As I See It - The Windfall We Keep Giving Away - Who Profits When London Improves?

The Windfall We Keep Giving Away - Who Profits When London Improves?

There is a story in Don Riley's 2001 book Taken for a Ride that every Londoner should ponder. Riley, a property investor, calculated that the public investment in the Jubilee Line extension returned to him, in the form of rising property values near the new stations, more than he had paid in taxes over the previous forty years. Four decades of tax bills, wiped out by a windfall he did nothing to create. Call it the landlord's Jubilee Line trick — and it is perfectly legal, entirely routine, and repeated every time London improves itself at public expense.

The question worth asking — and asking loudly — is why we keep letting it happen. Riley laid out a case for unleashing a revolution by changing the tax system so that people are rewarded for their community-benefitting efforts, and encouraged to do more.

Location, Location, Taxation

When a new Tube station opens, or a regeneration scheme transforms a neglected neighbourhood, or a school improves, or a park is created, land values in the surrounding area rise. This is not controversial economics; it is observed fact. For example, transport investment generates a measurable "transport premium" that is capitalised directly into nearby property prices. The rise in your street value, in other words, isn't entirely yours. Much of it was created by collective public investment — by taxpayers, by fare payers, by the labour of planners, engineers, and local government officers. Yet the landowner pockets the gain, not the public. The landowner is owed, but not all.

This is what economists call an "unearned increment." The term was coined in the nineteenth century, and the idea was taken up with great energy by thinkers from Adam Smith to Henry George, whose 1879 work Progress and Poverty made the case that taxing land value — rather than labour or productive activity — was the closest thing economics had to a perfect tax. The theory has had distinguished supporters ever since: Paul Samuelson, Milton Friedman, and Joseph Stiglitz have all endorsed it in various forms. Most economists, it seems, arrive at land value tax eventually. The frustrating thing is they tend to arrive at it too late.

What London Has Done — And Left Undone

London has not been entirely blind to this. The Elizabeth Line was partly funded through a business rates supplement — a rough approximation of capturing the commercial value uplift the line would generate along its route. It worked, more or less. The Crossrail Business Rate Supplement raised billions that would otherwise have come from general taxation or fares. But it was a blunt instrument, applied to business ratepayers broadly rather than to the landowners who captured the largest gains. And it was one-off, not a system.

The GLA and TfL study from 2017 — produced with genuine rigour — laid out a comprehensive case for land value capture mechanisms to fund London's transport future. It identified the scale of the opportunity, the tools available, and the policy changes needed. It was well-received. And then it was shelved. London had the analysis and chose not to act on it. That is a choice worth reflecting on as the capital faces a housing crisis, crumbling infrastructure, and a funding gap that shows no sign of narrowing.

The Garden Cities & Asian Lessons

There is a tendency in London to focus just on transport, but land value capture applies more widely, walkways, schools, parks, and other amenities. The Garden Cities movement understood land value capture from the outset. Ebenezer Howard's original vision was not just about green space and pleasant streets; it was about ensuring that the increase in land value generated by building a community accrued to that community, not to speculative landowners who had simply held the right title at the right time. Letchworth and Welwyn Garden City were built on versions of this principle. It works.

Hong Kong came closer still to the full model. In 1960, Hong Kong was poorer per capita than Jamaica. By the time it was returned to China in 1997, it was wealthier per capita than the United Kingdom. There are many reasons for that transformation, but land policy was central. Under the influence of Financial Secretary Sir John Cowperthwaite, Hong Kong charged landholders a community rate on land rights rather than allowing all uplift to privatise. The MTR's and Japanese National Railway’s celebrated "rail plus property" models — where the transit authority develops land around new stations and captures the resulting value uplift — is a direct descendant of that philosophy, and is studied and replicated across Asia.

London, a far older and more complex city, cannot simply copy Hong Kong. But the underlying logic — that public investment should not be a free subsidy to whoever happens to own nearby land — is entirely transferable.

What LCCI Members Should Want

This is not an abstract debate about economic theory. For London businesses, the status quo is a direct cost. Every pound of public investment that generates a windfall for landowners without recirculating into the public finances is a pound that cannot fund the next transport improvement, the next regeneration scheme, the next infrastructure project that would make your business more productive and your employees' commutes more bearable.

Land value capture is not a penalty on success. It is a mechanism for ensuring that the community which creates value shares in it. The tools exist — supplemental levies, development rights auctions, community infrastructure charges, land value taxation on unimproved sites — and they have been proven in cities from Hong Kong to Canberra to Copenhagen.

London has the analysis. It has the precedents. What it has lacked, so far, is the political will to act. That is something the business community — which benefits from a well-funded, well-functioning city — has every reason to push for. The windfall is real. The question is simply whose pocket it lands in.