f f 
 
 THE LIBRARY 
 
 OF 
 
 THE UNIVERSITY 
 
 OF CALIFORNIA 
 
 LOS ANGELES
 
 URBAN RATING
 
 i'lnN'I'KIl liV 
 
 SPOTXISWOOUK AND CO., NKW-Slliblil Sl^UAiiB 
 
 LOXJJON
 
 URBAN RATING 
 
 BEING 
 
 AN INQUIRY INTO THE INCIDENCE OF 
 LOCAL TAXATION IN TOWNS 
 
 WITH SPECIAL REFEBENCE TO CUBBENT PBOPOSALS 
 FOB CHANGE. 
 
 BY 
 
 CHAELES JIENEY vSAEGANTT, 
 
 OF NEW COLLEGE, OXFORD, M.A. 
 AND OF LINCOLN'S INN, BAREI8TER-AT-LAW. 
 
 n 
 
 PROPERTY PROTECTION SOCIETY 
 45. PA.UQIBBDON-^,: 
 LONGMANS, GEEEN,,, AND IcO 
 
 1890.
 
 HJ 
 
 PEEPACE. 
 
 yi In a little book published in the sprino: of 18.SG. and 
 •^ entitled " Ground-Rents and Building-Leases, " I 
 2g endeavoured to deal with two questions which were 
 § then beginning to occupy the attention of a Select 
 Committee of the House of Commons, namely, 
 " Leasehold Enfranchisement " and " The Ratino; of 
 Ground-Rents." "With regard to Leasehold En- 
 franchisement, I there pointed out many ot the mort 
 obvious objections to the current proposals on the 
 2' subject, above all that the result would be to en- 
 "- franchise not the occupier but the middleman ; and 
 •"• showed how hardly any such scheme would press ou 
 (St the prudent, investor of moderate means. But to the 
 rating of ground- rents I offered a still more decided 
 and determined opposition, both as involving an un- 
 precedented breach of the most deliberate contracts, 
 and as throwing a burden on one class of the com- 
 g munity to secure benefits to another class. 
 g Since the appearance of my little work, the Select 
 * Committee of the House of Commons, which sat on 
 through the Session of 188G and was re-a]ipointed in 
 
 A 
 
 384734
 
 2 PREFACE. 
 
 t^.ie Sessions of 1887, 1888, and 1889, has issued a 
 report on the subject of Leasehold Enfranchisement, 
 which substantially endorses both my conclusions 
 and my reasoning on that question. But though 
 considerable evidence was taken by the Committee 
 upon the rating of ground-rents, and on the cognate 
 subject of the rating of vacant building land — or, to 
 adopt the precise terms of the reference, on " the 
 " question of imposing a direct assessment on the 
 " owners of ground-rents, and on the owners of in- 
 " creased values imparted to land by building opera- 
 " tions or other improvements " — the Committee have 
 not yet thought fit to make any report on this head, 
 but have recommended their own further re-appoint- 
 ment with the view of collecting additional evidence. 
 
 Under these circumstances I have been urged by 
 certain gentlemen with large interests in urban build- 
 ing land to re-state in more detail, and with the greater 
 experience which I have since acquired on the subject, 
 the considerations which had previously led me to 
 condemn the current proposals to rate ground-rents; 
 and the following pages are the result. I have felt 
 no difficulty in complying with this request, because 
 since the writing of my book I have devoted much 
 attention and reflection to the subject and have care- 
 fully studied the whole of the evidence given before 
 the Select Committee of the House of Commons, and 
 much else that has appeared in print ; and this study
 
 PREFACE. 
 
 and reflection have only strengthened the convictions 
 which I had previously entertained, and had expressed 
 in my book, before I had any professional connection 
 with the question. 
 
 I am afraid that no treatment of the subject can 
 render it other than a dry and repulsive one, perhaps 
 the driest and most repulsive of all that statesmen 
 have to deal with. But, after all, real politics are 
 serious work. And in this case the more the question 
 is studied the larger appear the interests involved, 
 and the greater therefore the necessity of arriving at 
 an accurate and dispassionate judgment. 
 
 C. H. S. 
 
 Lincoln's Inn : 
 
 March 1890. 
 
 a2
 
 CONTENTS. 
 
 PAOK 
 
 Chapter I. — The Okigin and Nature of Ground- 
 
 Eents ... ... ... 7 
 
 „ II. — The Determination op Ground-Eent ... 25 
 
 ,, III. — Have Ground-Rents already PAID Rates? 30 
 
 >i IV. — The Proposals to rate Ground-Rents 55 
 
 ,, V. — Rating as betwern Building-Owner and 
 
 Occupier ... ... ... ... ... 71 
 
 ., VI. — Rating between Building-Owners and 
 
 Owners of Fixed Rents 90 
 
 M VII. — Rating between Building-Owners and 
 
 the Owners of Reversions 110 
 
 „ VIII. — The Rating of Vacant Building Land 127 
 
 „ IX. — General Remarks and Conclusion ... 146 
 
 Appendix ... ... ... 159
 
 [Note. — The references In the margin are, except when 
 otherwise stated, to the evidence given before the Select 
 Committee on Town Holdings during the Sessions of 1886, 
 3 887, and 1888, which is a mine of wealth on all questions 
 connected with building land.]
 
 UEBAN EATING. 
 
 CHAPTER I. 
 
 THE ORIGIN AND NATURE OF GROUND -RENTS. 
 
 To the lawyer, surveyor, or land agent, or to any 
 other person having a professional acquaintance with 
 building land, it will appear a waste of time to inquire 
 into the origin or characteristics of ground-rents. 
 But in a layman, however well informed on most 
 subjects, it is extremely rare to find anything like an 
 accurate knowledge of the subject ; and without an 
 accurate knowledge of what a ground-rent really is 
 and how it has originated, it is quite impossible to 
 enter into any profitable discussion of how it should 
 be treated from the point of view of taxation. While, 
 therefore, it will be open to all professional readers to 
 pass by this chapter unread, for almost all others it 
 will be ad^dsable to give their closest attention to 
 its contents. 
 
 When suburban land gradually comes into the Position of 
 building market it is xery rarely ind.^ed that the buiwLg 
 landowner })ossesses the capital and the special ^^nd. 
 knowledge required for the erection of houses ; and, 
 this being so, he is in general compelled to dispose of 
 it to some other person for the purpose. On this 
 disposition the consideration received by the land- 
 owner may take either of two distinct forms. He 
 may either sell his land, or such part of it as is from
 
 O UKBAX EATING. 
 
 time to time required, for a lump sum or a succession 
 of lump sums payable either immediately or by in- 
 stalments. Or he may take his price in the shape 
 of periodical payments of the nature of interest on 
 the capital value of the Innd, such payments being in 
 ^'eneral calculated annually and made at half-yearly 
 or quarterly intervals. The first of these two 
 methods of pa3mient constitutes what is conveniently 
 called the " freehold purchase system " of building, 
 and is perhaps the most widely prevalent of all the 
 systems of building in vogue in England. The 
 second jnethod, which is also extensively adopted, 
 especially where the value of land is high and 
 it would be diflicult for the builder to provide its 
 capital value, is practised in several different forms, 
 of which the most important are (a) the "freehold 
 rent-charge system," which is practically equivalent 
 to the Scotch system of "feu" rents, (/>) the ^)99 
 years system, and (c) the 99 years system. About 
 these three different methods some words of explan- 
 ation must be given. 
 Methods It is obvious that a landowner who is hiring out 
 
 out build- ^^i^ lii^^d for a periodical payment may so hire it out 
 ing land, either ( 1 ) for the whole duration of his own estate, that 
 is for ever, if he is the owner of the fee simple, or (2) for 
 a term of years practically, though not theoretically, 
 equivalent to a fee simple, such as the ordinary term 
 of 999 years,* or (3) tor a term of years bearing some 
 relation to the probable duration of the buildings to 
 be erected, such as the terras of 200 and 150 3ears 
 usual in Dublin or the ordinary London term of 99 
 
 * Instances were mentioned before the Select Committee on Town 
 Holdmgs of leases, or 10,000 and 20,000 years in Ireland and for 5,000 
 years at Truro.
 
 OKIGIX AND NATURE OF GROUND-IJENTS. 
 
 years. Xo\v, uccording to tlie law of Eiig-Iaiifl, a 
 landowner who disposes of his land for the ichoh 
 duration of his estate is nnahle to create any tenure 
 hetween himself and the person who deals with him, 
 and is unable therefore to reserve any rent strictly so 
 called, since rent is only one of the incidents of 
 tenure. Kent can only be reserved if the landowner 
 parts with something less in point of duration than 
 his whole estate in the land, so that he has left what 
 is called a rerersion — that is, some period of time of 
 whatever len"th at the commencement of which the 
 land will revert or come back to him on the expiration 
 of the lesser estate which he has granted away.* 
 
 Whenever then an English landowner is minded The free- 
 in accordance with a custom in the locality, or for charge'^' 
 any other reason, to grant land for ever for building system, 
 purposes in consideration of a periodical payment, he 
 does not attempt to reserve a rer/t, but limits to 
 himself a rent-charge of the agreed amount, with 
 special provisions (now given by statute) for securing 
 its payment. And from this time forth he is con- 
 sidered in law not as having any e.'^tate whatever in 
 the land (which would be the case if he had granted 
 a lease for however long a period, .short of the 
 
 * It may be well to note here that when a landowner has once 
 made a grant of a lesser estate than his own, reserving a rent, this 
 rent at once becomes incident to and follows the reversion. Laymen 
 often fall into the mistake of talking of the ground-rent reserved on a 
 building lease and the reversion expectant on its termination as two 
 different and separable things. For the purposes of calculation it may 
 often be advisable to separate the two, since, as will be seen later on, 
 the rent payable during the currency of a lease is often no measure 
 whatever of the value of the reversion. But as a matter of fact the 
 two form one inseparable whole and are always conveyed together. 
 A " freehold gi-ound-rent " includes the re^-ersion in fee simple on the 
 termination of the lease. A " leasehold ground-rent " also includes a 
 reversion, though generally only a nominal reversion of a day or two.
 
 10 URBAN RATING. 
 
 duration of his own estate), but as merely entitled to 
 a rent-cliaro-e issuinsr out of the land. And this 
 system of payment, or development for building 
 purposes, is conveniently known as the " freehold 
 rent-charge system," while the rent-charges created 
 under it are often (though inaccurately) known in 
 Manchester and other places where the system is 
 prevalent as " chief- ?Y^?zfo'." In Scotland a difference 
 of law allows landowners, while granting away their 
 land for ever, to create a tenure between themselves 
 and the grantees and to reserve a perpetual periodical 
 payment of the nature of rent. These payments are 
 generally known as " feu- duties " and the system as 
 that of " feuing." 
 The build- Qn the Other hand, should the custom of the 
 
 system. locality be to grant land for building purposes for 
 999 years (as in man}^ of the principal Lancashire 
 towns), or for 99 years (as in London and Birming- 
 ham), the landowner leases the land to the builder 
 for the agreed number of years, reserving to himself 
 a rent of the required amount, and having obviously 
 left in himself a reversion in the land (to which the 
 rent is incident) after the expiration of the term of 
 years which he ha* granted. And whether the term 
 so granted be 999 years or 99 years, or indeed 
 whether it be 10,000 3'cars or 1 year, the landowner 
 is alike considered in law as having the immediate 
 freehold estate in the land, subject only to the lease. 
 It is, however, obvious that, although in all its 
 legal incidents the 999 years system is precisely 
 analogous to the 99 years system, yet for the 
 practical purposes of valuation it far more closely 
 resembles the freehold rent-charge or Scotch feuing 
 system. For a reversion to occur at the end of 999
 
 ORIGIN AND NATURE OF GROUND-RKNTS. 1 1 
 
 years is absolately worthless, and the interest of the 
 landowner therefore pradicaly only consists in a 
 perpetual annual payment, as under either of the two 
 last-mentioned systems. But a reversion to occur at 
 the end of 99 years, if it has no actual present value, 
 is at any rate within a " measurable distance " of Tewson 
 acquiring such a value in the future, the evidence of 3,058. ' 
 experts being that the reversionary value will begin ^fgg^^ 
 to make itself felt in some 20 or 30 years. 1,^^!. 
 
 Such, then, are the four principal methods by General 
 
 review of 
 
 wdiich in England land is covered with houses, building 
 namely, (1) the freehold-purchase system, under ^^^ ®™^- 
 which the builder buys the land out and out for a 
 lump sum or a succession of lump sums ; (2) the 
 freehold rent-charge system (nearly equivalent to 
 the Scotch system of feuing), inider which the builder 
 buys the land for a recurring annual payment which 
 is charged on the land and house as a yearly rent- 
 charge ; (o) the 999 ^^ears or long leasehold system, 
 under which the builder pays for the land by a 
 periodical annual payment called rent, and takes a 
 lease of land and house at this rent for a lono; and 
 practically inexhaustible term of years ; and (4) the 
 99 years or London leasehold system, under which 
 the builder also obtains only a lease of the land and 
 house, and that for a comparatively short or 
 measurable period, and at a rent which is in fact 
 slightly lower than under either of the two last-men- 
 tioned systems, on account of the smaller estate 
 obtained by the builder, and the reversionary value 
 which will soon bemn to belono; to the landowner. 
 It is no part of the scope of this work to treat of 
 any less usual systems of building, such as that of 
 leases for lives or for terms of years dependent on
 
 12 URBAN HATING. 
 
 lives, nor to enter into any comparison of the relative 
 advantages and disadvantno-es of the four more usual 
 methods. Indeed, if a landowner always dealt with 
 a wealthy builder for a single site fronting on a high 
 road properly made and sewered, a sufficient account 
 for the purposes of these pages would already have 
 been given of the methods under which houses are 
 built and paid for and ground-rents and annual pay- 
 ments of the like nature are created. But, as a 
 matter of fact, no one of these three conditions is 
 generally present. As a rule, builders need to raise 
 all the capital they can procure Considerable areas 
 of land, or at any rate sites for several houses, are 
 comprised in each transaction by the landowner, and 
 roads and sewers have to be made for purposes of 
 access and drainage ; and thus considerable compli- 
 cations are introduced into what would otherwise be 
 a simple and readily intelligible transaction. 
 The free- A typical instance of the actual development of 
 chase building land on the freehold purchase system was 
 work"^ ^* brought before the Select Committee on Town Hold- 
 ings from an estate at Newcastle- on- Tyne. The 
 witness (Mr. Spain) says, that whenever any portion 
 ^lim ^^ ^^^^ estate is required for building, the land is laid 
 8,736 et out by the vendor according to a ground-plan 
 which is submitted to and approved by the sanitary 
 authority ; that builders apply for blocks or for in- 
 dividual sites; that in the case of large blocks they 
 are sold to the builder or purchaser of the houses as 
 the case may be, and he undertakes to joay for the 
 roads and sewers, which are constructed in accord- 
 ance with plans previously agreel on ; that the 
 builder also agrees to build a certain specified class 
 of house of a specified maximum value ; that on 
 
 SL-q
 
 ORIGIN AND NATURE OF GROUND-RKNTS. 13 
 
 taking up his agreement in the case of larger bhjcks 
 lie pays 10 per cent, of the purchase-money, and 
 agrees to pay the balance and complete his purchase 
 by a day named, and failing that to pay interest at 
 4 per cent, for, say, the first two years, and 5 per 
 cent, thereafter ; and that the small builders pay no 
 deposit, but in lieu of deposit pay at so much per 
 yard super., the price thus jxiid being larger than the 
 icholesale price paid by the purchasers for larger blocks. 
 In other cases, as at Nottingham and Wolverhampton, Johnson 
 the landowner is paid at once, and the necessary 12,737! 
 capital, or the bulk of it, is provided by some financial (JlH) 
 agent or mortgagee. The important points to be 1,846-7. 
 noticed are that even under the freehold-purchase 
 system a large proportion of the price has to be pro- 
 vided by the landowner or some third party, and that 
 the roads and sewers are directly or indirectly paid 
 for by the landowner, not by the public. 
 
 The actual method of development under tlie The free- 
 freehold rent-charge system, as practised at Bristol, charge 
 has been described by Mr. Josiah Thomas, the city ^^ll^ ^^ 
 surveyor. The owner first makes the roads and 
 sewers in accordance with the requirements of the josiah 
 local authority, and then lets the plots on these per- (iggg)^^ 
 petual rent-charges. The builder cannot in general 3,116-22. 
 afford to pay a lump sum for the purchase of the land, 
 and in order to get money for his buildings he is 
 usually financed by or through the agency of the 
 landowner ; while to further facilitate his operations 
 the rent-charge does not begin to grow payable till 
 from some six to eighteen months after he has begun 
 to build. Here again it is clear that the roads ami 
 sewers are provided by the landowner, and that, 
 although the builder has not to borrow for the pur-
 
 14 URBAN RATING. 
 
 chase of his land, smce that is provided for him at 
 an annual payment, he has nevertheless to be helped 
 by postponing the period when this annual payment 
 first begins to accrue. Under this system also, as 
 practised in Manchester and some other towns, a 
 considerable tract will sometimes be taken by a land 
 speculator at one entire rent-charge, and he will then, 
 alter forming roads and sewers, let off smaller plots 
 at separate rent-charges, ^hich in the aggregate 
 exceed the amount of the first rent-charge. His 
 profit will then be derived from the sale of the differ- 
 ence between the rent-charges he has to receive and 
 that which he has to pay, such differences being 
 popularly described as " second chief-rents." These 
 second chief- rents obviously represent not any original 
 land value, but simply and solely expenditure upon 
 land ; and in this and other respects they are analogous 
 to the "improved" or '"leasehold" ground-rents, 
 which will be dealt with shortly, 
 •j-jjg An exactly similar process seems to take place 
 
 Scotcii under the Scotch system of feuino;, and a rather 
 
 feu . *' . . , . . 
 
 system at complicated transaction of the kind is described in 
 tlie following passage from a pamphlet entitled 
 '' Should Feu-Duties be Taxed?" * 
 
 " We shall suppose that A, the proprietor 
 " of a building estate, feus five acres of that 
 " estate to B for an annual feu-duty of £150, 
 " being at the rate of £30 per acre. B prepares 
 " a feuing or building plan of the ground, and 
 " marks out roads and streets. B then sub -feus 
 " to C one acre of the ground thus laid out for 
 
 * By "Yindex." Edinburgh: David Douglas; Glasgow: James 
 Maclehose & Son ; London : Hamilton, Adams & Co. The whole 
 pamphlet is lucidly written, and will well repay a careful study.
 
 ORIGIX AND NATURE OF GROUND-RENTS. 15 
 
 " building, at a feu-duty of £40. C erects five 
 " villas, each on one-fifth of an acre, and sells 
 " the villas, each with its one-fifth of an acre of 
 " ground, imposing upon each a feu-duty of £10 
 " in addition to the cash price paid for the villas. 
 " The purchasers from C, viz., D, E, F, G, and 
 " H, are then each the proprietor of one-fifth 
 " of an acre of ground, with the villa thereon, 
 " subject to an annual payment of £10 to C. 
 " We shall further assume that the remainino; 
 " four acres have been sub-feued and treated in 
 " a similar way, but it will only be necessary 
 " here to follow the history of the one acre we 
 " have noticed. A, in respect of that one acre, 
 " receives £30 a year from B. B, in respect of 
 " the same ground, receives £40 from C, and 
 " hands £30 to A, the diff'erence of £10 per 
 " annum being B's profit on the transaction, 
 " and representing payment for his trouble in 
 " superintending the laying out of the ground. 
 " In the case w^e have put, the expense of making 
 " roads and drains is borne by the builder, C. 
 " Had B constructed the roads and drains he 
 " would have iinposed a larger feu-duty on the 
 " ground when conveying it to C, in order to 
 " recoup his outlay, and the case would have 
 " been rendered more complex by that con- 
 " sideration. AYe shall take the simple case 
 " where C has borne the cost of roads and 
 " drains, and added the amount to the price of 
 " the villas. C, in selling his houses, endeavours 
 " to get a price that will repay his whole out- 
 " lay and leave him a profit. Part of the price 
 "is paid in the shape of a fi.'U-duty, but by
 
 16 UKBAX RATING. 
 
 " nuicli the hirg'cr part is paid down. In the 
 " case stated the feu-duty imposed by C u[)oii 
 " each of the five villa properties is £10, makiiii^ 
 " £50 for the five, and as C only pays a feu- 
 " duty of £40, he has an annual profit of £10.'' 
 
 The 999 No detailed separate account need be given of the 
 
 system covering of land with houses under the 999 years 
 system, inasmuch as it is in substantial accord- 
 ance with the process under the 99 years sys- 
 tem, which will be described at some length in the 
 succeeding paragraphs. The building is generally 
 regulated by a preliminary agreement, which defines 
 the character of the houses to be built, and entitles the 
 builder, on their completion, to take up leases of the 
 houses at the stipulated rent or rents. As under the 
 other systems, the roads and sewers are either directly 
 constructed by the landowner or undertaken by his 
 lessees under arrano-ements made with him. And in 
 this case also the expenditure of an original lessee 
 upon development may be represented by the excess 
 of the derivative rents which he can charge sub- 
 lessees from him over the original rent which he has 
 agreed to pay the proprietor of the fee simple. 
 The 99 A more careful examination must- be made of the 
 
 system at development of land under the 99 years or London 
 work. leasehold system. The general nature of the trans- 
 action appears to be accurately described in the 
 following paragraph* from the draft report submitted 
 for adoption to the Select Committee on Town Hold- 
 ings by Mr. Knowles : — 
 
 " Accounts of the development of Innd under 
 
 * Paragrai)h 28, page 105 of the Eeport of the Select Committee, 
 1889.
 
 ORIGIN AND NATURE OF GROUND-RENTS. 17 
 
 the building-lease or London leasehold system 
 are given as to London by ^Ir. l^yde, Mr. 
 Gregory, and Mr. Garrard, and as to J>irming- 
 hani by Mr. Mathews. It appears that the 
 general practice is to enter into a preliminary 
 agreement for the erection by the builder of 
 one or more houses, and for the grant to him, 
 Avlien such erection is completed to the satis- 
 faction of the landowner's surveyor, of a lease 
 or leases at a total agreed ground-rent. When 
 a small plot is let the roads have generally 
 been previously made by the landoTvner ; but 
 in the case of larger pieces of land the lessee 
 often agrees to make the roads and sewers, 
 paying in that case a much smaller ground- 
 rent. The total ground -rent is apportioned 
 separately on the houses as they are built, 
 the custom often being to secure on the houses 
 first built more than their proportionate 
 ground-rent, so that towards the conclusion 
 of the operations the lessee will often be 
 entitled to take up leases of the houses last built 
 at a peppercorn or other nominal ground-rent. 
 During the process of building the builder is 
 accommodated by being charged only a pepper- 
 corn rent, or in the case of considerable blocks 
 of land a gradually increasing rent as houses 
 are expected to be built and let. In the case 
 of a large operation the original lessee who 
 deals with the landowner may not himself 
 build, but may, after forming the roads and 
 sewers, agree to sub let i)ortions at higher 
 rents than he himself is paying, and in this 
 way tliere may be one or more intermediaries
 
 18 URBAN KATIXG. 
 
 " between the landowner and the actual builder. 
 " The profits of these intermediaries consist in 
 " the excess during the term Avhich the leases 
 " have to run of the rents which they are 
 " entitled to receive over the rents which they 
 " have to pay, and it seems that they may realise 
 " their profits in at least the three following 
 " ways, viz. : — (1) By selling this difference of 
 " rental to the general public, in which case the 
 " property sold is obviously a terminable annuity, 
 " having the same number of years to run as the 
 " leases, and is sometimes therefore spoken of 
 "as an improved leasehold ground-rent ; or 
 " (2) by selling the difference of rental to the 
 " landowner, in which case this difference is 
 " added to and increases the freehold 2:round- 
 " rent which he was otherwise entitled to receive ; 
 " or (3) by allowing the landowner to take this 
 " difference of rental as before, in addition to and 
 " by way of increase of his ground-rent, on the 
 " terms that the whole of this increased ground- 
 " rent is to be considered part of the total rent 
 " payable by the intermediary to the landlord, 
 " with the result that the intermediary is the 
 " sooner entitled to leases of the remainder of 
 " the estate at a nominal rent." 
 
 Illustra- ji^Q nreneral terms in which the above account is 
 
 tion of 99 ^ ^ , 111-1 
 
 years couched may be rendered plainer by a concrete 
 system, in^gtration. Let us assume that A, a landowner, 
 ao-rees to grant 99 years leases to B, an intermediary, 
 of a building estate of 20 acres at a rent of £25 per 
 acre, or £500 in all ; and that five houses per acre, 
 or one hundred houses in all, are to be built upon
 
 ORIGIN AND NATURE OF GR0UXD-1?EXTS. 1 9 
 
 the estate. And let us further assume that B, after 
 makino- the roads and sewers and developin^r tlie 
 estate generally, is enabled to let off the estate to the 
 
 actual builders C, D, E, F in small portions 
 
 and for the residue of the term of 99 years (less one 
 day) at rents which, after allowing for the portions 
 of land occupied by roads, amount to £60 per 
 acre, or £1,200 in all.* On the working out of the 
 contracts by the erection of the houses, and assuming 
 that the ground-rents are evenly distributed over all 
 the houses, B will become entitled to take up 100 
 separate leases each of one house for 99 years at a 
 ground-rent of £5, and will be bound to grant to 
 
 C, D, E, F 100 separate leases of the same 
 
 houses for terms of 99 years less one day, and at a 
 rent of £12 for each house. The beneficial interest 
 which B will therefore acquire in return for his 
 expenditure and risk will consist of 100 separate net 
 annual rents of £12 — £5, or £7, lasting for a term of 
 99 years and no longer. These terminable annuities 
 are currently known as " leasehold ground- rents," 
 or " improved leasehold ground-rents," the word 
 " leasehold " denoting that B's reversionary mterest 
 is of a terminable or leasehold character, and the 
 word " improved " denoting that the rents are not 
 derived from the original value of the land, but are 
 due to the improvement m the value of the land which 
 has been caused by the expenditure and superintendence 
 
 * B leases for 99 years less one claij in order to preserve a reversion 
 of one day, to which, as explained above, his rent will be incident. The 
 increase of rent from £500 to £1,200 may ajipear large, bixt so great 
 are the expenses and risks in transactions of this kind that a current 
 rule of thumb in London is, that the margin of profit of the inter- 
 mediary only begins when he obtains a rent from the actual builders 
 at least double that which he has contracted to pay to the landowner. 
 
 B 2
 
 20 URBAN KATING. 
 
 of B. The leasehold reversion to which the rent of 
 B (the interme liary) is incident is, as a rale, only a 
 nominal term or reversion of a day or two ; but some- 
 times (as in the case of many of the houses built 
 under the late Mr. Cubitt on the Duke of West- 
 minster's Pimlico estate) the intermediary may 
 persuade builders to take a term of years (such as 85 
 years) several years shorter than that to which he 
 is himself to become entitled, and in that case he 
 will get his improved rents of £1 for the first 85 
 years, and the rack-rentals of the houses for the 
 remaining 14 years. 
 Eealis- It now remains for B, in the instance above stated, 
 
 pro°fit of to realise the capital value of his improved leasehold 
 develop- oround -rents in order to recoup himself for the capital 
 expenditure nicurred ; and this he may, according to 
 Mr. Knowles' draft report, effect in any one of at least 
 three ways. He may in the first place sell to a 
 purchaser the improved leasehold ground-rents — that 
 is the rio-lit to receive out of each house a net rent 
 of £1 for a period of 91) years. Or, secondly, he may 
 sell to the landowner for a lump sum the right to let 
 a house direct to the builder, C, at the rent of £12 
 which C has agreed to pay, instead of letting it to 
 him, B, at a rent of £5. Or, thirdly, while allowing 
 the landowner to let to G direct at £12, he may 
 stipulate that this extra rent shall not be paid for in 
 cash, but shall be taken into account against the 
 total rent of £500 which B has to provide for the 
 landowner ; the result being that in case, say, the 
 first ibrty houses were so let by the landowner, A, to 
 tlie builders, 0, D, and E, at a total ground-rent of 
 £480 the intermediary would be entitled to leases of
 
 ORIGIN AND NATURE OF GROUND-RENTS. 21 
 
 the sites of the remaining sixty houses (which he has 
 himself agreed to lease to F, Gr. . . . at rents of £12 
 each) at an aggregate rental of £20; of which perhaps 
 £1 would he apportioned on each of the first twenty of 
 these houses, while the others would be taken by B at a 
 nominal rent of a peppercorn. And 13 would thus in 
 this third case, while making no direct profit on the first 
 forty houses built, become entitled to improved lease- 
 hold ground-rents of £11 on each of the next twenty 
 houses and of £12 on each of the last forty houses, 
 which he may dispose of in any method he pleases. 
 The practice is in fact very general to secure the total 
 ground-rent payable to tlie landowner, or the bulk of 
 it, as early as possible on the houses first built ; and 
 thus to leave only small or nominal ground-rents on 
 the sites of the houses last built, w^hich are called 
 " remainder-plots," and to which the intermediary 
 looks to secure his profit. 
 
 But there is yet another method (not noticed in Addi- 
 the passage cited from Mr. Knowles' draft report) in ^^^^a 
 which B may realise his leasehold ground-rents. In- of reaiisa- 
 stead of disposing of them to the landowner in 
 augmentation of the rents to which he would other- 
 wise be entitled, he may sell them to the builders, 
 C, D, E, F, in reduction of the rents which they 
 would otherwise have to pay, thus entitling them to 
 take up leases from the landowner at the £5 ground- 
 rent at which he had agreed to let to B, instead of at 
 the £12 o-round-rent at which B had ao-reed to let to 
 C, D, E, F. And if this process takes place with 
 regard to a " remainder-plot " to a lease of which B 
 has become entitled at a rent of £1 or at a nominal 
 rent, B can sell to the builder the right to take up his
 
 22 
 
 URBAN RATING. 
 
 Existing 
 ground- 
 rents do 
 not repre- 
 sent real 
 rent. 
 
 lease at this still lower or even nominal rent, instead 
 of at the rent of £5 or £12.^ 
 
 And there is at least one other way in which the 
 ground-rents actually reserved on building-leases are 
 very far from representing the actual rent for the site. 
 It frequently happens that the rental value of the 
 houses when built would be sufficient to adequately 
 secure larger ground -rents than have been agreed to 
 be reserved on the leases under which they are to be 
 held ; and in such cases it is not unusual, either under 
 a clause in the building agreement or under arrange- 
 ments subsequently made, for the builder to 
 "improve" his ground-rent — that is, to accept leases 
 
 * A good practical illustration of this method was given by Mr. 
 Eyde in his evidence before the Select Committee on Town Holdings 
 (1886), 8,021 et seq. It appears that the late Mr. Cubitt, who had 
 taken a very large tract of land in Pimlico on building agreement 
 from the late Marquis of Westminster, had, by the time Warwick 
 Squai'e came to be built over, provided the total ground-rent payable 
 to the Marquis, and was entitled to take up leases of the Warwick 
 Square houses at a nominal groimd-rent of Is. per annum each. 
 Mr. Cubitt did not himself build the Warwick Square houses, but 
 made sub-agreements with other builders for this purpose, these 
 builders agreeing to take up leases from Mr. Cubitt at a ground-rent 
 of £1 per foot frontage, or of £26 on a house with a 26-foot frontage. 
 Mr. Eyde built a house for himself on these terms, and was con- 
 sequently entitled to a lease from Mr. Cubitt at £26 ground-rent. 
 But instead of this he purchased Mr. Cubitt's right to a lease at Is. 
 a year fi-om the Marquis by paying Mr. Cubitt 25 years' purchase of 
 the difference between Is. and £26, or a capital sum of £648 15s. ; 
 and a lease was thereupon granted to Mr. Eyde direct from the 
 Marquis at Is. a year. 
 
 On the other hand, a neighbour of Mr. Eyde's, who was, like him, 
 entitled^to a lease from Mr. Cubitt at £26 gi'ound-rent, did not care 
 to invest his money at 4 per cent, in the purchase of Mr. Cubitt's 
 interest. He therefore took up a lease from Mr. Cubitt at £26, and 
 Mr. Cubitt took up a lease from the Marquis at Is. ; Mr. Cubitt's 
 profit in this case, therefore, being represented, not by a capital sum, 
 but by an annuity diuing the continuance of the leases of £25 lOs. 
 })er annum.
 
 ORIGIN AND NATURE OF GROUND-RENTS. 23 
 
 from the landowner at higher ground-rents than were 
 agreed on, upon payment by the landowner of a 
 certain number of 3^ears' purehase of the excess of 
 the ground-rents actually reserved over those agreed 
 to be reserved. 
 
 Such then are some of the complications which, Causes 
 when an estate in or near London is developed affect 
 on the building-lease or 99 years system, affect the of^ground- 
 determination of the ground- rents actually reserved rents. 
 under tlie leases in question. It will be particularly 
 observed that the ground-rents actually reserved on 
 particular houses may exceed the ground-rents really 
 agreed to be accepted by the landowner in one or 
 more of the following ways, that is to say: (1) by the 
 apportionment of a disproportionate rent on the 
 houses first built; (2) by the landowner having pur- 
 chased from the intermediary and merged in his 
 ground-rent the improved leasehold ground-rent 
 which represents the outlay of the intermediary on 
 roads, sewers, and general development ; and (3) by 
 the landowner having purchased from the builder 
 and added to the agreed ground-rent an extra or 
 improved rent, which really represents an annuity 
 secured on land in return for a cash payment. And 
 it will also be noticed that the ground- rents actually 
 reserved on other houses may fall short of the 
 ground-rents really ao-reed to be accepted, and may. 
 in fact be merely nominal, because the landowner has 
 already had his total ground- rent secured to him, 
 and the sites of these houses represent " remamder- 
 plots." But as to all these elements ol calculation 
 which have in fact determined the ground-rent.i 
 actually reserved the leases themselves are absolutely 
 silent, 'inhere is nothing in the leases to show wliy
 
 24 URBAN RATING. 
 
 two exactly similar a<ljoiuing bouses are leased in 
 tbe one case at a ground-rent of £25 and in the 
 other case at a ground-rent of a peppercorn. And 
 it would be as hopeless in all these cases to attempt 
 to discover for practical purposes what the unim- 
 proved ground was really let for by the landowner as 
 it would be in cases where the landowner has himself 
 made the roads and sewers, and developed the 
 property generally, to try to ascertain how much of 
 the ground-rent at which he afterwards lets the land 
 is the result of natural value, tind how much is due 
 to the expenditure which he has incurred. 
 
 Existino; ground-rents are no measure even of 
 the former, flir less of the present value of the houses 
 out of which they are reserved.
 
 25 
 
 CHAPTER ir. 
 
 THE DETERMINATION OF GROUND- RENT. 
 
 In tlie pre^dous chapter some examination has been How is the 
 
 1 p 1 1 r 1 1 • price or 
 
 made ot the most prevalent systems oi developmg rent of 
 building land and of paying the landowner the con- ian/^°^ 
 sideration or price for his land. It now becomes fixed? 
 necessary to inquire what are the circumstances which 
 determine the amount of that consideration or price, 
 W'hether it be taken in the shape of a lump sum or 
 of an annual rent-charge or of a ground-rent re- 
 served on a lease for 999 or 99 years or any 
 other period. It is fairly obvious, and is completely 
 borne out by the evidence which has been given 
 before the Select Committee on Town Holdings, that, 
 as between the various systems themselves, the land- 
 owner will get the best return for his land by 
 choosing that system which is the most popular in 
 the particular district in which the land is situate ; 
 and that the greater interest given to the builder 
 under a grant in fee subject to a rent-charge, or for a 
 term of 999 years, will be compensated for by the 
 rent-charges or rents under that system being, c.teris 
 paribus, slightly higher than the rents under the 
 99 years system. But it is equally clear that there 
 must be many general causes which will affect the 
 value of, or the amount of the consideration to be 
 paid for, land quite independently of the particular 
 mode in wliicli that consideration has to be liquidated.
 
 26 URBAN RATING. 
 
 The same circumstances which will cause an increase 
 in the price paid for land in case it is bought for a 
 lump sum will, as a rule, cause an equally large 
 increase in the ground-rent which would be oiFered 
 for a 99 years lease of the same piece of land, should 
 it be advisable to develop it by that process. An 
 increase or diminution in demand will cause a simul- 
 taneous and equivalent rise or fall both in prices and 
 in rents. It is the object of this chapter to consider 
 how the amount of the price or rent paid for building 
 land is in fact determined. 
 Monopoly And here it should be premised that the case 
 exists and considered is the ordinary one in which there is no 
 ^i(f r^d°"" ^^onopoly, or no extortion due to monopoly, on either 
 side. It is supposed that the landowner, though 
 naturally anxious to obtain the best price or rent for 
 his land, is willing to let it for building purposes 
 and is not inclined to drive intendins; builders 
 to other neighbourhoods, and that there are several 
 builders able and willins; to commence buildino^ 
 operations upon remunerative terms. That this 
 assumption is in fact a true one seems to have 
 been established by the evidence before the Select 
 Committee as to the extreme competition which pre- 
 vails, not only between different owners in the same 
 district, but between different districts, and by the 
 p. 21. following very moderately worded passage from the 
 Report of the Select Committee; — 
 
 " As regards the first objection" (namely, 
 that the landlord is enabled to obtain an unfair 
 advantage over his tenants by charging an excessive 
 ground-rent on granting the lease), " the Com- 
 " niittee think that the builder who, in the vast
 
 THE DETERMINATION OF GROUND-RENT. 27 
 
 " majority of cases, is the person who takes the 
 " land on which houses are built, is competent 
 " to make his own bargain with the landowner, 
 " and that in most instances the ori^'inal lessee 
 " probably makes a good profit out of the 
 " transaction. Some illustrative cases are given 
 " by Mr. Bourne and Mr. Spain of the large 
 " profits made by builders and lessees. Another 
 " check on excessive ground-rents is the frequent 
 '' competition between building estates; so that, 
 " if a landowner asks too high a rent, he drives 
 '' building away from his own to other pro- 
 " perties. It is impossible for the Committee 
 " to give a general opinion on the question of 
 " how far ground-rents are reasonable in amount. 
 " This question must be left to be settled 
 " between the contracting parties, and the Com- 
 " mittee have no evidence before them that 
 " when the freehold is sold for building purposes 
 " the conditions are usually more moderate, or 
 " that the grievance in question is one specially 
 " connected with the leasehold system." 
 
 And it may also be well to state explicitly an Building- 
 assumption which has been impliedly made in the tiie°°^ ^ 
 previous account of the English building systems, 
 namely, that the person who builds is not as a rule 
 an individual building, either by himself or through 
 contractors, for his own occupation, nor even an 
 investor building in order to keep and let the houses 
 for the purposes of investment, but a professional 
 or speculative builder who makes a business of build- 
 ing houses for the purpose of afterwards disposing of 
 them at a i)rofit. The considerations that determine the 
 
 pro- 
 fessional 
 builder.
 
 28 
 
 URBAN RATING. 
 
 Vigers 
 
 (1887), 
 
 1,078. 
 
 Tewson 
 
 (1887), 
 
 2,963. 
 
 Ryde 
 
 (1886), 
 
 7,850 et 
 
 seq. 
 
 The 
 builder 
 builds to 
 sell. 
 
 Wallis 
 (1888), 
 2,771. 
 
 Price de- 
 termined 
 by income 
 and 
 security. 
 
 price or rent to be paid for building land might 
 probably be shown to be the same in both of the first 
 above-mentioned cases as in the last. But the ques- 
 tion is to some extent simplified by considering the 
 operations of the speculative builder ; and that it is he 
 who provides the great bulk of the houses of the com- 
 munity is stated in the passage last cited from the 
 Report of the Committee, and there is (apart from 
 common knowledge) ample evidence to prove. 
 
 Now, a very little consideration will show that 
 the primary object of the speculative builder is to sell 
 his houses, not to let them. No doubt, if he is unable 
 to sell, he will often let his houses for a while, in order 
 to keep down the interest on his mortgages and any 
 rent- charge or rent which he may have to pay, and 
 partly also because he can sell better for investment 
 when the houses are let than when they are empty. 
 But until the houses are sold, whether they are 
 let or unlet, a certain portion of the builder's capital 
 is locked up in them, and he must always be trying 
 to liberate his capital by a sale in order to subse- 
 quently apply it in the further development of his 
 business. As was well said by the Eastbourne agent 
 of the Duke of Devonshire, these builders build to 
 " sell and build asfain." It follows therefore that the 
 
 o 
 
 success or failure of the speculative builder will de- 
 pend on the price which he is able to obtain for his 
 houses, and that it is to this that he must look in all 
 his calculations. What, then, is it which determines 
 the price which will be given for a house ? 
 
 The answer to this last question is not far to seek. 
 All investors are aware that the price of any property 
 is the product of two factors, namely, first, the 
 amount of income derived from the property, and
 
 THE DETERMINATION OF GKOUND-RENT. 29 
 
 secondly, the number of years' purchase wliicli that 
 ncome is worth This latter factor depends upon a 
 nuinl)er of general considerations, sueli as the stability 
 of the investment, the fixity or variability of the in- 
 come, the trouble and expense caused in the collection 
 of the income and the supervision of the property, the 
 comparative ease or difficulty which will be met with 
 in realising the investment, and the prospect of future 
 increase or decrease in its capital or income value. 
 And it is obviousl}' not in the builder's power to con- 
 trol this factor, or any one of the elements in it, 
 except by agreeing (as we already suppose him to 
 have done) to acquire such an interest in the land 
 and house as is in accordance with the custom of the 
 neighbourhood and therefore forms a well-understood 
 and marketable commodity. Supposing, to take a Builder 
 definite instance, that a builder, in order to recoup all J^^h ^°° t 
 his building expenses (using the term in the widest rental he 
 possible sense) and to obtain an ordinary trade profit, 
 must obtain a price of £'1,3G0 for a house of a certain 
 quality, and that houses of this quality are worth 17 
 years' purchase of the net income derived from them if 
 held * («) subject to a freehold rent-charge or(/y)on a 
 999 years lease at a ground -rent, and are only worth 16' 
 years' purchase of the samenet income if held (c) on a 99 
 years lease at a ground-rent, it is obvious that his saleable 
 interest in the house provided by him must produce 
 in cases (a) and (/>) a net rental of £1,360-^17, or 
 £80 per annum, and in case (c) a net rental of 
 £1,360-;- 16, or £85 per annum. How, then, is the 
 builder to ensure that his interest in the house shall 
 produce the net rental required ? 
 
 * The case of the determination of the capital price of building land 
 under the freehold-purchase system is separately stated later.
 
 30 
 
 UKBAX RATING. 
 
 T^^ ^ The net rental which the builder can dispose of 
 
 ground- . ^ 
 
 rent is the to a purchaser will clearly be the net rack-rental 
 eia^ic obtained or obtainable from the house, after deduct- 
 eiement jj-^^- iI^q rent-charo'c or 2:round-rent which the builder 
 
 in deter- o 53 o 
 
 mining has agreed to pay. And here, ao;ain, one of these 
 net rental. ' o ? 
 
 two amounts, namely, the rack-rental, cannot be 
 
 controlled by the builder, but can only be estimated 
 by him. But havmg once made this estimate, he can 
 profitably afford to offer as a rent-charge or a 
 ground-rent for the site of the house the whole 
 excess of the estimated clear rack-rental value o^er 
 the fixed net rental which he has to provide for his 
 purchaser. Assuming that, in the case supposed, 
 the house which the builder can build to sell for 
 £1,360 will let to a tenant at a clear rack-rental of 
 £100, the builder will be able to offer £l00-£80, or 
 £20, as a rent-charge for the fee simple of the site or 
 a ground-rent for a 999 years lease of it, and will be 
 able to offer £100 — £85, or £15, as a ground-rent on a 
 99 years lease. Assuming, again, that through over- 
 building, depression of trade, or any one of a thousand 
 causes, the demand for houses in the neighbourhood 
 slackens, and houses of the cost and quality in ques- 
 tion fetch a clear rack-rental of only £95, the builder 
 will on all future * contracts be able to offer only 
 £95 — £80, or £15, as a rent-charge for the fee simple 
 of the site or a ground-rent on a term of 999 years, 
 and only £95 — £85, or £10, as a ground-rent on a 
 99 years lease. Assuming, lastly, that through 
 increased facilities of access, a change of fashion, or 
 any other of the equally numerous causes which may 
 
 * With regard to existing agreements, the loss or benefit will in the 
 cases supposed be the builder's. He has then pro tanto assumed the 
 position and risks of the landowner.
 
 THE DETERMINATION OF GROUND-RENT. 31 
 
 increase the competition for houses in a locality, the 
 clear rack-rental value of the houses in question can 
 be fairly estimated at £110, the builder will in all 
 future ag-reements be able to secure his ordinary 
 trade profit after offering £110 — £80, or £30, as a rent- 
 charge in perpetuity or a ground-rent on a 999 years 
 lease, or £110 — £85, or £25, as aground-rent on a 
 lease for 99 years. Any increase or decrease in the 
 prospec'ive rack-rentals of the property must tend to fall 
 exclusively on the annual payments to he offeredfor the 
 hire of the ground^ since these annual payments form 
 the only elastic and modifiable elem.ent in the contract. 
 
 The same proposition may easily be shown to be So is the 
 true when the consideration for the land takes the the land, 
 form of a lump sum. At 17 years' purchase the house i^^oid. 
 in question will be worth £1,615 if it can be let for 
 £95 per annum, £1,700 if it can be let for £100 per 
 annum, and £1,870 if it can be let for £110 per 
 annum. But in every one of these cases the cost to 
 the builder will be precisely the same, namely, £1,360. 
 And he will therefore be able to offer to the land- 
 owner a price of £l,615-£l,360, or £255, of 
 £1,700-£1,360, or £340, and of £l,870-£l,360, 
 or £510, as the case may be. Here too the price to 
 be paid for the land is the only modifiable, and 
 therefore the only variable, term in the contract. 
 
 The vital point, therefore, for the landowner is The prob- 
 the amount of the rack-rent which tenants of tlie rentisf/ie 
 houses to be erected on his land may be expected to °^* 
 ]">ay. The landowner will tend to gain or lose in the 
 price or annual payment to be made for his land to 
 the full extent of any increase or decrease in the 
 estimated amounts of these rack-rents. 
 
 A few paragraphs may here be devoted to meeting This is 
 by anticipation two objections that may perhaps be practice.
 
 32 URBAN RATING. 
 
 urged to the conclusion that has been just arrived at. 
 It will be said, for instance, that many or most 
 builders do not, when tendering for an area of build- 
 ing land, go into any such elaborate calculation as 
 the foreo'oino; of the exact cost of their house, the 
 exact net income they must provide for prospective 
 purchasers, and the exact rack-rental which they will 
 be able to obtain from future tenants. This may be 
 quite true in individual cases, and yet a calculation 
 on this basis may still have been made indirectly and 
 roughly instead of directly and aci^urately. In all 
 businesses there are certain rules of thumb based on the 
 calculations and experience of other persons or other 
 transactions, which enable individuals to arrive at 
 fairly correct conclusions without any immediate 
 reference to the premises on which those conclusions 
 are based. A builder has himself experienced, or has 
 learnt from the experience of others, that in a par- 
 ticular neighbourhood, or in neighbourhoods that 
 offer about the same residential advantages, a 
 certain price or rental has been given for building 
 land, with a view to the erection of a particular 
 class of houses, and that the bargain has 
 resulted in a profit either equal to, exceeding, 
 or falling short of the usual profit, or perhaps has 
 even resulted in a loss. The profit or loss that has 
 occurred is in fact the result of the causes which 
 have been examined above. But the builder can in 
 making any new bargain avoid considering directly 
 the operation of these causes, and can make an offer 
 based roughly, but with sufficient accuracy for his 
 purpose, on the resulLs of the previous transactions. 
 
 Again, it is sometimes said that any increase or 
 decrease iu tlie rack-rents which niay be expected
 
 THE DETERMINATION OF GKOUND-lJENl . 33 
 
 from tlic houses to be built in a neighbourhood will Thewhoie 
 not affect the landowner to the whole extent of the g2n°is in 
 cliange, but will be partly shared by the builders f^^* ^^^ 
 with whom he deals.* No doubt there is always owner's. 
 some delay in complete adjustment- to any chano-e. 
 And during the interval otlier persons may share in 
 a profit or a loss than those wdio will ultimately 
 have to receive or bear the whole of it. In such 
 cases the estimates of value have not during the 
 interval followed to its full extent the change in 
 actual value. But subject to this qualification there 
 seems to be no reason for thinking that any part of a 
 change of value ultimately affects anyone but the 
 landowner. Tliere is no reason why the averao-e 
 profit of a builder who contracts to cover a site in 
 the City worth £1,000,000 per acre should exceed 
 that of a builder who contracts to cover land lyino* 
 on the utmost outskirts of a town and worth from 
 £100 to £150 per acre. 
 
 One further point remains to be noticed with j^ ^ 
 regard to the determination of the price or annual ground- 
 payment to be made for building land, and that is 
 whether there is any minimum which it must equal 
 or exceed before tlie land is devoted to building 
 purposes, and how that minimum is ascertained. It 
 appears to me that there is such a minimum, and 
 that it is ascertained with reference to the value of 
 land for agricultural or other productive purposes. 
 It is indeed often said that, although this may be so 
 theoretically, it is not so in practice, because the rent 
 
 • Here again it is only future agi-eements that are spoken of. As 
 to existing]; agi'eements the builder will alone get any profit or bear 
 any loss, unless indeed in the latter case he fails and the landowner 
 has to make a fresh agreement with another builder at a lower re)it.
 
 34 URBAN RATING, 
 
 for building purposes is so much higher than for 
 agricultural purposes. But those who maintain this 
 seem to lose sight of several material circumstances 
 which it may be worth while to set out. 
 There is a On the one hand the rent of land near a 
 
 real com- , r • Ij. i j i- 
 
 petition town lor agricultural or productive purposes is 
 between yery much higher than any ordinary agricultural 
 accommo- rent. " Accommodation " land, such as this land 
 building is called, will often fetch £b or £i] per acre for 
 purposes, ^.j^g £gg^j ^^ horses and cattle ; and even hio;her 
 rents are often obtained for the use of such land 
 as cricket or football grounds, racing or coursing 
 grounds, or for the hundred and one other pur- 
 poses to which land in the neighbourhood of a 
 considerable community may be turned. And on 
 the other hand there are many risks and great ex- 
 penses involved in actually rendering building land 
 available as such. It has been seen that roads and 
 sewers must directly or indirectly be constructed by 
 the landowner ; and the cost of these, which is always 
 heavy, naturally eats up a far larger proportion of the 
 ultimate rent or price where the value of land is low. 
 Then ao;ain, in new neig-hbourhoods there are far 
 greater risks of deterioration through a change of 
 fashion, the construction of some new means of 
 communication to a competing locality, or some other 
 equally potent cause, than in old and well settled 
 districts. Once more, it has always to be remem- 
 bered that an owner developing his land for building 
 purposes parts with it, and with all possibility of 
 future increment in it, either for ever, or at any rate 
 for a very long period, equivalent even under the 99 
 years system to three generations ; and that there- 
 fore the price or rent asked for land to be devoted to
 
 THE DETERMINATION OF GROUND-RENT. 35 
 
 buiWiDg purposes must, to tempt a landowner, sub- 
 stantially exceed the rent which he can obtain for the 
 land for short periods while still retaining its future 
 increment for himself. And lastly, one seems almost 
 able to place one's finger on land which is in fact let 
 or sold for building purposes, or (if the phrase may 
 be allowed) for semi-building purposes, at a rent 
 scarcely exceeding that of accommodation land, as one 
 notices the comparatively large areas of ground sur- 
 rounding the villas which cluster round the railway 
 stations from fifteen to thirty miles from London. 
 
 For all these reasons, though I cannot claim to 
 have any special knowledge on the subject, it seems 
 to me that in practice as well as in theory the value 
 of land for agricultural purposes does in fact form a 
 minimum determining (after the allowances I have 
 mentioned) the lowest price or rent that will be taken 
 for land for building purposes ; and that the experi- 
 ence of surveyors and other persons accustomed to 
 deal with land in districts just beginning to acquire 
 value for building would be that there is a real, and 
 not merely a theoretical, competition for the use of 
 land between agriculture and bricks and mortar. And 
 it wall also be noticed that land on the outskirts of 
 building, which would command a tangible price or 
 annual payment either on a grant in fee or on a lease Thomas 
 for 999 years, may not be able to bear any rent at all 3i34!5 
 on a lease for so comparatively short a period as 99 
 years. 
 
 c 2
 
 Are 
 
 ground- 
 rents 
 affected 
 by rates ? 
 
 CHAPTER III. 
 
 HAVE GROUND-KENTS ALREADY PAID RATES ? 
 
 So far, tlie conclusion has been arrived at that the 
 price that will be given, or the annual payment that 
 will be made, for a piece of building land is dependent 
 on the price that will be given, or the clear rack- 
 rental that will be paid, for the land and house to- 
 gether, when the latter has been built ; or, to put 
 the proposition in a form which is aluiost self-evi- 
 dent, that the value of a piece of building land is the 
 estimated value of the land when covered, less the 
 cost (including delay, risk, profit, and every kind of 
 expense) of covering it ; and that the rent that will 
 be o-iven for a piece of building land is the estimated 
 rack-rental of the land when covered, less such a 
 rent as will under the conditions of the holding be an 
 equivalent for the cost (inclusive as before) of cover- 
 ino- the land. It is still necessary to inquire how 
 the rack-rental of the house and land together is 
 determined, and in particular whether this rack- 
 rental is in any way lessened or affected by the rates 
 which are paid by the occupier at a rack-rent. For 
 anv decrease in the rack-rent which may be due to 
 this cause will, as well as that due to any other cause, 
 be thrown exclusively on the only available margin, 
 namely, the price to be given for the land or the 
 rent-char<'-e or groandrent to be paid for it. To
 
 avoid cumbrousness of expression, the alternatives 
 of " price " and " rent-charge " (which clearly depend 
 on the same principles) will be left out of account, 
 and the case of a ground-rent only will be considered. 
 
 Hver since Kicardo's celeljrated exposition, his Ricardo's 
 theory of rent has been substantially adopted by all ^^^l^ °^ 
 the leading writers on political economy. A state- 
 ment of the theory in its application to the rents of 
 houses may be taken from the essay * to which 
 reference has already been made in the preface : — 
 
 " The theory is generally stated with regard 
 " to agricultural land, that being the kind of 
 " land of the greatest importance to the political 
 " economist. It is assumed (though the truth 
 " of the assumption is not vital to the theory) 
 " that there is in any one stage of society land 
 " just on the margin of cultivation — that is, land 
 " which can just be cultivated so as to yield 
 " average interest and profit on the 'capital em- 
 " ployed if no rent is paid for it. It is then 
 " asserted that the rent paid for any superior 
 " land is the measure of the superiority for pro- 
 " duction which this land possesses over the 
 " land just on the margin of cultivation. And 
 " the consequence follows that, as the necessities 
 " of increasing population compel resort to the 
 " cultivation of soil inferior to the least produc- 
 " tivesoil previously cultivated, the rents of all 
 " lands previously cultivated must rise, inasmuch 
 '' as their superiority is increased wl;en tested 
 " with reference to a lowered standard. 
 
 " Now, precisely the same line of reasoning 
 
 * Grouud-ronls and Building-Leases, pp. 132 to li35. 
 
 .'iH4';'34
 
 38 URBAN EATING. 
 
 " is applicable to the occupation-rents of houses. 
 " There are, of course, many sites in the king- 
 " dom Avhere it would not pay to build a house 
 " rent free. That is, an occupation-rent could 
 " not be obtained for the house sufficient to 
 " afford ordinary interest on the sum expended 
 " in its construction; or, in other words, the 
 " occupation- rent would be so low that a pur- 
 " chaser buying on this rent would give a price 
 " less than the sum that had been expended in 
 " the construction of the buildings. But in the 
 " infinite and continuous gradations of suit- 
 " ability in sites for the erection of houses, 
 " there are many sites to be found where it 
 " would just pay, and no more than pay, to 
 " erect a house rent free. That is, the occupa- 
 " tion-rent which would there be obtained for a 
 "house woiddbejust sufficient, and no more 
 " than sufficient, to yield an ordinary ])rofit on 
 " the cost of construction, or, in other words, 
 " to indace a purchaser to purchase at the actual 
 " cost of constr action. 
 
 " Such land as has just been mentioned may 
 *' be said to lie on the buihiino; limit. And the 
 ■' Ricardian theory may be said to be more 
 " obviously true with regard to houses than with 
 " ref>:ard to ao;ricultural land. For w^hile it is 
 " difficult to point out agricultural land actually 
 " let without rent, it is easy enough to point 
 " out houses, or even whole neiuhbourhoods of 
 " houses, w^hich from various causes are now 
 " let at a rent only sufficient, or even less than 
 " sufficient, to yield ordinary profit on their 
 " mere cost of construction.
 
 HAVE GUOUND-llEXTS ALREADY PAID KATES? 39 
 
 " Now, assuming that a house just on tlie 
 " building limit is let at a rack-rent of £50, the 
 " rack-rent of a siruilar house in a more favourite 
 " district will exceed this sum of £50 by an 
 " amount which measures the superiority for 
 " residential or business purposes, in the eye of 
 " an occupier, of the second position ever the 
 " first. Now, as population increases, and the 
 " less and less favoured sites are built over, the 
 '' difference for residential purposes between the 
 " sites on the building limit and the picked 
 " sites, which have long since been built over, 
 " becomes more and more marked. And as the 
 " rent for the house on the picked site exceeds 
 " that for the house on the buildino- mar<<-in in 
 " proportion to this superiority, while there is 
 " no reason for supposing that the rent of the 
 " house on the building limit (that is, the rent 
 " for the mere buildings) will at all decrease, 
 " the consequence is that the rents for houses 
 " on the picked sites must, on tlie whole, tend 
 " continually to increase." 
 
 The rack-rent of every house will, therefore, be The 
 the aggregate of two elements, namely, first, the of^J^ck-^ 
 rent representing the cost of the structure, and rent, 
 secondly, the rent measuring the superiority of 
 the residential advantages of that house over 
 houses on the building limit, which is, in fiict, the 
 rental value of the site.* Near the outskirts for the 
 
 • The same conclusion as in the last chapter is thus arrived at by a 
 somewhat different and shorter process, namely, that the ground-rent 
 is the estimated clear rack-rent less the rent representing the cost of 
 building.
 
 40 
 
 UliU^\N HATING. 
 
 At first 
 all rates 
 seem to 
 fall on 
 ground- 
 rents. 
 
 time being of a town the first element will form the 
 larger part of the rack-rental; in the more central 
 parts the latter element will become more and more 
 important in proportion to the advantages of the 
 position. It will be found that this separation of 
 rack-rental into its two elements, though sufficiently 
 obvious in itself, is of great importance in considering 
 the incidence of rates. 
 
 The first and most obvious view with regard to 
 the effect of rates on rack-rents is that the rates will 
 to their full extent be deducted from, and operate to 
 diminish, the rack-rents which would be otherwise 
 paid. And this view would seem to be borne out by 
 the generally accepted axiom of political economy 
 tbat a tax on land in proportion to its rental value, 
 on whomsoever levied, must fall wholly on the rent. 
 For the rent is a payment measuring, in the eye of 
 the occupier, the superiority of the land he occupies 
 over the worst land which it is just profitable to 
 occupy rent free.* But if the occupation of the 
 superior land necessarily involves a payment to 
 the State or local authority in proportion to the 
 amount of that superiority, the payment wdiich 
 the occupier will make to the owner must neces- 
 sarily be diminished by that amount, since other- 
 wise he would be jjaying altogether for the superiority 
 of the land he occupies more than it is actually worth. 
 Or, to put what is really the same argument from the 
 rough, practical point of view of everyday experience. 
 
 * Mill, Principles of Political Economy, Book V. chap. iv. § 3 (p. 507, 
 People's Edition, 1865): "A tax proportioned to the rent would fall wholly 
 " on the rent, and would not at all raise the price of corn, which is 
 " regulated by the portion of the produce that pays no rent," i.e., which 
 is; produced on land which ])ays no rent.
 
 HAVE GIIOUND-KENTS ALREADY PAID RATES ? 41 
 
 tlie tenant ahvays takes into account the rates and 
 taxes he will have to })ay on his houses as part of 
 his rent, and in ahnost all cases makes particular 
 inquiries on this point before taking his house ; and 
 the whole amount of these rates and taxes is there- 
 fore thrown on, and deducted by anticipation from, 
 the rent he will agree to pay. 
 
 If, then, the whole aniuiint of the rates in a locality 
 is deducted from and operates to decrease the rack- 
 rents which can be obtained in that locality, it is clear 
 from what has prece led that the Avhole amount of the 
 prospective rates to be levied on the estimated rack- 
 rentals of the houses to be built on an estate will be 
 deducted by anticipation from, and operate in dimi- 
 nution of, the grounrl-rent which will be offered for 
 that estate by builders. Ground-rents, in fact, will 
 have borne the whole rates not only on the rent for 
 the sites but on the whole rack -rentals of houses and 
 sites together. 
 
 This view of the subject has in fact been taken TMsis 
 in a document of no less authority than the very of mt^^ 
 able draft Report submitted by Mr. Goschen to the Goschen's 
 ISelect Committee on Local Taxation which was Report, 
 nominated by the House of Commons on the 3rd 
 March, 1870. The main subject of the Report is the 
 incidence of local taxation in country districts, which 
 involves distinct considerations from and is no part 
 of the subject of these pages. But the following 
 ])assage deals briefly and pregnantly with the case of 
 rates on house property: — 
 
 " To retin-n to the case of house property, 
 " it has been stated that the incidence of rates 
 "must there be considered Avith reference to
 
 42 URBAN EATING. 
 
 ' three parties — the owner of the soil, the 
 ' builder, and the occupier. On making the 
 ' same distinction as in the case of land, between 
 ' the moment when the first baro-ain is made 
 ' and the subsequent period during which no 
 'readjustment takes place, it is clear that in the 
 ' former case the owner pays the bulk, if not the 
 ' whole, of the rates. The builder calculates on 
 ' a certain profit, or else he would not build ; 
 ' he knows that tenants of a certain class can 
 ' afford to give a certain rent, and no more, for 
 ' a certain kind of house ; and, therefore, if 
 ' building is to take place at all, it is clear that 
 ' the rates must fall there where alone a margin 
 'exists to bear them ; tbat is to say, on the 
 ' price given, or ground-rent promised to the 
 ' owner of the soil."* 
 
 And asjain: 
 
 " To sum up the case of house property 
 " generally, it appears that the owners of building 
 
 * The subsequent much longer paragraph — in which it is stated 
 that rates may be so high that builders will not build at any ground- 
 rent that will be accepted, and then the supply of houses will be 
 checked until it again becomes profitable to build — is not quoted, 
 because it depends upon the principle of the passage quoted which is 
 not here accepted in its entirety, and because (in accordance with this 
 principle) it draws no distinction between the rent representing the 
 cost of the building and that representing the superiority of the site. 
 In the case supposed I think that, on the view taken later on, the 
 rates on the building- rent (so far as not " differential ") will be thrown 
 mainly on the occupier, but the " differential " rates on the building 
 and the whole rates on any ground-rent will be thrown on the ground- 
 rent. It is of course obvious that the landowner suffers sovie loss 
 through the high rates, since during the cessation of building he is 
 entirely deprived of the ground-rent which he would otherwise have 
 received.
 
 HAVE GROUND-RENTS ALREADY PAID RATES ? 43 
 
 "land, like the owners of other land, have to 
 " submit to a reduction of rent equivalent to the 
 " averajxe amount of rates which the builder or 
 "other lessee calculates that he would have to 
 " pay according to the average of past rates." 
 
 This view, that the whole of the rates and taxes Thisview, 
 
 llOWGVGr 
 
 on the prospective rack-rents of houses will be thrown is not 
 by anticipation on the owners of the land which is to aSurae. 
 form the sites of the houses, is also the practical 
 view of the subject — that is, the opinion held in general 
 by most of the surveyors and land agents who 
 are professionally concerned in the development of 
 building land — and no doubt contains a very con- 
 siderable element of truth and is confirmed to a 
 certain extent by some of the concrete illustrations 
 which I propose hereafter to give. And in my 
 previous essay on Ground-rents and Building- Leases 
 I adopted this view as the true one, and enforced it 
 to the best of my ability.* But subsequent reflection 
 has brouaht me to the conclusion that this view is 
 to some extent an over-statement of the amount of 
 the rates and taxes which fall upon building land, and 
 that only a large proportion, and not the whole, of 
 the rates on the ultimate rack-rentals is cast by 
 anticipation on the ground-rents agreed to be paid. 
 
 Let us recur to the division of rack-rent which 
 has been previously made, and which is also adopted 
 
 * I am indebted to Mr. Wm. Mathews, of Birmingham, the well- 
 known siu-veyor, for pointing out to me that I was in error in making 
 use, for the purposes of the argument there, of Mill's views upon the 
 incidence of taxes on rent generally', without particularl3' alluding to 
 the special views which he also held as to the incidence of taxes on the 
 rack-rentals of houses. I am glad to think that my present views 
 have the advantage of being in substantial accordance with those of 
 Mr. Mathews.
 
 44 
 
 URBAN RATING. 
 
 All rates 
 on the 
 ground- 
 rent fall 
 on it in 
 advance. 
 
 As 
 
 regards 
 "building- 
 rent " 
 rates must 
 be divided. 
 
 by Mill in his investigation of the subject,* into rent 
 for the site and rent for the structure. The rent for 
 the site is, as Mill remarks, determined by the 
 ordinary principles of rent — that is, by the superiority 
 of the site over the least valuable site used for the 
 same purpose. And therefore any tax proportioned 
 to this rent must necessarily be borne by the owner. 
 Assuming, for instance, that the business superiority 
 of a shop fronting on Cheapside over a shop in the 
 Edgware Road is measured by an intending occupier 
 at £500 a year, and that the rotes in each district 
 are 5s. in the £, the occupier will clearly not offer 
 £500 more reut in the one case than in the other, 
 since he will also have to pay an additional sum of 
 £125 in rates, and his total extra annual outlay for 
 the more valuable shop would thus be £625, or £125 
 more than the superiority of position warrants. He 
 will offer only £400 extra rent ; and this, with the 
 £100 which will be added to that extra rent in the 
 shape of rates, will be the exact equivalent of the 
 business superiority of the shop in Cheapside. 
 
 On the other hand, when so much of the rack- 
 rent as is rent for the structure comes to be dealt 
 with, other considerations apply, and it becomes 
 necessary to distinguish between those parts of the 
 rates which are fairly constant throughout the king- 
 dom and which may for this purpose be designated 
 " constant " rates, and those parts of the rates 
 
 * Princii^les of Political Economy, Book V. chapter iii. § G (p. 501, 
 People's Edition). Mill's ultimate view that the rates on the gi'ound- 
 reut of hovases fall on the landowner is of special significance, because 
 this is a correction of the view which he previously entertained and ex- 
 pressed (though under certain hniitations which rendered it rather un- 
 practical) in the earlier editions of his work, that the rates on this portion 
 of the rack-rental, as well as on the rent for the structure, fell on the 
 occupier.
 
 HAVE GKOUND-llKNTS ALRKADY TAII) RATES ? 45 
 
 which are different or variable in different parts of the 
 kingdom and may in like manner be called " differ- 
 ential " rates. The best example of a "constant" 
 rate (though it is not strictly a rate at all) is the 
 inhabited house duty, which is imposed on all inhabited 
 buildings (of a certain value) alike throughout Eng- 
 land. And a good example of a variable rate is the 
 School l>oard rate, which is approaching Is. in the £ 
 in London and is non-existent in many parts of 
 England. But for the purposes of the present dis- 
 cussion it is probably fairer not to distinguish 
 between the parts of every individual rate that are 
 respectively constant and variable (in which case an 
 overwhelming proportion of the rates on houses 
 woidd be found to be variable or '' differential "), but 
 to distinguish between those parts of the totals of the 
 rates which are respectively " constant " and " differ- 
 ential." For it is by the total of the rates and not 
 by the jiarticular items of which the total is com- 
 2)osed that the occupier will be affected. If, for 
 instance, 1'^'. 6d. in the £ may be taken as a not 
 extraordinary minimum total for rates proper in 
 thoroughly rural districts, and 6.v. in the £ may be 
 taken as a not extraordinary maximum total for rates 
 in a large town,* the " constant " existing rates will 
 be Is. (}(L in the £, and the " differential " rates will be 
 4.S'. Gel. in the £, without entering into an elaborate 
 exaniination of the respective amounts of the various 
 rates making up the two totals. 
 
 * I am not here professing to take the average rates in country dis- 
 tricts or in towns, but rather the lowest rates in. the former case and 
 the Ihghest in the latter, that are not so low or so high (as the case may 
 be) as to be absolutely abnormal. And even so it is not minute accu- 
 racy but only a rough estimate that is here aimed at.
 
 46 
 
 UIJBAN EATING. 
 
 The "con- 
 stant " 
 rates on 
 building- 
 rents fall 
 on occu- 
 piers, 
 
 except to 
 some 
 small 
 amount. 
 
 Now, as regards the "constant" rates, the 1.?. 6d. 
 in the £, it appears to me that the occupier, as the 
 consumer of the house, must necessarily bear at any 
 rate the great bulk of them. Go where he will 
 within the boundaries of the kingdom he cannot escape 
 thera. Even on the " building limit," where ground- 
 rents are ex hypothesi nothing or next to nothing, 
 these rates must still be borne by the rent representing 
 the structure, which is all that is now being con- 
 sidered. Builders are under no obligation to build, 
 and will not do so unless the}?" can obtain a remune- 
 rotive rent for their buildings in addition to and 
 beyond any rates that may have to be paid. And 
 therefore, as in the case of taxes on other commodi- 
 ties, the production of buildings will cease until the 
 rents offered by occupiers have advanced to a point 
 at which, besides affording a sufficient return for the 
 builder's outlay, they will also cover the rates that 
 have to be provided for. 
 
 There are, however, at least two causes which 
 tend to throw a part of even the constant rates from 
 the occupier on to the shoulders of the landowner. 
 First, any check on the production of houses due to the 
 increased annual cost to the occupier in consequence 
 of the pressure of the constant rates must necessarily 
 prevent pro tanto recourse being had for building 
 purposes to the more unsuitable sites, and so must 
 diminish the superiority of the sites actually used 
 and decrease the rent paid for them. And secondly, 
 the pressure of any burdens such as rates must, in 
 view of the competition which is always going on 
 with foreign countries, tend to some extent to drive 
 or keep the more roving or cosmopolitan claFS of 
 occupiers out of the country, and to that extent to
 
 HAVE GROUND-Ur.NTS ALREADY PAID RATES ? 47 
 
 shift the burden on to rack-rentals. But the aggre- 
 gate operation of these two causes is probably slight. 
 
 On the other hand the whole of the " differ- Jh^ ''dif- 
 
 ferential " 
 
 ential " rates on the rent representing the cost of rates on 
 structure will in my view, by virtue of the competi- rents^fail 
 tion between lightly and heavily burdened districts, °^jft^s°i"n^' 
 be thrown, not on the occupier, but on the rack-rental advance, 
 and so (as has been already shown) on the only 
 elastic margin, namely, the ground-rent. Assume, 
 for instance, that an occupier is deciding between a 
 house in the country, the whole of the rental of 
 which, say £100, is rent representing the cost of the 
 structure,* and a house in London, the rack-rental of 
 which is £150 per annum, made up of (1) £100 as 
 before for the rent of the structure, and (2) £50 for 
 the rent of the site ; and assume also that the rates 
 in the country district in qnestion and in London 
 are respectively 2s. and 55. in the £. The total out- 
 goings from the country house will then be £100 for 
 rent and £10 for rates on the buildino:-rent : while 
 the total outgoings for the London house will be 
 £150 for rent, £12. 105. for rates on the rent of the 
 site, and £25 (or an excess of £15) for rates on the 
 building-rent or building value.f And the intending 
 tenant will not occupy the London house in pre- 
 
 * This is, in fact, not at all an unusual case. No doubt when a 
 house is first built some rent or price will be charged for the land, but 
 many districts have deteriorated so much that the rents of houses 
 barely represent the cost of building, and new houses would not be 
 erected there if land were given rent free for the purpose. 
 
 t The rates will, of course, be levied in a liuiip on the whole rent of 
 £150, but it is convenient, for the sake of clearness, to separate this rent, 
 and in consequence the rates levied on it, into their component parts. 
 To avoid comi)lexity the fact is not taken into account that the rateable 
 value is less than the rack-rent, but this fact does not affect the 
 argument.
 
 48 UllBAN KATIXG. 
 
 ference to the country house unless the superiority 
 of residential advanta2;es m the former case is 
 measured in his eyes not merely by £50, the excess 
 of rent, but also by £12 10.?., the amount of rates on 
 the annual value of the site, and by £15, the excess 
 of rates on the structure, that is, by £77 lOs. in all. 
 But we have already seen that the whole superiority 
 of residential advantages of any house, as measured 
 by tenants, does (apart from rates) go in augmen- 
 tation of the rack-rent of the house. And it is clear, 
 therefore, not merely that the £12 10<§., being the 
 amount of the rates on the value of the site, will (as 
 we have already seen in the case of the Chenpside 
 and Edgware Road shops) fall on and be deducted 
 from the rack-rental and therefore by anticipation 
 from the ground-rent of the house in cpiestion, but 
 that the same result will also take place with regard 
 to the sum of £15, being the amount of the differ- 
 ential rates at 3.^. in the £ on the £100 formino- the 
 rent for the structure of the house. 
 Instances An excellent example of the manner in which 
 
 01 this m • 1 5) ' r 
 
 London. " differential rates are m fact thrown on rack- 
 rentals was given by Mr. (since Sir Henry) Hunt 
 in his evidence before the Select Committee of the 
 House of Commons on Local Taxation, which was 
 appointed in the year 1870. He mentioned that the 
 
 773. east side of Lowndes Square was in the parish of St. 
 
 George, Hanover Square, and the west side was in the 
 parish of St. Luke, Chelsea, and added: " The rates in St. 
 " George, Hanover Square, are comparatively low; 
 " in St. Luke's, Chelsea, they are higher, and ceteris 
 " paribus a house on the west side would not realise 
 '• the same rent as a house on the east side fortliat 
 " reason." And he also mentioned that for the
 
 HAVE GROUND-RENTS ALREADY PAID HATES ? 19 
 
 same reason a difference existed between the rents of 
 houses in Tachbrook Street, which was also divider! 
 between two parishes ; and stated subsequently ^''^^^• 
 before the same Committee that persons who came to 
 ask his advice as to buying a house always asked 
 what the rates and taxes were, and what they were 
 likely to reach. 
 
 The true conclusion, then, from the foregoino- Conciu- 
 
 ■, , . . . ^ ^ sion as to 
 
 elaborate mvestigation appears to be that ground- incidence 
 rents pay the following portions of the rates (so far °'^^*^^^- 
 as they already exist or are reasonably anticipated) 
 on the prospective rack-rentals of the houses that 
 will be erected on the land, namely, (1) the whole 
 rates on so much of the rack -rentals as represents 
 rent for the sites ; (2) the '•differential" rates 
 (representing about two-thirds or three-quarters of 
 the total rates in highly rated districts) on so much 
 of the rack-rentals as represents rent for the structure; 
 and (3) some unascertainable, but probably small, 
 proportion of the "constant" rates on so much of 
 the rack-rentals as represents rent for the structure: 
 while, on the other hand, the occupiers of the houses, 
 as consumers of the structures, pay the remainder 
 of the rates on the rack-rentals, that is — to put it 
 exactly — the larger proportion of the "' constant " rates 
 (representing about one-third or one-quarter of the 
 total rates in highly rated districts) on so much of 
 the rack-rentals as represents rent for the structure. 
 And tliis conclusion is in substantial accordance with 
 the views of one of the most competent, and perhaps 
 the most careful, of all living English writers on 
 political economy,* as expressed in the following 
 passage : — 
 
 * Mr. Henry Sidgwick. The Principles of Political Economij, 
 p. T)?!. Mr. Sidgwick is in substance a follower of Mill, though he 
 
 D
 
 view. 
 
 50 URBAN RATING. 
 
 ^r. " Suppose that a new tax proportional to 
 
 Sidgwick's " value — not balanced by corresponding taxes 
 
 " on other sources of income — is laid on owners 
 " of land generally, including owners of land 
 " with buildings on it ; and suppose for sim- 
 " plicity that the tax is annual and rent is 
 " conipetitively determined afresh from year to 
 " year. Then, as the imposition of the tax 
 " cannot at once affect the supply of houses or 
 " the demand for them, the whole tax will at 
 " first tend to be paid by the owner ; so that 
 " the building of houses will become less re- 
 " munerative, and will consequently be reduced 
 " in extent. The resulting limitation of supply 
 " — as houses cannot profitably be imported — 
 " will tend to raise their pi'ice and rent sufficiently 
 " to make building remunerative ; that is, if the 
 " cost of building w^ere unaltered the rent 
 " would tend to be increased by the amount of the 
 " proportion of the tax that falls on the rent of 
 " the buildino" as distinct from the ground. But 
 " in fact, if the tax be a heavy one, the rise 
 " will tend to be temporarily somewhat less 
 " than this ; since the cost of building will 
 " undergo some reduction in consequence of 
 " the check given to the building industry by 
 " the tax, which will tend to diminish for a time 
 " the returns to the labour and capital employed 
 
 suggests corrections of particular doctrines and of many details. For 
 instance, Mill does not draw any distinction between " constant " rates 
 and " differential " rates (speaking, indeed, of a honse-^aa:', which was 
 probably regarded by him as "constant "), while Mr. Sidgwick rightly 
 takes the distinction. Mr. Sidgwick, however, does not attempt any 
 estimate of the relative amounts of tlie " constant " and " differential " 
 rates.
 
 HAVE GROUND-RENTS ALREADY I'AID RATES ? 51 
 
 " in this industry. Ultimately, lioAvcvcr, tlie 
 " whole portion of the tax that is paid for the 
 " value of the house itself will fall — in the case of 
 " private dwelling houses — on the consumer or 
 " occupier. The portion, however, that falls 
 " on the ground-rent will continue to be borne 
 " by the owner of the ground (supposing, as 
 " above explained, that he has not sold it) 
 " unless the tax has caused a rise in agricultural 
 '' produce,* and the land is so situated that it 
 " could be as remuneratively employed for 
 " agricultural purposes as for building. Nay 
 " further, if the tax be not uniform but higher 
 " in some districts than in others, the whole 
 " excess — and not merely the proportion of the 
 " excess that falls on the ground-rent — will 
 " tend to remain on the owner ; at least so long 
 " as the fall does not render the land more 
 " profitable for other purposes than it is for 
 " building." 
 
 And finally, let the question be tested by the light Confima- 
 of common everyday experience, a rough but trust- tMsview 
 worthy guide in these matters. It is within almost bycom- 
 everyone's ordinary observation and knowledge that perience. 
 high rates in any district act as a most distinct discour- 
 agement to, and check on, building. It is familiar 
 ground that just outside the boundaries of heavily 
 rated urban or suburban districts buildings are more 
 readily erected than inside those boundaries, just as 
 in Continental towns the octroi invites the develop- 
 ment of suburban communities immediately outside 
 
 * This possibility appears to be rather remote, and the result woukl 
 in any case probably be insignificant. 
 
 D 2
 
 52 URBAN RATING. 
 
 the limits within which the tax in question is im- 
 posed. And in the expensive conflicts that some- 
 times occur on proposals to extend municipal 
 boundaries, and therefore to widen the area of 
 municipal taxation, it is not merely the owners 
 and occupiers of existing houses but the owners of 
 building: land within the debateable area who are 
 interested and who unite in opposing the schemes. 
 But the whole argument is conclusively clenched by 
 an example which was given {alio intuitu) by a 
 witness before the Select Committee on Town 
 Holdings. 
 Conciu- Mr. Mackenzie, a witness decidedly in favour both of 
 
 stance' leasehold enfranchisement and of the direct rating of 
 from srround-rents, complained that in certain parts of 
 
 ralmouth. V^ , , . I ^t f> . n. 
 
 lalmouth comprismg the lormer possessions oi 
 the Killigrew family and now chiefly belonging to 
 Lord Kimberley, there is a special Cliurch-rate of 
 Is. Ad. in the £ levied by an Act of Charles II. on 
 the possessors of house property ; and that in cases 
 where portions of the land afl^ected by the Act have 
 been leased the burden of the rate has been thrown 
 on the lessees. The consequence has been (to quote 
 
 (1838), his own words) that, " to escape that, the builders get 
 
 9,798. tt ^^^^ ^£ ^l^g property of Lord Kimberley and go into 
 " Mr. Basset's property at the northern end of the 
 
 9,804. "town." And again: " That of course is one of the 
 " hindrances to town buildiugs there for the poorer 
 " class and the working class. They are obliged to get 
 " out of the range of this rate to save the Is. id. in 
 " the i." 
 
 Examina- It is a curious instance of the efi^ect of a parti pris 
 
 tliat tlie witness should have regarded the rate levied 
 by this Act as being a hardship and burden primarily 
 
 tionofthis 
 instance
 
 HAVE GROUND-RENTS ALREADY PAID KATES ? 53 
 
 on tlie builders of houses, and secondarily on the 
 workins: classes in Falmouth, and should have 
 omitted altogether to notice on whose shoulders the 
 real stress fell. As to the local builders who actually 
 built on parts of the land, they would no doubt have 
 had full coo:nisance of the existence of the rate and 
 would have protected themselves by offering a lower 
 rent for the land ; and so there seems to be no griev- 
 ance at all in their case. And as to the working 
 classes of Falmouth, they, in common with the rest of 
 that community, would be inconvenienced by not 
 being able to resort to aod dwell on the land most 
 available for purposes of residence ; but that is the 
 extent of the hardship to them. The persons chiefly 
 injured are, without doubt, the owners of the land, 
 since the effect of this differential rate has been to 
 prevent a great part of their land from being built 
 on at all — in fact, to swallow up the whole of 
 the ground-rental value. It is quite clear that 
 the rate is not merely deducted on so much of the 
 rack-rent of prospective houses as would repre- 
 sent rent for the site ; for, taking the rent of 
 a site independently of the tax at £3, this 
 would only reduce the ground-rent offered by 4.5. — 
 that is, to £'2. IGs. — not eat it up altogether, as is 
 actually the case. The differential rate on the whole 
 rack-rent is clearly deducted by any tenant from the 
 rack-rent he will offer (and therefore, as we have seen, 
 is deducted from the ground-rent) ; for there is no 
 need for any tenant to pay £60 fur a house and (in 
 addition to all ordinary rates) a further rate of 
 Is. 4:cl in the £ on this £50, when he can get a similar 
 house on competing estates for £50 and ordinary rates 
 only ; while if the builder pays the rate he cannot
 
 ^4 URBAN HATING. 
 
 for tbat reason get a higher rent from his tenant 
 than on competing estates, and must compensate 
 himself in advance by offermg a ground rent smaller 
 in proportion to the payment. The " differential " 
 Church-rate of Is. 4d. in the £ on the rack-rent of a 
 house on this estate, amounting in the case supposed 
 to £3. 6s. Sd., must necessarily be wholly thrown on 
 the ground-rent to be offered by the builder, and 
 would in the case supjiosed (as it has done to a great 
 extent in fact) eat up the ground-rent altogether and 
 cause the ground to lie vacant and idle. 
 
 It woidd be difficult to suo-orest a more strikino^ 
 illustration of how certainly and automatically 
 differential rates on houses are thrown on the value 
 of the sites on which the houses are to be erected.
 
 55 
 
 CHAPTER IV. 
 
 THE PROPOSALS TO RATE GROUND-RENTS. 
 
 In the preceding clmpters an attempt has been made Summary 
 to analyse and explain the different methods of ceding 
 payment for building land which are in practical ^ ^^ ®^' 
 operation in this country; to fix the causes which 
 determine the amounts of those payments, particu- 
 larly in the case of annual payments or rents ; and 
 finally to ascertain how far the rates, which it is 
 estimated will be paid by the occupier, are, in fact, 
 thrown by anticipation on and deducted from a 
 particular kind of annual payment called ground- 
 rent. It has been laboriously but, it is hoped, 
 conclusively demonstrated, first, that the price or 
 annual payment that is offered for a building site 
 is dependent on the estimated rack-rental of the 
 site when covered, and that any increase or de- 
 crease in the estimate of that rack-rental will involve 
 a corresponding and equal increase or decrease in the 
 price or annual rental offered for the vacant site ; and 
 secondly, that there are thrown on a ground-rent by 
 anticipation not only the whole rates on so much of 
 the prospective rack-rental as represents the ground- 
 rent itself, but also a considerable portion, and in 
 highly rated urban districts nuicli the larger portion, 
 of the rates on the remainder of the rack-rental. It 
 is clear that the considerations which have established 
 this second proposition with regard to ground-rents
 
 56 URBAN RATING. 
 
 are equally applicable to the incidence of prospective 
 rates on any other form of annual or capital payment 
 for building land. And it may, therefore, be laid 
 down as a fundamental axiom that the owner of an 
 urban building estate, whatever method he applies to 
 its development, pays indirectly, but not the less 
 surely, a large proportion of the estimated rates on 
 the houses to be built there. 
 Need for Having proceeded thus far, it may now be well to 
 
 thVpro- inquire what are the proposals which have from time 
 posais iQ time, and particularly of late years, been made for 
 made. effecting some change in the law which at present 
 throws the immediate duty of paying rates on the 
 occupiers of houses above a certain rental value, and 
 does not in general empower them to deduct any part 
 of this rate from the rent they pay their landlords. 
 Not only are these the proposals that have to be dealt 
 with by practical statesmen, and accepted or rejected 
 as the public interest may dictate. But even to the 
 theorist the investigation of definite proposals of any 
 kind is often of invaluable aid, as supplying a practical 
 test of which he is often in need, and compelling him 
 successively either to justify or to abandon every part 
 of his theories, and particularly those parts which 
 involve, or appear to involve, any anomaly or hardship. 
 The Select In the year 18 60 a Select Committee of the House 
 
 Commit- ^ ^ . , . . . i t i 
 
 tee of 01 Commons was appomted to niquire mto the Local 
 ^^^^" Government and Local Taxation of the Metropolis ; 
 and the Report of this Committee contained a recom- 
 mendation that, in view of the novelty and magnitude 
 of the works undertaken by the Metropolitan Board, 
 " a portion of the charge for permanent improvements 
 " and works should be borne by the owners of pro- 
 " perty within the Metropolis, the rate being in the
 
 THE rHOrOSALS TO RATE GROUND-KENTS. 57 
 
 " first instance paid by the occupier, and subsequently 
 " deducted from his rent, as is now provided in regard 
 " to the general property tax." The Report, however, 
 did not deal with any question of setting aside contracts 
 in cases where the occupier had (as under the usual 
 building-lease form) covenanted to pay "all rates, 
 " taxes, and impositions . . . whether charged on 
 " owners or occupiers." And it is obvious that the 
 charge on owners of rates for permanent improve- 
 ments would necessarily involve a rather difficult 
 distinction being drawn between those rates which 
 were and those which were not for permanent 
 improvements, and also (to be quite fair) an elaborate 
 inquiry being made in every case as to the extent 
 of the ownership of each owner, and the amount to 
 which he would therefore benefit by the making of 
 the permanent improvements. But the recommenda- 
 tion of this Committee and the arguments for and 
 against it will be more fully considered in the sub- 
 sequent part of this work, which deals with the 
 proposal to tax reversions. 
 
 The Select Committee on Local Taxation appointed The Select 
 bv the House of Commons in the year 1870, and to tee of 
 which reference has already been njade, were not Jible 
 to agree to accept either of the draft reports placed 
 before them by Mr. Goschen and Mr. Corrance re- 
 spectively, but ultimately passed certain resolutions 
 on the subject. As regards urban proi)erty these 
 conclusions lose some of their force^ because not 
 only does the inquiry seem to have been mainly 
 directed towards aoTicultural land, but in the resolu- 
 tions themselves no distinction seems to have been 
 drawn between the two classes of property. The 
 more material parts of these resolutions for the pre- 
 sent pur})0se arc as follows:-—
 
 58 URBAN RATING, 
 
 '• 1. That your Committee, without pledgiug 
 " themselves to the view that all rates should be 
 " dealt with in the same manner, are of opinion : 
 
 " (a) That the existing system of local taxation, 
 " under which the exclusive charge of almost 
 " all rates leviable upon rateable property for 
 " current expenditure as well as for new 
 " objects and permanent works is placed by 
 " law upon the occupiers, while the owners are 
 " generally exempt from any direct or imme- 
 " diate contributions in respect of such rates, 
 " is contrary to sound policy. 
 
 " (b) That the evidence taken before your Com- 
 " mittee shows that in many cases the burden 
 " of the rates, which are directly paid by the 
 " occupier, falls ultimately, either in part or 
 " wholly, upon the owner, who, nevertheless, 
 " has no share in their administration. 
 
 " (f) That in any reform in the existing system 
 " of local taxation it is expedient to adjust the 
 " system of rating in such a manner that both 
 " owners and occupiers maybe brought to feel 
 " an immediate interest in the increase or 
 " decrease of local expenditure, and in the 
 " administration of local affairs. 
 
 " (d) That it is expedient to make owners as well 
 " as occupiers directly liable for a certain 
 " proportion of the rates. 
 
 " (c) That, subject to equitable arrangements as 
 " regards existing contracts, the rates should 
 " be collected, as at present, from the occupier 
 " (except in the case of small tenements, for 
 " which the landlord can now by law be rated).
 
 THE TROPOSALS TO RATE GROUXD-RENTS. 59 
 
 " power being given to the occupier to deduct 
 
 " from bis rent tlie proportion of tlie rates to 
 
 " wbicb tbe owner may be made liable, and 
 
 " provision being made to render persons 
 
 " having superior or intermediate interests 
 
 " liable to proportionate deductions from the 
 
 " rents received by them, as in the case of the 
 
 " income tax, with a like prohibition against 
 
 " agreements in contravention of the law. 
 
 " 3. That in the event of any division of rates 
 
 " between the owner and occupier, it is essential 
 
 " that such alterations should be made in the 
 
 " constitution of the bodies administerino- the 
 
 " rates as would secure a direct representation of 
 
 " the owners adequate to the immediate interest 
 
 " in local expenditure which they would thus 
 
 " have acquired. 
 
 " 7. That whilst it is necessary to make pro- 
 " vision for limiting, as far as practicable, the dis- 
 " turbance of existing contracts, it would be, on 
 " many grounds, undesirable, and almost imprac- 
 " ticable, to extend the exemption of property 
 " held under leases from the operation of the pro- 
 " posed changes until theexpiration of such leases. 
 '' 9. That the difficulties of the case would 
 " be equitably met b}'' exempting the owners of 
 " property held under lease from the proposed 
 " division of rates for a period of three years, and 
 " by providing that after the expiration of that 
 " time the occupiers of such property should be 
 " entitled, equally with all other occupiers, to 
 " deduct from the rent the proportionate part of 
 " the rates to which the owner may become liable, 
 " power being given to the owner at the same 
 " time to add to his rent a sum equivalent to the
 
 60 URBAN RATING. 
 
 " like proportionate part of the rates, calculated 
 " on the avera2:e annual amount of the rates 
 " paid by the occupier during the three years 
 " above referred to." * 
 
 The Select Ii^ March 1886 a Select Committee of the House 
 Commit- Qf Commons on Town Holdino;s was, as has 
 
 tee of . ... 
 
 1886. been mentioned already, appointed to " inquire 
 " into the terms of occupation and the compensa- 
 " tion for improvements possessed by the occu- 
 " piers of town houses and holdings in Great Britain 
 " and Ireland"; and there was referred to this Com- 
 mittee later in the same month "the question of 
 "imposing a direct assessment on the owners of 
 " sfround-rents and on the owners of increased values 
 " imparted to land by building operations or other 
 " improvements." The terms of the latter reference 
 to the Committee indicate the nature of the change 
 demanded by those on whose initiative the reference 
 "was made, bat no report has yet been made by the 
 Committee on this branch of the inquiry before them. 
 Those witnesses who have hitherto given evidence 
 before the Committee in favour of a change have as a 
 rule demanded in general terms that the whole or 
 some part of local taxation shall be thrown on the 
 landowners in relief of the occupiers, and that with 
 regard both to existing contracts (which are to this 
 extent to be set aside) and to future contracts; and 
 have justified this demand on three main grounds, 
 
 * It is necessary to set out these proposals as to existing contracts 
 at full lengtli, because all notice of them is often omitted in treatises 
 on the subject. For instance, in the part of the pamphlet by Mr. 
 Moulton mentioned later on, which deals with the questioii whether 
 landowners have had warning of the proposed changes, he states 
 that this Committee " reported in favour of the occupier being 
 ' entitled to deduct a portion of his rates from his rent," without any 
 mLintion of the " cijuitable arrangements as regards existing contracts."
 
 THE TROrOSALS TO KATE GROLWD-RENTS. 01 
 
 namely, (1) that landlords at present escape local 
 taxation, (2) that they nevertheless are benefited by 
 the expenditure of the rates not only in public im- 
 provements but in many other ways, and (3) that 
 even where under existing leases lessees have cove- 
 nanted to pay the rates there has been an increase of 
 rates that could not have been foreseen. And a 
 change has been demanded not merely by witnesses 
 from places where the London leasehold system 
 prevails, but by a witness specially commissioned by 
 a Committee of the Corporation of Bury, a place where 
 buildhig leases are granted for terms of 999 years. 
 
 In the year 1887 a pamphlet prepared by Mr. Mr. 
 Sidney Webb, and entitled "A Plea for the Taxation Webb's 
 " of Ground-rents," was iss.ied by the " United Com- Pa^^P^iet. 
 " mittee for Advocating the Taxation of Ground 
 " Rents and Values." The pamphlet is too slight and 
 too violent in tone to be of material assistance in the 
 investio:ation which is beinii; undertaken in these 
 pages. The main grievance alleged is that land- 
 owners have contrived to escape all direct taxation 
 except income-tax*; and that while " the lease- 
 " holder or intermediate landlord bears some share of 
 " the rates — often, perhaps, the whole . . . the ground 
 " landlord, who let the land at a fixed rent many years 
 " ago, bears no share ichatever of the unforeseen in- 
 " crease of local taxation, even though his property 
 
 * Mr. Webb is mistaken in stating that most occupiers have to pay 
 the land-tax. In ahnost all cases land-tax is redeemed before building 
 is commenced, because it is on annual value ; and in the remaining 
 cases my experience has been that it is excepted from the rates and 
 taxes to be borne by the lessee. Mr. Webb appears also to be in error 
 in thinking that rates are divided between owner and occupier in the 
 towns of Scotland and Ireland, if in the term " owner " he means to 
 include receivers of feu-duties and ground-rents.
 
 62 URBAN RATING. 
 
 " be improved thereby." And the proposal made is 
 (in addition to a proposal to tax vacant bnilding 
 land, which will be considered later on) that the 
 occupier should be legally entitled to deduct from his 
 rent one-half of the rates paid by him, and so that 
 (apparently, as in the case of income-tax, by a series 
 of deductions on the amounts of the rents successively 
 paid) the owners of the "ground-values" should be 
 reached. But no machinery is suggested by which 
 ground-values are to be ascertained, or by which (if 
 I have apprehended Mr. Webb rightly) the deduc- 
 tions would be prevented from falling on the owners 
 of buUding-YSilues, as well as of ground-values, in 
 proportion to the rents they receive. I gather 
 from a quotation from Burke at the beginning of 
 the pamphlet that Mr. Webb considers it to be an 
 additional argument in support of his proposals that 
 owners as well as occupiers should be interested in 
 the "maintenance of the community," in order that 
 they may cease to be " in a sort separated from it." 
 An A much wider range of subjects, comprising 
 
 ^^^th^ indeed the whole general relative taxation of realty 
 "West- and personalty, is dealt with by an article in the 
 Eeview." Westminster Revieiv for April 1888 ; but some 
 attention is there given to the local taxation of 
 cround-rents. It is alleo-ed that surburban land is 
 allowed to lie idle " solely with a view to the increase 
 "in value which it will derive from the growth of 
 " the towns ; " that the landowner then lets the 
 ground " at heavy ground-rents . . . free from assess- 
 " ments, so far as he is concerned," and in respect of 
 which " no charge whatever falls on the landowner ; " 
 and that the reasons for this state of things are, first, 
 that " when the conditions of ownership of land in
 
 THE PUOPOSALS TO RATE GROUXD-KENTS. G3 
 
 " this country were being determined " the nation 
 did not understand the doctrine of " the unearned 
 " increment of the land," in respect of which (until 
 some scheme for its appropriation by the nation is 
 devised) "the justice of demanding from the fortunate 
 " owners substantial contributions to those rates 
 " which are the life-blood of their growing fortunes 
 " cannot be doubted," and, secondly, tliat " the 
 " landowners, until recent years, usurped the entire 
 " right to make laws, and constantly used this right 
 " for their own advantage ; in determining the method 
 " of assessment of rates they departed from the 
 " traditions of the country, which were to levy 
 " charges on owners* ; and, by causing the assess- 
 " ments to be levied on occupiers, placed on their 
 " tenants the burdens which they should have borne 
 " themselves." And the remedy proposed by this 
 writer is that, as in Cape Colony, rates should be 
 assessed not on the rentals but on the values of all 
 properties, and should be levied not on the occupiers 
 but on the owners. But the proposal loses some 
 practical value from the omission to state whether it 
 is the whole ownership value of each house that is to 
 be assessed or the values of the various interests in 
 each house, and from the absence of any attempt in 
 the latter case to indicate how the various interests 
 are to be traced for purposes of vahiation, and in the 
 former case to define (a most important ^Doint) what 
 the interest is which is to constitute a man the 
 " owner." 
 
 * It seems, however, that from the first statutory imposition of the 
 first rate — namely, the poor-rate, in the reign of EUzabeth — rates have 
 always been levied on occupiers ; and that this first statutory 
 imposition followed existing practice as from tlie reign of Edward I. 
 See Castle on Rating, chap. i.
 
 64 
 
 URBAN KATING. 
 
 Lord Hob- 
 house's 
 proposals. 
 
 Definition 
 of terra 
 "owner." 
 
 A very carefully written and moderately worded 
 article is one contributed to the Contemporary 
 Review for July 1888 by Lord Hobhouse, who was at 
 that time the president of the " United Committee " 
 before referred to. Lord Hobhoiise's reason for 
 advocating a cliange is clearly stated in the following 
 passage : — 
 
 " Under the pressure of this actual large 
 increase of rates, and of the further increase 
 that is threatened, it is no wonder if Londoners 
 look about them to see what are the causes of 
 it, how the money is spent, and whether those 
 who benefit by it are made fairly to contribute 
 to it. They find that one potent cause of the 
 increase is the execution of works which effect 
 permanent improvements ; some over a wider 
 and some over a narrower area. These works 
 increase the value of the owner's property. 
 But as such he pays nothing for them ; the 
 whole charge falls on the occupier ; and if by 
 chance the owner is himself the occupier, he 
 pays only as occupier and not as owner. Why 
 should we not bring in the owners to contribute 
 a fair share to the common expenses, in 
 consideration of the benefits they receive ? " 
 
 Lord Hobhouse then goes on to carefully define 
 the term " owner," since " many people^ imagine that 
 " a proposal to throw a portion of the rates on 
 " owners means that the portion is to be paid by 
 " the ultimate reversioner or freeholder," a process 
 that " would be very unjust, and probably very in- 
 " efficacious too." When speaking of " owners " of
 
 THE PROPOSALS TO RATE GROUND-RENTS. G.J 
 
 properties, Lord Ilobliouse uses " a curt expression 
 " for all those persons who divide between them if 
 " more tlian one, or enjoy wliolly if only one, tlie 
 " actual or estimated yield of such properties. Each 
 " of them should pay his quota towards that improve- 
 " ment or maintenance* of his property which is 
 " enforced by law." Lord Ilobliouse then suggests 
 that " another point wliich requires elucidation is the 
 " amount of the expenditure which is applied to per- 
 " manent improvements," because this " makes the 
 " strongest part of the case for charging the owners, 
 " and ... to this class of expenditure they sliould 
 " contribute a larger portion than to other classes." 
 But they ought also to contribute to other classes. 
 " If indeed all the rates were spent in the wants of 
 *' the day, such as cleansing or lighting the streets, it 
 " might be just that the occupier, having enjoyed all, 
 " sliould pay for all." But in the case of such a rate 
 as the poor-rate, which is necessitated by the very 
 conditions which give value to the ground, owners 
 should, as deriving benefit, contribute. The principles 
 applicable to income-tax are applicable also to a poor- 
 rate and a fortiori to a rate for permanent improve- 
 ments. An assessment of the capital value of every 
 separate interest in a house would both involve a 
 departure from present methods of taxation and be 
 unworkable in practice. The rates must in the first 
 instance, as at present, be paid by the occupiers, and 
 then they and every subsequent payer of rent must 
 deduct from that payment (as in the case of income- 
 
 * The word "maintenance" first slips in as coupled with 
 " improvement " in this passage, the argument so far having been 
 (as I xinderstand it) only with regard to improvement. The great 
 importance of this addition will appear later. 
 
 E
 
 66 
 
 URBAN RATING. 
 
 LordHob- 
 house's 
 views as 
 to exist- 
 ing con- 
 tracts. 
 
 Mr. 
 
 Moulton's 
 pamphlet. 
 
 tax) a proportion of the rates on that rent, which is 
 fixed, " purely hypothetically," at one-fourth. 
 
 Lord Hobhouse, however, here admits (what the 
 previous writers have generally ignored) that a vast 
 difference is made by contract, and states that up to 
 this point he has been " treating the matter indepen- 
 " dently of contract," and lays it down that as regards 
 current contracts by the occupier to pay rates "this 
 " bargain should not be disturbed without good and 
 " clear cause being shown for it." But, on the 
 whole, Lord Hobhouse considers that the recom- 
 mendations of the Select Committee of 1870 are 
 hardly adequate and would give " very little, if any, 
 " relief to the occupier," * and proposes that in the 
 case of contracts existins; when the lecfislation he 
 recommends is passed " the owner should be made 
 " liable to bear his share of rates made for subsequent 
 " permanent improvements," even apparently if those 
 rates are not in excess of or are less than the rates for 
 the same purpose when the contract was entered into. 
 
 A rather different proposal has been made by 
 Mr. J. Fletcher Moulton, Q.C., in a pamphlet 
 entitled " The Local Taxation of Ground Values," 
 which appears even more than Mr. Webb's pamphlet 
 to be an authoritative exposition of the views of the 
 " United Committee for Advocatinof the Taxation of 
 " Ground Rents and Values." In Mr. Moulton's 
 pam})hlet the statement of the arguments for a change 
 is not substantially different from the statements in 
 the other writings which have been referred to, and 
 
 * In a discussion of this kind this argument seems wholly inad- 
 missible. The object should not be " to give relief to the occupier," 
 which may be conversely stated as " to cast a burden on the owner," 
 but to do justice between the pdi'ties.
 
 THE PROrOSALS TO RATE GROUND-RENTS, 07 
 
 the novelty lies entirely in the suggested remedy. 
 Mr. Moulton would in the case of the buildings in 
 towns have separate and distinct valuations from 
 time to time made (1) of the annual value of the 
 sites on which the buildings stand and (2) of the 
 annual value of the buildings themselves ; and the 
 occupiers should then be entitled to deduct the whole 
 rates on so much of the annual value of their 
 dwellings as represents the annual value of the 
 ground, and these rates should by a series of deduc- 
 tions between the successive recipients of income from 
 the buildings be thrown upon the recipients of all such 
 rents as lie within the range of the ascertained annual 
 value of the ground for the time being. And the 
 reason of this rather complicated proposal is stated 
 by Mr. Moulton in a subsequent defence of his plan 
 to be that it is of no avail to attempt to throw rates 
 on building rents directly on to the shoulders of 
 builders, since, on the principles ordinarily applicable 
 to the determination of the price of a manufactured 
 commodity, they would throw the burden on to the 
 shoulders of the consumers of the buildings — that is, 
 the occupiers — and that therefore the annual value of 
 the site is the only part of the rack-rent which it is 
 of any purpose to rate directly. 
 
 As Mr. Moulton's proposal is of a peculiar This 
 character, needing a special and separate treatment Sfed^ 
 which can hardly be given to it in the succeeding ^n^Y^^^^ 
 chapters, I may refer persons interested in this Appendix, 
 particular view to the number of the Contemporary 
 Review for February 1890, which contains a 
 criticism by me of ]\Ir. Moulton's pamplilet, to a 
 rather violent and personal reply by Mr. Moulton 
 in tlic ^larch number of the same periodical, and lo a 
 
 E 2
 
 68 
 
 URBAN RATING. 
 
 Com- 
 mittee of 
 London 
 County 
 Council. 
 
 short rejoinder on ni}" part which is contained in an 
 appendix to this essay. The main point which is in 
 my view established by this controversy is that Mr. 
 Moulton's proposal would not rate the increase of 
 ground-value, the whole of which does in fact go 
 into the pockets of the persons entitled either to the 
 possession or to the receij^t of the ultimate values of 
 the house and site, but would instead rate the owners 
 oi fixed rents, who do not benefit by the increase of 
 the ground-value (except so far as the capital value 
 of their rents is more or less increased) and whose 
 rents do in fact represent actual expenditure in 
 developing the land and building the houses — are in 
 fact the building rents, or in the nature of the build- 
 ino- rents, which Mr Moulton declares it is of no 
 avail to rate. 
 
 In the month of June 1889 a Committee of the 
 London County Council, which had been appointed in 
 the preceding February "to consider the best method 
 " of ascertaining the value of land throughout the 
 " metropolitan area, irrespective of the value of 
 " buildings and of improvements made by the owners," 
 issued a report together with minutes of the evidence 
 which had been taken before them. This report 
 relates rather to the question of taxing vacant building 
 land, which is not now under consideration, and even 
 so assumes the principle of rating vacant building 
 land on its capital value and deals only with the 
 feasibility of carrying out this principle. But some 
 of the evidence given before the Committee is of 
 considerable interest and importance on the question 
 of rating ground-rents ; and there is annexed to the 
 evidence a very closely reasoned and in many respects 
 admirable rej)ort by the architect of the Council,
 
 THE PROPOSALS TO PATE GROUND-RENTS. 69 
 
 wliich will well repay attentive study. Reference 
 
 may occasionally be made hereafter both to the evidence 
 
 taken before this Committee and to the report of the 
 
 architect. 
 
 Still more recently a Sub-Committee of the ^"J^fg^^f" 
 
 London County Council have been considering)^ the London 
 • ^ ^11 • • 1 1 • 1 • X County- 
 
 incidence 01 local taxation in London with a view to council. 
 
 the suo:o;estion of some chano;e. As Lord Hobhouse 
 is the chairman of this Sub- Committee, it will 
 probably be found that the views which he has pro- 
 mulgated in the Contemporary Review are largely 
 adopted in their report. And it will be curious to 
 notice whether the "purely hypothetical" one-fourth 
 of the rates, which was in the article cast upon 
 owners, has decreased to one-sixth or one-eighth, or 
 has mcreased to one-third, one-half, or the whole, 
 and whether the Sub-Committee have any more solid 
 grounds than their chairman for suggesting the par- 
 ticular proportion that should be cast upon owners. 
 It is much to be desired that if any definite proposal 
 is made it will be justified by a process of as exact 
 calculation as the nature of the case will allow, and 
 that what is essentially a matter of business and 
 finance will not be treated in a haphazard or happy- 
 go-lucky spirit. 
 
 In concluding this chapter it may be pointed out All 
 that an idea which once prevailed has now been rents are 
 definitely exploded, namely, that the ground-rent of rateT^ 
 
 a house escapes ratmo; at present, and would there- already as 
 
 ' r , . , 1 ,, p part of the 
 
 fore form a fresh and hitherto " untapped source of rack-rent. 
 
 local taxation. The ground-rent of a leasehold house 
 
 is included in and forms part of the annual value 
 
 which is rated. And to rate such a ground-rent 
 
 again would be to rate a part of the rent twice o\er,
 
 '"^ URBAN RATING. 
 
 and to impose to that extent a heavier rating on a 
 leasehold house than on an adjoining freehold^'house. 
 To rate ground-rents now means not to impose a 
 rate on what was previously rated, but to force 
 the owner of the ground-rent to pay the rate in 
 spite of all future (and, under most proi)osals, of 
 all past) contracts to the contrary.
 
 71 
 
 CHAPTER V. 
 
 RATING AS BETWEEN BUILDING-OWNER AND OCCUPIER. 
 
 The statement which has been made in the preceding- summary 
 chapter of tlie various proposals to cast the whole or forchange, 
 a portion of the rates on owners in substitution for 
 occupiers, or on one class of owners in lieu of 
 another class, shows that by far the most important 
 reason given for the proposed change is that the 
 classes proposed to be rated do actually share with 
 the classes now rated in the benefit of the expendi- 
 ture of the rates, and that those who share the benefit 
 ouuht also to share the burden. This reasoning; of 
 course implies that the classes proposed to be rated 
 do not in fact already bear the burden which it is 
 proposed to cast on them; but, subject to the proof 
 of this assumption, there can be no doubt whatever 
 of its cogency. An additional argument, though of 
 far less weight, is that both the owner and the 
 occupier owjlit as citizens to have a direct and im- 
 mediate interest in the expenditure of the rates. 
 And a third reason generally made use of is that 
 local taxation has increased to a great and unexpected 
 degree of late years. But this last argument seems 
 valuable not so much directly as by way of I'obutting 
 any objection that may be taken on the ground of the 
 inexpediency of interfering with existing contracts. 
 AVhen the subject is carefully examined it is by these
 
 72 RATING AS BETWEEN 
 
 tbree main lines of argument that the proposals for 
 change are justified, and of these by far the most 
 important is the first, comprised as it is in the 
 familiar legal axiom, " qui sentit commodum sentire 
 " debet et onus." 
 Summary Iyi much the same way the practical proposals for 
 
 of practi- "^ ^ ^ , . 
 
 cai propo- change appear to narrow down upon exammation. 
 
 change. Attempts to value separately or to levy rates directly 
 on the various interests of which the value of a house 
 is composed are in general abandoned as impracticable ; 
 and the same remark seems to apply to any idea of 
 ascertaining and rating the capital value of those 
 interests. There appears, too, in all the proposals 
 to be substantial accordance in this, that all rates 
 are to be levied primarily on occupiers as at present, 
 and are afterwards to be thrown either in whole or 
 in part on the shoulders of those who are ultimately 
 to bear them, by a series of deductions effected on 
 the payment of rent similar to those with which 
 everyone is familiar in the case of income-tax. 
 Mr. Moulton's proposal is to relieve the occupier to 
 the extent of the whole rates on so much of the 
 rent as represents ground-value for the time being, 
 and to throw the amount of which he is so relieved 
 on the owners of the rents lying within that limit. 
 But for the reasons I have mentioned I think that 
 this proposal is quite mistaken and that it need not 
 be separately further considered. The proposals of 
 Mr. Webb and Lord Hobhouse, which are those to 
 be practically considered, are that the occupier should 
 be relieved from a larger or smaller proportion of the 
 rates which he pays at present on the rack-rent, and 
 that this amount should be rateably distributed over 
 and deducted from every pound of annual income
 
 BUILDING-OWNEU AND OCCLTIEK. 73 
 
 received from house property. It is the object of the 
 present and the succeeding chapters to examine how 
 far these proposals are justified and how they would 
 work in practice. 
 
 For this purpose it seems to be necessary in the ^nana- 
 
 *■ ^ . ^ *' lysis IS 
 
 first place to separate rather more distinctly than has necessary 
 been done hitherto tlie various interests which terests in 
 ordinarily exist in house property. The term ^°"ses. 
 " occupier " would appear not to be susceptible of any 
 ambiguity, and yet it is often mi.sleadingly applied 
 to a person who is in fact an occupying owner — that 
 is, who under the leasehold system is both in occu- 
 pation and also the owner of the building-lease or 
 building interest in the house. And, on the other 
 hand, the word " owner " is sometimes used to denote 
 the original freeholder of the property, who under 
 the freehold rent-charge system would have become 
 converted into a mere rent-charger, or under either 
 of the leasehold systems would be the owner of the 
 freehold ground-rent, including a more or less 
 distant reversion; and is also often applied to the 
 proprietor of the building interest who receives the 
 rack-rent from the occupier, or to any other person 
 who receives a share of the total annual rental which 
 a house produces. Until these ambiguities have been 
 cleared away it is almost hopeless to expect anything 
 like a systematic investigation of the subject. 
 
 In towns in En "'land, at any rate, as the evidence The occu- 
 
 . , pier is 
 
 before the Select Committee on Town Holdino-s has seldom 
 conclusively shown, it is (juite the exception for the ®°^"'^®^' 
 occupier to own the house he lives in or any large 
 interest in it.* In towns developed on the freehold- 
 
 * See the Report of the Select Committee, pp. 9 and 10. These 
 parts of the Report appear to have been substantially adopted from Mr. 
 Kuowles' draft Report, paragraphs 51 to 50, but the Report strangely
 
 74 EATING AS BETWEEN 
 
 purchase system there are usually at least two inte- 
 rests in every house, namely, (1) the interest of the 
 owninof freeholder entitled to receive the rack-rent 
 from the occupier, and (2) the interest of the occupier. 
 And in towns built on the freehold rent-charge system 
 or on either of the leasehold systems there are usually 
 at least three interests in every house, namely, (1) 
 the interest of the original landowner or of his suc- 
 cessors in title, comprising either (a) a freehold 
 rent-charge or (b) a freehold ground-rent, with the 
 reversion at the end of 999 years or 99 years; (2) the 
 interest of the builder or his successor in title, the 
 " building- owner," comprising either (a) the freehold 
 subject to a rent-charge or (b) a lease for 999 years 
 or 99 years at a ground-rent, but in either case 
 entitled to receive the rack-rent from the occupier; 
 and (3) the interest of the occupier. Of course it 
 very often happens that the interests in houses are 
 even more numerous and complicated, inasmuch 
 as (to take one instance) there is often, in addition to 
 the first rent- charge or ground-rent representhig the 
 original value of the land, a second rent-charge (or 
 '' chief-rent") or a second improved leasehold ground- 
 rent, representing expenditure in the formation of 
 streets and sewers and in general development. And 
 in London, where values have a tendency to rise 
 rapidly, there are often five or six interests in a house. 
 But the intermediate interests may obviously for many 
 purposes be regarded as subdivisions of the interest 
 of the " building- owner," and the typical instance to 
 be considered may be stated as one which in freehold- 
 omits to notice (as is tloue in Mr. Knowles' draft Report) what are the 
 terms on which the actual occupiers hokl from the owners of the 
 buildinjifs.
 
 sion ne- 
 cessary. 
 
 BUILDING-OWNER AND OCCUriER. 75 
 
 purchase towns results in two interests, and in towns 
 under any of the otlier three systems results in three 
 interests in every house. 
 
 In every town, therefore, the incidence of rates Double 
 must be considered as between the owner of the rack- the ques- 
 rent or "building-owner" and the occupier. And in JncMence^ 
 every town not developed on the freehold -purchase of rates, 
 system the incidence of rates must also be separately 
 considered as between the " building-owner" and the 
 owner of the annual payment representing the 
 original value of the land, whom, for brevity, we will 
 somethnes call the landowner. 
 
 But the necessary subdivision does not even end A still 
 here. We have seen that under the freehold rent- sub-divi- 
 charge system and the Scotch feu system the interest 
 of the landowner is absolutely limited for ever to the 
 fixed annual payment which he has agreed to receive; 
 and that under the 999 years system, although in 
 theory the landowner has a reversion, in effect the 
 reversion is so distant as to be of no value whatso- 
 ever, and his real interest consists, as under the two 
 former systems, of nothing whatever beyond his present 
 fixed annual rent. On the other hand, under the 99 
 years system, the landowner retams, in addition to his 
 rent during the currency of the lease, a real reversum 
 which begins to be felt within twenty or thirty years 
 of the ii'rantinir of the lease, and which, althouf/h of in- 
 significant value for many years, gradually gro.vs in 
 importance until during the last years of the building- 
 lease it becomes of much greater value than the 
 present annual ground-rent ; and when this reversion 
 comes into possession it will clearly derive bench t 
 from any improvements which may have been 
 effected (hu-inu' tlie currency of the lease and whicli
 
 76 RATING AS BETWEEN 
 
 may still be of value. It will therefore be of great 
 advantage if, when considering the incidence of rates 
 as between "building-owner" and "landowner," a 
 distinction is made between (a) landowners when 
 and as they are the owners of fixed rents and (b) 
 landowners when and as they are the owners of 
 reversions, the interest of the landowner under the 
 99 years lease system being split up for purj^oses of 
 calculation into its two component parts. 
 Three There are thus three aspects in which the in- 
 
 the^ques- cidence of rates will now be dealt with, namely: 
 tion. first, as between " building-owners " and occupiers ; 
 
 secondly, as between building-owners and the 
 owners of fixed rents representing original land 
 value ; and thirdly, as between building-owners and 
 the owners ot reversions. The remainder of this 
 chapter will be devoted to the first of these investiga- 
 tions 
 ^^® h^'h^ ^^^ terms on which occupiers hold from building- 
 occupiers owners are not indicated in any part of the Report 
 of the Select Committee on Town Holdings, but 
 appear to be correctly stated in the following 
 paragraphs of the draft Report proposed by Mr. 
 Knowles : — 
 
 " 57. . . . It would appear that in large 
 " towns the ordinary holding of lal.ourers or 
 " artizans is a weekly tenancy, though they may 
 " occasionally hold on monthly, quarterly, or 
 " annual tenancies ; and these long tenancies 
 " seem to be more common where there is a 
 " localised industry. Apparently the working 
 " classes are never known to hold on ordinary 
 " occupation leases, though an artizan may
 
 BUILDIXG-OWXEK AND OCCUPIER. 77 
 
 " sometimes liold such a lease as a middleman 
 " for the purpose of sub-letting rooms. 
 
 " 58. With regard to shops, the smaller class 
 *' seem often to be held on quarterly or even 
 " monthly tenancies, but the usual tenure for 
 " the ordinary class of shops seems to be an 
 " annual tenancy, and occupation leases for 
 " seven, fourteen, or twenty-one years are 
 " frequently taken, especially if values are rising. 
 
 " 59. With regard to dwelling-houses of the 
 '' better class, tenancies are sometimes quarterly 
 " or half-yearly, but are more usually annual, 
 " and are very frequently, especially in the case 
 " of the larger houses, under occupation leases 
 " for seven, fourteen, or twenty -one years, but 
 " apparently hardly ever for a longer period, 
 " thouoh Mr. Harrison thinks that occupation 
 " leases with over twenty years unexpired are 
 " common. The average length of the actual 
 " occupancy of these larger houses in London, 
 " as apart from the length of lease taken, has 
 " been estimated by Mr. Hunt, from his ex- 
 " perience of the Portman Estate, as not exceed- 
 " ing ten years." 
 
 The foreg-oino', then, beinor the general conditions The 
 
 J. x±K. ^ Q ^1 5 o n ^ ^ persons 
 
 on which occupiers hold from buildmg-owners, it is directly 
 next necessary to state precisely on whom the obli- HfrSSs 
 gation to pay rates is primarily cast. From long bylaw, 
 before the 43 Eliz. c. 2 (which is " the basis but not 
 " the origin" of the present system of parochial relief), ~ 
 and perhaps from as far back as the reign of Edward I., 
 the obligation to relieve the poor, wi:h which the 
 other rates have from time to time been associated,
 
 78 EATING AS BETWEEN 
 
 has in general been cast upon the occupier and not 
 upon the owner.* But particularly in modern times 
 there have been established, partly by express enact- 
 ment and partly by that custom which is the outcome 
 of general convenience, many important exceptions 
 to this rule. 
 Owners of Bv the 32 and 33 Vict. c. 41, followinor sec. 19 
 
 small "^ 
 
 houses,&c. of the 59 Geo. III. c. 12, and the 13 and 14 Vict. 
 Sabfe. ^' 99, it is provided (section 1) that "the occupier 
 " of any rateable hereditament let to him for a term 
 " not exceedmg three months shall be entitled to 
 " deduct the amount paid by him in respect of any 
 " poor-rate .... from the rent due or accruing due 
 " to the owner ; " (section 3) that " in case the rate- 
 " able value of any hereditament does not exceed " 
 £20 in the Metropolis, £13 in Liverpool, £10 in 
 Manchester or Birmingham, or £8 elsewhere, the 
 owner may compound for the payment of the poor- 
 rate and be allowed a connnission therefor ; and 
 (section 4) that in any case within the last section 
 the vestry of any parish may order the owner to be 
 rated to the poor-rate instead of the occupier, and 
 shall in that case allow the owner certain alternative 
 deductions. 
 Owners I have no materials before me to show how far 
 
 liable the provisions of this Act have been put in force, 
 il^!lf«^c^" but it is common knowledo'e that this has been done 
 to a very large extent j ; and having regard to the 
 facts already quoted as to the short tenancies on 
 
 * See the interesting historical account in the first chapter of Castle 
 on Eating. 
 
 t Mr. Brevitt, in his evidence before the Select Committee on 
 Town Holdings, said (1888 — No. 1,8G9) that aboiit two-thirds of the 
 house property in Wolverhampton is compounded for.
 
 BUILDING-OWNER AND OCCUPIER. 79 
 
 which tlie working classes generally hold, and in 
 view of the common practice amongst them of occu})y- 
 ing rooms in tenement houses and industrial dwell- 
 ings, where all rates are directly paid by the owner, 
 there can be little doubt that it is the exception 
 rather than the rule, especially in the central 
 parts of large towns, for the working-class occupier 
 to pay his rates directly. And even in the case 
 of the wealthier classes the common practice of 
 hiring furnished houses and the growing use which 
 is made of fiats and upper parts as residences, 
 supply a large and increasing number of instances 
 in which it is the owner and not the occupier who is 
 rated. Add to all this the numberless cases in which per- 
 sons live in furnished or unfurnished lodgings and pay 
 a rent inclusive of rates to the occupierof the house, who 
 is to them in the same position in which thebuildin"-- 
 owner is to the occupier, and I entertain little doubt 
 that of the individuals and heads of families occupy- 
 ing separate holdings in London, and probably also 
 in other large towns, only a small minority pay rates 
 directly, and the great majority have their rates paid 
 for them by their landlords. 
 
 The result is a startling one, and although it is import- 
 fairly within ordinary experience it would be very tki?fact. 
 desirable to have it tested by statistics which could 
 probably be obtained from local authorities in various 
 parts of the kingdom. But in the meantime, even 
 without complete verification, the known facts are 
 sufficiently iujportant from at least three points of 
 view. 
 
 In the first place it is quite clear that there is a 
 very real and severe competition existing between 
 tenements in which the occuj)ier pays the rates and
 
 80 RATING AS BETWEEN 
 
 Competi- those ill wliicli the owner pays the rates for him. 
 
 tion be- „ -, ^ . ^ i i • i i i 
 
 tween And this lact, coupled with the ease and consequent 
 wheS^^ ^ frequency with which occupiers change their resi- 
 owner dences ill town, must result in any increase of rates 
 
 pays rates _ ' ^ i t i r- i 
 
 and those being q uickly shifted on to the shoulders of the 
 
 cupier " building-owner from those of the occupier.* Again, 
 
 pays. ^^ seems clear that the legislation and practice wdtli 
 
 re<Tard to paying: rates are alike based, not (as is alleo;ed 
 
 Present o i ./ o ' \ o 
 
 practice by Mr. Webb and other writers) on the principle 
 
 general of favouring the landlord class, but on that of general 
 
 conveni- convenience to all persons alike. Where it is most 
 ence. . ^ , . 
 
 convenient for the occupier to pay rates, he has to 
 
 pay them ; where it is most convenient for the land- 
 lord to pay, he pays them ; but in no case are the 
 trouble and worry of paying rates cost upon both the 
 owner and the occupier as is now proposed. f And 
 edged^^' thirdly, the argument which is sometimes made use 
 character of, as ill the resolutions of the Select Committee of 
 ship"ar- 1870 and (impliedly) in Mr. Webb's pamphlet, that 
 gumen . ^-j^^ owner as well as the occupier should, as a good 
 citizen, be directly interested in the local taxation of 
 the place in which his property is situate, seems to 
 cut even more strongly the other way. An occupier 
 seems to be even more directly interested than an 
 owner in the local affairs of the district in which his 
 house is situate. And the result of this process of 
 reasoning would clearly be that in every single case 
 
 * In Mr. Goschen's draft Report presented to the Select Committee 
 of 1870 it is pointed out that increases of local burdens are to some 
 extent thrown on farmers, because (1) they hold at customary rents 
 lower than rack-rents, and (2) it is difficult and unusual to apply for a 
 reduction of rent, and inconvenient and expensive to remove. The 
 first of these causes is non-existent in towns, and the second is reduced 
 to a minimum. 
 
 t This point is further dealt with later on.
 
 BUILDIXG-OWNEU AND OCCUPIER. <S1 
 
 in wliich an occupier now has his rates paid for him 
 by an owner, and in despite of every agreement to 
 the contrary, the owner shoiikl be entitled to add to 
 the rent and recover from the occupier an aUquot 
 proportion of the rates which the owner has paid. 
 
 But now let us pass from the comparison of houses Consider- 
 where the owner pays the rates with houses where the'case 
 
 the occupier is rated ; and let us consider for the ^^^^^ ^^^ 
 . occupier 
 
 remauider of this chapter the latter class of houses pays the 
 only, with a view to discover if there is in fact any 
 and what hardship in the occupier paying the whole 
 of the rates. 
 
 Now here it is quite clear, in the first place, that The ten- 
 the question is not in the least affected as regards the buiiding^-^ 
 occupier by the buildino^ tenure on which the ?^^^^ 
 
 is ini- 
 
 building-owner happens to hold. It is, indeed, often material. 
 urged that in towns built, like London, on a com- 
 paratively short leasehold tenure there is a special 
 grievance in the flict of the rates paid by the occupiers 
 going to permanently enhance the value of the rever- 
 sions of the freeholders. But this idea only arises 
 from the common error (which has already been 
 pointed out) of confusing the occupier with an 
 occupying " building-owner." To the occupier pure 
 and simple it can make no sort of difference in this 
 respect whether the ownership cf the house is in the 
 hands of a single freeholder or whether it is split up 
 into ten or twenty different interests. Indeed, it very 
 often happens that the occupier is absolutely ignorant 
 of the nature of the interest owned by the person to 
 whom he ]:>ays rent. Any hardship on the score of 
 tenure exists only as between the owners of the 
 different interests in the house, and will be dealt with 
 hereafter. The position of tlie occupier is precisely 
 
 F
 
 S'2 
 
 RATING AS BETWEEN 
 
 Anyhard- 
 sliip is 
 propor- 
 tionate to 
 the 
 
 length of 
 tenancies, 
 
 ■wliich 
 are 
 
 urrally 
 short. 
 
 the same in this respect in a freehold-purchase town 
 like Wolverhampton, a freehold rent-charge town like 
 Bristol, a 999 years leasehold town like Bury, or a 
 99 years leasehold town like Birmingham. 
 
 Again, the extent of any hardship must depend 
 mainly on the length of the lease or tenancy under 
 wliich the occupier holds. Any rates in force at the 
 commencement of the tenancy are naturally taken 
 into account when the terms of the tenancy are fixed, 
 as has indeed been shown by some instances on 
 previous pages of this work. And any increase in 
 the rates paid by the occupier can only arise either 
 from an increase in the poundage of the rates or from 
 an increase in the rental value of the house he occupies. 
 The latter alternative implies a gain to the occupier 
 far exceeding the percentage of that very gain which 
 he has to pa}' away in rates.* The former alternative 
 does not practically take place to any great extent except 
 over considerable periods of time. But the periods 
 lor which occupiers hold from buildiug-owners are 
 usually short, particularly in the case of the smaller 
 classes of houses ; and they hardly ever exceed, even 
 in the case of the largest and most expensive houses, 
 a period of twenty-one years, wliich is in most cases 
 determinable by the occupier at the end of the first 
 seven or fourteen years. And it follows, therefore, and 
 indeed hardly seems to me to be in dispute, that as 
 between the occupier properly so called and the build- 
 ing-OAvner of whom he holds there is not, in fact, any 
 such increase during the period of the occupancy of 
 the rates payable by the occupier as could on any 
 
 * Mr. Mathews pointed out in his evidence before the Select Com- 
 mittee on Town Holdings (1888 — No. 1,404) that in Birmingham " the 
 " increment in ground-value has far outstripped the increment in rates."
 
 BUILDIXG-OWNER AND OCCUPIER. 83 
 
 hypothesis, and whether apart from contract or not, 
 form any substantial grievance on the part of the 
 occupier. And these considerations are, as will 
 readily be perceived, entirely independent of the 
 purposes to which the expenditure of the rates is 
 devoted. 
 
 But when attention is directed to the manner in Rates 
 which the rates are in fact expended, the reason for beifefit 
 levying the rates on occupiers is at once apparent. ^^® . 
 The vast bulk of the rates is expended in providing 
 for the passing needs of the local community which 
 the occupiers form. The lighting, cleansing, water- 
 ing, and maintenance of the streets, the repair of the 
 sewers, the provision of an adequate police, the 
 maintenance of the aged and infirm poor, and the 
 furnishing of education for the young — all these are 
 modes of recurrent exj^enditure of which the benefit is 
 reaped by the community for the time being, that is, 
 by the occupiers. When to these are added, in towns 
 where the gas-works and water- works have teen 
 acquired by the municipal authorities, the rates for the 
 supply of gas and water, it becomes apparent that in 
 many respects rates are merely payments made by the 
 individuals composing the community for services, 
 which it is more convenient that the community 
 should supply to the individuals composing it than 
 that these individuals should procure separately for 
 themselves. And when it is remembered that the 
 owner of a house may live in some completely different 
 locality, in which he and the other members of the 
 community there will have to provide the like advan- 
 tages for themselves, it becomes manifestly inexpedient 
 and unfair that he should be rated also in the localily 
 in which his property happens to lie. 
 
 f2
 
 S-i 
 
 EATING AS BETWEEN 
 
 and are 
 in great 
 part no 
 t'lird n at 
 all. 
 
 Any relief 
 as to cer- 
 tain rates 
 must be 
 sought 
 and is 
 granted 
 asfce- 
 tAveen the 
 nation 
 and the 
 locality. 
 
 Looked at indeed from this point of view, it is 
 readily seen that a large proportion of the rates does 
 not, in fact, form a burden at all, any more than the 
 payment of a butcher's bill for meat supplied, or of a 
 water company's rate for the provision of water, is a 
 burden. The payment of such rates is in fact merely 
 a payment for services rendered and to be rendered, 
 and if the rates are properly expended a full equiva- 
 lent is received by the ratepayers for their money. It 
 is, of course, to the community of occupiers, not to 
 the owners at all, that the services are rendered ; and 
 it is tlierefore obviously fair that the occupiers should 
 pay in the first instance, however the payment may 
 ultimately fall. 
 
 It is, indeed, sometimes said that certain matters, 
 such as the relief of the poor or the provision of 
 elementary education, are not the concern merely of 
 the occupiers in the localit}" hi which the expenditure 
 is incurred, but are of much more general importance, 
 and should therefore be directly contributed to by 
 owners. So far as these matters are of general 
 importance it seems to me that the true solution is 
 that they should be provided for, not by the owners 
 of property in that localit}^, the result of which would 
 be to impose a kind of local income-tax on one class 
 of property only, but by the community at large. 
 And this view has been sanctioned by the large and 
 increasing contributions which are made out of 
 imperial funds, not only to the general relief of local 
 burdens, but in particular towards the expense caused 
 by the provision of a system of national elementary 
 education. The impracticability and unfairness of any 
 attempt to levy a local income-tax which must almost
 
 BUILDING-OWNER AND OCCUPIER. 85 . 
 
 necessarily be limited only to real estate have often 
 been recognised, and nowhere more forcibly than in 
 the following passage from a speech delivered by 
 Mr. Goschen in the House of Commons on the 3rd 
 April, 1871.* 
 
 "As regards the first method " (/.<?., of a Local in- 
 local income-tax), " it appears to be impossible im^rac^^ 
 " to devise an equitable local income-tax, for you ticable. 
 " cannot localise income. An attempt was made 
 " in Scotland, and it broke down when an 
 " English Lord Chancellor, who drew his 
 " £10,000 a year in London, but had a small 
 " place in Scotland, was made to pay income- 
 " tax on the whole of his income, in that country 
 " as well as in this. Xo country has been able 
 " to levy a local income-tax. In the United 
 " States there has not been a local income-tax, 
 " but a personal property-tax. What has been 
 " the result of that ? A very able Report has American 
 "just been published by Mr. Wells, who, with l^^l^' 
 " two other Commissioners, was appointed to 
 " inquire into its working. On the cover of 
 " that lieport is this sentence: — 
 
 ' I insist that a people cannot prosper 
 ' whose officers either w^ork or tell lies. 
 ' There is not an Assessment Roll now made 
 ' out in this State which does not now tell 
 ' and work lies.' 
 
 " In making the assessment to the personal 
 " property-tax, the oath of the person to be 
 
 • The passage is cited from Mr. Goschen 's collected Reports and 
 Speeches on Local Taxation, p. 204. Macmillan & Co., 1872.
 
 86 HATING AS BETWEEN 
 
 " assessed is not questioned, and there is an 
 " instance adduced by Mr. Wells, on undoubted 
 " authority, in which a man assessed at *$'20,000 
 " swore he possessed only )^15,000, and swore 
 " himself down )^1,000 yearly, until in the year 
 " 1869 he reached )^1,000 ; in that year he died, 
 " and, as the Report expressed it, ' passed to 
 " ' a tribunal where oaths could be inquired 
 " ' into,' and his devised property was found to 
 " be worth ^^'150,000. Mr. Wells concludes 
 " that the system is pregnant with fraud and 
 " perjury, and that the house a man lives in is 
 " the best test of what he can pay, pointing to 
 " England as offering a model system of local 
 " taxation, because it has adopted that test." 
 
 Present The distinction between any such tax as this 
 
 income- n i • ... 
 
 tax differ- and the income-tax as we now exj)erience it is 
 ^^^' obviously that the latter is levied upon all kinds 
 
 of income alike, and by a central authority, the 
 consequence being that it does not form a differ- 
 ential or preferential tax on one class of property, 
 diminishing its value as compared with that of other 
 classes. 
 Rates so This last consideration leads naturally to some 
 
 falling on notice of the fact alluded to in the above quotation 
 occupiers that, like almost all other taxes, rates are not, and 
 
 are a tax ' . . - . , • 
 
 not on in- are not regarded by political economists as, intended 
 expendi- to tax income or property, but expenditure. Mill, 
 who considers that a house-tax (which is his name 
 for the rates and taxes on houses) falls ultimately on 
 the occupier to " nearly all " its amount, also holds 
 that it is one of the fairest of all taxes, inasmuch as 
 there is on the whole no better test of a man's expendi- 
 
 ture.
 
 BUILDING-OWNER AND OCOUPIER. 87 
 
 tare than the rent of the house he lives m.* This view 
 has been attacked on the ground tliat the poorer a 
 man is tlie greater is the proportion of his income 
 which he spends in rent. But there are several con- 
 siderations which weaken this last argument. For 
 instance, in comparing the expenditure of the day- 
 labourer spending, say, 3.s'. Gd. a week in rent, with 
 that of a professional man holding a house under a 
 repairing lease at £150 per annum, it must always 
 be remembered that the former rent is inclusive, not 
 exclusive, of rates, and that after allowing for this 
 and also for the allowances to a compounding land- 
 lord in respect both of his composition and of repairs 
 (a very serious item), the net annual value on which 
 rates would be levied would in tlie former case 
 probably fall short of 2s. per week, while in the 
 latter case it would very nearly amount to the full 
 £150 per annum. Again, houses of less rental value 
 than £20 per annum are relieved altogether from the 
 payment of the im[)ortant inhabited house duty of 
 9(/. per £. Once more (altogether apart from the 
 conclusion which has been arrived at in a previous 
 chapter that a large proportion of rates on houses 
 does in flict fall ultimately neither on the occupier 
 nor the building- owner, but on the value of the 
 site), in estimating the fairness or unfairness of the 
 incidence of taxation as between different classes, it 
 is the incidence of taxation as a whole, and not of one 
 particular item, that has to be considered. And, 
 tinally, any adjustment that ought to be made on 
 
 * Mill's Princijjles of Political Economy, Book V. chapter iii. § 6 
 (p. 501. People's Edition, 1865). A house-tax is not nearly so oppres- 
 sive a form of taxation to the poor as the octroi which forms so impor- 
 tant a som-ce of local revenue in many Continental countries
 
 S8 EATING AS BETWEEN 
 
 this score should be in the direction not of directly 
 
 rating owners in lieu of occupiers, but in that of rating 
 
 Summarv ^'^^^^^ more lightly the smaller classes of houses. 
 
 of conciu- The argument in this chapter has ranged over so 
 
 chapter, wdde a field that it may possibly be useful to sum up 
 
 in a few propositions the main conclusions that have 
 
 been arrived at. Though all of them are claimed to 
 
 be of some importance, the fact that many of them 
 
 are merely replies to other arguments which have 
 
 been urged in favour of a change prevents their 
 
 presenting anything like a systematic exposition of 
 
 the subject. 
 
 1. The incidence of rates between occupier 
 and building-owner is in no way affected by the 
 tenure of the house. 
 
 2. In the majority of cases rates are already 
 paid directly by building-owners and not by 
 occupiers, and this is particularly the case with 
 the poorer occupiers. 
 
 3. This system of collecting from the owners 
 in most cases is due to general convenience, 
 which, and not the interest of any class, regu- 
 lates the i^resent system of rating. 
 
 4. General convenience prescribes that eithei" 
 the building-owner or the occupier should be 
 troubled with rates, not both. If on grounds of 
 citizenship the owner should be troubled where 
 he is now free, the occupier should also on the 
 like grounds be troubled wdiere he is now free. 
 
 5. The short terms on which occupiers hold, 
 the facilities for changing, and the competition 
 with flats, &c., where the building-owners pay 
 the rates, prevent increases in rates being thrown 
 on occupiers in towns.
 
 BUILDIXG-OWNER AND OCCUPIER. 89 
 
 G. A large proportion of the rates is not 
 strictly a burden at all, but merely a payment 
 for services rendered to the occupiers. 
 
 7. Such rates as the poor-rate or the educa- 
 tion-rate, which concern more than the local 
 community, should be assisted, not by a local 
 income-tax on certain kinds of property, but 
 by contributions from national sources, as is now 
 done. 
 
 8. Rates, like most other taxes, are, so far as 
 they are paid by the occupier, a tax, not on income, 
 but on expenditure measured by style of living, 
 and are in this respect a fair tax.
 
 90 RATING BETWEEN BUILDING-OWNERS 
 
 CHAPTEE VI. 
 
 EATING BETWEEN BUILDING- OWNERS AND THE OWNERS 
 OF EIXED RENTS. 
 
 The result The question havino- been discussed in the last chapter 
 
 of the last ,1 i • i ^ . . 
 
 chapter whether any change m the j^resent system 01 ratmg is 
 conclude desirable as between the occupier and the building- 
 this owner, it now becomes necessary to consider whether 
 
 question. ' -^ 
 
 any such change can be properly demanded as between 
 building-owner and landowner. For it by no means 
 follows either that the grant of any relief to the 
 occupier against the buikling-owner need involve a 
 corresponding relief of the hitter as towards the land- 
 owner, or that the neo:ative conclusion which has 
 been arrived at with regard to the first question need 
 involve a negative answer to the second. There* may 
 be no reason for expressly throwing the rates, or 
 any part of them, on the building-owner instead of 
 the occupier, because any increase in rates can under 
 existing circumstances be promptly shifted by the 
 occupier on to the building-owner. But this very 
 fact may give the building-owner the right to claim 
 contribution ai^ainst the landowner to the extent to 
 which the latter may share in the benefit accruing 
 from the expenditure of the rates without at pre- 
 sent defraying his just share of them. And although 
 the current proposals on the subject embrace the 
 deduction of the whole or a i)art of the rates from
 
 AND THE OWNERS OF FIXED RENTS. 91 
 
 every payment of rent, so as to give relief between 
 tlic occupier and the building-owner as well as 
 between the building-owner and the landowner, the 
 reasoning by Avhich these proposals are supported 
 seems to point mainly to relief between the build- 
 ing-owner and the landowner. Indeed, in the case 
 of current contracts, with regard to which the main 
 stress of the conflict seems to lie, it is only between 
 building-owner and landowner that any substantial 
 relief seems capable of being granted, since as between 
 building-owner and occupier the shortness of existing 
 contracts and the frequency and ease of change of 
 residence would quickly bring matters back to their 
 former condition. 
 
 In investi2:atini>' this subiect, however, it is neces- Exclusion 
 
 . of re- 
 
 sary for complete clearness, as was stated in the last version. 
 clia[)ter, to eliminate the disturbing influence of any 
 substantial reversion. And accordingly the case 
 primarily considered will be one under the freehold 
 rent-charge system, the Scotch feu system, or the 
 999 years system, under the first two of which there 
 is no reversion at all, and under the last of which 
 there is no tangible or meaf^urable reversion, left in 
 the landowner. If and so far as a case under the 99 
 years system is examined, it will be only in respect 
 of that part of the interest of the landowner which 
 consists in a ground-rent during the currency of the 
 building-lease, not in respect of that part of his 
 interest which comprises the reversion on the expira- 
 tion of the lease. The question of a reversion will 
 be dealt with in the next chapter. 
 
 The problem may, then, be shortly stated thus : ^/^^l^^^ 
 When a landowner has parted with his land for 
 building purposes, not for a lump sum but for a fixed
 
 P2 
 
 RATING BETWEEN BUILDING- OWNERS 
 
 The 
 
 ground- 
 rent has 
 
 paid rates. 
 
 Express 
 covenant 
 by lessee 
 to pay is 
 universal. 
 
 rent-cliarge or ground-rent, should that rent-charge 
 or ground-rent contribute according to its amount to 
 the whole or a part of the rates levied on the build- 
 ings? It seems to me that justice and expediency 
 alike demand that a decided negative should be given 
 to this question for the reasons I am about to state. 
 
 In the first place the rent-charge or ground-rent 
 in question has been shown in a previous chapter to 
 have already suffered a deduction in respect of, and 
 l3orne by anticipation very much more than, the full 
 rates on its own amount, so far as such rates could 
 be reasonably anticipated. The rates so borne by 
 the rent-charge or ground-rent have, after an elaborate 
 inquiry and in accordance with the views of leading 
 2:)olitical economists, been ascertained to be (1) the 
 whole rates on the ground-rent itself, (2) the 
 '' differential " rates on the building-rent, and (3) 
 some small proportion of the "constant" rates on 
 the building-rent. And to proceed to impose de novo 
 on the rent-charges or ground-rents in question the 
 whole or any part of the rates on their annual amount 
 would be merely to repeat in part without any 
 justification a process which has been already gone 
 through, at any rate so far as regards rates existing 
 at the date of the creation of these rent-charges or 
 ground-rents or capable of being reasonably antici- 
 pated at that time. 
 
 Again, the universal practice in all these cases is 
 for the grantee or lessee to exjDressly covenant in the 
 ^videst terms to pay and discharge all rates and 
 taxes whatsoever, and to mdemnify the landowner 
 therefrom. This is an essential part of the bargain 
 between them given for good consideration and, 
 according to the evidence of experts, expressly taken
 
 AND THE OWNERS OF FIXED RENTS. 03 
 
 into account when the other terms of the bargain are 
 fixed. The buihling-owner is to obtain all future 
 increment in the value of the property and to rim 
 all risks with regard to it ; the landowner is never to 
 share in this increment, but is, on the other hand, 
 always to receive his annual payment undiminished. 
 And this beinof so, it seems to me that the contract is 
 one which, on every principle of justice and finality 
 in these matters, ought to be supported; and that at 
 any rate, if it is reopened at all, it must be reopened 
 generally,* and not merely m one of its terms for the 
 express purpose of benefiting the building-owner at 
 the expense of the landowner. 
 
 But it is said that building-owners are not free This is 
 agents in their contracts with landowners and have e^ect^of 
 this covenant to pay all rates and taxes forced on monopoly, 
 them ; and also that there have of late years been 
 unexpected increases of rates, such as could never 
 have been foreseen by building-owners when they 
 entered into their contracts. Now, such is the com- 
 petition between different towns in the kingdom 
 that I very much doubt whether there is in fact any 
 place where landowners are enabled to impose any 
 terms they please on builders or building-owners 
 without giving them a full equivalent. But at any 
 rate it is undoubted fact that in the great majority 
 of places there is no such monopoly at all, and that 
 in a large number of places there is the very keenest 
 competition between landowners to attract building 
 to their estates. And therefore it seems quite clear 
 that the universalitij of the practice for building- 
 
 * See the very clear and definite evidence to this effect given by 
 Mr. Eccleston Gibb before the Land Valuation Committee of the 
 London Coiintv Council.
 
 94 
 
 KATIKG BETWEEN BUILDING-OWNERS 
 
 Im- 
 possible 
 to guess 
 how far 
 increase 
 in rates 
 has been 
 foreseen. 
 
 owners to covenant to pay rates and taxes cannot 
 be the effect of monopoly but must depend ujion 
 some general joerception of the fact that such a cove- 
 nant is a fair and equitable one. 
 
 With regard to the question whether building- 
 owners have or have not foreseen increases of rates, it 
 seems to me impossible to enter into a speculative 
 inquiry of this kind. They expressly took all the 
 risk, and it is quite as likely that the amounts of 
 future rates may have been over-estimated in some 
 cases as underestimated in others. It is not as if 
 such covenants were entered into only in past times, 
 when rates are stated to have been low (though, 
 taking into account the amount of services rendered 
 in return for them, this may well be doubted), 
 and have been abandoned now that rates have 
 shown a distinct tendency to increase. Such cove- 
 nants are as freely and invariably entered into 
 to-day as ever they \^'ere. Can it be said that 
 builders and buildino'-owners makinjy baro:ains to- 
 day have no notice that rates are likely to increase ? 
 And what increase is to be laid down fis that which 
 they may reasonably be expected to anticipate ? Or 
 is it to be laid down as an axiom that no bargain ought 
 ever to be made that the owner of one interest in land 
 shall receive all the increase, and in return covenant 
 to provide the owner of another interest with a fixed 
 payment participating neither in any increase nor 
 in any decrease ? It would be as reasonable to enact 
 that the holders of debenture stock in a railway 
 must not receive a fixed or invariable income, but 
 must from time to time jDay some proportion of the 
 varying working expenses of the railway, or at any 
 rate a proportion of the varying rates which are from
 
 AND THE OWNERS OF FIXED RENTS. 05 
 
 time to time imposed on the real estate of the railway 
 and which now fall exclusively on the ordinary 
 shareholders. 
 
 The nature of the hardship that would be in- Great 
 flicted by any legislation that should rate existing wmiid ^^e- 
 rent-charo'os or e^round-rents would also be much suit from 
 
 o o a change 
 
 aggravated through the class of persons who have intheiaw, 
 ])urchased and hold them. With regard to this a quota- 
 tion may be made from my former book, which has 
 been amply borne out by the evidence before the 
 Select Committee on Town Holdinofs: — * 
 
 o 
 
 " Although on many of the large residential 
 " estates in and about London the o-round-rents 
 
 o 
 
 " are still held in one hand, in many other dis- 
 
 " tricts ground-rents are almost infinitely 
 
 " subdivided amongst purchasers and sub- 
 
 " purchasers from the original owners. These 
 
 " purchases have, in a very large number of 
 
 " cases, been made at public auctions, where the 
 
 " holders of the ground-leases subject to the 
 
 '' ground-rents have had an opportunity (which 
 
 " they have not taken) of purchasing theseground- 
 
 " rents and thus acquiring the fee-simple of 
 
 " their houses. The purchasers, again, are of "land- 
 
 " every grade of society, and do not in any °^^^^^" 
 
 " marked degree consist of those who are some- 
 
 " times styled the ' landowning classes.' They 
 
 " are often not landowners at all, except in 
 
 " respect of the particular ground-rents they 
 
 " have purchased. 
 
 * See the Report of the Committee, pp. 31 and 32. The Birkbeck 
 Buihiing Society was stated by Mr. Martin (1887, No. 1,958) to have 
 £200,000, and the Prudential Insurance Company by Mr. Gregory 
 (1887, No. 3,491) to have £1,300,000, invested in these securities.
 
 96 
 
 RATING BETWEEN BUILDING-OWNERS 
 
 but to 
 small and 
 prudent 
 investors. 
 
 " But, further, these investors are of a class 
 who are content with a small return on their 
 capital, so long as they can obtain a fixed 
 income and perfect security. They are the 
 same class who invest in Consols, in corpora- 
 tion stocks, in the debenture aud preference 
 stock of first-class railways, and in other high- 
 class securities of the same description. Trus- 
 tees, retired professional men, spinsters, fire 
 and life assurance companies of all kinds, 
 and, in fact, all persons and corporations who 
 require an income well secured, fixed, and 
 free from trouble and anxiety, form the bulk 
 of the investors in ground-rents. 
 
 Enormous 
 loss that 
 would 
 ensue. 
 
 " Now, taking rates at an average of 45. or 
 OS. in the £, the efi'ect of rating ground-rents 
 would be to take from this class of investors 
 from 20 to 25 per cent, of their incomes, while 
 the capital value of their property would pro- 
 bably be yet more seriously injured. A more 
 cruel and wanton interference with a most 
 deserving class of persons it would be difficult 
 to imagine. An instance may be mentioned 
 which has recently come to my knowledge, 
 and which is only typical of thousands of 
 others. A professional man, with several 
 unmarried daughters, has provided for them 
 by investing the whole of the savings of a life's 
 hard work in the purchase of ground-rents. 
 The passing of a measure for the rating of 
 ground-rents will deprive these ladies of a 
 fifth, a quarter, or an even more considerable 
 proportion of their incomes.
 
 ANT) THE OWNERS OF FIXED HENTS. 97 
 
 " The wrong done will, in fact, be the more 
 " cruel the smaller the investor. The wealthy 
 " nobleman, with £.50,000 a year from ground- 
 " rents, can be mulcted of £12,500 a year, and 
 " yet be reasonably well off, though this would 
 '• not, of course, justif}^ the robbery. But the 
 " spinster or widow with an income of £100 
 '• a year from ground-rents cannot submit to a 
 " deprivation of one-fourth of lier income with- 
 " out the extremest hardship." (pp. 146 to 150.) 
 
 Having seen who would suffer by the proposed The chief 
 change, it may be well also to note who would be the wouS be 
 chief o-ainers. It will be in the memory of all who ^^^ ™^^' 
 
 P -^ aieman. 
 
 were interested m the cognate subject of leasehold 
 enfranchisement that it was at length appreciated how 
 entirely the result would be to enfranchise not the occu- 
 pier but the middleman, especially in the case of the 
 poorer occupiers, and that immediately this convic- 
 tion took root all popular enthusiasm for a measure 
 which never rested on any solid foundation of reason- 
 ing began to disappear. Curiously enough, the 
 analogous scheme for the taxation of ground-rents 
 which also at first sight appears to be an occupiers' 
 measure, and has gained a large share of public fiivour 
 on this ground, also proves on further examination to 
 be calculated to benefit not occupiers but buildino-- 
 owners — particularly in the case of buildings occupied 
 by the poorest classes. Even in well-to-do neiohbour- 
 hoods, where rates are paid in the first instance by 
 the occupiers, it has been seen that buildino--owners 
 will probably soon get the benefit of any remissions 
 of rates on the readjustment of terms tliat is per- 
 petually taking place. But a much more direct and
 
 98 RATING BETWEEN BUILDING-OWNERS 
 
 obv'ious advantage will be reaped by the middleman 
 who compounds for his rates and farms out s'ngle 
 rooms to the very poor at weekly rents, inclusive of 
 all rates. For while he will be relieved at the ex- 
 pense of his landlord of the payment of a portion 
 of the rates, there will be no reason whatever for 
 his charging his tenants one penny less than he has 
 hitherto done. It is probable that when this aspect 
 of the case has once impressed itself (as it cannot 
 f:iil to do) on the popular mind, the unreasoning 
 enthusiasm for some change which at present pre- 
 vails amongst persons quite unfitted to understand 
 the economical bearings of the question will imme- 
 diately subside, and that the matter will be left to 
 be determined on the dry economical foundation on 
 which I am at present endeavouring to build. 
 Towards a consummation so devoutly to be wished 
 nothins: can assist better than the enforcement of the 
 axiom that the rating of ground-rents means the 
 relief not of the occupier hut of the middleman. 
 Who So far in this chapter the case primarily urged 
 
 bear the has been that of the owners of existing rent-charges 
 rates? ^^-^^ ofround-rents who have made their barsfains in 
 the past, and may reasonably complain of these 
 bargains being revised in the future, especially in 
 one item only, and exclusively to their disadvantage. 
 But the last sentence of the last paragraph leads 
 naturally to the consideration of the general relations 
 of the building-owner to the landowner whose 
 interest has been commuted into a fixed rent-charge 
 or oround-rent. Altogether apart from the grave 
 injustice and inexpediency of upsetting existing con- 
 tracts, who ouglit to bear existing and future rates? 
 Should thoy bo borne exclusively by the building-
 
 AND THE OWNERS OF FIXED RENTS. 99 
 
 owner, or should the landowner contribute to theui 
 in proportion to the amount of the fixed annual pay- 
 ment which he receives? 
 
 I cannot entertain a doubt that m this respect Thebuiid- 
 imiversal custom is in accordance with justice and oughuo 
 expediency, and that the whole of" these rates ought ^^Jig^* 
 to be borne by the building-owner. He and he 
 alone is entitled to the wdiole of the benefit of the 
 expenditure of the rates, and to the whole of any 
 value which may hereafter accrue to the land. The 
 landowner does not receive a fixed proportion of the 
 profits of the building and land whatever they may 
 be (in which case it would be quite right, apart from 
 contract to the contrary, that, as sharing any benefit, 
 he sbould also shire any burden), but a fixed annual 
 sum insusceptible of any fluctuation in the direction 
 of increase, and therefore properly saved from any 
 fluctuation by way of decrease. He is a mere chargee 
 or incumbrancer on the land and building, and not 
 in any true sense the owner of any part of the 
 property any more than a mere annuitant or mort- 
 gagee. 
 
 Let us pursue this last analogy a little more Analogy 
 closely, and consider what real difl*erence there is case of a 
 between a landowner who has sold a plot of land for mortgage. 
 building purposes for £250 and has allowed the 
 price to remain en mortgage of the land and 
 building at -1 per cent., and the landowner who has 
 sold an equivalent plot for an annual rent-charge of 
 £10, calculated as being at the rate of 4 per cent, on 
 the capital value. It is conceded on all hands that 
 in the first case the landowner should not be rated 
 on the interest of his £250 mortgage debt ; and this, 
 as I understand it, not merely because his niortgnge 
 
 G 2
 
 100 EATING BETWEEN BUILDING-OWNERS 
 
 might be called in (many mortgages cannot in fact 
 be called in till the expiration of fixed periods), or 
 because the result would be to at once raise the 
 interest on such mortgages to the extent of the rates 
 levied, but because the mortgagor and not the mort- 
 ffairee is the true owner of the land, and is entitled 
 to all the benefit to be derived from expenditure on 
 it. For instance, a report in the Oracle of 
 the 7tli December 1889 of an interview with Mr. 
 Moulton on the taxation of ground-values contains 
 the following passage on the subject : — 
 
 " With regard to allowing for mortgages, in 
 " considering the taxation that ought to be paid 
 " by town lands. Lord Salisbury seems to have 
 " forgotten that mortgages are only the securities 
 " for debt, and one cannot see why a man should 
 " pay less for property, the whole improvement of 
 " which hy the community he enjoys, merely 
 " because he has debts against which that 
 " property stands as security. The principle of 
 " my proposition is, that we should follow the 
 " annual land value into whatever hands it 
 " comes, and tax it there, for it is a product, to 
 " a large extent, of that very expenditure to 
 " which this taxation ministers." 
 
 Mortgages With the reasonins; in this passage, so far as 
 
 actiy an- regards mortgages, it is impossible not to agree. The 
 
 fn°fhi^^ whole benefit of any increase in the mortgaged 
 
 respect to property goes to the mortgagor, not to the mort- 
 
 rents. p-atree, and therefore it would be unjust (as well as 
 
 inexpedient and in a short time futile) to attempt 
 
 to levy rates on the interest of a mortgagee in house 
 
 proi)erty. But where is the difference in this
 
 AND THE OWNERS OF FIXED RENTS. 101 
 
 respect between mortgages and rent -charges or 
 ground-rents, apart of course in the latter case 
 from any reversionary vahie ? Does not the 
 reasoning in the one case apply with precisely 
 equal force to the other? It is indeed said that rent- 
 charges or ground-rents are maiiita'uied by the rates, 
 if tliey are not increased. But the same is the case 
 with a mortgage, since its security would be just as 
 much affected by rates ceasing to be expeoded on the 
 property. It is again said that the capital value of 
 a rent-charge or ground-rent will be increased by an 
 addition being made to the value of the house that it 
 is charged on. l>ut if it is already well secured the 
 addition can be but trifling, and if it is ill secured 
 the analogy to a mortgage again recurs, since tne 
 value of an ill-secured mortgage does not equal its 
 nominal value, and mcreases with any increase of the 
 security. And finally the personal covenant to pay 
 which makes a mortgage a debt, though charged on 
 land, is precisely paralleled by the personal covenant 
 to pay a rent- charge or ground-rent which makes 
 the recurrent payments in respect of it personal debts, 
 thouo'h also charofed on or issuino- out of land. The 
 analogy between mortgages on buildings and rent- 
 charges or ground-rents issuing out of them is, to 
 my mind, complete and satisfactory; and any reasoning 
 which leads to the conclusion that mortgagees should 
 be exempted from any payment of rates in respect of 
 the property on which their mortgages are charged 
 must, in my view, lead irresistibly to the analogous 
 conclusion that the receivers of fixed rent-charo-es 
 and ground-rents must, as such, be also exempted 
 from any payment on the like account. 
 
 Indeed, when a close examination is made of the
 
 102 
 
 RATING BETWEEN BUILDING-OWNEiiS 
 
 Argu- 
 ments 
 from crea- 
 tion and 
 mainten- 
 ance 
 incom- 
 patible. 
 
 A prac- 
 tical illus- 
 tration. 
 
 argument that rents, or any part of tliern, should be 
 rated because they are created and maintained by the 
 rates, the incompatibility of the reasons implied in 
 the two words which have been italicised becomes 
 apparent. If the income derived from an investment 
 is increased it may be reasonable to throw some 
 burden, commensurate with that increase, on the 
 man who receives the increase. But is the burden 
 also to be thrown on every man who is already in 
 receipt of a fixed income from that investment because 
 his income is maintained f Such maintenance is 
 necessarily implied in the increase of the ultimate 
 income, and to rate for it as well as for the increase 
 seems to be rating twice over in the course of the same 
 process. And if the rating ought in some way to be 
 divided between creation and maintenance, in what 
 proportions ought this division tc be made ? In 
 fact, this proposal to rate maintenance as well as 
 creation of value, which is suggested by Lord 
 Hobhouse and forms a prominent feature of Mr. 
 Moulton's scheme, seems to originate in a confusion 
 of ideas. If the expenditure of rates produces an 
 equivalent increase, that increase should be tal-en^ 
 not rated, and should be taken, as is done at 
 present, from the person who enjoys the increased 
 value, not from the persons who receive a fixed 
 value, ascertained before the increase took place. A 
 good practical example of the kind is worked out 
 in the Appendix. 
 
 The above chain of reasoning seems to me a 
 complete answer to any proposal to charge any part 
 of either present or future rates on any fixed rent- 
 charo-e or "Tound-rent issuinji: out of a buildino; : but 
 the principle is so vital to the subject that it may
 
 AND THE (JWNEK8 OF FIXED liENTS. 103 
 
 be well to illustrate it by a definite example. J.et 
 us assume that A, a freeholder, has agreed to grant 
 a considerable area of land to B for a rent-charge, 
 which works out (when apportioned evenly) at a 
 rent-charjic of £b for the site of each house : that 
 13, having formed the roads and sewers and developed 
 the land generally, agrees to grant off particular 
 sites to builders, of whom C is one, at a rent-charge 
 of £10 per site, thus becoming himself entitled to a 
 second rent-charge or "chief-rent" of £5 net per 
 annum ; and that C has erected a house on his plot 
 of the oriirinal net rental value, inclusive of the site, 
 of £60. The position of the parties is then obviously 
 the following : — A is entitled to a first rent-charge 
 of the annual value of £5, B is entitled to a second 
 rent- charge of the net annual value of £5, and C 
 is entitled to the balance of the income which is 
 obtained from tlie house. A and B are therefore each 
 at pi'C'.se/it receiving one-twelfth of the income of 
 the house ; and if their interests were, in fact, 
 defined as consisting of the right to receive one- 
 twelfth of tlie income of the house for the time 
 being, it might be proper that they should each 
 pay one-twelfth of any expenditure that would 
 increase that income. But the interests of A The rent- 
 and B are not so defined, and do, in fact, consist of receives a 
 the right to receive a fixed mm, not a fixed share, ^^^ ^fixed 
 out of the income of the house ; and not five- share, 
 sixths only but the whole of any addition to 
 the income of the house will go into the pocket of 
 C. If then large public improvements are suggested 
 which will add Is. in the £, or £3 in all, to the 
 rating of the house in question, but which will also 
 enhance the value ol'the house to the extent of £3
 
 104 HATING BETWEEN BUILDING -OWNERS 
 
 or upwards, there seems no reason for charging any 
 part of these rates upon A and B. For C will 
 receive the whole of the extra rental value of £3 or 
 upwards, and is therefore clearly the person on whose 
 shoulders the whole of the £3 extra rate should fall. 
 To charge, as is proposed, 1.9. in the £ or Qd. in the 
 £ on A and B would be to reduce the rates paid by 
 C to £2. 10s, or £2. Ids. as the case may be, while 
 allowing him still to take the benefit of the whole of 
 the £3 or upwards forming the extra rental of the 
 house and land. 
 Owners of Beside an obvious unfairness of this kind it is of 
 
 fixed rents .,,.,. 
 
 have no coii]])aratively slight importance to mention that A 
 over the ^^^^ ^ have at present no control whatever over the 
 ture^^n'h ^^P^^^diture of the rates to which they would be 
 rates. called on to contribute. Taxation without represen- 
 tation, bad as it may be, does not strike one as quite 
 so- unjustas taxation for purposes in the benefit of 
 which the person taxed does not share. l>ut it 
 should nevertheless be observed that any such change 
 in the incidence of taxation must be accompanied or 
 preceded by a'change in local representation, which 
 would give [the owners of fixed rent-charges and 
 ground-rents an opportunity of voting on questions 
 connected with the imposition and expenditure of 
 local taxation ; and it is quite obvious what an 
 obstacle would be presented to local iuiprovement 
 and local progress by the introduction of a large 
 class of voters, who would naturally object to any 
 increase of expenditure to which they would have to 
 contribute but in the benefit of which they would 
 not be allowed to share. 
 
 Once more, the effect must be considered which 
 tranT-^ legislation of this kind will have oq future tran.^ac- 
 
 actions.
 
 AND THE OWNERS OF FIXED RENTS. 105 
 
 tions. No doubt in future the tendency Avill be for rent- 
 char<res and srround-rents to rise to the extent to wliich 
 rates are cast upon them, both because the occupier 
 will to that extent offer a higher rack-rent, on which, 
 as we have seen, the ground-rent depends, and also 
 because ground-rents on the building limit, which only 
 just tempt the landowner at present to divert his land 
 from agricultural or accommodation purposes, will 
 have, after the chano;e, to rise to at least the extent 
 of the rates imposed on them before they will so 
 tempt him in the future. And so far the effect will 
 be to just counterbalance any tax imposed on the 
 landowner. But beyond this there can be little 
 doubt that a chans-e which will in effect declare 
 that no income whatever, when derived from build- 
 ings, shall be free from the trouble and variability 
 caused by deductions in respect of fluctuating rates, 
 will drive out all cheap or trust capital from this Cheap 
 method of investment into the debenture and pre- ^n be 
 ference stocks of railway companies and other like J^^Qu^g'^* 
 securities, which return an income small indeed, but property, 
 free from fluctuation or trouble. The point is well 
 stated by Mr. Beken, a well-known dealer in ground- 
 rents, in the following passage, at page 31 of a 
 little pamphlet which he has styled " Freehold 
 •'' Disfranchisement " : — 
 
 " I consider that such a system would, by 
 " increasing the trouble or cost of management, 
 " diminish the value of the property as a whole, 
 " from which some, if not all — and I think all — 
 " the parties would suffer. 
 
 '' The income-tax on ground-rent increases, 
 " probably sometimes doubles, the trouble of
 
 106 EATING BETWEEN BUILDING-OWNEKS 
 
 " collection ; but this trouble is trifling coni- 
 " pared with what would be caused by a similar 
 " system for local rates. The rate of income- 
 " tax in the £ is the same for the whole year ; 
 "it is also the same for every parish ; and it 
 " seldom consists of a mixed number {i.e., a 
 " whole number and a fraction). The rate per 
 " £ is, therefore, known to all parties without 
 " the production of receipts or other evidence, 
 " and it is quickly calculated. The local rates, 
 " however, vary not only within the year — as 
 " an example. Is. 'I^cL, Is. 2fi., Is. ^d., ls.^d., 
 " for the four quarters respectively — but they 
 " vary with each parish, and they are often 
 " represented by mixed numbers. Evidence of 
 " the rates per £ must therefore be produced 
 " for each deduction on rent paid between the 
 " parties (say, between the tenant, perhaps one 
 " or more under-lessees, the lessee, and the 
 " freeholder). In addition, most payments 
 " would necessitate a fractional calculation — for 
 " example, £2. 10s., £8 15s., £d, and the like, 
 " at l.*^. 2fc/. in the £ — simple enough no doubt 
 " for every one, but all taking time. Parties 
 " would be deterred bj?^ an objection to niggling 
 " details from makinof arraniifements for sub- 
 " dividing their interests which would other- 
 " wise be mutually advantageous, capital would 
 " be diverted from the creation of property, and 
 " the employment of labour thereby checked, 
 " and all for what? " 
 
 and rents jt^^i example will show how, if ground-rents are 
 
 will be -•■ . 
 
 raised. lowered in capital value through increased trouble
 
 AND THE OWNERS OF FIXED RENTS. 107 
 
 and cost in collection and variability in incotiie, rack- 
 rents must necessarily rise. Let us assume the case 
 of a landowner on the building limit, who is just 
 prepared to part with his land for a capital sum of 
 £200 per acre, or £50 for the site (which we will 
 estimate at one rood, less roads) of each villa to be 
 built; and let us further assume that the cost of for- 
 mation of roads and sewers, and development of the 
 land generally, will also be at the rate of £200 per acre. 
 If then first ground-rents will at present sell at 25 
 years' purchase, and second or leasehold ground- rents 
 at 20 years' purchase, the landowner will be content 
 with a ground-rent for himself of £2 per site, and the 
 intermediary who develops the land will be content 
 with a further rent of £2 10.5?. per site, the capital 
 value of each of these rents being £50. But if, 
 through the causes above mentioned, the price of a 
 freehold ground-rent sinks to 20 years' purchase, and 
 that of a leasehold ground-rent to 16 years' purchase, 
 the landowner must get a ground-rent of £2 lO-s-., 
 and the intermediary a second or leasehold ground- 
 rent of £3 2s. 6(7., before it will be worth the while of 
 the one to let or of the other to develop; and thus 
 no less than £l 2s. 6d. per annum is at once added 
 to the ground-rents payable on the house. It will be 
 observed that in this example no addition has been 
 supposed to be made to the two ground-rents (as 
 would no doubt be the case) to cover the rates tliev 
 will have to bear, because, as the occupier will be 
 relieved to this extent, this amount will not be a real 
 addition to the rack-rent of the house. But the 
 extra ground-rent which will have to be provided 
 to compensate for the dimiuished value of these 
 securities as an investment, owing to the increased
 
 108 
 
 EATING BETWEEN BUILDING-OWNERS 
 
 Summary 
 of con- 
 tents of 
 chapter. 
 
 trouble of collection and the variability of the income 
 derived from them, will form a real addition to the 
 rack-rent of the house for which there will be no 
 compensation. 
 
 It may now be well at the close of this, as of the 
 previous, chapter to sum up concisely the reasons 
 which render unjust and inexpedient the proposals to 
 shift rates, or any part of them, from the building- 
 owner to the owner of a fixed charge or ground- 
 rent, either in the case of present or in that of 
 future contracts. They are as follows : — 
 
 As reofards existing; contracts 
 
 good 
 
 1. Upon the ascertamment of existing rent- 
 charges and ground-rents rates have already 
 been deducted from them to an extent far 
 exceeding; the rates on these rent-charo-es or 
 ground-i'ents themselves. 
 
 2. Tiie buildins:- owners have for 
 consideration entered into an express contract 
 with the owners of these fixed rent-charges or 
 ground-rents to defray all the rates. 
 
 3. This contract is a reasonable and proper 
 one, not forced on the building-owners, and it 
 is impossible to say whether the rates actually 
 existing are greater or less than those estimated. 
 
 4. The most prudent and deserving classes 
 of investors would be mulcted of a considerable 
 part both of the income and of the capital of 
 their investments by the proposed change. 
 
 5. The result of the change would be, 
 especially in the poorest quarters, to benefit not 
 the occupier but the middleman.
 
 AND THE OWNERS OF FIXED RENTS. 109 
 
 As reirards future contracts : 
 
 -o" 
 
 6. The proposed change would not produce 
 any relief, since it would result m a rise of rent- 
 charo;es and srround-rents for buildino; land at 
 least equal to the amount of rates they would 
 have to pay. 
 
 7. The utmost difficulty and trouble would 
 be caused by the various deductions and allow- 
 ances that would have to be made as between 
 every payer and receiver of rent. 
 
 8. In consequence of this difficulty and of 
 the necessary variability of every income derived 
 from town holdings, all chaap and trust capital 
 would be driven from investment in buildings, 
 and rents would rise. 
 
 And as res^ards both existinoj and future 
 
 o o 
 
 contracts : 
 
 8. The owner of a building subject only to 
 a fixed rent-charo^e or ground-rent is the 
 owner of the whole interest, and not only of a 
 part, just as if he held subject only to a mort- 
 gage. He will take the whole and not merely a 
 proportion of every benefit to the building, and 
 he should therefore discharge the whole and not 
 merely a porportion of every burden on the 
 building.
 
 no 
 
 RATING BETWEEN BUILDING-OWNERS 
 
 CHAPTER VII. 
 
 What dif- 
 ference is 
 caused by 
 a rever- 
 sion? 
 
 Some 
 rates are 
 spent on 
 perma- 
 nent im- 
 prove- 
 ments. 
 
 RATING BETWEEN BUILDING-OWNERS AND THE 
 OWNERS OF REVERSIONS. 
 
 A VERY definite conclusion has so far been arrived at 
 that, as between building-owners and the owners of 
 fixed rent-charges and ground-rents, it would be 
 unjust in the case of existing contracts, and inexpe- 
 dient in the case of future contracts, to relieve the 
 former class of any portion of the rates at the 
 expense of the latter class. It is still necessary to 
 inquire whether any difference in this respect is caused 
 w^hen the owner of the ground -rent is also the owner 
 of a tangible reversion — that is, when the term of 
 years for which his ground-lessee or building-owner 
 holds is so comparatively short that there is some 
 real measurable prospect of the landowner resuming 
 possession of his land, with the building on it. For 
 in this case the interest of the landowner is obviously 
 not limited to a fixed payment wholly irrespective 
 of any subsequent value that may be added to the 
 site and building. He will be entitled at the expira- 
 tion of the buildino'-lease to the site itself with the 
 building on it, and therefore to any improvement or 
 added value that may have accrued to it through 
 (amongst other things) the expediture of the rates. 
 
 Now, it is unquestionable that a certain propor- 
 tion of the rates is expended upon objects of a more 
 or less permanent character. The open spaces that
 
 AND THE OWNERS OF REVERSIONS. 1 1 1 
 
 are from time to time provided, the new arterial streets 
 that are constructed, and such great works as those of 
 wliich tlie Thames Embankment is the most striking 
 instance, may all be fairly regarded as adding an 
 entirely permanent value to the land of the Metro- 
 polis. Even such less permanent improvements as 
 the main drainage S3^stem, the freeing of the bridges 
 over the Thames, the provision of great prisons and 
 lunatic asylums and of the legion of elementary 
 l>oard schools which have sprung up of late years, 
 will, however much reconstruction and modification 
 may from time to time be required, outlast to a large 
 extent the currency of the leases during which they 
 have been constructed and paid for. And the con- 
 sciousness that to this extent the London landowner 
 will, on the expiration of his building-lease, step into 
 the enjoyment of an enhanced value, to the creation of 
 which he has not directly contributed, lends added 
 force to the proposals to rate that present ground- 
 rent which is incident to, and will at last disappear 
 into, his reversion. 
 
 Unhappily, from the point of view of rating that Ci:rrent 
 which is really benefited, namely, the reversion, these fafuo^^ ^ 
 proposals are both illogical and unsatisfactor3^ Xot ^^l ^^^ 
 only would they involve rating improved leasehold 
 ground-rents which are terminable, involve no real 
 reversion as a rule, and mostly represent actual 
 expenditure on the development of land and on 
 building,* but tliey would also rate reversions on 
 
 * Mr. Moulton's plan is particularlj' unsatisfactory in this respect. 
 On an increase in ground-value he would rate, not the rack-rent 
 which receives the whole increase, but the initial or bottom rents 
 which (1) remain fixed and (2) represent former outlay in develop- 
 ment and building. And yet, strangely enough, he lays great stress 
 on the practical futility of attempting to rate building-rents.
 
 112 RATING BETWEEN BUILDING-OWNEKS 
 
 the basis of the arbitrary ground-rents paid to the 
 landowner, and without regard either to the proximity 
 of the reversion or the proportion of the rates spent 
 in permanent improvements. Under the operation 
 of these proposals a freehold ground-rent of £10 
 per annum, with a reversion to occur in ninety years, 
 w^ould incur rates to ten times the extent of a free- 
 hold ground-rent of £1 per annum on a precisely 
 similar house, with a reversion to occur in one year ; 
 though it is obvious that any expenditure of the 
 rates on improvements must benefit the interest of 
 the landowner in the latter house much more directly 
 and substantially than the owner of the reversion 
 of the other house. Again, a leasehold ground-rent 
 on either house of £20 per annum would pay rates 
 to a ofreater extent than either of the freehold "'round- 
 
 O o 
 
 rents, though it would never receive any reversionary 
 benefit at all from any of this expenditure. And 
 the same proportion of the rates would be levied 
 on all these ground-rents, whether one-hundredth or 
 one-half of the expenditure of these rates was 
 devoted to purposes calculated to increase reversionary 
 value. In fact, no definite proposal of any practical 
 value has yet been put forward for the rating of 
 reversions. 
 There is a This last fact, however, seems rather to indicate 
 
 small but ^|,j^|. i]^qyq are practical difiiculties in the way than 
 
 inevitaole . . . . 
 
 hardship that there is, in fact, no anomaly to be investigated. 
 
 contract. And while I hold strongly that from every point of 
 view the rating of present ground-rents and rent- 
 charges would be as indefensible as the rating of 
 mortgages, I think, on the other hand, that there is, 
 apart from contract, a distinct hardship in the land- 
 owner receiving, on the occurrence of his reversion,
 
 AND THE OWNEKS OF REVEHRIOXS. 113 
 
 a benefit arising from expenditure to wliicli he has 
 not contributed. But I also think that the g^rievance 
 is far less in extent than is generally considered ; 
 that there would be insuperable practical objections 
 to any plan for taxing these reversions ; and 
 accordingly that as well general convenience as 
 the ordinary form of contract, which is in almost 
 all cases the outcome of general convenience, 
 prescribes that the whole of the rates should fall on the 
 present rack -rentals of house property and that no 
 part of the rates should be charged against reversion- 
 ary value. I>ut inasmuch as this result depends not 
 on an ascertainable and definite principle, but on con- 
 siderations of the balance of convenience, it is essential 
 to estimate as accurately as possible both the extent 
 of the hardship in question and the difficulties that 
 surround any attempt to remedy it. 
 
 In the first place, the grievance in question does The hard- 
 not appear to be an occupier s grievance. Occupiers nothing 
 hold under the same conditions in leasehold as in th^occu-^ 
 freehold towns; they are not affected by, and are p^®^' 
 often ignorant of, the fact whether the houses they 
 occupy belong entirely to one person or are sub- 
 divided into a number of different interests ; and 
 besides, they have frequent opportunities of adjusting 
 with their immediate landlords the conditions of their 
 tenancies. It is rather the building-owners who are 
 prejudiced by suffering a diminution, or foiling to 
 obtain an increase, of rent to the extent of the rates 
 which go to benefit the reversion. The question, 
 therefore, is one between two sets of capitalists — not 
 between a set of capitalists and the public. This fact 
 does not of course obviate or diminish any hardship 
 that exists. But it is well to clear the ground before 
 
 H
 
 114 
 
 l^VTING BETWEF-X BUILDING-OWNERS 
 
 Special 
 areas 
 must not 
 be con- 
 sidered 
 alone. 
 
 startini^ of any false impression of the kind wliidi 
 might otherwise perhaps tend to exaggeration or 
 prejudice. 
 
 Again, it is unfair for the present purpose to 
 direct attention exclusively to certain special areas 
 which have been extraordinarily improved by the 
 expenditure in their vicinity of the concentrated rates 
 of the whole Metropolis, without also considering the 
 far laro'er areas which either derive no substantial 
 l>enefit whatever from the expenditure or may even 
 be deteriorated by it through the diversion of traffic * 
 and other like causes. It is improper to use the manifest 
 improvement which has accrued to land south of the 
 Strand through the construction of the Thames Em- 
 bankment to justify a proposal to rate reversions 
 throuo'hout the Metropolis, including reversions to 
 property at Kilburn or Holloway which has probably 
 been entirely unaffected by the work. Such instances 
 rather raise the question of the special taxation of 
 specially benefited areas or " betterment," a subject 
 outside the scope of the present treatise, but which 
 seems to bristle with practical difficulties and to be 
 likely, if treated with anything like logical accuracy, 
 to lead to the decentralisation and disintegration of 
 the various Metropolitan districts which have so lately 
 been welded together under a centralised authority. 
 No proportion of the rates can be levied on reversions 
 throughout the Metropolis generally except to the 
 extent to which there has been a general average im- 
 provement in reversions due to the expenditure of the 
 rates. 
 
 * Complaint has for instance been made of the damage that has 
 thus been done to shops in St. Martin's Lane by the construction of 
 Charing Cross Koad.
 
 AND THE OWNERS OE REVEHSIoXS. 115 
 
 Once more, the grievance in question does not The hard- 
 extend to the whole rates levied on houses, but only extenS^^ 
 to such part of them as is expended in such a manner ^° ^ ^"^2,11 
 
 , ,. 1 . 1 • 1 n part of the 
 
 as to benefit the reversion; and it therefore becomes rates. 
 necessary to estimate as between the building-owner 
 and the reversioner what proportion of the rates is, 
 in fact, so expended. Now, it is within the know- 
 ledge of every ratepayer that by far the larger part 
 of the rates is devoted to current annual expenditure, 
 which is exhausted within the year and confers no 
 benefit upon the owners of reversions. The money 
 spent in the lighting and repair of the streets, the 
 maintenance of sewers, the preservation and refyula- 
 tion of parks and open spaces, the provision of an 
 efficient police force, and many otlier items of this 
 character, is spent as strictly in satisfying the recur- 
 rent needs of the community, and leaves as little 
 permanent benefit behind to propert}", as the sums 
 spent by individuals in food and drink. And the 
 same appears also to be the case with the ordinary 
 annual expenditure of the poor-rate or the education- 
 rate, the provision of which in any year is for the 
 purposes of that year only and does not obviate or 
 diminish the necessity of making a similar provision 
 in succeeding years. It is obvious, therefore, that 
 for this part of the rates building-owners or occupiers 
 can have no claim whatever against the owners of 
 reversions. Indeed, an excellent reductio ad ahsurdiirn 
 of the opposite view was afforded by the evidence 
 before the Select Committee on Town Holdino-s of an 
 Irish witness who estimated at £2,000,000 or up- Robinson 
 wards the whole amount of the rates and taxes that 974^984. 
 would be paid by the tenants on the De Vesci estate 
 during 99 years, and inferred that the ground land- 
 Pi 2
 
 no 
 
 KATIXG BETWEEN BUILDING-OWNERS 
 
 Example. 
 
 The in- 
 terest on 
 loans for 
 improve- 
 ments 
 does not 
 benefit 
 the rever- 
 sioner ; 
 
 lord would be ultimately benefited by the expenditure 
 i)f the whole of this enormous sum, probably many 
 times exceeding the whole value of the estate when it 
 should fall into possession. 
 
 It is then only so far as rates are levied to defray 
 expenditure upon objects of permanent value and 
 utility that reversioners are benefited by their ex- 
 penditure. Such objects are usually provided for by 
 borrowing, on the security of the rates, the requisite 
 capital sums ; and there is then provided out of the 
 rates an annual sum sufficient to pay off these sums, 
 together with interest on the parts for the time being 
 unpaid, in a period of about fifty years. Let us assume 
 that in this present year, 1890, some very important 
 object of this kind is provided for at an annual charge 
 on the rates of 4d. in the £ (of which 3tf. represents 
 interest and Id. sinking-fund) spread over the next 
 fifty years, and let us consider to what exact extent 
 reversioners will be benefited at the expense of 
 building-owners. 
 
 To the extent of the od., which represents interest 
 on the loan in question, it seems clear that the 
 reversioner derives no benefit, and ought not to con- 
 tribute anything. It is the persons having immediate 
 interests in the building who enjoy for the time being 
 the advantage of the improvement, and they should 
 therefore provide the interest on the capital outlay 
 necessary to furnish the improvenient as much as the 
 annual expense of maintaining it in order. Or, to look 
 at it from another point of view, if there were no 
 sinking-fund at all, but only the 3d. annual charge 
 necessary to keep down the interest of the loan, and 
 even assuming the efi'ects of the improvement to be 
 absolutely permanent, the reversioner Avould obtain
 
 AND TlIK OWNERS OF REVERSIONS. 117 
 
 no benefit from the expenditure on the occurrence of 
 the reversion ; since, although on the credit side of 
 the account he would have the improvement, on the 
 debit side he would have outstanding the capital 
 debt which had been incurred for the purpose of 
 providing the improvement. 
 
 As to the Id. which represents the sinkino;-fund and only 
 
 A ^ _ o a part of 
 
 in respect of the improvement in question, the case the sink- 
 is different. Assuming indeed that the duration of 
 the improvement were exactly co-extensive with the 
 period of operation of the sinking-fund, it seems that 
 the whole of the sinking-fund as well as the interest 
 would be properly chargeable against the building- 
 owner. And assuming that the period of operation 
 of the sinking-fund were so sjDread out as to outlast 
 the duration of the improvement, a reversioner whose 
 reversion should occur when the improvement had 
 been exhausted but its cost had not yet been de- 
 frayed, would actually be a sufferer to that extent. 
 But there can be little question that in most, if not 
 all, cases both these assumptions are incorrect, and 
 that as a rule improvements made in this way are 
 either quite permanent or else outlast in a great 
 measure the duration of the sinking-fund to defray 
 them. And in general therefore, apart of course from 
 contract, either the whole of the payments in respect 
 of the Id. sinking-fund, or so much of these payments 
 as represents the value of the improvement on the 
 occurrence of the reversion, is in strict justice 
 wrongly borne by the building-owner, either directly 
 or through the medium of the occupier, and should 
 be borne by the reversioner. It will be observed that 
 the payments in respect of the Id. sinking-fund form 
 the madlinum of the injury inflicted on the building-
 
 118 EATING BETWEEN BUILDING-OWNEKS 
 
 owner and of the benefit ticcruing to the reversioner, 
 and that this maximum may be considerably dimin- 
 ished if and so far as the improvement in question 
 has deteriorated before the occurrence of the reversion, 
 nsigi^fl- ^ow, it is matter of common knowledge that the 
 
 cant part proportion of the rates which is devoted to tbe service 
 rates is of loans for public improvements is a very small one. 
 in^ques-^ To arrive at any exact estimate, in any particular 
 tion. town, would require a far greater knowledge of detail 
 
 than 1 can pretenJ to possess. But in London, 
 AN here the proportion is supposed to be particu- 
 larly liigh, one-fifth of the total rates, or Is. in the 
 £, would probably be an outside estimate. Of 
 this annual charge of one-fifth of the rates, or Is. in 
 the .€, about three-quarters may probably be taken 
 as the amount required for interest and one-quarter 
 for sinking-fund.* And the result therefore is that, 
 even assuming that all improvements thus made are 
 absolutely permanent, which is very f\ir indeed from 
 being the case, it is only one-twentieth of the rates, 
 or 3d. in the £, which at the very most should, in the 
 absence of contract, be charged on the reversioner in 
 relief of the owner. While, making allowance for the 
 actual deterioration of so many improvements, and 
 taking a locality in which there is only an average 
 ainoLint of improvement effected, it would probably 
 be found that not more than from one-thirtieth to 
 one-fiftieth part of the rates should, apart from con- 
 tract, be charged on the reversioner. 
 
 * This is taking the loan throughout the whole period over which 
 the sinking-fund extends. The proportion of the annual charge which 
 is applied to interest is of course largest at first and gradually 
 decreases, while the reverse is the case with the part applied to sinking- 
 fund. But, so far as interest lessens, subsequent building-owners are 
 themselves benefited before the occurrence of the reversion.
 
 AND THE OWNERS OF REVERSIONS. 119 
 
 The calculations in the preceding paragraph The 
 are avowedly rough ; but they are })robably therefore 
 sufficiently accurate to show that any hardi^hip* cas^^Jiy 
 suffered in respect of the payment of rates by the trifling. 
 buil(Ung-owner under the 99 years leasehold system 
 is far less than has been generally supposed, and 
 is indeed, even apart from contract, of a com- 
 ])arative]y trifling character. It remains to consider 
 what are the practical objections to completely 
 remedying even this trifling grievance by proceeding, 
 in the absence of contract to the contrary, to throw 
 upon reversioners in some shape or form the small pro- 
 portion of the rates which is employed for their benefit. 
 
 In the first place it would be necessary to enter Practical 
 into a minute calculation in each case of the amount to change. 
 of the rates levied during the continuance of the JJ^Jcufa. 
 lease which has o-one to benefit the reversion. This tions 
 
 •n 11 TA- . necessary. 
 
 amount will vary not only as between ditrerent 
 towns in accordance with the different amounts of 
 the rates and the different proportions of those 
 rates which are expended in permanent or semi- 
 permanent improvements, but also in the same town 
 in accordance with variations in (1) the amounts of 
 the rates from time to tiuie employed in improve- 
 ments, (2) the comparative durability of the improve- 
 ments that are effected, and (3) the comparative 
 proximity or remoteness of the reversion. Even on 
 the assumption that the rate for some particular 
 
 * I urged in my former work that even this hardship was in fact 
 "much mitigated if not entirely removed" in practice by the fact 
 than an improvement in present value was generally obtained equi- 
 valent not onl}' to the interest, but to the sinking-fund in respect of 
 the loan. And I have since found that this view was distinctly put 
 forward by Mr. Tom Taylor, the then Secretary of the Local Govern- 
 ment Act Office, in his evidence before Mr. Goschen's Committee on 
 Local Taxation.
 
 120 KATING BETWEEN BUILDING -OWNEKS 
 
 improvement is exactly od. for interest and 1(/. for 
 sinking-fund over forty years, there would still be 
 enormous difficulties under both of the last two 
 heads. For suppose that the improvement is of such 
 a character that it may be fairly considered to 
 deteriorate 5 per cent, every ten years, and consider at 
 the time when the sinkinof-fund first beijiins to run three 
 separate cases : (1) where the reversion is to occur 
 in ten years, (2) where the reversion is to occur in 
 fifty years, and (o) where the reversion is to occur 
 in ninety years. Even in these cases, which have been 
 chosen for the sake of simplicity, it is clear that the 
 benefit done to the reversion would be very different 
 and might be exceedingly difficult to calculate ; and 
 in the far more complex instances which would be 
 perpetually occurring in actual practice the difficul- 
 ties of mere calculation would be almost insuperable. 
 Deduction Again, it would be impracticable to deduct rates 
 deferred, in respect of reversions Avhile building-leases are still 
 in force and before the reversions have fallen into 
 possession. In many cases peppercorns or other 
 like nominal rents are reserved out of building sites, 
 and there would be no substantial income on which 
 to throw or out of which to deduct rates. Any 
 practical scheme for rating reversions must provide 
 for the burden being thrown on them at the time 
 Avhen they become interests in possession ; but this 
 is only the beginning of a fresh difficulty. Any 
 rates so cast on these reversions wdien they fall into 
 possession cannot be paid to and retained by the local 
 authorities, since this would be to impose an additional 
 tax on a house in which the interests were divided, in 
 excess of the taxes on a house belonging to an absolute 
 freeholder ; and these rates would accordingly have 
 to be handed back to the persons who had from time
 
 AND TIIK OWNERS OF KEVEKSIUNS. 121 
 
 to time been tlie building-owners during the currency 
 of the payment for the improvements in question, unless 
 indeed allowances had been previously made to them 
 during the periods of payment. But to the practical 
 working of either of these plans there are obviously 
 many objections. 
 
 Even after all was said and done, and the ereatest ^^en so 
 
 the result 
 
 delay, uncertainty, and friction caused, the result would 
 would probably be but a rough measure of justice Jough^ 
 between the two capitalists — the building-owner and Justice. 
 the reversioner. The trouble and expense involved 
 in the ascertainment of the precise allowances to be 
 made, and the consequent uncertainty of income and 
 risk of litigation, would be such as to diminish the 
 value of both these interests in a house. And it would 
 soon prove to be to the advantage both of the land- 
 owner and of the builder with whom he deals to 
 avoid this uncertainty and risk by entering into a 
 definite and easily ascertainable arrangement on the 
 subject. 
 
 Xow, this is exactly what has happened and is it is found 
 happening every day at the present time. The venientto 
 express covenant by the lessee in all building-leases afoid *° 
 to pay all rates and taxes is a deliberate recoo-nition these diffi- 
 
 , o culties. 
 
 between the parties of what no doubt the law would 
 otherwise imply, that present burdens should be 
 borne by those in present possession or in present 
 receipt of annual value. But the case is stronger 
 even than this. When the Metropolitan Board of 
 Works was first constituted its only source for raisin "' 
 funds was (in addition to the wine and coal dues) the 
 power to lay under contribution the rateable property 
 in the Metropolis by means of a sewers rate. But Sir 
 John Thwaites, the first chairman of the Board of
 
 122 
 
 EATING BETWEEN BUILDING-OWNERS 
 
 Conclu- 
 sion from 
 this. 
 
 The agree- 
 ment is 
 the result 
 of general 
 con- 
 venience. 
 
 Works, in his evidence before tlie Select Committee of 
 1866, after stating this, made the following com- 
 ])laint : — 
 
 " Our rate is, in point of ilxct, a sewers rate, 
 " and is subject to all the incidents of a sewers 
 " rate. That in itself is a landlords' tax, hut 
 " it has been the jrractice for many years for 
 " the landlords to dislodge that liability by covenant- 
 " ing ivith their tenants that the tenants shall pay 
 " the sellers rate, and thus easting the charge upon 
 " the occupiery 
 
 Sir John Thwaites himself thought this a great 
 grievance and considered that in practice, though 
 not in theory, landlords did not accept a lower rent 
 in consequence of this liability having been cast 
 on the tenant. But a more natural conclusion would 
 be that it was found inconvenient for one particular 
 rate only to be paid by the landlord, and that there- 
 fore for a fair equivalent the tenant agreed to pay 
 this rate also. 
 
 There can indeed be but one inference from these 
 facts. It is impossible to suppose that the invariable 
 insertion of such co venants is the effect of monopoly. 
 It is common knowledge that round London land is 
 in the hands of a vast number of different owners, 
 and that in at least the great majority of instances 
 there is the keenest competition between these owners 
 to attract building to their estates. Any term in 
 building contracts that is considered harsh or unfair 
 must, as a necessary result of this competition, be 
 either modified or abandoned. Tlie invariable pre- 
 sence of a covenant in buildino;-leases that the lessee
 
 AND THE OWNERS OF REVERSIONS. 126 
 
 shall pay all rates and taxes of every kind what- 
 soever is of itself sufficient proof that lessees do not 
 consider it any real grievance that while they enjoy 
 the property they should discharge all burdens upon 
 it, although some insignificant and scarcely ascertain- 
 able part of these burdens may go to improve the 
 reversionarv interest of the landowner. 
 
 It must always be borne in mind that, as was This is 
 stated in the last chapter, leases with these covenants practice, 
 are not merely matters of the past, but are being 
 entered into as freely as ever at the present day, with 
 full knowledge of tlie increase which has taken, and 
 is likely to take, place in the rates on town j)roperty. 
 The builder is not generally supposed to be a person 
 unable to take care of himself or who needs an Act 
 of Parliament to protect him. He is compelled to 
 provide for the capitalist who buys from him such 
 an interest in the house built as shall be attractive, 
 or at any rate satisfactory, to his purchaser. One 
 of the terms on which the contract is always entered 
 into is that the lessee shall pay all the rates ; and as 
 a matter of contract alone, even if this particular 
 term were an unfair or harsh one, it would be im- 
 proper to revise it without revising at the same time 
 all the other terms of the contract. But the fact 
 that this particular term is invariably accepted shows 
 that it is considered a fair, reasonable, and con- 
 venient term by all the parties concerned. 
 
 The principle that present interests in property Analogies 
 should bear the whole of any present burden is not practice, 
 confined to the rates on leasehold property. A fair 
 analogy is to be found in the case of any kind of 
 property that maybe settled sothat a life interest is given 
 to one person and a reversionary interest to another.
 
 124 RATING BETWEEN BUILDING-OWNERS 
 
 The life interest of tlie tenant for life is perpetually 
 diminisliing in value, while concurrently w^ith this 
 decrease the reversionary interest of the reversioner 
 is as continually increasing. And yet during the 
 life of the tenant for life income-tax is levied on his 
 whole income, in spite of the decrease in its capital 
 value and in complete exoneration of the increasing 
 interest of the reversioner. When the reversion falls 
 into possession income-tax will be levied on the full 
 annual income derived from it. lUit in the case of 
 house property also rates on its full annual value 
 will be borne by the reversionary interest so soon as 
 this becomes an interest in possession. 
 
 In the preceding chapter it was objected to the 
 rating of fixed ground-rents not involving a rever- 
 sion that the effect would be to drive out of 
 investment iu houses all cheap or trust capital, and 
 so to raise rents. The same argument seeois also to 
 apply to the proposal to rate reversions, at least so 
 far as regards the capital representing the value of 
 sites. Though there would not be the perpetual 
 half-yearly calculation and difficulty, arising from 
 the calculation, proof, and deduction of ever- varying 
 rates, there would be a far more elaborate, difficult, 
 and uncertain adjustment to take place on the occur- 
 rence of the reversion. There can be little doubt 
 that the exjDense, worry, and risk incident to an 
 operation of this kind would operate as a deterrent 
 to the prudent, steady-going investor, who is content 
 with a very moderate return on his capital but 
 requires that return to be made without trouble or 
 anxiety to himself. 
 
 In this chapter the reverse method has been 
 adopted to that pursued in the last chapter, and the
 
 AND TIIK 0\YNEn.S OF HKVERSIONS. 125 
 
 case principally considered so far has been that of 
 future contracts. As re":ards existing? contracts, 
 little need be added, since the remarks in the last 
 chapter "generally apply here also. These contracts 
 have been entered into for o-ood consideration, and 
 by persons well aware of the meaning of the 
 obligations they undertook ; and the obligation to 
 pay all rates and taxes is only one of the multi- 
 farious terms of the bargain, and cannot therefore be 
 fairly revised alone. But, beyond this, purchases 
 and investments have been made by a most deserving 
 class of investors on the faith of covenants which 
 have only recently been discovered to involve a sort 
 of political immorality. And therefore every con- 
 sideration of fair-dealing and justice forbids any such 
 tampering with these contracts as is suggested. 
 
 A short summary is now ap])ended of the results Summary 
 
 , . , . T •'^ ^ of conclu- 
 
 arrived at m tins chapter: — sionsof 
 
 chapter. 
 
 1. There is, apart from contract, some hard- 
 ship in the reversion being benefited by the 
 expendilure of rates in permanent or semi-per- 
 manent improvements. 
 
 2. This hardship falls not on the occupier 
 but on the building-owner. The question is one 
 between two sets of capitalists. 
 
 ?>. The hardship is one of a very trifling 
 nature and applies only to an insignificant pro- 
 portion of the rates. 
 
 4. The hardship could only be rectified by 
 complicated and troublesome calculations and 
 after quite disproportionate worry and expense. 
 
 o. It has accordingly been found to be for 
 the general convenience (even where some rates
 
 126 URBAN RATING. 
 
 are expressly thrown on reversions) that build- 
 ing-owners should undertake to pay all the rates, 
 includuigthe small part which benefits reversions. 
 
 6. The capitahsts who undertake this obli- 
 gation are a shrewd body of men, quite capable 
 of taking care of themselves. 
 
 In particular, as regards future contracts : 
 
 7. Cheap or trust cajDital would be driven 
 out of investment in houses, and rents would be 
 raised, by any enactment casting certain parts 
 of the rates on reversions in spite of contracts 
 to the contrary. 
 
 And as regards existing contracts : 
 
 8. The rating of reversions would involve 
 the partial confiscation of the property of a most 
 deserving class of investors for tlie benefit of 
 another class of capitalists.
 
 12; 
 
 CHAPTER YIIL 
 
 THE RATING OF VACANT BUILDING LAND. 
 
 The question of imposing a special rate on vacant The Royal 
 building land in proportion to its capital and not its Son on the 
 income value has lately been brought into special Housing 
 prominence by the recommendation to tliis effect "Working 
 contained in the Report of the Royal Commission on ^^^^^' 
 the Housing of the Working Classes. Indeed, it has 
 sometimes been claimed that this recommendation 
 concludes the whole question, and that the only thing 
 now left for consideration is to devise some scheme for 
 giving practical effect to the suggestion. Before 
 adopting such a view, however, it will be only prudent 
 to examine carefully the exact terms of the recom- 
 mendation, and to ascertain the character and wei<>'ht 
 of the evidence on which it was based. 
 
 The passage in question runs as follows (pp. 
 41-2) :— 
 
 " Your Majesty's Commissioners must ob- Recom- 
 '' serve, in reference to Lord Shaftesbury^s Acts tionatto 
 " and to nearly every proposal for improving the JuS* 
 " dwellings of the working classes, as well as to la^^i- 
 " other local improvements, that the present inci- 
 " dence of local taxation stands seriously in the 
 " way of all progress and reform. They do not feel 
 " that they are authorised by the terms of Your 
 " Majesty's Commission to go generally into the
 
 128 URBAN RATING. 
 
 " question of local taxation, but they are of 
 " opinion that until some re'brm is introduced 
 " which shall secure contribution to local expen- 
 " diture from other sources of income received 
 " by residents in the locality, in addition to the 
 " present rateable property, no great progress 
 " can be made in local improvements. 
 
 " In connexion with any such general con- 
 " sideration of the law of rating attention would 
 " have to be given to the following facts. At 
 " present land available for buildiiig in the 
 " neighbourhood of our populous centres. 
 " though its capital value is very great, is pro- 
 " bably producing a small yearly return until it 
 " is let for building. The owners of this land 
 " are rated not in relation to the real value, but 
 '' to the actual annual income. They can thus 
 " afford to keep their land out of the market and 
 " to part with only small quantities, so as to raise 
 " the price beyond the natural monopoly price 
 ' ' which the land would command by its advantages 
 " of position. Meantime the general expenditure 
 " of the town on improvements is increasing the 
 " value of their property. If this land were 
 " rated at, say, 4 per cent, on its selling value, 
 " the owners would have a more direct incentive 
 " to part with it to those who are desirous of 
 " building, and a twofold advantage would 
 " result to the community. First, all the valu- 
 " able propel ty would contribute to the rates, 
 " and thus the burden on the occupiers would be 
 " diminished by the increase in the rateable pro- 
 " perty. Secondly, the owners of the building 
 " land would be forced to offer their land for
 
 THE RATING OF VACANT BUILDING LAND. 129 
 
 " sale, and thus their competition with one 
 " another would bring down the price of build- 
 *' ing land, and so diminish the tax in the shape 
 " of ground -rent, or price paid for land, which is 
 " now levied on urban enterprise by the adjacent 
 " landowners — a tax, be it remembered, which 
 " is no recompense for any industry or expendi- 
 " ture on their part, but is the natural result of 
 " the industry and activity of the townsj^eople 
 " themselves. Your Majesty's Commissioners 
 " would recommend that these matters should 
 " be included in legislation when the law of 
 " rating comes to be dealt with by Parliament." 
 
 From this view, however, three of the most Dissent of 
 experienced members of the Commission, Lord Snlis- members 
 bury, Mr. Goschen, and Lord Cross (then Sir Richard 
 Cross \ dissented. Lord Salisbury's reasons for this 
 course are succinctly expressed in the following 
 memorandum (p. 61): — 
 
 " A recommendation is made in the Report Lord 
 " that vacant land in towns or in the neighbour- cnticisn^'^ 
 " hood of towns should be rated on its capital 
 " instead of its income value. This paragraph 
 " was introduced into the Report just before it 
 " was signed, and I cannot find that it is based 
 " on any evidence laid before the Commission, 
 " I believe that the evil results of such a chano*e 
 
 o 
 
 " would outweigh its advantages. There may, 
 " possibly, be something to be said for a general 
 " recourse to the American system of taxing 
 '' capital instead of income values; but to adopt 
 " it in the isolated case of vacant land in or 
 
 I
 
 uo 
 
 URBAN RATING. 
 
 " about towns would not only lead to much 
 "evasion but would have injurious sanitary 
 " effects. It would operate as a penalty on all 
 " open spaces except those belonging to a public 
 " authority. Urban or suburban gardens would 
 " especially suffer. On the other hand, when 
 " any pecuniary advantage was to be gained by 
 " keeping the land vacant, its capital value could 
 " be easily reduced by collusive alienations of 
 " portions of it. By a colourable sale of the 
 " outside edge the capital value of an interior 
 " block could be, for the time, to a great extent 
 " destroyed." 
 
 Mr. And Mr. Goschen, with Lord Cross's concurrence, 
 
 anriord^ expressed his dissent in the following terms( p. G6) : — 
 
 Cross's 
 
 " I wish to record my dissent from the re- 
 commendation of the Report with reference to 
 the rating of vacant land, an extremely im- 
 portant point, on whicli no evidence at all 
 proportionate to the magnitude of the subject 
 was placed before the Commission. 
 
 " The suggestion involves an entirely new 
 principle in the law of rating, namely, taxation 
 of capital instead of annual value, and I could 
 not concur with such a far-reaching change in 
 the whole system of local taxation without 
 more examination of the bearings of the pro- 
 posal than the Commission were able to give 
 to them. It is almost certain, too, that if 
 vacant land were rated the measure would 
 have to be followed by the rating of empty 
 
 liouses. Evasion of the law by the 
 
 runnmjjf
 
 THE HATING OF VACANT BUILDING LAND. 131 
 
 " up of temporary structures would otherwise 
 " probably be easy, and there are other con- 
 *' siderations which would also contribute to 
 " render this further step inevitable. But if that 
 " were so, the rating of empty houses would act 
 "as a discouragement of that development of 
 " building which the rating of vacant land is 
 " intended to promote, and the general change 
 " would fail in its purpose." 
 
 The above passages have been set out at full 
 length, not only because they contain a useful sum- 
 mary of many of the more important arguments both 
 for and against the proposal to rate vacant building 
 land on its capital value, but also on account of what 
 appears to be their intrinsic authority. The extent 
 of this authority may, however, itself be usefully 
 ascertained before any independent examination is 
 made of these and other arguments on the subject. 
 
 There can be no question that in any ordinary The Re- 
 
 Dort ll3,S 
 
 case the greatest possible weight would legitimately no author- 
 attach to the Report of so large a majority of the Sse^it 
 
 Commission on any subject that was, in flict, before ^^^ 
 , , 1-1111 T n -,\ • . founded 
 
 them, and on which they had made full niquiry. The on no 
 
 opmion of the majority of a thoroughly competent ®^*^®^*^®' 
 
 tribunal on the evidence of witnesses whom they have 
 
 seen and heard must always be superior in deo-ree to 
 
 that of persons who can only read a printed record of 
 
 evidence. But in the present case, startling as it may 
 
 seem, there icas no evidence at all before the Commission 
 
 on this point. No proposal whatever to rate vacant 
 
 building land was made or discussed by any smgle 
 
 witness ; and no evidence whatever was given that 
 
 the present practice is bad, or that an alteration in 
 
 I 2
 
 132 URBAN RATING. 
 
 the law would be advantageous. The opmion ex- 
 pressed on this subject in the Report must, therefore, 
 be regarded as the casually expressed opinion of a 
 certain number of gentlemen with no extraordinary 
 means of information on the subject, not as a judicial 
 or authoritative condimon — for, indeed, there were 
 no materials whatever from which a conclusion could 
 be drawn. On this point the Report of the Royal 
 Commission carries no authority whatever. The 
 matter is still res Integra, and must be considered on 
 its merits. 
 Summary It Avill have been noted that both in the Report 
 
 reasons of the Royal Commission, and in the article in the 
 ch&nge. Westminster Review before cited, and in Mr. Sidney 
 Webb's pamphlet, there are three main reasons given 
 for rating vacant building land, namely : first, that 
 such building land is benefited by the expenditure of 
 the rates*; secondly, that the effect of rating vacant 
 building land would be to prevent its being held off 
 the building market ; and thirdly, that the area of 
 local taxation would in this manner be widened. 
 And the evidence of Mr. Cooper, Mr. Fatkin, Mr. 
 Mackenzie, Mr. Rhodes, and Mr. Saunders, who were 
 the principal witnesses who gave evidence in favour 
 of the proposal in question before the Select Com- 
 mittee on Town Holdings, was, roughly speaking, 
 based on the same arguments, aggravated to some 
 extent by a consideration of the great increase of 
 capital value which had in some instances accrued to 
 
 * The Eeport of the Eoyal Commission speaks only of this land 
 being benefited by the general " expenditure of the town on improve- 
 ments,'" which, as we have seen, absorb but a very small part of the 
 rates ; but as it goes on to reconimend rating to the ivJioIe rates, it 
 mtist for the sake of consistency be supposed to mean to include in 
 the term " improvements " the whole expenditure of the rates.
 
 THE RATING OF VACANT BUILDING LAND. 138 
 
 individual landowners. But of these three arguments 
 the second, and still more the third, are arguments 
 merely of expediency, not of justice ; and accordingly, 
 though not destitute of some force, carry nothing 
 like the same weight as the first, and may be briefly 
 dealt with at once. The mere fact that the area of 
 local taxation will be widened can be no reason or 
 justification for including within it property which 
 is not concerned with or benefited by local taxation. 
 And it is of no use to endeavour to give a further 
 impetus to vacant building land being brought into 
 the market * when the general tendency of land- ^yde 
 owners already is to anticipate, rather than to defer, l^gfg^' 
 the moment for lettino; their land for buildino-. Such Garrard 
 legislation, if it should not result in colourable evasions, 4^965. ' 
 would at any rate have a tendency to develop and ^g^gg!^ 
 encourage the "jerry" builder to a most unfortunate 2,942. 
 extent. Few spectacles, indeed, can be more melan- 
 choly than that, which is so often exhibited, of an 
 estate forced prematurely into the building market, 
 and half-covered with dismal erections, of which 
 many are unfinished and more unoccupied. 
 
 On the other hand, the first reason above stated The 
 is one of justice, and therefore of the utmost weight, from re- 
 If vacant building land is in fact benefited by the benefit 
 expenditure of the rales of the town which it is the 
 
 -.7 . . , . , , , strong 
 
 adjoins, it seems only just (unless there are over- one. 
 whehning reasons to the contrary) that it should 
 
 * Indeed, the result woiihi more probably be to crush out the small „ rrard 
 holder of vacant building land, who could not atTord to pay rates (1887) 
 without receiving income. Any reader of Mr. Henry George's 5,032 ct 
 Progress and Poverty will not be inchned to think that the plan ^^i- 
 which is prevalent in America of taxing land (and all other property) 
 on capital value has prevented land being held back in that country 
 from the buildmg market or by speculators.
 
 13t 
 
 UKBAN KATING. 
 
 Vacant 
 building 
 land is 
 not in- 
 tention- 
 ally or 
 immedi- 
 ately 
 benefited 
 by th.e 
 rates. 
 
 contribute to the rates from which it derives benefit. 
 If, on tlie other hand, vacant building land is not 
 benefited by the expenditure of these rates, it seems 
 equally clear that it should not so contribute. It is 
 necessary here again to consider, at any rate in some 
 rough measure, the purposes to which the rates 
 levied in towns are devoted. 
 
 Immediately that the question is regarded from 
 this point of view, the first point that will probably 
 strike the student of the subject is that if vacant 
 building land does derive benefit from the rates, such 
 a result is entirely foreign to the intention of those 
 who administer the expenditure of the rates. This 
 administration is, as I understand it, directed towards 
 providing certain necessaries and comforts of life for 
 the individuals forming the community who inhabit 
 the area from which the rates are levied. And if any 
 other purpose should animate the local authorities 
 in their expenditure, there can be no question that 
 they would soon be called to account by those whose 
 money they are expending. Nor can there be much 
 doubt that the local authorities do not in fact expend 
 the produce of the rates for the benefit of vacant 
 buildino; land. A^acant buildino; land does not house 
 any community requiring the lighting or repair of 
 streets or the maintenance of sewers, the payment of a 
 police force, the provision of education, the support of 
 the poor, or the satisfaction of the other multifarious 
 needs which are met out of rates and absorb the 
 great bulk of them. The vacant building land which 
 surrounds a towm adds no more to the expenditure 
 of that town than a similar amount of land a hundred 
 miles off. The rates of a town, or the vast propor- 
 tion of them, are devoted to the purposes of that
 
 THE HATING OF VACANT BUILDING LAND. lo.') 
 
 town as it exists, and of the community inhabiting 
 it for the time being. So soon as the vacant build - 
 injr land ceases to be vacant and is covered and 
 inhabited, it will both contribute to the rates and 
 share in the benefit of their expenditure ; but till 
 that time arrives it does not contribute to the rates 
 because it is not benefited by them. 
 
 It is indeed sometimes said that, although rates The 
 may not actually be expended in supplying any towns 
 needs of adjacent building land, it is the expenditure gxpendi- 
 of the rates of the town population which causes the t^re of 
 increase in the value of the building land, and quite 
 that therefore it is only fair to charge a part of that causes. 
 expenditure on the land in question. But this 
 argument will not bear careful examination. The 
 growth of the population and the expansion of the 
 town, which are themselves due in nineteen cases 
 out of twenty to natural advantages of position, 
 are tlie cause of a demand for buildino- land in the 
 vicinity ; and not the expenditure of the rates at all. 
 If the population of a town is stationary or declining, 
 however great the expenditure of the rates may be, 
 there will be no great demand for, or increase in the 
 price of, adjacent building land ; while on the other 
 hand, if the population of a town is increasing fast 
 there will be a great competition for building land on 
 the outskirts and a great increase in its value liow- 
 ever low the rates in the town may l)e. Indeed, so 
 far from high rates bene^ting building land, it is well 
 known that they act as a positive check on its 
 development, for reasons which have been set out in 
 a previous part of this work. The pro- 
 
 To deal completely with the subject, however, it ^^^^^ °^ 
 is still necessary to consider that small proportion of spent on 
 
 •^ improve- 
 
 ments.
 
 136 
 
 UKBAN RATING. 
 
 the rates which is expended in permanent improve- 
 ments, or rather that still more insignificant part of 
 that proportion which goes to defray the sinking-fund 
 in respect of those improvements. For though the 
 general expenditure of the rates is not intended to, 
 and does not in fact, benefit vacant building land, it 
 may yet be that, as in the case of reversions, monies 
 spent in discharging the capital cost of permanent 
 improvements are in fact a benefit to vacant building 
 land, and should therefore to that extent be defrayed or 
 contributed to by a special tax upon such land. This 
 is indeed, as has already been pointed out, the 
 apparent meaning of one of the reasons for rating 
 vacant building land given in the Report of the 
 Royal Commission on the Housing of the Working 
 Classes, though the recommendation which is there 
 made goes very far beyond the reason, and applies to 
 the whole rates, not to the very small proportion of 
 them now being considered. 
 Tfiisques- The answer to the question mooted in the last 
 hardly of paragraph is rather a practical than a theoretical one. 
 fmpor-^^ It will be remembered that streets and sewers for the 
 tance. accommodation of vacant building land as and when 
 it is brought into the market for building are con- 
 structed at the expense of the landowner, not of the 
 local authority ; so that these works, which are often 
 regarded by the general public as improvements 
 eff'ected at the public expense, are not really in 
 question at all. And the public improvements which 
 are in fact effected at the public expense are not so 
 effected for the benefit of the vacant building land 
 surrounding a town, but for the benefit of the town 
 itself ; are not as a rule undertaken on the outskirts 
 of the town but in central positions ; and benefit the
 
 THE RATING OF VACANT BUILDING LAND. 1.37 
 
 outlying building land (which of course forms the vast 
 bulk of vacant building land) if at all, to a very small 
 extent in comparison with the more central districts. 
 Kow and again such a work as a public park may be 
 created at the general expense in some comparatively 
 remote district of London. But even in these cases 
 the surrounding district is generally densely crowded, 
 and any large quantity of vacant building land is not 
 within range ; indeed, it is matter of everyday obser- 
 vation that where there is much vacant building land 
 it is itself turned to many of the purposes of a public 
 park or playground. 
 
 The position of vacant building land in these improve- 
 respects was clearly put before the Select Committee noTmade 
 by Mr. AVallis, the agent of the Eastbourne estates of ["^JSt 
 the Duke of Devonshire, which are, as is well known, ^^nd. 
 being developed on a system of leases with an option 
 to the lessee to purchase the freehold. Such vacant am, 
 building land does not, he said, " impose any addi- ^f;^^ 
 " tional works by the fact of its lying fallow on Garrard 
 " the part of the corporate body. . . . The rate- 
 " payers are not paying anything in respect of it. These 
 " people, as far as my experience goes (and it is 
 " rather large*), are not in advance of their works in 
 " anticijmtion of certain liiilclings. We have generally 
 " to push a corporation forward." This answer 
 obviously includes both the question of the ordinary 
 annual expenditure of the rates and that of any extra- 
 ordinary expenditure on permanent improvements. 
 The latter expenditure, which is, as has been seen, the 
 only one in respect of which any claim could legiti- 
 mately be made against vacant building land, is not 
 made for the purpose of benefiting vacant buildino- 
 land, and does not in fact benefit it except in rare 
 
 * Mr. Wallis was tlic first Mayor of Eastbourne. 
 
 (1887), 
 4,969.
 
 138 
 
 URBAN RATING. 
 
 Further 
 
 reasons 
 
 against 
 
 the 
 
 change 
 
 must be 
 
 stated. 
 
 Difficulty 
 of defin- 
 ing vacant 
 building 
 land. 
 
 Garrard 
 
 (1887), 
 
 5,036. 
 
 instances or to an exceedingly limited extent. In 
 very special cases, a rate for some special im- 
 provement obviously for the benefit of a vacant area 
 mio'ht, on proof of the facts to the satisfaction of 
 Parliament, be authorised to be levied on that area. 
 But there is no case for charo;ino; on vacant buildins: 
 land generally any part of the rates of the adjacent 
 town on account of any substantial benefit accruing 
 to such land through the expenditure of the rates. 
 
 The reasons given in the preceding paragraphs 
 against the proposals to rate vacant building land 
 will probably be considered a sufficient answer to the 
 arguments previously stated in favour of those pro- 
 posals. But the case in favour of the present system 
 and against any such change would be extremely in- 
 complete without noticing some additional reasons of 
 considerable weio;ht and interest. 
 
 The difficulty of defining what is vacant building 
 land is an objection rather to the practical working 
 out of the proposal in question than to the theoretical 
 arguments in flivour of it, but still there can be 
 no doubt that this difficulty would be extremely 
 great. Mr. Garrard, a surveyor of great experience, 
 in his evidence before the Select Committee on 
 Town Holdings, said : " I defy anyone to say when 
 " land is building land. It grows imperceptibly 
 " into building land." And whatever rough practical 
 definition of building land were adopted, not only 
 would all sorts of evasions be resorted to for the 
 purpose of eluding the definition, but tbe grossest 
 anomalies would be produced. Land actually fenced 
 in and occupied for agricultural, accommodation, or 
 market-gardening purposes could hardly be brought 
 within the definition ; while unfcnced laud through
 
 THE HATING OF VACANT BUILDING LAND. loU 
 
 which a road had been driven by the landowner 
 woidd ahno-st certainly be included. Yet any benefit 
 arising from the growth of the town or the expendi- 
 ture of the rates would increase the value of a piece 
 of land in the former condition as much as if it were 
 in the latter condition. And, besides the anomaly 
 arising from this fact, the tendency would be for 
 landowners to keep back the construction of roads 
 and the development of their land as much as 
 possible till actual building took place, and so not 
 only to retard development, but ultimately to develop 
 in a [)iecemeal, and therefore in a more expensive and 
 less satisfactory, manner. 
 
 Ai2:ain, tJie effect of such a measure has to be Effect on 
 
 open 
 
 considered with regard to the comparatively small spaces in 
 amounts of vacant building land that are kept open rating on 
 in the middle of towns as parks, gardens, or open capital 
 spaces of a private or semi-private nature. Amongst 
 such spaces in London are included the gardens of 
 the Archbishop's palace at Lambeth and of the Inns 
 of Court, the ornamental gardens in the centres of 
 the larger squares, and the parks and gardens attached 
 to private houses, of which, perhaps, the park of 
 Holland House may be selected as the most striking 
 example. There can be no question of the expedi- 
 ency of preserving these additional breathing spaces 
 or " lungs," or of the undesirability of adding addi- 
 tional piles of bricks and mortar within the present 
 already overburdened area. And it is hardly too 
 much to say that a sigh of relief passed through 
 Western London when a contradiction was recently 
 given to a rumour that the park of Holland House 
 was to be handed over to the speculative builder. 
 Yet the 6rst result of ratin"* vacant land on its
 
 140 
 
 URBAN RATING. 
 
 Such rat- 
 ing is in 
 conflict 
 ■with the 
 principles 
 of Eng- 
 lish taxa- 
 tion. 
 
 Adam 
 
 Smith's ° 
 principles 
 of taxa- 
 tion. 
 
 capital value if devoted to building purposes would 
 be to drive into the building market all, or most, 
 of the private or semi-private open spaces already 
 existing in towns, and to prevent tbe reservation of 
 any such open spaces in all schemes for the develop- 
 ment of building; land in the future. 
 
 But perhaps the strongest of all the reasons 
 against rating vacant building land on its capital 
 value has still to be stated. It is that such rating is 
 in conflict with the principles of taxation which are 
 at present accepted in this country, and could only 
 fairly be adopted as part of a general and sweeping 
 change. At the present time, and in this country, so 
 far as taxation is based on property at all, it is 
 estimated on the income resulting from property and 
 not on its capital value. And it would therefore be 
 obviously unfair in the case of one particular class of 
 j)roperty to reverse this process, and to tax on capital 
 and not on income. Nor indeed, strange as it may 
 appear to those numerous advocates of change who 
 are always ready to assume that any system prevailing 
 in this benighted island is incomparably inferior to 
 that adopted in any foreign country, is this method 
 of taxing income instead of capital an entirely 
 unreasonable one. Let us briefly examine a few of 
 its more important advantages. 
 
 Of the four great principles of taxation enunciated 
 by Adam Smith and substantially concurred in by 
 subsequent writers,* at least the first three, and probably 
 to some extent the fourth also, are in favour of 
 taxing income rather than capital. The material 
 
 * See Mill, Principles of Political Economy, Book V. chap. ii. § 1. 
 (pp. 483-4, People's Edition, 1805), from which the quotation of 
 Adam Sniith's principles is taken.
 
 THE HATING OF VACANT BUILDING LAND. 141 
 
 parts of these principles for the present purpose are 
 as follows, the italics being mine : — 
 
 "1. The subjects of every State ought to 
 " contribute to the support of the government 
 "as nearly as possible in proportion to their 
 "respective abilities; that is, in proportion to 
 "the revenue which they respectively enjoy 
 " under the protection of the State. . . . 
 
 " 2. The tax which each individual is bound 
 " to pay ought to be certain, and not arbitrary. 
 " The time of payment, the manner of payment, 
 " the quantity to be paid, ought all to be plain 
 " and clear to the contributor and to every other 
 "l)erson. Where it is otherwise, every person 
 " subject to the tax is more or less in the power of 
 " the tax-gatherer .... The certainty of what 
 " each individual ought to pay is, in taxation, a 
 " matter of so great importance that a very consU 
 " derahle degree of inequalify ^ it ajypears, I believ, 
 ^^ from the experience of all nations, is not near so 
 " great an evil as a small degree of uncertainty. 
 
 "3. Every tax ought to be levied at the And see 
 " time or in the manner in which it is most ^888)^"^^ 
 "likely to be convenient for the contributor to i.^iOd'^ 
 " pay it. A tax upon the rent of land or of houses *'^' 
 " payable at the same term at which such rents are 
 " usually paid is levied at a time when it is most 
 " likely to be convenient for the contributor to 
 •'pay. . . . 
 
 " 4. Every tax ought to be so contrived as 
 " both to take out and to keep out of the pockets 
 " of the people as little as possible over and 
 " above what it brings into the public treasury
 
 142 
 
 URBAN RATING. 
 
 Applica- 
 tion of 
 
 these 
 axioms. 
 
 The com- 
 munity 
 can hard- 
 ly do 
 tetter 
 than to 
 allow in- 
 dividuals 
 to follow 
 their own 
 profit, and 
 to rate 
 them on 
 the result. 
 
 "of the State. . . . First, the levying of it may 
 " require a great number of officers. . . ." 
 
 It is hardly necessary to point out the applicability 
 of these four classical axioms to the matter now 
 in question. By the first revenue and not capital value 
 is distinctly put forward as the basis of taxation. In 
 regard to the second it is obvious that, whatever the 
 degree of certainty that may be attained with regard 
 to the capital value of land, as to which there is some 
 dispute, there can be no question but that there is a 
 much greater degree of certainty as to the income 
 derived from it. The third axiom is so precisely in 
 point as to require no comment ; and as to the last, a 
 larger and more experienced and trustworthy (and 
 therefore more highly paid) staff will necessarily be 
 required for purposes of valuation if this is to be 
 made on the footing of a hypothetical capital value, 
 and not of a comparatively certain income value. The 
 teaching of the above passage could hardly be more 
 decidedly against the proposal to rate vacant building 
 land on its capital value. 
 
 It is indeed often said that individuals designedly 
 keep land back from the market to profit by the 
 enhanced value that will accrue to it. If there were 
 an enhanced value thus to be gained which was 
 actually produced by the expenditure of the money 
 of other people, not only would this be an illegitimate 
 method to adopt, but such a practice might be so 
 tempting as to become comparatively common. But 
 it has been seen that this inducement does not exist. 
 And a complete practical answer to any argiunent of 
 this kind seems to me that the owners of land, as of 
 every other kind of property, must live on income and
 
 THE HATING OF VACANT BUILDING LAND. 143 
 
 not on cu})ital ; that even if a man abstains for the 
 moment from securing an immediate income from 
 property, it is with a view of obtaining an ultimate 
 income from the same source whicli shall be so much 
 larger as to fully compensate him for his abstention ; 
 and that if the community are entitled to a percentage 
 on the property of an individual, they can hardly do 
 better than to allow him to develop his property in 
 the way that appears most advantageous to himself, 
 and then take their percentage on that result. 
 The community will lose with the individual by 
 any present sacrifice of income; but they will 
 proportionally gain by that ultimate increase of 
 income, the prospect of which has induced him to 
 make the present sacrifice. And they will therefore 
 do wisely by permitting individuals to consult their 
 own pecuniary interest and by then taking toll of 
 the result. 
 
 That in accordance with the above principles instances 
 
 T -111 • n ^ 1 1 of capital 
 
 nicome and not capital value has m lact been adopted value 
 as the measure of taxation in tliis country needs but uSed. 
 little proof. Great engineering works like the Severn 
 Tunnel or the Forth Bridge, which take years to 
 complete, have of course an enormous capital value 
 long before they are in a position to earn revenue; 
 yet until this happens they are unrated. Collections 
 of old china or of pictures have a large and (if well 
 selected) a growing capital value, yet no rates are 
 levied on them. The reversion to property in settle- 
 ment niay be of enormous value, and grows in value 
 as the tenant for life ages or becomes infirm or 
 sickly; and yet income-tax is thrown exclusively on 
 the prt'sent income of the tenant for life, the ca})itnl 
 value of wliich is steadily declining. In none of
 
 144 UKBAN RATING. 
 
 these cases is capital value regarded as a proper 
 
 subject for taxation. 
 j^j.Q There is still one possible alternative, namely, 
 
 American ^j^at we should throw over the canons of taxation at 
 
 methods 
 
 to be present prevailing m this country, and, so far as we 
 
 impose any direct tax on property at all, tax vacant 
 building land and all other property whatever on the 
 basis of capital value and not of mcome value. In 
 this respect indeed the States of the American Union 
 are often held up to us as an example; but before 
 adopting such a course it may be well to learn what 
 Americans themselves think of this system. It may 
 be remembered that in a previous chapter a passage 
 was given from a speech of Mr. Goschen in the year 
 1871 in which he quoted an opinion of an American 
 authority, Mr. Wells, as to the miquities perpetrated 
 under the American system, and the superiority of 
 our own ratmg system. But quite recently an elaborate 
 account * of the system in America has been given 
 by Professor Ely, who as a Professor of Political 
 Economy in the Johns Hopkins University, Baltimore, 
 and a member of the Maryland Tax Commission, 
 appears to possess a singular combination of theo- 
 retical and practical knowledge of the subject. 
 
 No. For ii is impossible withm the limits of the present 
 
 they lead . ^ . ^ , . 
 
 to fraud treatise to give any account oi the contents oi tins 
 fairness, thoughtful and practical work. But nothmg could 
 be stronger than the denunciation which it conta'ns 
 of the universal fraud and roguery which is produced 
 by the system of taxmg real and personal property 
 on their capital value, or than the impression which 
 it creates in favour of a system of taxation based in 
 general on income and not on capital. 
 
 * Taxation in American States and Cities. New York ; Thomas 
 Y. Crowell & Co.
 
 THE RATING OF VACANT BUILDING LAND. 145 
 
 The following is again a summary of the more summary 
 important conclusions arrived at in this chapter : — sions of 
 
 chapter. 
 
 1. The report of the majority of the Royal 
 Commission on the Housing of the Working 
 Classes in favour of ratino^ vacant buildin<>^ land 
 is based on no evidence whatecer., and therefore is 
 not authoritative. 
 
 2. To rate vacant building land would result 
 in throwing it more into the hands of the rich. 
 
 3. Vacant building land should not be rated 
 because it does not cause, and is not in general 
 benefited by, the expenditure of the rates. 
 
 4. It would be difficult to define building 
 land, and both difficult and expensive to ascertain 
 its value. 
 
 5. For the last two reasons, and because the 
 tax would be on capital and not on income, such 
 a tax would offend against sound principle. 
 
 6. Such a tax is in conflict with the prin- 
 ciples which govern the taxation of other 
 property in this country. An alteration should 
 be made with regard to all property, or else 
 with regard to none. 
 
 7. The taxation of capital value in America 
 results in great abuses and oppression and is for 
 inferior to our system of taxing income. 
 
 K
 
 146 
 
 URBAN UATIXG. 
 
 CPIAPTER IX. 
 
 GENERAL REMARKS AND CONCLUSION. 
 
 A few 
 points 
 still to be 
 noticed. 
 
 The 
 
 question 
 is an 
 owners' 
 not an 
 occupiers' 
 question. 
 
 There is no need to make any formal suQimary in 
 this chapter of the conclusions that have been arrived 
 at in opposition to all current proposals to tax ground- 
 rents or ground- values. The short summaries at the 
 end of the preceding chapters will sufficiently serve 
 this purpose. But there are one or two points that 
 have been already touched, which are nevertheless of 
 such importance as to justify some amount of repeti- 
 tion and enforcement. It is to this purpose that this 
 short final chapter will be devoted. 
 
 It has been already sufficiently pointed out that 
 the current proposals for a change in rating are not of 
 real importance as between occupiers and " building- 
 downers," but as between " building-owners " and 
 the owners of fixed rents and reversions. In the 
 former case not only do the owners already pay 
 the whole rates in the great majority of town 
 holdings, but the shortness of most occupa- 
 tion tenancies, the competition which prevails 
 between diff'erent kinds of tenancy, and the 
 facilities for changing residences, all tend to 
 prevent any increase in rates being unduly thrown on 
 the occupier.* And so the question, in fact, comes 
 to be one between two sets of capitalists who divide 
 up between them the value of town IiousCkS, namely, 
 
 * Even where the question is professedly treated as one between 
 owner and occupier it generally slides unconsciously into a question
 
 GENEKAL REMAKKS AND CONCLUSION. 147 
 
 the building-ownei* on tlie one side and the owner of 
 the fixed rent-charge, or ground-rent, on the other 
 side. And between these two persons there seem to 
 me to be three broad aspects in which the case may 
 be considered. They are these: — (1) How, inde- Three 
 pendently of any covenant to pay rates, ouglit the aspects, 
 rates to be adjusted between these two persons? 
 (2) Is there any sufficient reason for prohibit- 
 ing, by legislation, the covenant which is alwaj's 
 entered into that the building-owner shall pay the ' 
 rates? And (3) : Is there any sufficient reason 
 for settin"- aside existino; covenants that the buildin«x- 
 owner shall pay the rates? A few paragraplis will be 
 devoted to answering each of these important questions. 
 
 It has been seen that where land is let for build- -*■ ^ent- 
 
 1 • T /. , . charger 
 
 nig purposes at a rent-charge or rent nistead of being has an 
 sold outright, the bargam is that the landowner shall Sn'but^^ 
 receive not a certain proportion of the rents and °°* ^^^ . 
 
 •^ ^ ownevfihip 
 
 between two sets of owners, as the following curious passage from 
 Lord Hobhouse's article in the Contemporary Review will show. 
 The italics are mine : — 
 
 " In the case of old leases the owner's property has been 
 " improved by the forced payments of the occupier under new 
 " laws and a new policy which could not have entered into the 
 " calculations of the parties. I will give as an example the lease 
 " under which I hold my house. It was made in 1833, and 
 " it contains the usual covenant to pay all rates and taxes . . . 
 " As assignee I have undertaken to perform that contract " 
 (p. 155). 
 An occupation lease granted in the year 1833, and in full swing in 
 1888 ! At any rate this is hardly a typical case. But there can be 
 little doubt that the lease in question was in fact an ownershi}) lease, 
 for which money was paid, and that it is as an owner &nA p^^rchaser 
 of the lease, not as an occupier, that Lord Hobhouse is (or rather 
 might have been) prejudiced. If, instead of 2)urchasing ft-om liis pre- 
 decessor in title, he had taken an occupation lease from him, the 
 covenant as occupier to pay all rates and taxes would have been 
 to pay the rates and taxes now existing. 
 
 K 2
 
 148 UK BAN RATING. 
 
 j^rofits of the building, but a fixed sum which shall 
 participate neither in any increase nor in any decrease. 
 And therefore, though the owner of this fixed 
 annual payment has an interest in the house, he is not 
 the owner of any part of it. He is in precisely the 
 position of an annuitant, mortgagee, or other incum- 
 brancer entitled to a fixed sum out of the income of 
 the house, but not entitled to any share in the profits 
 or increase of it, all of which will be taken by the 
 " buildino--owner." Since then he does not share in 
 the advantages, he should also be relieved from vaiy 
 share in the burdens of ownership. The difference 
 between a person so entitled to a fixed annual 
 payment and a person entitled to an aliquot share of 
 profits is, to my mind, precise and definite and 
 exactly equivalent to the difi'erence between a man 
 who is a creditor or incumbrancer of a partnership 
 and a member of the firm. And equally precise and 
 definite is the analogy between the man entitled to 
 this fixed annual payment and a mortgagee, who is 
 indeed always interested in his security being main- 
 tained at a level sufiicient to secure his debt, but can 
 never share in any value that may be added to it, 
 and is not therefore expected to share in any of the 
 burdens cast on it. 
 Popular This state of facts appears often to be obscured 
 
 okf^^mi ^y ^^^^ popular phraseology (from which I cannot 
 leading, profess to have shaken myself free even in the pre- 
 sent treatise) which speaks of the one man as the 
 owner of the land and the other as the owner of the 
 building. No doubt originally the one man teas 
 the owner of the land, and the other, by himself or 
 those who financed him, found the money to erect 
 the building. But on the conclusion of this opera-
 
 GENEIIAL KEMAKKS AND CONCIX'SIOX. 1 19 
 
 tioD the land and the building become one, and the 
 ownership of each part is divided in precisely the 
 same manner and to precisely the same extent. The 
 man who was the owner of the land has become 
 merely the owner of a fixed rent-charge or ground- 
 rent issuing out of ground and building alike. The 
 man who built the house or the purchaser from him 
 has become the owner both of the building and of 
 the land, subject only to a fixed rent-charge or 
 ground -rent. 
 
 The importance of a clear grasp of this central The 
 fact can hardly be overestimated. In the popular l^ffl} 
 mind the man who was the landowner a'.s- the [^^'i ^""^ 
 
 11 Mil nouse IS 
 
 landowner still, and anything which, like the expen- identical. 
 diture of the rates, may be supposed to enhance the 
 value of the land is supposed to enure to the benefit 
 of this landowner. Indeed, the whole basis of the 
 argument in many writings, and in Mr. Moulton's 
 pamphlet in particular, appears to rest on the assump- 
 tion that " swollen " land-values go into the pockets 
 of those who are receiving the fixed primary rents, 
 which are either original ground-rents or have been 
 brought by the increase of ground-value within the 
 rent which the ground would now fetch if vacant. 
 But in truth the exact contrary is the case. All 
 increase of ground-value (that is, of the income 
 value of land) belongs to the persons who have the land 
 in their possession— that is, to the persons who have the 
 buildings and the land to let at a rack-rent to occupiers 
 or to enjoy themselves. The persons who have tlie 
 buildings and land together to dispose of and turn 
 to account are the landowners in the proper sense 
 of the word, though their land has buildings on it. 
 The persons who receive tlie rents representing the
 
 150 
 
 URBAN KATING. 
 
 The ques- 
 tion of a 
 reversion 
 con- 
 sidered. 
 
 The 
 
 ordinary- 
 contract 
 as to rates 
 is a proper 
 and 
 
 reason- 
 able 
 
 arrange- 
 ment. 
 
 former value of tlie ]and have ceased to be the land- 
 owners, have therefore ceased to be benefited by the 
 increase in the value of the land, and have also 
 rightly ceased to be burdened with the charges on 
 the land. 
 
 So far, then, as the interest of landowners may 
 have been reduced to mere fixed rent-charo;es or 
 ground-rents, or so far as other j)ersons may have 
 acquired such an interest in land covered w4th build- 
 ings, natural justice would, apart altogether from 
 contract, prescribe that they should be indemnified 
 from any burdens in respect of the land and buildings. 
 But so far as any such person may, in addition to 
 his present fixed ground-rent, have a tangible rever- 
 sion in the land and buildings (a point not hitherto 
 considered in this chapter), natural justice would also 
 prescril)e,apart from contract.that he should in some way 
 or other contribute to that part of these burdens which, 
 as representing permanent improvements, will enure 
 to the benefit of his reversion when it falls in. It 
 has been seen, however, that this part of these bur- 
 dens is comparatively insignificant and very difficult to 
 calculate : and that while these reasons mio;ht of 
 themselves, as in other analogous cases, be sufficient 
 to justify this part of the burdens also being defrayed 
 by the landowner in receipt of the profits for the 
 time being, it is at any rate a natural, legitimate, 
 and convenient thins; that a contract should be 
 entered into that this should be done. 
 
 This consideration, indeed, helps to furnish an 
 answer to the second of the three questions above 
 stated, namely, whether there is any sufficient reason 
 for prohibiting a covenant that a building-lessee 
 should pay all rates. AVhere there is no reversion 
 or no practical reversion attaching to the interest
 
 GENERAL REMARKS AND CONCLUSION. 15 1 
 
 of the owner of the fixed rent-charge or ground- 
 rent, it has been seen that such a covenant 
 is but the solemn, verbal recognition of an 
 obligation that should in any case attach to the estate 
 of the man who is the real owner of land and 
 buildings alike. And where there is a practical rever- 
 sion such a covenant only expresses a natural and 
 legitimate arrangement on the part of both parties 
 that the person who should in any case bear the vast 
 proportion of the rates, and could in any event be 
 justly relieved only of an amount of these rates both 
 insignificant and excessively troublesome to ascertain, 
 should also undertake the settlement of this trifling 
 and almost unascertainable portion. Why in the 
 world should legislation be invoked to prohibit an 
 agreement founded on such purely practical and 
 businesslike grounds ? 
 
 But a few more words are necessary to press fully l*^_miiver- 
 homethe true force of this argument. The contracts that the best 
 are every day made between landowners and builders f^°lll^ 
 are fully considered and threshed out between the vemence. 
 parties in every possible debateable item. The exact 
 amount of ground-rent, the value of the houses to be 
 built, the length of time for which a peppercorn rent is 
 to run, the exact covenants to be inserted in the lease — 
 these are but a few of the terms which are exhaust- 
 ively debated between the parties, assisted almost 
 alwavs by solicitors and sometimes also by counsel. 
 And"^ as a result of these discussions modifications 
 of all kinds are from time to time adopted hi all 
 these particulars. The covenant by the lessee to pay 
 all rates and taxes is, so far as my experience goes, 
 7ieve}' contested at all and invariably inserted. AVhat 
 other reason for this can be given than that between 
 business men it is recognised that the man who has
 
 152 
 
 URBAN EATING. 
 
 "Why 
 should 
 such, con- 
 tracts be 
 interfered 
 with in 
 the case 
 of houses 
 alone ? 
 
 the small fixed income should get it net, and that the 
 man who has the bulk of the present income and the 
 whole of any increase should bear all burdens, even 
 if some small part of them should ultimately enure 
 to the benefit of the other party ? 
 
 But the matter does not end even here. Such 
 arrangements are constantly entered into with regard 
 to many other kinds of property. All mortgagees 
 receive a limited but unburdened income, while all 
 mortgagors take the whole of any benefit that may 
 accrue and bear the whole of any burden. The same 
 is the case between the holders of the debenture and 
 preference stocks of railways, canals, waterworks, 
 gasworks, docks, and almost every other important 
 undertaking on the one hand and the holders of the 
 ordinary stock and shares in the same concerns on 
 the other hand. Nay, the pressing need at the 
 present day for investments which return a small but 
 fairly certain income is still farther illustrated by 
 the success which has attended the recent " stock- 
 " splitting " operations of trust investment and con- 
 version companies, and by the proposals which are at 
 present being brought forward for legislati"^^e sanction 
 to similar proceedings in the case of the ordinary 
 stocks of the more prosperous railway companies. 
 Is it to be said that house j^roperty is the only form 
 of investment out of which investors are to be 
 ])rohibitGd from securing to themselves a small but 
 invariaWe return ? And are legislators prepared to 
 drive out of house property the whole of the supply 
 of cheap or trust capital ? This would inevitably 
 be the result of any such legislation, and would 
 necessarily cause (as has been previously shown) a 
 rise in house-rent. It must require a much stronger
 
 GENERAL REMARKS AND CONCLUSION. 153 
 
 case than any that has yet been put forward to 
 cause the legishiture to take so disastrous a step 
 as tliis. 
 
 Some evidence that was given before the Select An 
 Committee on Town Holdings is particularly appo- 
 site to tliis part of the subject. It was stated that Tewson 
 
 fl887) 
 
 builders having freehold land to develop and traders 2,925-' 
 owning the freehold of their premises often raise Garrard 
 capital cheaply by converting themselves into lessees ^^p|P' 
 and selling to a purchaser the freehold of their property Vigers 
 subject to a lease to themselves. And this plan is 1^534.' 
 said to be preferable to raising the amount required 
 on mortgage, because there is no liability to have a 
 principal sum called in. It is clear that if the income 
 to be offered to a purchaser on such a transaction 
 should be necessarily a fluctuating one, any money 
 raised in this way would be obtained on terms so 
 much more onerous that the method would probably 
 have to be abandoned altogether. Yet what is there 
 unsound or improper in such a transaction as this? 
 And what necessity has been shown for any legis- 
 lative interference as between two sets of capitalists 
 who so thoroughly understand their own business? 
 
 Assume for the moment that the freeholder so Another 
 . 1 . • n ^ 1 1 i 1 example, 
 
 wishmg to raise funds was a company, and that the 
 
 company was proposing to raise £25,000 by selling 
 a freehold rent-charge of £1,000 a year on property 
 of the annual value of £5,000 per annum. Accord- 
 ing to the new views this £1,000 a year must, 
 in all future cases at least, be subjected to a pro- 
 portionate share of the rates on the property. And 
 yet the company can obtain substantially the same 
 result by creating perpetual debentures carrying 
 £1,000 per annum interest and secured on the })ro-
 
 154 URBAN RATING. 
 
 perty in question, and the interest on these deben- 
 tures will- admittedly not be rateable. Where is the 
 difference in i^rinciple between the two methods 
 w^hich should cause this startling difference in result? 
 Existing -j^j^g neo;ative answers that have been o;iven to 
 
 contracts. & ^ o 
 
 the first two of the three questions that w^ere pro- 
 pounded above for solution necessarily involve a 
 negative answer to the proposal to set aside existing 
 contracts to pay all rates. If such contracts are in 
 accordance with natural justice, and if there is no 
 sufficient reason for prohibiting them in the future, 
 it w^ould a fortiori be improper to set aside existing 
 contracts of this kind. But the argument for supporf- 
 ing existing contracts is a cumulative one, and it is 
 but rio-ht to set out those additional reasons wdiich, 
 even if such contracts went beyond the natural justice 
 of the case independently of contract, and ought to 
 be restrained in the future, would still appear suffi- 
 cient to prohibit any interference with existing 
 contracts. 
 The The covenant to pay all rates and taxes which is 
 
 o/these contained in a building-lease is a bargain entered 
 contracts; jj^to upon good consideration and by a perfectly 
 competent party ; and above all it is one part, and 
 one part only, of a much more varied and extensive 
 contract. On wdiat principle is such a bargain to be 
 reopened at all? And if reopened, why is not the 
 whole contract to be reopened at the same time? 
 Freeholders who have let at a small fixed rent berause 
 it is fixed and because it is to be kept free from the 
 payment of rates and taxes, will certainly not sufi'er 
 on the whole if, while they are deprived of the benefit 
 of this indemnity on the one hand, they are on the 
 other allowed to reap the benefit of the increase of 
 land-value which has since occurred ; but will lessees
 
 GENERAL REMARKS AND CONCLUSION. 155 
 
 and other " buildiDg-owners " view the matter in the 
 same hght ? Is not tlieir demand merely to have the 
 contract reopened only as to that item of it which 
 is to their disadvantasre? And is this a demand which 
 eithe*' justice or common sense can recommend? 
 
 But the case is even stronger than if it rested particu- 
 between the original parties to the contract. Where between 
 the building contract is an old one — and it is these sequent 
 instances that are said to be particularly deserving of investors, 
 relief — there have in general been several changes of 
 the ownership in each interest in the house. In these 
 cases the purchaser of the interest of the building- 
 owner has in each case purchased with full knowledge 
 of the obligation to pay all rates and taxes, and has 
 adjusted the terms of his purchase accordingly; while 
 the purchaser of the fixed rent-charge or ground-rent 
 has also been aware of the indemnity against rates to 
 which his interest is entitled, and has given a higher 
 price in consequence. On what principle is the 
 former to be relieved of a part of the obligation 
 subject to which he purchased, and the latter to be 
 mulcted of a part of the indemnity for whicb he has 
 paid? Wliy is Peter to be robbed to pay Paul? Or, 
 as a writer in the Star of the 5th November, 188(S, 
 trenchantly expressed it: — 
 
 " For my part I don't see the fun of taxing 
 " the Duke of Westminster simply to put money 
 " into the pockets of the trustees of the Cubitt 
 " estate in Pinilico, or taxing the Marquis of 
 " Salisbury to enrich the leaseholders of his 
 " slum property." 
 
 It has indeed been urged that the proposed tax Examina- 
 on ground-rents will be of the nature of a new tax, someargu-
 
 156 
 
 URBAN EATING. 
 
 ments for 
 breaking 
 such con- 
 tracts. 
 
 Even a 
 new tax 
 may- 
 amount to 
 confisca- 
 tion. 
 
 Mathews 
 
 (1888), 
 
 1,668. 
 
 wliich the State lias always a right to impose; and the 
 analogy of income-tax is also sometimes invoked. 
 Neither argument, however, will bear examination. 
 Apart from the fact that the covenant contained in 
 building contracts does in fact extend to new taxes, 
 it is clear that the tax would not in fact be a new 
 one at all, but merely a method of enabling one set of 
 capitalists to throw on another set part of the burden 
 of an existing tax. And this marks the distinction 
 between such a tax as is proposed and income-tax. 
 Not only is income-tax thrown on every class 
 of income alike, but the person who deducts 
 income - tax on any payment of rent does so 
 only for the inirjpose of handing it over to the State, not 
 so as to retain the deduction for his own benefit. The 
 contract between the parties is no more altered than 
 if the rent were still paid in full, and the income-tax 
 were then paid by the receiver of rent out of the 
 income received. The deduction is merely a method 
 of collection for revenue purposes. But the very 
 object of the present proposals is to relieve the person 
 making the deduction and to allow him to retain the 
 deduction for himself. No further revenue whatever 
 would accrue to the local authority or other body 
 receiving the tax. The result would be, not that 
 any new tax would be paid, but that one interest in 
 land would directl}?' contribute to taxation in exoner- 
 ation of another interest. 
 
 But even if the tax proposed icere a new one, 
 that would not justify the imposition on one parti- 
 cular existing class of property of a heavy burden 
 unbalanced by any counterbalancing burden on other 
 kinds of property. Mr. Mathews has well pointed out 
 in a note to his evidence before the Select Committee
 
 GENERAL REMARKS AND CONCLUSIONS 157 
 
 on Town Holdings that to a proposal of this character 
 applies with equal justice the language of John 
 Stuart Mill respecting "the proposition of an 
 " exclusive tax on realised property." The quotation 
 is as follows* : — 
 
 " Except the proposal of applying a spono-e 
 " to the national debt, no such palpable violation 
 " of common honesty has found sufficient 
 " support in this country during the present 
 " generation to be regarded as within the 
 " domain of discussion 
 
 " The burthen thus exclusively thrown on 
 " the owners of the smaller portion of the wealth 
 " of the community would not even be a 
 " burthen on that class of persons in perpetual 
 " succession, but would fall exclusively on those 
 " who happened to compose it when the tax was 
 " laid on. As land and those particular securities 
 " would thenceforth yield a smaller net income 
 " relatively to the general interest of capital and 
 " to the profits of trade; the balance would rectify 
 " itself by a permanent depreciation of those 
 " kinds of property. Future buyers would 
 " acquire land and securities at a reduction of 
 " price equivalent to the peculiar tax, which 
 " tax they would, therefore, escape from paying; 
 " while the original possessors would remain 
 " burthened with it even after parting with the 
 "property, since they would have sold their 
 " land or securities at a loss of value equivalent 
 '' to the fee-simple of the tax. Its imposition 
 
 * Principles of Political Economy, Book V., chap. 2, § iii. (People's 
 Edition, p. 487).
 
 158 UUBAN llATIXG. 
 
 ' would thus be tantamount to the confiscation 
 ' for public uses of a percentage of tlieir pro- 
 ' perty equal to the percentage laid on their 
 ' income by the tax. That such a proposition 
 ' should find any favour is a striking instance 
 ' of the want of conscience in matters of 
 ' taxation resulting from the absence of any 
 ' fixed principles in the public mind, and of any 
 ' indication of a sense of justice on the subject 
 'in the general conduct of governments. 
 ' Should the scheme ever enlist a large party 
 ' in its support, the fact would indicate a laxity 
 ' of pecuniary integrity in national afl^airs 
 ' scarcely inferior to American repudiation." 
 
 With this quotation the present treatise may fitly 
 close. There can be no fear of tlie proposals to 
 rate ground-rents being adopted, as to existing con- 
 tracts at any rate, if our politics are still animated 
 by a tithe of the sterling honesty and independence 
 of thought which breathe through every line of this 
 passage.
 
 159 
 
 APPENDIX. 
 
 {See pages 67 and 68.) 
 
 The central point of my examination of Mr. Moulton's 
 proposal and of his reply consists in an illustration which 
 he had given in his pamphlet and which I adopted with a 
 slight modification. It is as follows : — 
 
 A, a lando\Yner, has leased a site for its full value, £100 
 per annum, to B, a builder, who has erected thereon a house 
 worth £600 a year (i.e., £500 in addition to the original 
 ground-value of £100), and has secured his profit by letting 
 the house to C {alias Bb), in consideration of a premium, 
 for the whole term at £500 per annum. The land is then 
 supposed to increase in value to £500 per annum, and 
 therefore the house and land to £1,000 per annum, the 
 whole increase of £400 per annum thus going into the 
 pocket of C. 
 
 Under Mr. Moulton's scheme I apprehended that after 
 this increase of ground-value B's fixed net rent of £400 per 
 annum would now be rated to its full extent as having 
 fallen within the limit of ground- value, zvhile every penny of 
 the increase of £400 per annum tconld go unrated into the 
 pocket of C. The result is both startling and ludicrous, and 
 sufficient of itself to condemn any scheme which should 
 bring it about ; and yet Mr. Moulton acknowledges that 
 this is the result which his proposal would produce, and 
 appears to see no absurdity in it. And his only answer 
 consists in exclaiming "Does not B share in the rise of 
 "ground-value?" and in pointing out that the capital
 
 160 URBAN RATING. 
 
 value of B's rent will have increased, as he estimates, from 
 18 years' purchase to 27 years' purchase.* 
 
 But this importation of capital value into the discussion 
 is in fact entirely foreign to the whole spirit of Mr. Moulton's 
 pamphlet, which deals with income and income alone. 
 Nay, the very phrase " ground- value," from which he seeks 
 to extract suggestions of capital value, has been several 
 times defined by him in his pamphlet, once even in italics, 
 as the actual rental value of the land, and was quoted (also 
 in italics) in the summary which I gave of his pamphlet 
 before criticising it. 
 
 As an argumentum ad hominem this would probably be 
 accepted as conclusive ; but the matter is too important to 
 be concluded by a mere triumph over an adversary. 
 Assume, for the moment, that capital value and not merely 
 income value ought to be taken into account. Is it satis- 
 factory that the whole burden of the rates on £400 a year 
 should be thrown on B because the capital value of his 
 investment has increased by a few years' purchase, while C, 
 ivhose income and capital have both been increased £^00 per cent., 
 escapes entirely scot-free? And will it still be satisfactory (as 
 would undoubtedly be the case under Mr. Moulton's proposals) 
 that B's £400 per annum should still bear this burden 
 without dimmution, even when it approaches — for it is only 
 a terminable annuity — within twenty, or ten, or two years 
 of its termination and so is losing all its capital value ? 
 
 But the subject may be looked at from another point of 
 view. The value of buildings bears no necessary or fixed 
 relation to the ground-rents of the sites on which they are 
 erected ; and we may well suppose, without altering the 
 
 * Twenty-seven years' purchase for this improved leasclwld gromicl- 
 rent is a ridiculous vahaation to be made by a professing expert. Mr. 
 Edward Tewson, the well-known estate-agent, has been kind enough 
 to value at my request this hypothetical ground-rent. He values it 
 before the rise in ground-value at from 18 to 20 years' purchase 
 and after the rise at from 18 to 21 years' purchase, considering that 
 the extra security is almost compensated for by the thirty or forty 
 years which must have nm off the lease before such a rise in 
 ground-value could have occurred.
 
 APPENDIX. 161 
 
 other conditions of the problem, that the buildings erected 
 by B were of the annual value (apart from the site) of 
 £2,500 instead of £500, in which case the premium paid 
 by C for a lease at £500 per annum would be propor- 
 tionately augmented. Now in this latter ease the effect of 
 a rise of £400 per annum in the value of the land would 
 be to increase B's margin of security from £2,100 to L'2,500 
 per annum, an increase that would obviously have quite an 
 inappreciable influence on the capital value of B's secured 
 rent. And yet in this case, as in the former one, the 
 whole rates on the whole £400 a year would be thrown 
 upon B's shoulders, while the whole increase of income 
 w^ould go unrated to C. 
 
 Now, no other attempt whatever has been made by 
 Mr. Moulton to deal with my central position, that increase 
 in " fi round -value " (as defined in his pamphlet) is received 
 by the persons entitled to the possession or to the receipt 
 of the ultimate or rack rentals of the house and ground, 
 not by the persons who receive affixed annual payment for 
 what was the value. But until that position is shown to 
 be untenable, it can never be fair, in respect of an increase 
 which goes into the pocket of the owner of the rack-rent, 
 to rate the owner of a fixed rent because the capital value 
 of his property is increased to some indefinite extent 
 having no relation to the burden sought to be cast on 
 him. 
 
 Mr. Moulton lays great stress in his reply on the well- 
 known doctrine that it is useless to attempt to rate directly 
 the rent representing the cost of a structure, or " building- 
 " rent," because the builder will cease to build until rents 
 have risen to such a point as to enable him to throw the 
 rates in respect of the manufactured article (the house) 
 on to the consumer — that is, the occupier. But it is strange 
 that he does not see that, m the instance in question 
 between us, B's rent of £400, which he proposes to rate, is 
 a "building-rent," though it has by the increase in 
 ground-values been brought within the ground-value 
 for the time being. This rent is a part of B's 
 remuneration for building the house just as much 
 
 L
 
 162 URBAN RATING. 
 
 as the premium which C pays him. And if this rent 
 is subjected, as Mr. Moulton proposes, to prospective local 
 taxation on every increase of ground-value, builders will in 
 future, on his own showing, throw on occupiers, in the 
 shape of rent, the estimated amount of this prospective 
 rating just as surely as would be the case with present 
 rates. 
 
 To a merely personal question that arises between Mr. 
 Moulton and myself I shall devote but two sentences. 
 Mr. Moulton accuses me of having (not of malice prepense, 
 but only from "inaccuracy of mind too habitual to be 
 "conscious") entirely misrepresented upon an important 
 point the views of John Stuart Mill, which, he asserts, are 
 to the "very opposite effect." It is unpleasant to have to 
 meet assertion by assertion in a matter of this kind, and I 
 can only ask readers unused to Mr. Moulton' s methods of 
 controversy to carefully peruse the passage in question, 
 bearing in mind the difference between (1) " annual value " 
 or " rack-rent," (2) ground-rent as used by Mill, and 
 (3) " value of the ground " or " ground-value " as used by 
 Mr. Moulton, and then to decide which of us is the more 
 accurate in his statement. 
 
 The really material and important point, however, for 
 persons interested in the question to grasp is this, that, 
 assuming all Mr. Moulton 's premises, his proposals would 
 entirely fail of the effect he desires in the following two 
 ways. First, they would rate, not the recipients of the 
 increase of ground-value, but the recipients of fixed rents, 
 not the rents created, but only those maintained. And 
 secondly, they would, as ground-values rise, rate those 
 very building-rents which Mr. Moulton considers it of no 
 use to rate at all, but which do, in fact, come next in order 
 of succession to the original ground-rents and so would be 
 first brought within the range of ground- values. In fact, 
 the scheme is founded on an entire misapprehension and 
 mistake ; and the only wonder is that a United Committee 
 for Advocating the Taxation of Ground Eents and Values 
 should, after several years' existence, have nothing better to 
 put forward than a proposal of this kind, the effect of which 
 would be merely to rate the wrong man.
 
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