Rachel Reeves has revealed that she will be changing the way that the government measures debt to
free up to £50 billion to spend (Milliken, 2024) in order to boost public investment. As opposed to
measuring the government debt as public sector net debt, she aims instead to use ‘public sector net
financial liabilities’ (Culberston, 2024). Public sector net financial liabilities are a wider measure of
the balance sheet, classifying illiquid financial assets such as student loans and government equity
stakes as assets and net pension liabilities as liabilities. (OBR, 2018). By including illiquid financial
assets in the government’s debt calculation, the government can raise more debt, as the debt ceiling is
higher and the way loans are accounted for changes. For example, if the government borrowed £50
million and invest it into a project now worth £100 million, they have generated a net value of £50
million. This is opposed to the previous rules where the government would have £50 million in net
liabilities. In the future however, this measure is likely to become restrictive on government spending
as the value of government liabilities (mainly on pensions) outstrip the value of the assets due to the
population aging. Additionally, only 2/3 of people will pay back their student loans in full (Bolton,
2024), something that will have to be accounted. So, whilst the labour government uses this as an
opportunity to increase spending, what is actually revealed is that it is more crucial then ever to
balance the budget. Since austerity is certainly off the table, lets explore the ways that labour may
raise revenue.

Labour has promised not to raise any taxes on income, VAT or national insurance. Whilst they can go
for the traditional methods of raising revenue, they would do more harm than good. For example, a
wealth tax is a policy that is commonly discussed. A group of left-wing MPs clamour for a 2% tax on
all assets worth over £10mn which they say would raise £24 billion annually (McKiernan, 2024).
However, this would be disastrous and most likely lower tax revenues. Norway has a wealth tax of
around 1% (when factoring in municipal and state taxes) on assets starting from 1.7 million NOK
(around 120,000 GBP) to a marginally higher one for assets starting from 20 million NOK (around
£1.5 million). As a result, there has been an exodus of the wealthy and ultra wealthy from Norway.
For example, Kjell Inge Røkke – the fourth richest Norwegian – left for Switzerland. He paid the most
taxes in Norway in 2022 and has contributed a total of 1.5 billion NOK (around £100 million) in taxes
since 2008 (Neate, 2023). Overall, Norwegian Business School professor emeritus Ole Gjems-Onstad
estimated that the wealthy Norwegians took with them a total fortune of $54 billion (Miltimore,
2023). The wealth tax was projected to increase revenue by nearly $150 million annually but will
result in in about 40 percent less revenue than it currently generates.

So, what can the UK government do to help tackle the budget deficit? One tried and tested method is
legalising marijuana. If the government legalised Marijuana in 2018, it would have generated £204
million with VAT alone. Introducing a 30% duty rate would result in £571 million in government
revenue (Clark, 2024) . This figure does not include all the additional tax revenue generated via new
jobs (income tax), new businesses (corporate tax) and the new properties needed to sell marijuana
(stamp duty, council tax). Additionally, the government would spend less on policing but also
healthcare as marijuana is regulated and it is not being laced with other drugs which can result in
accidental overdoses. From taxing Marijuana, California generates $260 million in Cannabis revenue
in the first quarter of 2024 alone (CDTFA, 2024).

Another tax that is not often discussed is Land Value Tax (LVT). It is a tax derived on the value of
land regardless of any property or improvements made on it. The idea is to eliminate the economic
rent gained by owning land and to stimulate the development of land. For example, imagine someone
owns a large plot of land worth £10 million. Where LVT is 5% vs property taxes are 1%, they will pay
£500,000 of tax under the former and £100,000 under the latter. However, if one was to build £90
million worth of apartments on said land (total value now £100 million), they would still pay
£500,000 in LVT but £1 million in property taxes. What this means is that under land value tax there
is plenty of incentive to develop the land since he must pay the £500,000 tax bill regardless. On the
other hand, there is less incentive to develop the land under property tax as he will have to pay more,
and an incentive not to develop the land if the revenue from the improvements are smaller than the
new property tax bill. Unproductive land is more likely to be sold due a larger tax bill on the plot of
land unimproved than under property tax. This now sold land is more likely to be developed due to
the higher incentive to brought on by LVT.

Land Value Tax is likely to result in higher tax revenue when replacing property taxes as even if it
brought in less revenue, the changes would stimulate the economy for the reasons. Additionally, rents
are likely to become lower as more property is developed, and landlords cannot pass the burden of
taxation onto the consumer (as the supply of land is fixed). The latter reason is why LVT is one of the
few taxes to have no deadweight loss (see fig1). Finally, it would prove a reliable source of taxation
for the government as it is very hard to dodge (as hard as one might try you cannot funnel land into a
Swiss bank account).

Land value tax has been implemented on varying levels with generally great success. On a local level
LVT funded irrigation projects in the late 18th century that turned California into an arid desert to the
state that grows the most produce (Scrofani, 1992). On a national level 3 of the 4 Asian Tigers
implement a form of land value tax (Singapore, South Korea and Taiwan). Denmark also has a land
value tax of which a study finds that increasing it’s weight within the economy would reduce
distortions created by other taxes (Høj et Al. 2017).

Both taxes are feasible for a labour government to pass. A YouGov poll in 2023 puts support at over
half of all adults, and adults who are aligned with labour are more likely to support it (YouGov, 2023).
Land Value Tax, although far less discussed, was nearly government policy under Phillip Snowden,
the first labour chancellor of the Exchequer. It would certainly find more support than raising
inheritance taxes or resuming fiscal drag.
To conclude, it is imperative that there needs to be a balanced budget. The labour government must
think outside of the box in order to solve this issue. The debt will have to be paid sooner or later and
better to not continue kicking the can down the road to the government of tomorrow, lest future
generations pay for it dearly.

Bolton, Paul. “Student Loan Statistics.” Commonslibrary.parliament.uk, 1 Dec. 2023,
commonslibrary.parliament.uk/research-briefings/sn01079/.
California Department of Tax and Fee Administration. “California Department of Tax and Fee
Administration Reports $259.9 Million in Cannabis Tax Revenue for First Quarter of 2024.” Ca.gov,
2024, www.cdtfa.ca.gov/news/24-08.htm.
Culbertson, Alix. “Budget 2024: What Are Labour’s Fiscal Rules and How Is Rachel Reeves
Changing Them to Raise More Money?” Sky News, Sky, 12 Oct. 2024, news.sky.com/story/budget2024-what-are-labours-fiscal-rules-and-could-rachel-reeves-change-them-to-raise-more-money13231424. Accessed 27 Oct. 2024.
Høj, Anne Kristine/Rahbek Jørgensen, Mads et. al. (2017). Land taxes and housing prices : =
Contingent valuation survey of the value of statistical life in Denmark. København : De Økonomiske
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Miltimore, Jon. “Norway’s Wealth Tax Is Backfiring. Are Americans Paying Attention? – AIER.”
Aier.org, 23 June 2023, aier.org/article/norways-wealth-tax-is-backfiring-are-americans-payingattention/.
Neate, Rupert. “Super-Rich Abandoning Norway at Record Rate as Wealth Tax Rises Slightly.” The
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Responsibility.” Office for Budget Responsibility, 26 Apr. 2021, obr.uk/box/public-sector-netfinancial-liabilities-2/. Accessed 27 Oct. 2024.
Office for National Statistics. “Public Sector Finances, UK.” Ons.gov.uk, Office for National
Statistics, 19 Sept. 2024,
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Scrofani, E. Robert. The Greening of the California Desert. 1992, www.henrygeorge.org/caldes.htm.
YouGov. “Generally Speaking, to What Extent Would You Support or Oppose the Legalisation of
Cannabis in the UK? | Daily Question.” Yougov.co.uk, 20 Apr. 2023,
yougov.co.uk/topics/health/survey-results/daily/2023/04/20/8d0a4/1