Public rights and private land

By Eamon Dyas

In the previous instalment of this series I looked at the way in which the policies of the Thatcher government on housing revealed an ambition to go beyond the “Right to Buy” arrangements initiated in 1979. It was apparent from the context of those policies that Tory plans for local authority housing were not exhausted by the way in which the 1980 Act compelled those authorities to dispose of their publicly-owned housing stock. What was indicated by those policies was that Tory ambitions in fact only began with the implementation of that Act. A closer look at those policies showed that their wider object was to ensure that local authorities would never again possess the capacity to return to the position they had occupied before the “Right to Buy” scheme came into effect. In other words, the ground was being laid to ensure that there was to be no prospect of local authorities ever again becoming major suppliers of public housing on the scale they achieved prior to the Housing Act of 1980.

In pursuit of that object the Government prohibited local authorities from fully accessing the funds from the sale of council homes and initially inhibited them from raising funds through an increase in the rates. At the same time their funds were further curtailed through a drastic cut in the central government grant. The immediate effect of such prohibitions was to choke off the funding supply that would be necessary for local authorities to quickly replenish the public housing stock they had been compelled to sell under the tenant “Right to Buy” scheme. 

But while such measures succeeded in frustrating any local authority plans for a resumption of significant house-building programmes, in themselves they could not guarantee against the situation being reversed at some point in the future. There remained the prospect of a future government with different policies introducing counter-measures that would result in the restoration of sufficient mechanisms to enable the return of a meaningful public authority housing provision sector. 

It was understood that in the long-term, constraint on local authority access to funding could not be relied upon as an effective long-term measure for shackling a revival of local authority housing. This meant that if the wider object of Thatcher’s “Right to Buy” revolution had any hope of surviving the next Labour Government it had to rely on more than legislation alone. The Government had to find an instrument which could function as an effective obstacle to a local authority housing revival and one that was not directly prone to easy political removal. As it was not politically possible to impose a permanent prohibition on local authorities from involvement in house-building in the future the Thatcher Government sought to make it as difficult as possible by curtailing local authority access to that other essential ingredient for any significant house-building programme – land. In consequence, the cost of land was made into an ally of Thatcher’s vision.

However, it would be incorrect to believe that the Thatcher Government’s relationship to the land issue revolved exclusively around an attempt to destroy the prospect of local authorities regaining their past position as the primary suppliers of housing in Britain. While using the unique characteristic of land as a finite resource to underpin that ambition, Thatcher’s approach to the land issue has to be seen in the context of a much wider picture.

In order to understand how that wider picture fitted into the issue of local authority housing it is necessary to look at it in terms of the land question itself and how land, as a finite resource, became the pivot on which the post-war British economy evolved. Central to this is the way in which post-war Labour Governments had persisted in an attempt to establish a different relationship between public need and private land before Tony Blair’s New Labour Government of 1997 finally gave up on those attempts.

Labour’s 1947 Town and Country Planning Act

Elsewhere in this issue of Labour Affairs is reproduced the text of a speech by Winston Churchill which he gave in July 1909 as part of a campaign to explain the land tax proposals in Lloyd George’s so-called “People’s Budget” of that year. In that speech Churchill provides an explanation of the perennial conflict of interest between private landownership and the evolution of society’s needs. As part of its attempts to solve that conflict of interests the 1909 Budget proposals called for a tax on any increase in the value of land enjoyed by a landowner as a result of municipal improvements. Despite the fact that the first Housing and Town Planning Act was also passed in 1909 it was the Budget proposals that represented the most radical long-term opportunities for local authority housing. 

Unlike the budget proposals of 1909, the Housing and Town Planning Act of that year only imposed very modest obligations on house-builders and local councils. These amounted to an obligation on local councils to operate according to rules of town planning that guaranteed a minimum standard for future house construction. While one of the main purposes of the 1909 Housing Act (the eradication of the infamous “back-to-back houses” of the industrial revolution) was beneficial to the health of the working population it did not represent any advance in terms of a meaningful change in the relationship between public interests and private landowners. In that sense the 1909 Housing Act was a purely administrative affair involving local councils in the regulations for house-building. On the other hand, the provisions of the Finance Act (“People’s Budget”) of 1909, while not directly implicating local councils, did lay the basis for a future in which the relationship between local councils and landowners would be altered in favour of the former. 

It was through the Finance Act of 1909 that the gains in value of land resulting from planning provisions were to be taxed at 50% at the point of sale. An associated tax established by the same Finance Act was the tax on the capital value of land. This imposed a tax on a landowner of a half-penny in the pound of the value of the land in his/her possession. In that sense, the first could be deemed a straightforward sales tax with the latter more akin to a rates tax that would be attached permanently to the land in ways that ensured that the Government’s tax-take would rise as the value of land rose over time. The two taxes were deemed to be related because the direct uplift in the value of specific areas of land resulting from municipal planning decisions inevitably rippled out and impacted on the general market in land and thereby increased the wealth of landowners everywhere albeit to a greater or lesser extent depending on its location. 

Unfortunately, as a result of legal wrangling in the courts and ongoing obstruction from Tory-led local councils, the Liberal Party’s land tax proposals never had time to bed down before the First World War intervened. Then, in the aftermath of the war, these proposals, because they did not exist as separate and specific pieces of legislation, were easily negated in 1920 by the post-war Tory-dominated coalition Government without the need for a statutory replacement. 

But to get back to Labour. From a Labour perspective, although there were previous attempts between the wars to confront the land question, the first serious attempt to get to grips with the problems of land values was initiated by the 1945 Labour Government with its Town and Country Planning Act of 1947. This was a brave piece of legislation in keeping with a Labour Government which had set itself the most ambitious social agenda of any British Government before or since. 

At the end of the war there was a general acknowledgement that post-war reconstruction should proceed alongside a more rational approach to town and country planning. The misuse of planning in the 1920s and 1930s had led to a haphazard approach to the construction and location of commercial, domestic and industrial building as well as a virtual free-for-all in things like the location of large ugly advertising hoardings in unsuitable urban and rural settings. Among other things, the 1947 Act was designed to encourage and empower local authorities to adopt rational and beneficial development planning in their areas which would address these problems.

In order to facilitate this, the legislation dismantled the existing cumbersome planning system which had been based on 1,441 separate planning bodies and reduced them to a more manageable and accountable 145. These new bodies were to be organized around the county and borough council structure and supplemented by joint planning bodies where appropriate. Such was the scale of what was attempted that one expert has since described the 1947 Act as “the basic legislative scaffolding of Britain’s planning system to this day” (The New Enclosure: The Appropriation of Public Land in Neoliberal Britain, by Brett Christophers, 2018). 

However, of more relevance to the question pursued in this series was the way in which the 1947 Act sought to address the conflict between society’s interests and the interests of private landownership – the same conflict that was highlighted by Lloyd George and Churchill in 1909. At the time of the arrival of the Labour Government in 1945 the relationship between a landowner and his/her land retained much of the characteristics it had possessed in 1909. 

But before we pursue that it is necessary to make a diversion to explain the Labour Government’s Acquisition of Land (Authorisation of Procedure) Act of 1946. This piece of legislation provided local authorities and Government departments with the procedural framework within which they were entitled to compulsorily purchase land for public purposes. There was also a similar arrangement under the New Towns Act passed the same year. Important as these pieces of legislation were they related primarily to procedural matters in the context of compulsory land acquisition and therefore existed as layers of legislation that themselves came to be based on the Town and Country Planning Act passed the following year. For that reason the route of this investigation will continue to concentrate on the 1947 Act as it was that act which altered the existing relationship between governmental agencies (local and central) and private landownership.

The existing planning system operated on the basis that, in essence, ownership of land conferred the right to the development of land as well as the financial gains accruing from the sale of land to the landowner. Various taxes might be imposed by the State on such transactions and obligations may be placed on landowners and land may at times be subject to compulsory purchase orders but those taxes and obligations and orders continued to be based on the general premise of the absolute right of the landowner to decide the destiny of that land and an entitlement to any incremental gains resulting from its sale. 

The Labour Government’s Town and Country Planning Act of 1947 changed all this. Wider powers were given to local authorities to acquire land compulsorily either to subsequently lease to private developers or for the use of local authorities to undertake development themselves. In this way, through the new planning bodies, local authorities were provided with more control over the way in which land was to be used as part of their local planning objectives. But that was not why the 1947 Act was so significant. The powers of Governments to compulsory purchase land had been invoked many times going back hundreds of years. It was something that was used extensively during the industrial revolution – most notably through the many individual acts of parliament during the development of the railways in the 19th century. The investing of local authorities with the powers to compulsory purchase land had advanced since then and as recently as the 1946 Act mentioned above. What made the 1947 Act different was that it represented an advance of the relationship between public interests and the landowning interest in a completely new direction.

As The Times stated in an editorial commenting on the Bill at the time it had been published:

“In effect, from the passage of the Bill, all landowners will lose the development value of their properties, retaining only the “existing use value.” . . . The Bill establishes a fund to compensate owners for this loss, the fund to be disbursed by a Central Land Board, the main piece of institutional machinery set up under the measure. The sum of £300,00,000 is named in the Bill as the total to be disbursed by the Board for this purpose throughout England, Wales and Scotland. . . .

“When permission to develop is granted, every resulting increase in land value is to be collected in the whole or in part by the State in the form of a development charge which will be levied and collected by the Central Land Board.  This levy is to be a continuous process. . .” (“The New Planning Bill”, The Times editorial, 8 January 1947, p.5).

It was the loss of the rights of landowners to the development gains from the sale of their land that represented the crux of what the 1947 Act was about. It was this that shift in the principle upon which the relationship between public interest and private land had previously been established that made the Act so radical.

Addressing the potential problems posed by the traditional relationship between public interest and private land had assumed a greater urgency after the war in the context of the requirement for large-scale reconstruction. It meant that local authorities, through the allocation of development permissions, had the power to convey enormous wealth on private individuals, institutions or commercial companies. Land that previously had low value due to its existing use or being derelict could now increase several-fold by the simple process of it being designated, directly or indirectly, as part of the redevelopment plans of local authorities. Once provided with that new status the land became the agency by which its new value could be realised through onward sale at the much higher price than it could have previously commanded. Acknowledging that the existing situation had the potential for making a relatively small number of people very wealthy simply by virtue of them being the owners of such land the Labour Government framed the 1947 Act to ensure that it was society, rather than the buyer, that enjoyed those gains. It did this through a charge being levied on the sale of such land. The levy, known as the “betterment levy” was similar to the “enhanced value” tax of Lloyd George’s 1909 proposals.  In this case however, instead of the small tax imposed under Lloyd George’s scheme the 1947 arrangement consisted of a levy of 100% of the gain in the value of the land after it was sold for development purpose. 

The Act established the Central Land Board as the body which was responsible for assessing the levy to be applied to lands on which new development permits were granted. This was also the body that issued the order for payment and set the penalty for delay – enforceable through the county courts or the High Court – in the event of a failure to pay.

It should be noted however that this levy was imposed not directly on the landowning seller but the purchaser in such transactions. In other words, the tax on the transactional gain at the point of sale was laid on the purchaser and not on the landowner. This in turn naturally acted as a dampener on the price which a purchaser might otherwise be willing to pay and so the burden of such sales fell on both the landowner indirectly and the purchaser directly. Because of this, the landowner was deemed to have been deprived of the potentially higher value of the land in the sale transaction and as a consequence under the Act he/she was entitled to compensation. The level of that compensation was related to the value of the loss – though not equal to it – that the landowner had suffered according to the assessment of the Central Land Board. The relevant compensation would then be paid from the £300,000,000 fund established under the Act for that purpose.

Essentially, because of the acknowledged post-war redevelopment requirements, the mechanism of the “betterment levy” was not designed to discourage the sale of land for development by the original landowner. However, whether by design or not, its effect was to ensure that the potential future gains in land value was not viewed as the end result by the purchaser. Under the operation of the “betterment levy”, in order for a purchaser to put his/her investment to profitable use that profit could not be realised through a simple onward sale of the land at a higher price. In other words, it had the effect of inhibiting speculation in land. For an investor to realise a profit he/she would have to rely on putting the land to actual use, for example, by building and renting or selling commercial or domestic buildings rather than the use of land as the sole medium through which that profit could otherwise be realised. Therefore, an associated effect of the 1947 Act was that the perception of land as a trading medium in its own right would diminish in the eyes of the investor.

For that reason, the advent of the “betterment levy” was generally defined as a form of nationalisation not so much of land but rather as the nationalisation of the development value of land. In fact, that is how it was interpreted in contemporary law manuals:

“The Town and Country Planning Act, 1947 . . . amounts to the nationalisation of the development value, or the major part of it, in all the land in private ownership. The owner was left, in effect, with the value of his land in its existing state and for an existing use . . .

In other words, it was necessary [through the ‘betterment levy’ – ED] to buy back from the State the nationalised development value in the land by paying, or undertaking to pay, the [development] charge.” (Introduction to The Town and Country Planning Act, 1954, by D.P. Kerrigan and J.D. James. Reprinted from Butterworths Annotate Legislation Service. London 1955, p.xii).

The manner in which the Act altered the previous relationship between public interest and private landowner also had implications that went beyond a relevance to the immediate relationship of land to the post-war development planning of local authorities. There was in fact a wider issue involved – one that takes us back to the arguments used by Churchill in 1909 for similar taxes on the “unearned increments” enjoyed by landowners. In 1909 Churchill had viewed the way in which landholders could exact a higher than justified increase in the price of land from a factory owner in need for additional space as an example of how the existing system was inhibiting the growth and expansion of industry. By 1947 what had, in 1909, been an example of an individual landowner exploiting the demand for the finite resource in his/her possession had become something with the potential to be something much more powerful. In the context of British post-war reconstruction, and the manner in which land ownership had evolved in the interim, it now had the potential to permanently alter the nature of the British economy itself.

The changing fortune of land in the changing British economy

Britain emerged from the Second World War with an increased awareness of the importance to its survival of both agriculture and manufacturing. It was an awareness of the importance of these two sectors that prompted the architects of the 1947 Act to exclude land sales designed to serve both agricultural and industrial interests from the payment of the “betterment levy”. Given the enormous effort about to be invested in post-war reconstruction the 1947 Act could be seen as a measure that had the secondary effect of inhibiting the advance of financial interests at the expense of industrial interests in the immediate aftermath of the war. For without the “betterment levy” the expansion of the financial sector would undoubtedly have grown at a greater rate than it in fact did during those years and investment in non-productive areas such as land speculation would have expanded faster than was the case with a commensurate impact on productive areas of the economy such as manufacturing. 

But the 1947 Act suffered a similar fate to that of Lloyd George’s attempt in 1909 when the Labour Party’s efforts were negated by the Tory Government of 1951. As soon as that Conservative Government came to power it set about planning the undoing of the “betterment levy” and altering the surrounding machinery associated with the Central Land Board. It announced its plans on 18 November 1952 with the publication of a White Paper outlining its intention to amend the financial provisions of Labour’s Town and Country Planning Act. Eager to abolish the “betterment levy” as soon as it could the Government introduced a separate statute in 1953 with the specific purpose of its abolition. This was succeeded the following year by the Tory’s own Town and Country Planning Act of 1954 abolishing or altering other aspects of the 1947 Act. There was a certain irony in this outcome in that the Tory Government at the time was led by the same Winston Churchill, the man who had convincingly argued for Lloyd George’s effort in 1909. 

The significance of the removal of the “betterment levy” in 1953 was described by one writer as the occasion when “the starting gun for the most intense phase of the property boom was fired” (The Property Boom, by Oliver Marriott, Pan, London, 1967, p.11).

However, the 1951 Tory Government did not strip away everything from the 1947 Act. Although it diminished the Central Land Board’s powers it retained the Board to process residual claims for compensation under the earlier 1947 Act. This was necessary because, after the Tories had abolished the “betterment levy” those sellers and purchasers of land who had engaged in transactions during the period of the “betterment levy” appealed for a restitution of their losses and the Central Land Board was the only body in a position to deal with these new appeals. 

The Tory Government also retained most of the local government planning structure from the 1947 Act. It also acknowledged the need for increasing the local government housing stock to meet Britain’s post-war need by permitting a continued right for local councils to compulsorily acquire land for such purposes. Because of this the arrival of the 1951 Tory Government was not a complete disaster when it came to the provision of council housing:

“The three-and-a-half decades following the war represented council housing’s golden age, quantitatively if not necessarily qualitatively. Large quantities of new land were required to facilitate it (Sheffield City Council, for example, purchased an estimated 1,650 acres of land for housing between 1947 and 1982), and, under the terms of 1947’s Town and Country Planning Act . . . local authorities enjoyed through the late 1940s and the 1950s the same preferential ability to compulsorily acquire land at its existing-use value as the new town development corporations did.” (The New Enclosure: The Appropriation of Public Land in Neoliberal Britain, by Brett Christophers. Published by Verso, London, 2018, p.99).

But in terms of the wider economy there was no escaping the immediate effect of the abolition of the “betterment levy”. The rapid growth of retail and office construction can be seen as an example of the new freedoms resulting from its abolition. For instance, in the London County Council area, planning permission had been given for 2.4 million square feet of space in 1952; in 1953 it was 3 million, in 1954 it jumped to 5.7 million and in 1955 to 5.9 million. Then in 1955 the Government gave pension funds authority to invest in property shares for the first time and by 1958 the expansion of the property sector had become so significant that it merited a separate category on the stock exchange. In March 1959 the Tories finally dissolved the Central Land Board, an event that led to the observation that though “controlled development through the procedure of planning permission continued, . . . development remained free of financial charges until the establishment of the Land Commission in 1967”.

In the meantime, such was the force of the expansion of the land and property sector that all of this happened despite the Tory Government’s attempts in the mid-1950s to cool the property and financial markets which had been fueled by the earlier removal of the “betterment levy”. But by the time the Tories attempted to cool this market sector the returns it offered had become too attractive for both property companies and financial institutions to miss out. In fact, the attempts of the Tories to cool the market at that time only led to the arrival of alternative systems of business networks and the evolution of new financial arrangements.

“The imposition of controls on capital issues and credit restrictions in the mid-1950s cut property companies off from their traditional sources of short-term development finance, the banks. In order to circumvent restrictions, developers borrowed on the sale-and-lease-back basis from financial institutions, mainly insurance companies. At the time these had fairly high liquidity, and the low-interest rates of the early 1950s made other conventional forms of investment unattractive. Although the leaseback funding arrangements between property companies and institutions were originally a short-term expedient for developers, the increasing scale of projects for (example town-centre redevelopments) meant that the cost of development could no longer be financed in the pre-war manner, by means of short-term bank loans and subsequent remortgaging. Thus, throughout the 1950s financial institutions continued to invest in land by providing property companies with long-term loans or sale and leaseback. Some institutions, such as Norwich Union, and Legal and General, also began to acquire land and develop property during this period. This institutional investment in land and property was probably initially influenced by the post-war ‘development boom’ and the high rents achieved through investment in property development.  Through their involvement in the financing of property companies, institutions gradually became more involved in property and began to take a more direct interest in landownership and rent.” (Capital and Landownership in Great Britain, by Doreen B. Massey and Alejandrina Catalano. Published by Edward Arnold, London, 1978, p.126).

As the 1950s moved into the 1960s the growing profitability of the land and property sector continued to attract ever more investment:

“From 1960 rising land prices and property speculation came increasingly to public prominence. The post-war property boom that started in the mid-1950s as the country was rebuilt also brought a rapid rise in land prices and developments that were subject to critical comments in both the press and Parliament. It also brought ostentatious wealth as the most successful property developers became celebrities. Property companies for the first time gained their own section in the Financial Times share listings. The value of shares in these property companies rose from £103 millions in 1958 to £800 millions in 1962.” (An assessment of historic attempts to capture land value uplift in the U.K. Published by the Scottish Land Commission, 2018, p.10).

The 1960s saw ever more blatant attempts by landowners and property speculators to manipulate the market through practices like land-banking and leaving office blocks empty in order to eventually push up their end profits. When the Rachmann scandal broke in July 1963 revealing the depths to which unscrupulous landlords would go to maximise their returns, the electorate, already displaying a growing resentment towards the speculators, were receptive to the Labour Party’s message of its 1964 election campaign. During that campaign the party was to revive the idea of a “betterment levy” in the form of a new tax alongside the introduction of a Land Commission. 

However, Labour only won the October 1964 election with a wafer-thin majority of four and this, to a large extent, influenced its ability to get legislation through Parliament in the form it would have preferred. This was made obvious by the time Jim Callaghan, as Chancellor, introduced his first Finance Bill (budget) in April 1965. At this time the Government majority was down to three. In his budget, Callaghan proposed a Capital Gains Tax of 30% for individuals and 35% for companies and he brought Assurance Companies under the taxation net for the first time. The Capital Gains Tax was also meant to apply to gains from land sales and transfer at death. Taking advantage of Labour’s thin majority the Tory opposition tabled around 250 amendments as the Finance Bill made its way through the Parliamentary process. In debating some of these amendments the Government majority was, in some instances reduced to one and in other cases it had to concede an amendment to the extent that the original proposals were interwoven with many exceptions and exclusions thus ensuring that the eventual outcome was a highly complex piece of legislation and difficult to implement efficiently.

The same weakness remained when the Government went on to present its White Paper to Parliament on 22 September1965 outlining its plans for the proposed Land Commission and the “betterment tax’. Under its terms the Land Commission was invested with the power to compulsorily acquire land that it deemed was not being used for society’s benefit. Once procured, the freehold to that land could then be transferred to public bodies or leased to prospective businesses or individuals who could put it to the required use. On paper, with the Capital Gains Tax, the “betterment tax” and the Land Commission as its flagship tools the Government seemed set fair to influence not only the relationship between local government and the land market but to shift the trajectory of the British economy that had been displaying a growing tendency for some time for investors to favour the non-productive areas of property and land speculation. The fiscal tools now available to the Labour Government provided some hope that this tendency could be halted if not reversed to make it more attractive for investors to move their capital to areas that represented the productive alternatives associated with industrial and manufacturing activities. 

Unfortunately, it didn’t turn out that way as the impracticality of its small majority meant that it was forced to delay giving the Land Commission and the “betterment tax” a legislative existence until a new general election and the return of a Labour Government in March 1966 with a healthier majority. The story of that Government’s subsequent attempts to confront the land question will be continued in the next issue.