UK—A Century of Failing (and Sometimes Succeeding) at Value Capture

Abstract

The United Kingdom has had a series of unsuccessful attempts at securing land value capture in 1909, 1947, 1967, and 1975. The 1909 land duties would have taxed increases in land values irrespective of the source. The latter three combined public bodies, acquiring development land with levies on developers. For them, value uplift was limited to that arising from the granting of planning consent. None of the measures were fully implemented and were reversed by incoming governments. One of the key problems with value capture policies has been the lack of political consensus. Since 1979, consensus has developed around the use of three types of value capture instruments. Development corporations have been created for the regeneration of local areas by acquiring development land and improving it. Local authorities have been able to use planning obligations and community infrastructure levies to oblige developers to mitigate externalities. Governments have made it clear that these are not to be used as value capture devices and therefore are really applications of the polluter pays principle. Thirdly, there are national taxes that fall on increases in the value of land, namely, business rates, stamp duty land tax, capital gains tax, and inheritance tax.

1. Introduction

The value of real estate (land and buildings) can be defined as being the price at which it would exchange between a willing buyer and a willing seller in an arm’s length transaction after proper marketing, assuming that both parties believed that they were acting in their own best interests [1]. Value is likely to rise for two main reasons. One is that the owners have invested in enhancing the property, for instance, by constructing access roads or buildings, or improving drainage or irrigation. Such investments could increase demand for the property and the price at which it might be sold. Improvements could enhance the rent that tenants would be willing to pay, which would increase the owners’ revenue and profits, and higher rents would then become capitalised into prices. Owners who invested money in the improvements, therefore, stand to make a loss if they have judged the market incorrectly. Value increases following enhancements can be argued to be the reward for entrepreneurship and the bearing of risk.

However, property owners are often the passive beneficiaries of increases in value caused by forces over which they have no control and to which they have made no contribution. A number of factors can cause value to increase, including population, urban, or economic growth, the construction of new infrastructure in the vicinity, such as transport improvements that make properties more accessible, and changes in zoning or planning regulations that permit more intensive development or changes to more profitable uses. These factors are likely to increase the demand for property to the benefit of the owners, even though they have done nothing to enhance the value of their property. This raises the question as to whether, in such cases, owners ought to be allowed to retain the increases in value or whether the community, which created the enhanced value, should be entitled to at least part of it. If so, by what instruments might the value increase best be captured by those who created it?

The economic theory behind the idea of value capture was set out by the economist David Ricardo [2]. Ricardo argued that the supply of land is fixed and was neither created by its owners, nor can it be altered by landlords [3]1. He defined land as being the “original and indestructible element of the soil”. Since it costs landlords nothing to supply, as they have made no contribution to the quantity, they will accept any price that is offered, the price being determined by demand. Landlords reap the benefits from increases in demand. Taxing increases in value should have no impact on the supply of land, which is fixed, or on landlords’ willingness to supply. However, the problem with this approach, as Adam Smith noted, is that the rent tenants pay landlords combines payment for land with that for the use of fixed capital supplied by landlords, such as buildings, drainage, and fencing. The cost of supplying such capital is not zero, and the supply is not perfectly inelastic. If landlords do not receive an adequate return on their fixed capital, then they will not supply it. Taxing the profits from the supply of fixed capital is likely to have a negative impact on its supply. Ricardo sought to resolve this problem by distinguishing between interest, the return on capital, including the fixed capital supplied by the landlord, and economic rent, the payment for the use of land. Although this solves the problem semantically, there is still a difficulty in policy terms. If increases in land value created by society are to be captured, this needs to be carried out in such a way that the returns on fixed capital supplied by landlords are not taxed. This raises the question as to whether it is possible to devise taxes or other value capture instruments that just fall on land, as defined by Ricardo, but do not discourage the supply of fixed capital.

While Ricardo appeared to offer an economic justification for seeking to capture value increases, a moral justification that such increases belong to the community, who are therefore entitled to them, was provided by the American writer and one-time candidate for mayor of New York, Henry George. He argued in his book Poverty and Progress, published in 1879 [4], that value was created by the community:

“[Value] is not in any case the creation of the individual who owns the land; it is created by the growth of the community. Hence the community can take it all without in any way lessening the incentive to improvement or in the slightest degree lessening the production of wealth.”

The issue that George identified is that increased demand for land resulting from economic, demographic, or urban growth increases rents and the capital value of land. Taxes on this increase reduce the net income from land and its capital value. This not only generates revenue for the community but also makes housing more affordable. Taxing the value of land rather than its rental income means that land being held for speculative purposes, which may, in its current use, generate only a low income, will incur tax penalties that ought to encourage development being brought forward. George, who stood unsuccessfully for Mayor of New York in 1886, was an advocate of a free mass transit system for New York funded by real estate taxes, which he saw would break the monopolies on real estate and horse buses, which served to force up rents in Manhattan. He also argued that high rents on industrial premises forced employers to pay workers low wages [5].

This raises the question as to whether practical policies can be produced that are capable of extracting the value created by the community without resulting in disincentives for investment in improvements [6]2. Many countries have sought to capture value increases resulting from planning policy changes, infrastructure investments, or economic and demographic forces [7]. There is a wide range of policy instruments that have been suggested, including tax- and fee-based ones and development-based ones [8].

Countries seeking to implement value capture policies can encounter a number of problems in doing so [9,10]. These include the following:

• Whether governments are able to identify all the parcels and their owners that may experience value uplift. Problems arise where there is not a comprehensive land register and cadastre, or records are out of date or do not reflect reality on the ground.
• Whether governments have sufficient control over development to prevent the evasion of value capture instruments resulting from informal or illegal development and construction or changes in use that have not been permitted by zoning or development plans.
• Whether there is a well-developed valuation infrastructure that is able to accurately assess increases in market values.
• Whether there is a transparent property market in which information about transaction prices is readily available, thereby enabling value increases to be estimated.
• The use of public lands to extract value may be hampered by poor records, lack of delineation between public and private lands, encroachment on public lands, or public bodies not having unfettered rights over public lands because of customary rights that have been acquired through long usage.

The choice of the UK as a case study to explore how easy it is to create and implement value capture policies and the problems that can arise is for two reasons. Firstly, it has a long history of experimenting with value capture policies dating back to 1909, just over a decade after the death of Henry George. Secondly, the UK has effective controls over development, it can identify parcels and owners, has a well-developed valuation profession, and tends to be ranked as one of the most transparent property markets in the world [11]. All of these suggest that the administrative mechanisms needed to make value-capture instruments work effectively are present. If any country can make value capture instruments work effectively, then it ought to be the UK. And yet, the UK has often struggled to implement value capture.

In particular, it is important to establish whether the problems encountered were the result of political opposition and the failure to establish consensus or whether they were the result of contemporaries having to grapple with unfamiliar issues for the first time or whether there were inherent defects in the approaches that were likely to make the policies difficult to implement or even unworkable. Value capture policies are difficult to implement as there are numerous ways of structuring deals to legitimately avoid paying them. This inevitably produces complex legislation as policymakers seek to anticipate these and frustrate them, and raises the question as to whether practical policies can be produced that are capable of extracting the value created by the community. The answer to these questions will determine whether the policies used by the UK might be capable of serving as role models for other countries or being resurrected for current use. Current policy towards value capture in the UK can be argued to have learned from past policy experiments and to be structured in such a way as to avoid the problems they encountered. Value capture is a persuasive idea, but its actual implementation does present challenges.

2. Methodology

The four key policy approaches examined were never fully implemented, being abolished following a change of government. If one is to understand whether the policies were capable of achieving their desired results or were fundamentally flawed as a result of inherent defects, their short lives rule out certain methodological approaches. The data to carry out a quantitative impact analysis are largely absent. Therefore, the method that has been adopted has been one of textual analysis to examine how the policies were intended to be implemented and to examine them for potential weaknesses. The qualitative approach adopted is one that is commonly used in the analysis of legislation and taxes. With the passage of time, it is no longer possible to interview contemporaries, but the written record they left provides eyewitness testimony that can be analysed, as is commonly undertaken in much historical research.

The UK provides an interesting case study not just because of its long history of value capture policies and the variety of approaches that have been used, but also because the technical impediments one commonly finds to property tax reform and the implementation of value capture have not been present. Therefore, one can examine whether the policies themselves were capable of implementation rather than whether the context in which they were introduced made this problematic. It is also possible to examine them with the benefit of hindsight, in particular, with awareness of the complexities needed in tax and planning legislation that was not available to contemporaries who were faced with what were for them new challenges. The central question is whether the policies were capable of capturing value to the extent advocated by Henry George. If the answer is yes, then the policies may be of benefit to countries currently seeking to pursue value capture. If not, then other countries may learn from the UK’s experience of what not to do. In this way, it is possible to go beyond discussions of value capture that focus on advocacy towards what is really involved in the drafting and implementation of effective policies.

3. The Finance Act, 1909–1910

The earliest explicit attempt at value capture in the UK was set out in the Finance Act 1909–1910, the so-called “People’s Budget”. The 1906 General Election resulted in a landslide victory for the Liberal Party, which secured 397 of the 670 seats in the House of Commons. The opposition Conservative Party was reduced to just 156, having sustained a net loss of 246 seats. The Liberal Chancellor of the Exchequer3, David Lloyd George, introduced a budget that proposed to increase income tax on unearned incomes, a supertax of 2.5 percent on incomes of over GBP 5000 per annum, a graduated tax on motor vehicles, and a duty of 3 pence per gallon on petrol as well as new duties on land. Prior to the election, Lloyd George had advocated the type of value capture policy proposed by Henry George. Henry George’s ideas had a following amongst socialist and some Liberal writers and politicians after 1882 [12,13,14] and had influenced the report of the Royal Commission on the Housing of the Working Classes, which argued that ground rents and the price of land enjoyed by landowners was “no recompense for any industry or expenditure on their part, but is the natural result of the industry and activity of the townspeople themselves.” [15] (p. 70). The Liberal Party drew its strength from the urban middle and working classes, who, at that time, tended to rent their houses or own them on a leasehold rather than a freehold basis. The Conservative Party, by contrast, enjoyed the support of landed property owners, who often owned large urban as well as rural estates. There was growing recognition that the expansion of urban areas brought costs and benefits, with the benefits of rising land value going to landowners and many of the social costs falling on the poor.

The new duties on land included a 20 percent tax on the increase in the incremental value of land payable on the transfer or sale of a property, on the granting of a lease of more than 14 years, or on the death of the owner, or every fifteen years in the case of land held by corporate or unincorporated bodies. In addition, there was a tax of 0.21 percent on the capital value of unimproved land on which building was held back for “speculative purposes” rather than being used to best advantage, a tax on mineral reserves of 0.21 percent based on the open market value of the mineral rights, and a duty of 10 percent on the benefit to the lessor at the termination of the lease. There were certain exceptions from the duties, including the Crown, local governments, and statutory undertakers supplying gas and electricity. There was no incremental duty on agricultural land, provided the land’s highest and best use was for agricultural purposes. Certain owner occupiers of small amounts of agricultural land (up to 20.2 hectares) and lower value dwelling houses were exempt, as was land used for athletic and sporting purposes, provided it was held by a not-for-profit body.

Assessing these new taxes was no easy feat, as new administrative machinery had to be created. The UK does not have a cadastre, and at that time, there was no comprehensive system of land registration. The increase in value required the identification of each individual property, its owner, and a base valuation. A fiscal cadastre had to be created so that each parcel of land could be valued as at 30 April 19094, thereby enabling subsequent increases in value to be identified.

The country had been mapped by the Ordnance Survey (the official mapping agency) at a scale of 1:2500. The maps could not, by law, identify private boundaries5, only those of public bodies, such as municipalities and parliamentary constituencies. They did map boundary features so that parcels could be identified. The Valuation Office had access to these maps and employed a large number of temporary draughtsmen—126 in 1911—to produce maps for valuation purposes. It was necessary to update the maps in areas in which there had been urban or industrial growth.

Each parcel was given an identification that linked to its valuation. Although there was no land register, local governments were financed by an annual recurrent property tax based on its rental value. This meant that there were local fiscal cadastres that identified property taxpayers and local assessors and collectors who could support the identification of owners and occupiers from their local knowledge. These assessments were only irregularly updated, so new assessments were needed6. The Valuation Office sent out 10.5 million Form 4’s to owners to ask them for particulars of their properties, including income, use, and tenure, and their estimates of the gross value, full site value, total value, and assessable site value.

The government had the capacity to carry out valuations of properties at their current market values as it was able to draw upon the administrative machinery created for the estate duty (inheritance tax), which had been introduced in 1894. In 1909, a Valuation Office had been created as a branch of the Estate Duty Office to carry out valuations for estate duty. The Valuation Office was answerable to the Board of Inland Revenue, which was responsible for collecting the duties. Valuation became professionalised with systematic education and training in the latter part of the nineteenth century as a result of the formation of the Institute of Surveyors in 1868 and the granting of its royal charter in 1881 [16]. The Valuation Office was augmented by private valuers to carry out the valuations for the new duties. There were established textbooks that summarised best valuation practice (for instance [17]).

Although the process of drawing up a fiscal cadastre was produced in a remarkably short time, with most assessments being available by 1912, there were significant problems with the legislation. The definition of value, in particular, provided a number of difficulties. Valuation was not to be on the basis of the actual condition of the property but on the assumption that certain standard conditions applied. It is quite normal for property taxes to be assessed on the basis of a set of assumptions which may depart from the reality in certain cases7. This has the advantage of ensuring equity between taxpayers and preventing landowners from using artificial constructs, such as long leases on low rents, aimed at reducing value.

The drafting of the legislation resulted in the meaning of a number of key terms and concepts being imprecise, something that would probably have been resolved by case law through the courts, if the tax had continued8. One of these was the term “transfer on sale”. Walter Boas [18], a contemporary lawyer, thought that the term included all transfers other than those for nominal consideration. This would have meant that transfers included ones in which no cash was involved, such as exchanges and foreclosures. Other problematic terms included “assessable site value”, “gross value”, and “total value” of land. The key concept was the assessable site value, which was the tax base. This was the total value less the difference between the gross value and the full site value. The gross value was the open market value if sold free from incumbrance, such as tithes, quit rents, and rights of way. The full site value was the amount after deducting from the gross value the value of buildings, structures, and growing items. The total value of the land was the gross value after deducting from the gross value the value of fixed charges, public rights of way, easements, and restrictive covenants.

Faced with these problems, valuers were pragmatic:

“In practice the complicated rules for arriving at the total from gross value were often disregarded by valuers and the methods commonly employed for finding market value used. It was mostly arrived at by capitalising the net rent derivable from a property in accordance with the ordinary practice of valuation”

[19] (p. 309).

In other words, rather than trying to estimate the total value as defined by the Act, valuers capitalised the rent after the deduction of any charges payable by the landlord. This is a significant weakness in the legislation, namely that key concepts were not observable and were not based upon evidence that valuers could observe in the market, so valuers appear to have substituted what they could estimate for the concept in the Act that they could not.

The tax should not have presented owners with liquidity problems, as it was only payable on occasions when the increase in value was realised. The disadvantage for the government was that the yield was likely to vary substantially from one year to another according to the state of the property market and would be difficult to predict with certainty. Initially, the government was faced with heavy set-up costs, with tax revenues expected to build up slowly. The result was a significant annual deficit throughout the life of the duties [20], though this would no doubt have changed had the tax been continued with. At that time, there was no capital gains tax, and increases in land values were not subject to income tax, with some contemporaries viewing the duties as legitimate ones as they fell on incomes that would otherwise escape taxation [21]. Although there were technical and administrative issues in establishing the duties, they were mainly overcome. The problems with the tax were primarily political, although on the face of it, this might be considered surprising. The financing of local government had largely been met by land taxes since the sixteenth century. During the eighteenth century, the land tax was the mainstay of central government finance until overtaken by excise duties and, during the French and Napoleonic Wars, by income tax. Although both local rates and the land tax fell on land, the tax base was the revenue from land, that is, the annual value, rather than the capital value, and the formal taxpayer was the occupier and not the owner. One might argue that the taxes would become capitalised into the rents paid by the occupier, but the effect was to leave the owner with an unencumbered income stream. Vacant land with development potential would be taxed at the rates only on its income stream rather than the capital value.

By contrast, the duties on land were a clear attempt to tax landed wealth. They were intended to fall on the capital value of land and to be paid by the owner. As a result, they provoked a fierce political backlash from the landed aristocracy and gentry. Although the government had a majority in the elected House of Commons, it was in a minority in the hereditary House of Lords, where the opposition Conservative Party had a majority. By a convention that was, at that time, more than two centuries old, the House of Lords was not supposed to block finance bills, taxation being the responsibility of the elected lower house. Nonetheless, the House of Lords prevented the Finance Bill from becoming law, provoking a constitutional crisis. The Finance Act (1909–1910) only became law after another general election was called on the issue of “Peers versus the People,” in which the Liberal Party was returned to government, though with a greatly reduced number of seats and dependent on Irish Nationalists for a majority. The government persuaded King Edward VII to threaten to use the royal prerogative to create sufficient government-supporting peers to enable the Bill to be passed by the House of Lords if the upper chamber continued to block the legislation [22] (ch. 8), [23].

Lack of political consensus ultimately undermined the initiative. War in 1914 disrupted the preparations for the tax. By the time hostilities had ended, the Conservatives were back in power, and the land value duties were abolished in 1920. The Conservatives sought to ensure that value capture instruments could not be used in the future. The Finance Act 1923 repealed the provision by which all leases and deeds and instruments conveying and assigning land were supplied to the Inland Revenue. It was intended to ensure that the Inland Revenue no longer received information about the price at which each property was sold or the rent and premium of every lease, thereby depriving them of the data on increases in value so that no future government could reinstate the tax. When the duties were repealed, those who had already paid them were able to claim repayment. However, the valuations made for the taxes continued to be used in the 1920s after the repeal of the duties themselves for the purposes of compulsory purchase compensation and for estate duty [19] (pp. 19–20), and a number of municipalities took advantage of the fiscal cadastre created to revise their local rating assessments.

Could the policy have worked had it not encountered political opposition? It would certainly have needed to have resolved the issue of the valuation terminology used in the Act were concepts that valuers could not observe in practice. The revenue went to the central government rather than to the local communities that created the value uplifts. Huge progress was made in putting in place the administrative machinery needed to assess and collect the duties. This suggests that the policy might have worked effectively, provided there were clarifications made for valuers.

4. Town and Country Planning Act, 1947

The 1945 General Election resulted in the election of a Labour government with a mandate to undertake post-war reconstruction. It was committed to a socialist agenda, which included the nationalisation of what were considered to be the commanding heights of the economy, including coal mining, electricity generation, gas production, railways, road haulage, inland waterways, steel production, civil aviation, and the Bank of England. It introduced the welfare state, created the National Health Service, and implemented the legislation that introduced universal free secondary education. It was committed to the planning of the economy, but through indicative rather than directive planning, although it did also make use of physical planning tools and rationing [24].

The post-war Labour government was faced with the task of the physical reconstruction of major cities following the Luftwaffe’s bombing campaign and the V1 and V2 rocket attacks. This exacerbated the pre-war shortage of good-quality housing. The policy that was central to reconstruction was the Town and Country Planning Act of 1947 [25]. Under the Town and Country Planning Act 1932 [26], local authorities had the power to claim 75 percent of an increase in value from development consent—up from 50 percent in the Housing and Town Planning Act of 1909—but were also liable to pay compensation where restrictions were placed on development for the loss of development value by the refusal of development consent. Although the intention was for there to be symmetry with betterment payments if consent was granted, but compensation given if refused, and for the betterment levies to fund the compensation, the reality was asymmetrical. Little by way of betterment levies was collected, but local authorities were constrained by the fear of compensation payouts if consent was refused, and so failed to protect areas that should not have been developed. The Barlow Report in 1940 [27] noted the scale of the compensation a local authority might have to pay if proposals to restrict development in order to preserve open space or protect a coastline caused property to be injuriously affected as a result of denying development.

The Uthwatt Report on Compensation and Betterment in 1942 [28] raised concerns about how post-war reconstruction could take place with fragmented ownership and the inequity of some owners benefiting from betterment by being the first to formulate development plans, whilst others, making their move later, faced having development consent refused. Under the then-current legislation, this could have presented local authorities with an enormous demand for compensation if undesirable development was refused consent. The Uthwatt Report argued that betterment was a “floating value” that would land on a particular property in a locality where development was proposed but would then have the effect of increasing the value of all land in the area deemed to be comparable to the area under development, even if there was no economic prospect of further development. The result would be that the cost of paying compensation to all those landowners who were refused consent would exceed the total increase in the value of the land. In practice, little betterment was collected by local authorities, but the risk of paying compensation for restricting property rights through refusing development consent was very real, resulting in local authorities allowing building to take place “in too haphazard a manner and to poor and timid planning” [29] (p. 26). The idea that the revenue from betterment charges might offset the costs of compensation where development was denied seemed to contemporaries to be fanciful [27]). Moreover, local authorities were seen as having powers to prevent development they considered to be undesirable, but few powers to promote desirable development or to restrict urban sprawl.

The new Act was intended to change the basis for the development and use of land with increased powers to control it and for the use of compulsory acquisition where necessary “to secure the recovery for the benefit of the community of development charges with respect of certain new development” [25] rather than the benefits accruing just to landowners. The legislation was expected to speed up development through land being capable of being acquired compulsorily at its current value. In reality, securing planning consent was just the first hurdle since construction materials were rationed and licenses were required to obtain them.

This was not the first attempt at town planning, and the ideas it contained reflected earlier reviews and discussions of policy. Many of the powers available to local authorities under the 1947 Act were contained in the Town and Country Planning Act 1932. The differences were that the 1947 Act reflected the view that the planning system had placed undue concern on local needs rather than national or regional ones [29], and local authorities would be better able to exercise planning powers if they were less liable to pay compensation to landowners for the refusal of development consent.

Local authorities were granted the power to establish planning committees. Local planning authorities (LPAs) were required to draw up development plans for their areas, indicating how they proposed land should be used, with fresh plans every five years. Interested parties could object to the plan, and development plans were to be approved by the minister. However, the development plans did not automatically grant consent for development. LPAs had discretion as to whether to grant consent after taking other material factors into account. The Act nationalised development rights. Henceforth, permission was required from the LPA for development, including all building and engineering works, and changes in use of buildings or land. LPAs were required to maintain a public planning register of permissions, and there was the right to appeal against refusal of development consent.

Compensation for refusal of planning consent was still payable, but under limited circumstances. LPAs were required to purchase land where refusal of consent left the land incapable of reasonable beneficial use. In other words, owners of land could invoke a power of reverse compulsory purchase and compel LPAs under these circumstances to acquire their property. Compensation was also payable under certain circumstances for the refusal of planning consent and if permission to develop was revoked. However, no compensation would be paid for any refusal to grant planning permission unless this resulted in the diminution in value of the property. Where development was carried out without permission, the LPA had powers to enforce plans, including requiring demolition. LPAs could make tree preservation orders, and orders for the preservation of buildings of historic or architectural interest.

The Act created a Central Land Board (CLB) with the power to levy development land charges. No operations requiring planning permission could be carried out until the charge was paid. The charges were to be paid by any person with sufficient interest in the land to carry out the operations or to make use of them. Charges were determined by the amount by which the value of land with planning permission exceeded its value without this consent. Payments went to the central government rather than to the community that granted planning consent. In recognition that development rights were being expropriated, a fund of GBP 300 million9 was established for the payment of compensation for the diminution in interests, with claims to be made to the Central Land Board. Implicit in this is that the Central Land Board would have revenues from development charges to meet these claims as well as any profit from the sale of development land purchased at existing use rights. In reality, few claims were made on the fund.

Under the Act, land needed in the public interest could be designated for compulsory acquisition by a minister, local authority, a statutory undertaker, or the Central Land Board. Ministers were required to confirm acquisition by local authorities and statutory undertakers. Areas could be designated as areas of comprehensive development to deal with extensive war damage, bad layout or obsolete development, or the relocation of population or industry. Compensation for compulsory acquisition was to be on existing use values using prices as at 7 January 1947. The market value in the highest and best use might be higher than the existing-use value if the market had priced in the benefits from potential redevelopment.

A change of government in 1951 with the return to power of the Conservative Party resulted in the abolition of the development levy and Central Land Board in 1953 and the restoration of compulsory acquisition compensation at market prices in 1959. Between 1953 and 1959, there was a dual land market with land having one price if bought by a private developer for a commercial scheme that reflected the uplift from development and a lower existing-use value if compulsorily purchased for development by a local authority. This had the effect of rewarding landowners who gained planning consent with the betterment resulting from the permission, but with no compensation to those denied permission. The problem of betterment remained. The 1947 Act remained the basis for town planning and development control, and the machinery it established has largely survived to the present day.

With the Labour Party out of power between 1951 and 1964, attempts at capturing value ceased. Lack of political consensus can be argued to have killed off policies designed to capture value during this period. The problem with a lack of political consensus is that developers may hold back developments in the hope or expectation that a change of government would bring about the end of a regime that they find unfavourable.

The development charges under the 1947 Act differed significantly from the charges introduced by the 1909 one in that only the gains resulting from the granting of planning consent were to be taxed. The 1909 charges would have fallen on increases in value resulting from economic, urban, or demographic growth or from the construction of infrastructure and not just those resulting from a change in use or development consent. The implication is that no 1947 Act development charges were payable if the property continued in its existing use without being redeveloped, even if the owners benefitted from a rise in value of their property. The charges under the 1947 Act were on development rather than on increases in the value of land and would only have captured that part of the increase in value resulting from the granting of planning consent, a significant departure from the Henry George philosophy embodied in the 1909 land duties. They would not have captured any increase in value resulting from other expenditure by central or local government, such as on transport or other infrastructure projects [30]. The Uthwatt Report [28] had argued that the problems local authorities had in collecting betterment could be resolved by periodic levies on the increase in annual site values of all developed land, whatever the reason for such an increase in value, something similar to the intention of the 1909 land charges. A further issue was that the development charge payments went to the central government rather than to the community that granted the planning consent, so that any increase in value created from development consent or change in use was not retained by the community that created it. The mechanisms created for the control of development have largely survived, but the value-capture elements have not.

5. Land Commission Act, 1967

The return to power of a Labour government in 1964 saw value capture coming to the forefront of government policies. A capital gains tax was introduced in 1965, though its primary objective was not one of value capture but to stem a loophole in income tax whereby those who receive part of their remuneration in the form of shares or share options could escape taxation on any subsequent rise in their value. The Land Commission Act of 1967 [31] created a body with similar powers to the Central Land Board in that it could compulsorily acquire development land and to levy a development charge.

The aims of the 1967 Act were to secure land for the implementation of national, regional, and local plans—in other words, to secure “the right land….at the right time”—and to obtain a substantial part of the development value created by the community for the community. This was to be achieved using two measures. Firstly, there was to be a levy on the development value of land, initially at 40 percent, but it was expected to rise to 45 percent and then 50 percent. This was lower than the rate under the 1947 Act and was intended to provide landowners and developers with an incentive to carry out development. It was payable when the development value was realised, for example, on sale or the grant of a tenancy or when the land was developed. The land charged was exempt from capital gains tax. The timing of the payment meant it was due when the payee had the liquidity to do so. The levy fell on the difference between the market value and the base value less any expenditure which served to increase the base value and any impact the development might have on lowering the value of other land belonging to the owner.

The base value was the current-use value of the land, and the market value was the value of the land with the prospect of development. Inevitably, there were complex rules setting out how these were to be arrived at. Payment was to be by the person disposing of the land or the person carrying out the development. There were a number of exemptions from the levy, including local authorities, charities, housing associations, and a number of public bodies. The operational land of statutory undertakers was also exempt. In other words, the levy did not fall on developments undertaken for the delivery of services like utilities, though it would on any land utility companies developed commercially. Single dwelling houses for owner occupation were also exempt.

In the belief that land might be held back from development, the Land Commission was granted powers of compulsory purchase. The land it was permitted to acquire had to have planning permission granted for development, be designated in the development plan for compulsory acquisition, or be for a new town or housing clearance area. In order to speed up the process of compulsory purchase, ministers could dispense with the holding of an inquiry into objections unless a dwelling house was involved, and acquisition could be through a vesting declaration. Compensation was to be at existing-use value plus a share of the development profits. The intention was that the compensation would be at the market value for development land less the development charge. In principle, it should make no financial difference to landowners whether they developed the land themselves and paid the development levy or sold their land to the Land Commission and received a share of the development profits. The profits earned by the Land Commission were payable to the central government.

The Land Commission was set up as a public corporation, a form of government-owned enterprise. The intention was that it should be self-funding using revenues from the development levy and development profits to fund its acquisitions. It was granted GBP 45 million as initial start-up capital in recognition that it would take time for its income to build up. It was to acquire, manage, and dispose of land and to assess and collect the development levy. Disposal could be by freehold or leasehold, but subject to restrictive covenants to ensure that the Commission retained the benefit from any future development. It could carry out works on the land and improve it, but not carry out housing development, which had to be undertaken by the local authority.

The Land Commission had a short life. The Conservative Party won the 1970 general election and abolished it in 1971. It is likely that developers held back developments in the expectation that the legislation would have a short life. It might be argued that the policy was a victim of the failure to achieve political consensus, but that would be an oversimplification of the issues the legislation faced. One contemporary observer, hoping that the 1967 Act would be accepted as a workable compromise, argued “what the land market needs is a period of legislative certainty and that is the criterion by which the present Act needs to be judged” [32]. This was not achieved. One problem was that the legislation was extremely complex. The Act contained 102 sections and 16 schedules, with numerous definitions, all covering 189 pages. Perhaps with today’s experience of complex tax laws dealing, for instance, with how to define disposal and how to treat partial disposals through leases, sub-leases, or options, this is not surprising, but contemporaries were having to wrestle with something new and beyond their experience. The original Bill was withdrawn, and the revised one was amended several times. As one contemporary observer noted,

“Rarely has the passage of a Bill through Parliament been characterised by so many observations from both sides of the House [of Commons] calling attention to the complexity of its provisions”

[33].

Complex legislation is likely to result in high administrative costs for the government and high compliance costs for stakeholders. Moreover, the Land Commission was not just charged with the acquisition and management of development land but also with the assessment and collection of the development levy. Arguably, the latter function would have been better undertaken by a tax collection body, such as the Inland Revenue, whose Valuation Office had the technical capability to assess the levy. Although the aim was stated to be to obtain development value for the community, the exclusion of local authorities from the process meant that the benefits went to central government rather than to the communities that created the increase in value through the granting of planning consent. Like the 1947 Act, it was a departure from the principles of value capture set out by Henry George and enshrined in the 1909 legislation. The development levy fell only on the increase in value arising from the granting of planning consent. It did not capture the value increases occasioned by economic, urban, or demographic growth or from the provision of improved infrastructure, and so was not a comprehensive betterment levy but a partial one.

6. Community Land Act, 1975, and Development Land Tax Act, 1976

The re-election of a Labour government in 1974 saw a renewed attempt at value capture. The result was the Community Land Act, 1975 [34], which was coupled with the Development Land Tax 1976 [35]. The background to the Act was a substantial boom in property values during the early 1970s on a scale not previously seen in post-war Britain. This was followed by a crash in 1974 that gave rise to a debate about property bubbles and unjustified gains. Offices were estimated to have increased in price during the period 1971–1973 by 247 percent, shops by 84 percent, industrial premises by 31 percent, and agricultural land by 130 percent, which Neuburger and Nichol [36], in a report for the British government, blamed on self-sustaining expectations, largely based on anticipated further rises. Rates of return in the economy in the early 1970s were stagnant, and the property sector offered the potential for enhanced rewards [37]. This resulted in such public dissatisfaction with the profits that could apparently be made from property speculation that even the Conservative government felt moved to take action in the form of deflationary monetary policy and the taxation of certain development gains at the same rates as income tax [38].

A different tone was set by this Act compared with the 1967 legislation in that local authorities were given a central role. This meant that more of the value captured would be returned to the community granting planning consent rather than the financial benefits going just to central government. As the preamble to the Act makes clear, this was “an act to enable local authorities and certain other authorities to acquire, manage and deal with land suitable for development” [34]. Local authorities were granted the power to acquire land which, in their opinion, was suitable for development either by agreement or compulsorily. There would be central guidance, and ministerial approval was needed for compulsory purchase, but land acquisition was to be by local authorities and not a central body, other than in Wales. The lessons from having a central body too far removed from those making planning decisions had been learned.

At that time, much of the country had a two-tier system of local authorities, with district councils generally being the local planning authorities responsible for granting planning consent, but with county councils having responsibility for structure plans and the delivery of major services such as education, social care, libraries, and fire services. In metropolitan areas, the division was between boroughs and metropolitan authorities. There was therefore potential for disputes between the different tiers of local government, particularly if they were controlled by different political parties [39]. The system of local government had been overhauled in 1974, and there were a number of areas where Labour-controlled cities remained as district councils with much reduced autonomy under Conservative-controlled county councils. This necessitated the creation of Land Acquisition Management Schemes to resolve issues between the different tiers of local government. Not only was there the potential for conflict between local authorities, but also between local and central government. The Treasury wanted more speedy financial returns, whereas local authorities tended to want to take a long-term view and acquire land ahead of development rather than to flip it relatively quickly to developers [40].

Land suitable for development was land so identified in a development plan, had been granted planning permission, or for which planning permission would be granted. The problem was that many development plans were out of date [40]. Where compulsory purchase was to take place, compensation was to be based on the assumption that planning permission would not be granted for development. In other words, acquisition was to be at existing-use value. There were exceptions to this for land owned by a charity and for land that fell outside of a development plan. The minister had the ability to exempt developments, and the government exempted small developments, a lesson learned from the workings of the 1967 Act. Local authorities were able to borrow from the government to finance acquisitions, but the profits were to be shared with the local authority receiving 30 percent, the central government 40 percent, and the remaining 30 percent going into a pool for local authorities whose land accounts were not in surplus. Subsequently, the government’s share was increased to 50 percent, and that of the pool was reduced to 20 percent.

Once a local authority decided to acquire development land, it had the choice to develop it or sell it on to a developer. In order not to discourage developers from applying for planning permission, the local authority had to give the developer or former owner prior negotiating rights where land had been acquired through compulsory purchase. Whilst this was not the right to make a pre-emptive purchase, it should have served to prevent local authorities from taking land from an owner or developer and granting it to a competitor. Disposal could be of freeholds, as was expected to be the case for residential developments, or through leaseholds, in the case of commercial properties. Leasehold disposal meant that the local authority could receive ground rents during the lease, and these could be periodically uplifted to reflect inflation and rising land values. It would also retain a reversionary interest in the property. Covenants in leaseholds could be used to preserve the local authority’s future claims to increases in value and to a share of the profits if they proved to be higher than expected.

Local authorities needed to develop the capacity to implement the Act, and this raised the question as to how well equipped they were to facilitate and undertake development, since almost all developments would have to go through them. Local authority staff do not generally have the skill set to be entrepreneurs or to engage in commercial negotiations with hard-bitten developers, although, at that time, local authorities were major builders of social housing, and many had experience in overseeing town centre regeneration schemes. A later National Audit Office report into affordable homes found that local authorities often lacked the necessary skills and technical financial tools needed in the complex negotiations with developers over planning obligations [41]. Commonly, urban regeneration schemes require local authorities to use their powers of compulsory purchase to assemble sites from a complex of individual owners. They can then appoint a lead developer for the scheme to whom they grant a head lease. If negotiated properly, this should enable the local authority to receive a ground rent and a share of future profits from the development.

The Community Land Act was expected to work initially in conjunction with the Development Land Tax. Eventually, as local authorities’ capacity built up, they would become the single source of development land, and the Development Land Tax would no longer be needed since local authorities would extract the uplift in value from granting planning consent from the difference between the price at which they acquired the development land and that at which they sold it on [40].

The tax base of the Development Land Tax was the uplift in realised development value. This could be the difference between the current-use value without planning consent or the cost of acquisition of the land plus improvements and the market value of development land. The tax was a graduated one with the first GBP 10,000 of realised development value being exempt, the next GBP 150,000 being charged at 66²/₃ percent, and the remainder at 80 percent. No capital gains tax was payable in circumstances where the development land tax was levied. There were a number of exemptions, including local authorities, charities, housing associations, statutory undertakers with respect to their operational land, private residences of up to one acre (0.4 hectares), single-dwelling houses being built for owner occupation, and industrial property being built by a company for its own use. The exemption of local authorities meant, in effect, that the development land tax that should have been payable on the development land they acquired and sold on went to local authorities rather than the national exchequer, as would be the case if a private developer acquired the land from the owner. Like capital gains tax, the development land tax had to deal with situations in which there was a deemed disposal, such as one without consideration, like a gift, and partial disposal, for example, in the form of a lease or an option. The approach to disposals was similar to that used by capital gains tax.

The legislation was complex, as is also found with capital gains taxes. The Community Land Act comprised 94 pages, 58 articles, and 11 schedules. The Development Land Tax Act ran to 192 pages, 48 articles, and 8 schedules, with the schedules themselves comprising 116 pages. Inevitably, such complex legislation is expensive to implement, and for a tax, it is likely to mean that a significant proportion of the revenue would have to be devoted to administrative costs. It also means heavy compliance costs on taxpayers, even in situations where there is limited tax liability. Part of the reason for the complexity of the Development Land Tax Act was defining what was meant by the disposal of land, development, and improvements, when the exemptions applied, and how the tax would interact with other taxes. In the early years, the costs of the approach would be likely to exceed revenues. Initially, developers would have had little choice but to bring forward their land banks for development. Whether these would be replenished under this regime was open to question, particularly if developers did not expect the system to survive [39].

There was opposition to the Community Land Act from the Conservative Party from the onset, and the community of land professionals were unimpressed and thought it would impede development [42]. It was no surprise when the incoming Conservative government abolished the Community Land Act in 1979, though the development land tax survived until 1985, but at a reduced rate of 60 percent and with increased exemptions.

Unlike the 1909 taxes, but in common with the approaches set out in the 1947 and 1967 legislation, the Community Land Act was a device that could only capture part of betterment, namely the value uplift created when planning consent was granted for development or a more profitable change in use. It did not capture the increase in values resulting from economic, urban, or demographic growth or from infrastructure investment. These remained the property of the landowner even though they had been created by the community rather than by the entrepreneurial efforts of owners or developers.

7. The Neo-Liberal Approach to Value Capture

Since 1979, there have been no further attempts to create a structure whereby development will be largely under the control of a central body or local authorities and no betterment tax. In spite of the Labour Party forming government in 1997 and staying in power until 2010, and having the size of Parliamentary majority able to force through legislation, there has been no attempt at recreating a land commission or community land act or to introduce a betterment levy. Instead, policy has moved in a different direction and with a substantial degree of agreement between the major political parties. This is not to say that there have not been discussions around policies such as betterment levies (see, for instance [43]), but rather, they have not been part of the national government’s agenda since 1979. Instead, policy has moved in three directions: the use of local development corporations with defined objectives and a time-limited existence able to acquire land through compulsory purchase and undertake regeneration; the imposition of planning obligations on developers, primarily to offset any externalities resulting from developments; and the use of established property taxes to capture increases in value without this being made an explicit objective.

Although successive governments have foresworn the creation of another centralised public development agency, the idea of using public corporations to undertake the acquisition of land and its redevelopment, and to extract value uplift, has not been abandoned. Rather, the bodies that have been created to undertake this were given precise and localised terms of reference, and their focus has tended to be on the regeneration of urban areas. The approach has been for a public body to acquire potential development land at existing-use value, including through compulsory purchase, improve it, and facilitate its development by private developers, thereby capturing the increase in value from its existing use to development site for the state or local government, principally to defray the costs of improvement and infrastructure investment.

One of the leading examples has been the London Docklands Development Corporation (LDDC). London’s docks fell into decline through obsolescence from the 1960s as ship sizes increased and the shipping of freight became containerised. Moreover, the Dock Labour Scheme, which guaranteed work for registered dockers, imposed additional costs on port operators and drove traffic towards those ports outside the Scheme, which were the ones to develop container shipping. The Conservative Government of Margaret Thatcher came to recognise that the vast area of land (8.5 square kilometres) covered by London’s docklands could be an important national resource and created LDDC, an urban development corporation, in 1981, to oversee its redevelopment. LDDC had powers to compulsorily acquire land, though much of the Docklands area was in public ownership, being owned by the Port of London Authority and various nationalised public corporations. Its approach was to acquire the land, clean up contamination, break the sites up into developable units, improve transport networks, and recoup the costs of doing this through sales of development land. Seed corn money to start the process came from the government to be repaid from subsequent profits. Other urban development corporations included ones for Liverpool and Birmingham. It could be argued that the urban development corporations evolved from the new town development corporations created from 1946, but, unlike the new town corporations, they were designed to reinvigorate established cities that had fallen into decline. They were intended to have a short life of five to ten years in which to achieve their missions before development control reverted back to local governments.

The urban development corporation’s approach to capturing value has been followed by a number of other similar initiatives. This seems to be politically acceptable to all parties, probably because of the value they add and the way in which they unlock private development opportunities that would not otherwise occur. Metro mayors have been able to establish Mayoral Development Corporations since 2011 in London and 2014 in other areas. They include the London Legacy Delivery Corporation, which is responsible for the regeneration of the Olympic site in Stratford in East London. It was always intended that the 2012 London Olympics Park should spearhead the regeneration of the area and leave a lasting legacy in which the facilities had a post-Games afterlife rather than remaining as fading monuments to a fleeting moment of glory. Other Mayoral Development Corporations include another one in London at Old Oak Common and Park Royal, where the high-speed railway line between London and Birmingham (HS2) will intersect with the Elizabeth Line that crosses the greater London area from west to east, and South Tees, Middlesbrough, Hartlepool, and Stockport. The approach can be characterised as the use of localised “Land Commissions” to undertake specific regeneration tasks. The main issue that has arisen with this approach has been over the lack of local democratic control over urban and mayoral corporations compared with the powers they have and the impact on the communities affected by their operations.

The second strand of policy has been the imposition of planning obligations (also known as planning agreements or planning gain) on developers. Developers voluntarily enter into a contract with a local authority to make some provision necessary to enable planning consent to be granted. These are not intended to be value capture devices as the aim is to offset any externalities caused by development, such as congestion, to make the granting of planning consent possible, an application of the polluter pays principle. As Circular 05/2005 makes clear, “planning obligations should never be used purely as a means of securing for the local community a share in the profits of development, i.e., as a means of securing a “betterment levy”” [44] (B7). For example, the developer of a shopping centre might finance the construction of a flyover to ensure that traffic generated by the development did not cause congestion on a neighbouring bypass.

They largely started in the 1970s, though they date back to 1909, but came to the fore with Section 106 of the Town and Country Planning Act 1990 [45] (subsequently subsumed into the Planning and Compensation Act, 1991 [46]). This permits planning obligations to recover additional costs to the community or loss of amenity from development. Planning obligations are enforceable, being contracts and can be registered as local land charges, thereby binding successors in title. They should not be regarded as the selling of planning consents but “to make acceptable development which would otherwise be unacceptable in planning terms” [44] (B3). They must be “directly related to the proposed development” and “fairly and reasonably related in scale and kind to the proposed development” [44] (B5).

The possible exception that could be viewed as value capture has been the use of planning obligations in housing developments to secure the provision of social and affordable housing. However, it is recognised that planning restrictions limit the supply of housing, thereby increasing house prices and land values to the particular detriment of the poor [47], [48] (pp. 79–88). Housing obligations can be regarded as offsetting some of this impact and the benefit to landowners and developers from planning controls raising land values.

There are several possible reasons why planning obligations have been relatively uncontroversial, whereas value capture devices have not. They are locally negotiated, with the benefits going to local communities. They reflect local development plans and the public consultations and evaluations that produced them, which can be argued legitimises them [49]. They are achieved during the development process when profits can be made and land values are rising, and when developers have liquidity, although in periods of recession, securing planning obligations is more problematic [40].

Who pays them is unclear. Potentially, house buyers and business occupiers of non-domestic premises could be faced with higher house prices or commercial rents, developers might take a hit in the form of lower profits, or landowners might be forced to accept lower land prices. Volume housebuilders may be able to shift the costs onto landowners, with small builders having to meet them out of profits [50]. Some developers do try to renegotiate them later on grounds of affordability, though some have run into legal problems with this10. There is a question as to whether local authorities have the negotiating capacity to deal with developers. There is also the question as to whether they distort planning policy if local authorities are seduced by the prospect of financial gain [40]. Some agreed planning obligations do not just deliver benefits but also impose long-term costs on communities. For example, the offer to build a doctor’s surgery or a primary school may appear to reduce the potential for congestion in health or education services, but that surgery or school has to be staffed and the future running costs paid. These could be funded by a betterment tax, but not by a planning obligation. What developers are willing to offer to build may not be a community’s priority, whereas cash from value capture could be spent in accordance with community choices.

The Planning Act 2008 [51] introduced an alternative approach to the polluter pays problem in the form of the Community Infrastructure Levy (CIL). Local authorities have been able to adopt CILs whilst also continuing to use planning obligations so that the two approaches are not mutually exclusive. A CIL is a set of levies in the form of a unit charge, for instance, per dwelling, per bedspace, or per square metre, to be paid by different types of development towards supporting the infrastructure required for development. The approach is a formulaic one based on the impact of a development [52]. It enables revenue to be raised through a one-off payment to support a wide range of infrastructure, whereas planning obligations tend to be more limited in scope. For instance, a housing development will require not just additional educational facilities but will make demands on a wide range of publicly provided services, including libraries, leisure centres, roads, car parks, and public transport. A CIL can reflect these various demands. CILs do not require negotiation and can enable speedier decisions than if a planning obligation had to be negotiated [53]. The main disadvantage is that CILs are imposed at a flat rate per unit, so they may be unrelated to the ability to pay or the value uplift that occurs as a result of the granting of planning consent.

The regime that was constructed after 1979 focussed on planning obligations and community infrastructure levies, which affected the developer rather than the landowner, as these form part of the cost of development. They can be regarded as a levy on development. The levies are hypothecated, and the obligations or levies must be directly related to development and necessary to mitigate its impact, such as the provision of infrastructure that allows the development to take place. The change in direction towards land value capture saw an end to the corporatist approach in favour of a more neo-liberal one [54]. The corporatist approach was intended to reinforce the effectiveness of the planning system and to obtain a significant share of the increase in land values resulting from the granting of planning consent for the community by taxing development values and routing development through a government body. The philosophy behind planning obligations and community infrastructure levies is more in line with making the polluter pay and internalising externalities than with the Henry George notion of capturing value uplifts on behalf of the community. The only value uplifts these measures target are ones resulting from the granting of planning consent, and only to the extent of using part of the uplift to offset any externalities generated.

The idea of capturing increases in value through the tax system has not gone away though it is rarely made explicit, although the then government in 2018 did acknowledge that “mechanisms such as Capital Gains Tax, Business Rates and Stamp Duty Land Tax, which are not specifically designed to capture land value increases but will have this effect in practice” [55] An ad valorem tax levied on market values at any two points in time will capture value increases resulting from economic, urban, and demographic growth. Unless there are allowances for the costs of improvements, the tax will also fall on increases in value that result from investment by landowners as well as on betterment. However, for many properties, the principal enhancement in value is likely to come from betterment.

Uplifts in value can be captured by recurrent property taxes that are revalued periodically. In the UK, non-domestic properties are subject to business rates, which are revalued every five years. There has been no revaluation of the recurrent tax on residential properties since 1991, but there is a sporadic tax that falls on property transfers, stamp duty development tax. It also falls on leases. Businesses can generally avoid paying it on sales of property. This is because businesses can sell special-purpose vehicles that own property assets. In this case, there is a change in beneficial ownership as the shareholder changes, but no change in the legal ownership as the property remains in the hands of the special purpose vehicle, and so no liability for stamp duty land tax. In addition, there are two general taxes that capture increases in the value of property assets, capital gains tax and inheritance tax. Capital gains tax falls on the difference in value between acquiring and disposing of a property less any costs of improvements. Inheritance tax falls on bequests and gifts.

There has also been the use of property taxation to fund infrastructure. The key example has been how the Elizabeth Line (formerly known as Crossrail) in London was financed. The Elizabeth Line runs from Reading in the west to Abbey Wood and Shenfield in the east, mainly underground and linking with the London Underground network. It was formally opened in 2022. The problem that has been faced with the construction of new underground rail lines in London is that many of the beneficiaries do not use the services. They benefit from reduced congestion on other routes. As they do not use the services, it is not possible to monetise the benefits they enjoy. Fares charged to users are likely to be insufficient to recoup the costs of construction. On a strict financial assessment, new lines would never be built, even though it can be demonstrated that the total benefits to users and non-users outweigh the costs. Many of the benefits from travel time savings and improved accessibility will become capitalised into property prices. This opens the prospect of using value capture taxes to generate funds for infrastructure investment. In the case of the Elizabeth Line, part of the costs were met from two sources: a supplementary business rate on business properties which would benefit from their proximity to the railway line and a contribution from the Mayor of London’s Community Infrastructure Levy on new housing developments. These sources were expected to contribute 37 percent of the original budget [56]. Although there is evidence that transport infrastructure improvements in London have resulted in uplifts in the value of residential property [57], as assessments remain fixed at their 1991 levels, the only tools available to generate revenue from residential property have been the CIL and section 106 agreements, both of which fall on new developments. Any uplift in the value of existing residential properties avoided capture.

8. Conclusions

The UK has had a number of attempts at capturing land value increases. With the exception of the 1909 Budget, they have mainly focussed on attempts to use the planning system to capture value, either through central or local governments being able to acquire land at existing-use value and then to take the benefits from any increase in land values resulting from the granting of planning consent or through developer contributions through planning obligations or planning gain. This means that betterment has implicitly been defined as being something which occurs as only a result of the granting of planning consent and rather than being due to economic, urban, and demographic growth or new infrastructure. The 1909 policy saw betterment defined more broadly and in line with the arguments of Henry George. It is notable how modern researchers discuss the post-1947 initiatives but ignore the UK’s attempt to introduce a Henry George-style betterment tax. In this sense, Stanley Baldwin, the Conservative Prime Minister during much of the interwar years, and who had been a Treasury minister during the period in which the land duties were abolished, looks to have accomplished his objective of not only securing the abolition the 1909 land charges but preventing any similar policy in the future.

After 1909, the emphasis on value capture moved away from the use of specific betterment taxes towards planning policy and the use of land-based instruments. However, recurrent and sporadic taxes have also been used to capture value uplifts, but in a manner that is not explicitly stated to be one of taxing betterment. It could be argued that this is a much less contentious approach as it captures betterment by stealth. The taxes are not pure betterment taxes since some properties will have been improved in the intervening period between revaluations or sales, but it is likely that for most properties, betterment is the primary reason for an increase in value. If the recurrent property taxes are subject to regular revaluations or there are property transfer taxes levied on market values, one might argue that there would be no need for a betterment tax. There is an adage that an old tax is a good tax, as, to paraphrase Colbert, the geese have got used to being plucked. There is merit in using tried and tested taxes to capture value uplift rather than to try to introduce new ones.

Three key points stand out from the UK’s experience of trying to implement value capture. Firstly, such schemes are only likely to enjoy longevity if there is political consensus.

“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”

[58] (p.3).

This 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 development, and in a way that is politically acceptable to all major parties. None of the four major attempts at betterment levies achieved this, but the use of recurrent and sporadic property taxation and the use of planning obligations have not attracted the same degree of hostility. An important conclusion for any country looking to capture value increases is to achieve political consensus about the objectives, aims, and means to be used in order to avoid disruptive changes in policy that are likely to discourage investment.

The second is that the legislation in each of the four attempts was extremely complex. This made it difficult to implement and, initially, costly for both the government and stakeholders. This is not surprising in view of the terms that have to be defined and the complex circumstances in which betterment arises, such as partial disposal and disposals without consideration. Tax and planning laws are also complex but benefit from having evolved over time so that there have been judicial decisions to aid their interpretation. Both recurrent and sporadic property taxes are also subject to complex regulations and case law, but governments make these work. If betterment taxes involve definitions of value which are not ones that are encountered in day-to-day market trading, then it is difficult for valuers to establish what these are by reference to transactions involving comparable properties. Under-resourced schemes are likely to fail or fail to deliver the gains they might, particularly if they are under-staffed or if those responsible for implementing do not have the right skills [59]. The UK’s experience suggests that value capture involves complex legislation and regulations, and policymakers must pit their wits against well-financed lawyers and accountants working for wealthy property owners to find legitimate means of avoiding taxes and other burdens placed on rising property values.

Thirdly, value capture is intended to benefit the community that gave rise to the uplift in values. But who exactly is the community in question? In the UK, there has been a tension between the central government wishing to see the financial benefits from value capture going to the central exchequer and the interests of local communities in which development takes place. As Alterman has noted, there needs to be a direct connection between the government authority collecting the levy and the one that benefits from the revenue. [60]. This seems to have been resolved in the UK by the central government taking most of the tax revenues generated from an uplift in values, whilst local communities gain from planning obligations. However, local communities commonly oppose developments which may be of national benefit but whose impacts fall locally.

Finally, it should be remembered that all of these attempts to capture value uplift have taken place in a country which is able to control development so that illegal or informal construction or changes in land use are almost unknown and cannot be undertaken with impunity. Value capture requires robust planning and permitting systems as well as a valuation infrastructure capable of assessing value uplifts. Many countries lack these basic requirements.