Among the reasons suggested for the imposition of a special rate on site values is, that it would secure a contribution in respect of the increase in the value of sites, due to the presence of the community, and to the increase of population, and also to the expenditure of public money raised by rates.3

This view was urged by several witnesses who appeared before the Royal Commission on Local Taxation. The late Mr. Costelloe, who represented the London County Council, stated, "It is argued by us, and I think it is the opinion of the great bulk of the ratepayers of London who give any thought to the question, that the improvements which are paid for by the increments of rate in question, go to produce in the last resort an increase of rent, and an unearned increment of capital value, which pass into the pockets of the owners. The occupiers feel, as I have said, that the moneys so expended do not come out of the pockets of the owners, but do come out of the living of the occupiers themselves, and they consider this a flagrant injustice."

1 Professor Edgeworth, Economic Journal, March, 1906 {see Appendix III., p. 127).

2 See Sidgwick, Parliamentary Paper C. 9528 of 1899, p. 108; Courtney, ibid, p. 89; Marshall, ibid, pp. 124-6; Edgworth, ibid, pp. 134-5; Gonner, ibid, p. 157; Price, ibid, p. 185; Blunden, ibid, pp. 194-5; Callie, ibid, p. 240.

On the subject of unearned increment, Mr. McKenna, M.P., in a memorandum sent to the Royal Commission on Local Taxation, says: "The question arises, is 'unearned increment' properly a subject for special taxation? And, if so, should not a landowner who owns two plots of land, one of which has improved in value and the other declined, be entitled to set off the loss against the gain ? If the unearned increment were a doubtful factor, occurring here and there, but balanced on the whole by the unearned decrement, there might be difficulty in specially marking down landowners for taxation. A purchaser of land, who had been skilful, or fortunate enough, to make a good investment, could fairly exclaim against a tax in which owners of other kinds of property which had improved in value did not participate. But the 'unearned increment' is a constant and increasing factor, if the value of the land of the country be taken as a whole. There is a large balance of profit to landowners after allowing for all losses; not to the individual, perhaps, but to the class. By definition, the 'unearned increment' is something to which the owner does not himself contribute; it is, in fact, to some extent - perhaps to a large extent - due to public expenditure. The proposed tax would absorb a part of the added value of the land for public purposes. And it must not be overlooked that the proposed tax would only come into being when land had risen beyond its present value, and that it would not interfere with the owner's present enjoyment, nor disturb his reasonable expectation that the same degree of profitable enjoyment should continue."

Costelloe, 20,261-6, and Vol. II. of Min. of Ev., App. No. XI., pars. 44, 50. Fletcher Moulton, 22,987-23,003, 23,050, and Vol. IV. of Min. of Ev., App. No. X., pars. 2, 3, 5,6.

Vol. IV. of Min. of Ev., App. No. XIX., pp. 233-4.

In answer to, or in qualification of, the contention that ground values afford a conspicuous illustration of unearned increment, which it is desirable to reach by taxation, Mr. L. L. Price suggests that it may be urged, with no little force, that, apart from any practical difficulties, injustice is involved in selecting for special taxation a particular species of unearned increment, when other less obvious and tangible, but no less real and extensive, varieties are allowed to escape.

It is not denied that the value of sites frequently increases in urban districts, but it is often asserted that this is due more to the presence of the community, and the increase of population, than to the expenditure of money raised by rates. The causes which affect the value of land and houses are, however, so various, and interact in such complex ways from time to time in different places, that it is impossible with any accuracy to analyse the precise elements which give value to a site, or to estimate the relative importance of the circumstances which increase or diminish its value.

The person who ultimately benefits by unearned increment is the owner of the site when he comes into possession of it, though it can hardly be doubted that the imposition of additional rates reduces the value of the reversion. In the meanwhile, the lessee is the person who does, or who can, reap the benefit, for he enjoys or receives the value of the site and building, subject to his paying a fixed rent. There may also be intermediate lessees who are in receipt of ground rents, parts of which are due to unearned increment which accrued between the dates at which they acquired and granted leases.

Further, the real recipients of unearned increment in the past may have sold wholly for cash, or taken a small rental in consideration of a premium, and put the proceeds beyond the power of the rating Authorities. Sir A. De Bock Porter told the Royal Commission on Local Taxation that it may be safely asserted that not nearly one-half of the ground values of London are in the hands of those who have benefited to any great extent by unearned increment. They have, he said, changed ownership many times, and have doubtless been purchased at a very high figure by the present holders. He added that the fact that several well-known noblemen have owned considerable areas for generations, has led to the erroneous conclusion that they are representatives of a large class. But the high prices which well-secured ground rents have realised in recent years have tempted a very large number of owners to sell, and the competition for the investment of trust and insurance funds, etc, has so raised the price that the return is little more than that derived from an investment in well-secured debentures, or in such securities as India Government Stock.