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Railwatch 074 - December 1997

A share of the action

By Henry Law

Railways, it is said, can never make a "profit", and the argument goes, they have to be "subsidised" out of public funds, which is considered worthwhile on account of the wider social benefits which the railway operation achieves.

Are these wider benefits some vague feeling of well-being that spreads around the community, or are they more tangible? Is it possible to put a figure on the external (other than from fares) value generated by a railway?

The answer is to be found in, among other places, the windows of estate agents and the pages of the property press. It is plain that land values are heavily influenced by the availability of transport facilities.

Property advertisements invariably emphasise the advantages of the location in terms of road and rail access and sometimes proximity to facilities such as docks and airports. shopping centres and so on. If a new bus route or railway station is opened or an old one closed, this will affect a prospective occupant's willingness to buy or lease, and therefore its market value. Some transport operations, of course, may have an adverse effect because of noise nuisance and disturbance.

Thus, the external benefits of the railway operation largely turn up in the form of enhanced land values. The Victoria Line, built in the 1960s, made Islington a desirable place to live, with land values to match, and we can see the same thing now in areas served by the London's Jubilee Line extension.

Inaccessible neighbourhoods will soon become just 15 minutes away from town, and land values in places like Bermondsey and Southwark have risen in anticipation of this change in the transport map. Thus, a large part of the return on the investment has passed to landowners rather than to the community which has paid for it.

Options proposed to deal with this issue include payroll taxes and a business rate supplement. But payroll taxes encourage employers to get rid of their staff, while a business rate supplement would be little better, because with the rate in its present form, anyone who replaces an obsolete building by a modern structure has to pay more, while owners who take the roofs off their properties pay nothing, thereby promoting dereliction and unemployment. There is, however, another form of property tax, which would be highly effective as a means of capturing the external benefits generated by any form of infrastructure investment.

Under this scheme, the present council tax and business rate would be replaced by a tax based on land values. The enhanced land values due to the infrastructure improvements would then be reflected in the higher assessments and tax payable, but development and improvement would not be penalised. The public investment would be recouped in the form of higher tax revenues, thereby creating a pool of funds for further investment.

If you would like to know more about this subject, you can find it on the web site http://www.landvaluetax.org/.

Note: contact details (postal and email addresses, along with telephone numbers) in old editions of Railwatch out of date. Click CONTACT US for latest contact details.

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