The Guardian view on taxes: high time landowners paid their fair share

Even if you live hundreds of miles from Paddington or Stratford, you may know that London has just opened a vast and shiny new rail line. Once the 100km track is all joined up, a banker flying into Heathrow will be able to take one train directly into Canary Wharf, while a resident of Southall will be able to visit relatives in Seven Kings without ever having to change carriages, let alone lines.

Amid all this wizardry, some aspects of the Elizabeth line remain reassuringly true to the finest traditions of British infrastructure. Naturally enough, it is years over deadline and billions above budget. But one innovation especially worth highlighting lies not in its engineering but its economics. A big chunk of the cash for building came from businesses along the route. Through a special extra tax, sometimes called the Crossrail supplement, bigger companies stumped up over £4bn of the £19bn project. The principle for the levy is a simple one: the businesses along the line will benefit from increased customers and easier commutes for employees.

It sounds straightforward. It is straightforward. So why is the principle so rarely applied to our taxes? Over a century ago, Boris Johnson’s hero Winston Churchill argued: “Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still … he renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived.” It was a rousing call for a land value tax, a levy to capture rising land prices, and over the decades it has been supported by eminent economists and taken up in various forms in cities across the globe, from Australia to eastern Europe.

In the UK, Whitehall reviews have chewed over the issue, but still there has been no significant progress. Although the Crossrail supplement is a partial acknowledgment of the arguments for a land value tax, it is no such thing. The result will be a huge loss of potential gains for the public purse. At the south-eastern terminus of the new Elizabeth line stands Abbey Wood station, which is now just 20 minutes from the City, as opposed to the previous journey time of three-quarters of an hour. Unsurprisingly, developers and investors have rushed into the area, doubling local property prices over the past decade. Across London, the average rise has been closer to 55%.

And yet those huge unearned gains will go almost untaxed, depriving ministers of being able to claim they have funds to build more rail lines. Another example is HS2, now projected to cost the public more than £100bn and to push up land values all along the route – yet with no levy to claw back any of those gains.

Our current tax system rewards a landlord more than a doctor. We need to shift towards taxing wealth more and better; to that end, existing taxes on property often fail. Council tax is based on bricks and mortar rather than land, and is based on property values in 1991. A tax on land values would be a levy on something that cannot run away or be sheltered in some island haven, and would also deter hoarding by developers. And it would help build a much better public realm.

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