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Monday, October 30, 2017

Is a Welsh vacant land tax a half-measure too far?

There is a lot to be said for a carrot and stick approach to social policy and as a means of changing behaviour. That is why when the Welsh Liberal Democrats were promoting an increased council tax for long-term empty homes a few years ago, to compensate communities for the blight imposed on them by these buildings, we also advocated grants and loans to help owners bring the properties back into use.

Unfortunately, in considering and consulting on four possible new taxes for Wales the Welsh Government appears to have forgotten this approach. In particular their proposed vacant land tax, targeting land that has planning permission for new homes, but which has been land banked, appears to be one of those half-measures which amount to a sledge hammer to crack a very small nut.

It is little wonder that house builders are perturbed. They say that they do not land bank in Wales. Andrew Whitaker from the House Builders Federation is quoted by the BBC as saying: "If a site isn't being built on after it has received a full implementable planning permission then something has gone wrong." He worries that the tax will did-incentivise large house builders and will put another barrier in place for small house builders.

In fact that quote is slightly disingenuous. Mr Whittaker is right that once a builder has obtained full, detailed planning permission then they will be ready to build. But it is likely that the tax will target land with outline planning permission, that is land which has been earmarked for building sometime in the future by a builder, but which they are not yet ready to actually develop.

My point is that even then there is a level of unfairness in such a tax, as often the failure to proceed is down to circumstances outside the control of the developer. In particular, the economic situation, the fact that house prices are lower in Wales impacting on profitability as costs are rarely less than across the border, waiting for connections by statutory undertakers, the lack of suitable infrastructure and the big one, inability to access finance, especially for small, local builders.

It is these issues that the Welsh Government need to tackle if they want to increase the number of homes being build in Wales. Helping small builders access finance, sorting out infrastructure problems and helping to reduce costs are the carrots that need to be in place before Welsh Ministers wield the large taxation stick.

And even then does the proposed tax have to be so crude? Replacing business rates with a land value tax which demands payment on the actual value of the land rather than some notional assessment of rent, would be far more effective. Once land has planning permission it would be taxed accordingly, providing an incentive to develop it and realise its value. As with business rates, it would be possible to zone agricultural land as having zero value so as not to destroy our agricultural base.

A land value tax would also work to bring brown field sites back into use and incentivise development. It is a far more comprehensive tax than the one proposed by the Welsh Government and far fairer. Isn't it time it was considered seriously?
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