North East Devolution and Levelling Up

Labour metro mayors want land value uplift tax

Labour metro mayors in the north of England want power to raise cash from ‘land value uplift’ under a strengthened form of devolution, according to an exclusive report in the Local Government Chronicle (paywall)..

New infrastructure would be paid for by charging against the increase in value of existing land and property resulting from the granting of planning permission or from public investment nearby.

Mayors have been encouraged to seek greater tax-raising powers by the Levelling Up White Paper, which proposed ‘a new framework for devolution in England, building capacity and capability locally and strengthening institutions’.

The White Paper points out that even in areas which have seen devolution, local leaders have comparatively limited powers, including revenue-raising powers. It says:

‘In the most recent comparable data, prior to the full establishment of the new metro mayors in England, only 35% of public investment was carried out by subnational levels of government in the UK, compared to almost 60% on average across the OECD [Organisation for Economic Co-operation and Development]’.

The idea of land value uplift, also known as land value capture, has been promoted in the past by North of Tyne Mayor Jamie Discoll and has now been taken up by other mayors following the publication of the Levelling Up White Paper. In a paper for the Royal Society of Arts* Driscoll wrote: ‘Where the public builds new transport infrastructure, for example a metro extension and stations, the value of the surrounding land will increase markedly. Homes within one kilometre of a station increase in value, proportionate to proximity. The uplift can be many tens of thousands of pounds per property…

‘Clearly, there is a net economic benefit for all parties –developers, transport authority, residents and Treasury – to bring such schemes forward.

‘In areas of established housing, [land value] charging would not apply to existing residents until they sold their homes. Since the residents are benefiting from the public investment, and are getting the extra cash from the sale, they are not out of pocket.

‘The charge would apply directly to new-builds at the point of sale. This is equitable, because the new buyer is making an informed decision based on fair market prices.

‘Landowners such as farmers or developers would see the value of their land rise and, if they sell, would pay back only what they got for free. And if the land value doesn’t rise, they pay nothing – it’s a charge only on the uplift attributable to the public investment.

‘In practice, to keep public support, the charge would be a margin below the full uplift attributable, so the homeowner would keep, perhaps, 10 percent of the free increase in value. In other words, no existing homeowner or landowner loses a thing.

‘They get a free uplift in the price of their property, and when they come to sell, they pay back most of what they got for free. In the meantime, they enjoy the amenity’.

The London Finance Commission looked into land value capture under both Mayor Boris Johnson and Mayor Sadiq Khan, and the House of Commons cross-party Housing, Communities and Local Government Committee reported on the subject in 2018. It said:

‘Land values increase for many reasons—not least from economic and demographic growth—but some of the most significant increases arise from public policy decisions, in particular the granting of planning permission and the provision of new infrastructure.

‘While there is considerable variation in land value uplifts dependent upon location and previous land use, landowners currently retain a very large proportion of the increase in land value arising from the granting of planning permission.

‘History has shown that attempts to capture land value increases have had mixed success. Governments have struggled to strike the right balance between capturing fair values for the community, without undermining incentives for private sector participation in the market, and in a way that is politically acceptable to all major parties. There have also been tensions between central and local government as to how revenues are spent’.

One of the committee’s key conclusions was that ‘There is scope for central and local government to claim a greater proportion of land value increases through reforms to existing taxes and charges, improvements to compulsory purchase powers, or through new mechanisms of land value capture’.

‘Increases in the value of land arising from the granting of planning permission and the provision of new infrastructure’, it said, ‘are largely created by the state. It is fair, therefore, that a significant proportion of this uplift be available to national and local government to invest in new infrastructure and public services’.

The northern mayors’ ideas for expanded devolution powers come at a time that Mayor Driscoll is again promoting the idea of an expanded North East Combined Authority (NECA) and devolution deal covering all six councils in Tyne & Wear and Northumberland – which this website supports.

He told the Local Democracy Reporting Service that he was seeking a deal giving the new mayoral combined authority (MCA) powers over transport, education, skills, housing, R&D and climate change as well as £35m a year for 30 years. This compares with the £20m a year being paid under the North of Tyne deal and the £30m turned down by NECA is 2016, when County Durham was still a member.

However, there is still no word from the three councils that voted against devolution in 2016 – Gateshead, South Tyneside and Sunderland. Mayor Driscoll has been promoting a new deal for at least a year, but the three south of Tyne leaders have maintained a public silence.  

*For transparency: Jamie Driscoll and this author are both Fellows of the Royal Society of Arts.