Among the advocates of the rating of site values there seem to be serious differences of opinion on this fundamental point.

Mr. Harper's scheme for levying the site value rate is intricate, but from the illustrations which he gives of its operation, it appears that the definition which he adopts of the "owner of site value" whom it is proposed to tax, is substantially different from that put forward by Mr. Fletcher Moulton.

Moulton,

23,058,

23,156-7

22,270-3

1 Mr. Moulton did not state which of the parties referred to expended money on buildings. Neither does the illustration cover the case of a site not fully developed by the buildings upon it.

This difference can be best illustrated in a concrete case.1

A., the ground-landlord, lets a site for 10I. a year to B., the builder. B. spends 1,000l. on building, and lets the house for 70l. to C. B. thus receives 60l. net, or 6 per cent. on his outlay, which we may assume to be the ordinary rate of builders' profits.

The neighbourhood improves, and after a while C. lets the house for 100l a year to D. C. thus receives 30l. net.

The rateable value of the house is now 100l., and the site value is 40/.

Who is the owner or recipient of that site value?

A., the ground-landlord, clearly has 10l. of it, and no more. But who has the remaining 30/.?

Mr. Fletcher Moulton says that B. has it, because B. has the security of the site, and if the house were burnt down his income would be secure to the extent of the site value.

Mr. Harper says that C. has the 30/. site value, because that increase of value accrued after he had made his contract with B., and was in fact "unearned increment." Whereas B.'s revenue is merely the reward of his capital and labour.

Thus, shortly stated, Mr. Moulton, more from the legal point of view, disregarding the particular history of any property, asserts simply that the superior interests represent the site value. Mr. Harper, more from the economic point of view, attempts to eliminate those interests, which as a matter of fact in any particular case represent the return due to the capital and labour of the builder, and calls the residue the site value. There is something to be said for both views, so that whichever were adopted could be criticised with some force as involving anomaly and inequity. Moreover, Mr. Harper's view, which seems the more plausible in theory, is much more difficult to work out.

Moulton,

22,894,

23.023-39

Sargant, 23,182-4, 23,216,

23,363-4 Harper,

22,216-7

Costelloe,

20,186-9

1 The differences between the schemes of Mr. Moulton and Mr. Harper are discussed in detail in the Separate Report of the Royal Commission on Local Taxation on Urban Rating and Site Values. The signatories to this report say, on page 165: "We feel bound, for the reasons we have explained, to condemn unhesitatingly all the schemes which have been put before us in connection with the rating of site values. . . . But it does not, however, seem to us that the ideas which underlie the movement are entirely unsound."

Cd. 638 of 1901, pp. 160-1.

A somewhat similar difficulty arises with regard to mortgages.

Is the mortgagee the owner of the site value? Mr. Moulton said, No! Mr. Costelloe hesitated. Either answer is in fact awkward. Suppose a property mortgaged up to its full value : can a landlord who pays away in mortgage interest all the rent he receives be said to enjoy site value? Or, suppose a man who purchases a plot, and borrows the purchase money by a mortgage on the security of the land with the house which he proceeds to build. Suppose he gets a rent which, after payment of mortgage-interest, just yields him a moderate return on his outlay on building - where is the site value? Apparently in the hands of the mortgagee.

But the attempt to rate a mortgagee as enjoying site value leads to difficulties both of theory and practice. E.g., if a man who lends on mortgage to an individual is to be rated, how about a man who lends on mortgage debenture to a company? Yet if debentures in companies are to be rated, a fortiori preference shares must be.

On the other hand, Mr. Sargant and others have suggested that the lessee, rather than the lessor, is the true owner of site value during the lease.

Even if this view cannot be asserted to be the whole truth, still the weighty arguments in its favour cannot be ignored in dealing with the question.

Suppose two occupiers A. and B. occupying similar houses. A. has a lease under which he pays the rack-rent. B. has bought the leasehold, paying by instalments. Is there any substantial difference between these two? Hardly; yet, according to all theories hitherto put forward, A. does not, while B. does, own or enjoy site value, and B. would accordingly be taxed, while A. would escape - a result which appears anomalous.

Proceeding from this instance, it might be argued generally that, for rating purposes, a lessee should be regarded simply as a purchaser paying by instalments.

Parliamentary Paper, Cd. 638, p. 165.

Sargant, Parliamentary Paper C. 9528 of 1899, p. 216.

That is, a man who takes a lease ought to be prepared to stand the racket of any changes in rating, just as much as if he had paid a lump sum down on entering into possession.

The particular features which are alleged to make site value a proper subject for taxation - viz., its increase due to general development and to public expenditure - belong to the lessee's interest during the lease rather than to the lessor's - except the increased capital value of the reversion.

It may be noted also that Mr. Fletcher Moulton's scheme has been supposed to involve the view that in every case the present rateable value, less the site value, is equal to the structural value; whereas Mr. Harper expressly states that there are numerous cases where this does not hold good.