government but also—through their control of the media—the hearts and minds of many regular people who in fact stand to gain both individually and collectively by such a progressive change in fiscal policy.”

Though the Labour Party has vocally distanced itself from the policy, the Land Campaign think tank contested the “disproportionately hostile response to such a mild proposal,” accusing the newspapers of “disgracefully misrepresenting” its research and pointing out that evidence actually shows that most home-owners would pay less under land value tax than with current property taxes (with the 50% of households that rent exempt altogether). The idea of a land tax itself isn’t so far flung; European countries including France, Denmark, Finland and Estonia, as well as Australia and the United States further afield all have similar mechanisms in place.