Thursday, 6 March 2014

Regional Inequality. LVT will sort it out.

Every time a city doubles in size, it gains a 15% bonus.15% higher GDP per capita. 15% higher wages. 15% more amenities per capita.
This becomes a positive feedback loop with more people attracted by those benefits. Economists call it agglomeration. 
Given London is not only the largest city in the UK, but Europe too(over twice as large as Berlin), it attracts everyone from around the World for a piece of the action.
The problem lies in the fact this productive surplus is captured by landowners, by the simple expedient of owning a freehold title. Hence higher house prices. 
The right to exclude others from gaining access to this surplus is granted by the State. So the fact it doesn't ask landowners to pay for this privilege is therefore an implicit subsidy.
Given London and the SE has about 60% of land by value, this has some very important ramifications for others parts of the UK. It means taxation on income and enterprise, that has to be raised in order to support this subsidy also falls on more marginal areas.So regions outside the SE are effectively being priced out by tax.
End this subsidy, and lower/eliminate taxation, those areas outside the SE have a far lower tax burden than at present. This would attract much higher investment where it is needed most.
So on a 100% LVT only model. London and the SE would be paying an extra £134 bn per year (2007 figures). Or an increase of 75%.
We don't need redistributive government policy. That has, and always will fail. Just a level playing field so Birmingham, Leeds and Glasgow can up their rate of agglomeration too. 


Mark Wadsworth said...


Only it wouldn't be "London and SE" paying more, it would be "whoever wants to own land and buildings in London and SE" would be collecting less in subsidy :-)

Ben Jamin' said...

Of course. Ultimately is comes from 100,000 households, banks, landlords.

The majority of which are know where :)

H said...

I wonder if you - or anyone - has a plausible explanation for London's fairly steady decline from the end of the Second World War till the early 80s, given that it would still enjoyed an apparent advantage in agglomeration compared with other parts of the UK or Europe.

H said...

"have enjoyed", of course.

Anonymous said...

@H Could that simply be that post war the UK invested quite heavily in in the heavy industries and old fashioned things like house building and civil projects which didn't automatically favour London. Whereas London as a financial center had a relatively small role to play in international finance until the 80's, as the post war era was characterised by capital restrictions, ie; where money didn't flow freely across national borders.

H said...

@paulc156 Certainly seems reasonable. I dislike blaming everything on "Europe", but joining the EEC must have given the Southeast a boost compared with the rest of the country, too.

Ben Jamin' said...


From Wiki

"Greater London's population declined steadily in the decades after World War II, from an estimated peak of 8.6 million in 1939 to around 6.8 million in the 1980s."

I don't know what the economic opposite of agglomeration is, but that's it :)

Mark Wadsworth said...

H, partly what Ben says, but what turned London (land prices) round was the Thatcher-Blair school of government i.e. Home-Owner-Ism.

And as PC hints, being a member of the EU tends to favour the south east and be bad for the north. This is exactly the same as the EU favouring the original six countries (in the geographical centre) and making things worse for the periphery. It's a long and complicated explanation but easily observable.

Ben Jamin' said...