The government will come under pressure on Friday to consider a tax on land as a fairer response to the financial crisis by shifting the burden of taxation to wealthy businesses and individuals.
Supporters of a private member's bill calling for a feasibility study also claim the new tax would allow the government to cut income tax on low and middle incomes.
The Green MP Caroline Lucas, who is sponsoring the bill, has backed the new tax following a series of reports by high-level thinktanks arguing that the current mix of taxes is unfair and discourages economic activity.
The Paris-based OECD, the International Monetary Fund and the UK's Institute For Fiscal Studies (IFS) are among many organisations which argue for ending the reliance on taxes on employment and property transactions.
A report last year for the Treasury by the IFS called on ministers to investigate how an annual tax on land would work and for it to be costed as part of a wideranging review of the tax system.
But the chancellor ruled out any wealth taxes in this parliament during his speech to the Tory party conference in the autumn. His refusal followed lobbying by Liberal Democrat MPs for a tax on wealth to make up for lost tax revenues following the end of the 50p tax rate and the trend for companies to move their tax domicile offshore.
David Gauke, the Treasury minister responsible for tax issues, told Lucas in a letter that it was already clear a land value tax (LVT) would be expensive and an unfair burden on property developers, which own undeveloped sites that currently escape tax.
Lucas said: "Given the increasing support among economists and politicians for a land value tax, I had hoped the Treasury would approach this effort to create fairer property taxes with at least an open mind. Yet in responding to my debate on LVT, Treasury minister David Gauke stubbornly refused to consider even commissioning research into the reform, whilst completely turning a blind eye to the potential benefits, which are considerable."
She added: "Perhaps most worrying was Gauke's astonishing misrepresentation of the conclusions of IFS Mirrlees review – claiming that the IFS had decided LVT would be unworkable, when in actual fact it had said the case for an 'official effort' to 'design a workable system' for LVT is 'overwhelming'. Rather than creating problems and ignoring expert advice, the Treasury should be looking at progressive solutions to make our broken tax system more effective."
