"It will be said that in a world of internationally mobile capital and people it is counterproductive to tax personal income and corporate profit to uncompetitive levels. That is right. But a progressive alternative is to shift the tax base to property, and land, which cannot run away, [and] represents in Britain an extreme concentration of wealth."

Vince Cable, Liberal Democrat conference, Liverpool, 22 September 2010

Just recently a friend of mine gave up the modest, two-bedroom flat he had lived in for three decades off Bedford Square, in Bloomsbury. With its tall, imposing Georgian terraces, Bloomsbury was once the heartland of literary London, but steeply rising rents have long since chased out the publishers, bohemians and dilettantes. My friend "held" the flat on a 30-year lease; with the lease about to expire, he was offered an extension provided that he agreed to a considerable increase in rent - to £2,000 per week. Reluctantly, he let the flat go. I had expressed an interest in buying the freehold, but the building occupies land owned by the Bedford Estates, part of the property portfolio of the Duke of Bedford.

As with many of the old landowners of Britain, the Duke of Bedford controls land in Bloomsbury through a quirk of ancestral good fortune. The 1st Earl of Bedford, John Russell, was granted various properties and land, including the town of Tavistock in Devon, "le Covent Garden" and "Long acre", in 1552 by the Crown. The Bloomsbury estate entered the family in 1669 when William Russell (son of the 5th Earl, who was later made the 1st Duke) married a young widow, Lady Rachel Vaughan, daughter of the 4th Earl of Southampton.

The 11th Duke of Bedford agreed to sell off the land he owned in Covent Garden in 1914. Later, in the aftermath of the Second World War, with the third Labour government in power following the Attlee landslide, the Bedford Estates were forced, through compulsory purchase orders, to relinquish some of their land in Bloomsbury to accommodate the expansion of University College London and the British Museum. The Labour manifesto of 1945 stipulated that the party believed "in Land Nationalisation and will work towards it, but as a first step the State and the local authorities must have wider and speedier powers to acquire land for public purposes wherever the public interest so requires". The Bedford Estates lost land for which they were fully compensated, but retained ownership of 20 acres of Bloomsbury.

The cousinhood

From the later 1800s to the early 20th century, land reform was a convulsive political issue and contributed in part to the split within the Liberal Party over Ireland. The plight of the Irish peasantry and tenant farmers and the rebellion against absentee landlords, as well as William Gladstone's stubborn commitment to Irish Home Rule, placed the land question at the centre of the political discourse. In 1894, Gladstone introduced death duties, a forerunner of inheritance tax, as part of his support for more redistributionist policies and assault on aristocratic privilege.

Through the years of the Liberal government of 1906-14, Lloyd George, learning from what had happened in Ireland and inflamed by the inequalities of land ownership in Wales, campaigned vigorously for land reform. He was, in many ways, our pre-eminent peasant-politician, of the land and from the land. On the eve of the First World War, he was pre­paring to establish a ministry of lands and forestry with proposals for intensive rural development, compulsory purchase of uncultivated or undercultivated land, and leasehold enfranchisement.

“National Insurance had sounded the death knell of Old Liberalism - free-trade laissez-faire and the minimal state," writes Roy Hattersley in his fine new biography, Lloyd George: the Great Outsider. "The land campaign offered an opportunity to dance upon its grave."

The First World War was the great interruption for Lloyd George and the land campaign. After the war, the fire of his youthful radicalism was largely extinguished by the compromises of coalitionism; in 1920, he agreed to the abolition of the land taxes that had been introduced only a decade earlier. There was a feeling, too, that the market rather than the state would solve the land question, as vast tracts were put up for sale by impecunious aristocrats and prices began to fall.

The land question also preoccupied the Labour Party in its early years, with activists agitating for rural land nationalisation, land value taxation on urban land and the rights of tenant farmers to demand fair rents and security of tenure. However, land reform was not properly taken up by the Attlee government; it had grander plans, such as the creation of the National Health Service. From the 1950s onwards, as class politics diminished in intensity, land reform ceased to be the defining issue it had once been - though in 1979 Margaret Thatcher, as part of the counter-revolution against the postwar consensus, instigated a kind of land reform all of her own. Her policy of allowing council tenants the right to buy the houses they occupied, which was opposed by the Labour Party and local authorities, was a direct challenge to the vested interests of that great citizen landlord, the state.

The explicit connection between land ownership and political power was not severed finally until 1999, when most of the hereditary peers were removed from the House of Lords by New Labour.

Yet the question of who owns Britain, how the land came to be owned, and what it means for the rest of us, has never been answered adequately. The present Duke of Bedford, who also owns Woburn Abbey, a 13,000-acre estate in Buckinghamshire which is home to Woburn Golf Club and Woburn Safari Park, is estimated to be worth £489m. He and his extended family are part of the "cousinhood", the secretive network of 6,000 aristocratic families and their relatives who, through intermarriage, continue to own much of the land of the British Isles, and whose influence and control were historically exerted through the Conservative and Whig parties, the House of Lords, Oxford and Cambridge, the Crown and the armed forces.

The cousinhood, as well as the institutional landowners, continue to profit - often through uncovenanted benefits, such as when previously worthless land becomes fortuitously valuable - from the great land-grabs of British history: the Norman Conquest; the dissolution of the monasteries by Henry VIII, which freed up a quarter of the land of England and Wales for redistribution to allies including some Oxbridge colleges, and among families of influence that were prepared to embrace the new religion; Oliver Cromwell's capture of Church and Crown land (much of the Crown's lands were not returned after the restoration in 1660); the Highland clearances and the enclosures of common land into private estates from the end of the 17th century up to the mid-19th century. Even today, much of the land owned by the cousinhood is not registered; Her Majesty's Land Registry has not carried out a cadastral survey of Britain, and it was confirmed to me that as much as 30 per cent of the land in England and Wales remains unregistered.

In 2007, the Land Registry expressed the ambition to embark on a nationwide survey of land ownership - nothing less than the compilation of a contemporary Domesday Book. Little progress was made. Like so many public bodies, the Land Registry is now being reduced and weakened by public spending cuts.

“It remains a dream of mine to have all the land in Britain registered," Mike Westcott Rudd, head of legal affairs at the Land Registry, told me. "There is no legal obligation to register the ownership of land; it is not compulsory. But all land transactions in England and Wales must be registered and there are trigger events to registration - such as when someone dies, or sells or donates land." These trigger events do not affect many large landowning families whose estates are passed smoothly through the generations, within the one family.

“The advantages of registration," Wescott Rudd continued, "are obvious: security of boundaries, title is underpinned by state guarantee, you can prevent fraud. But some of the ancient Norman landlords might ask what security registration can give them that 1,000 years of history have not."

Kevin Cahill, author of Who Owns Britain? The Hidden Facts Behind Land Ownership in the UK and Ireland, once told me that some landowners prefer not to register or cultivate their land because they receive huge subsidies through the European Union by owning designated agricultural land that is frequently unproductive. "There is a myth in this country that land is scarce," he said. "It is not scarce, yet about one-third of it is so uneconomic that it has to be subsidised, hidden behind nothing but a myth."

Greed is good

In broad outline, the UK is 60 million acres in size, of which 41 million are designated "agricultural" land, 15 million are so-called natural wastage (forests, rivers, mountains and so on) and owned by institutions such as the Forestry Commission and the Ministry of Defence, and four million are the "urban plot", the densely congested land on which most of the 61 million people of these islands live.

In sum, 69 per cent of the acreage of Britain is owned by 0.6 per cent of the population. Or, more pertinently, 158,000 families own 41 million acres of land, while 24 million families live on the four million acres of the urban plot. No other country in Europe, apart from Spain, has such an unequal concentration of land ownership. The single wealthiest landowner is the Duke of Westminster, who owns hundreds of acres of prime real estate and land in Belgravia and Mayfair.

As Cahill said, there is no shortage of available and uncultivated land in Britain - the landowners' estates are vast and, in areas such as the Cotswolds and parts of Scotland, say, omnipresent. What Britain suffers from, especially in the south-east of England, is a shortage of land on which housing can be built. As a result, the urban plot becomes ever more congested, land values and property prices continue to grow - because scarcity of land attracts a premium value - and our young people, many of them debt-burdened from their university years or struggling to find work in a recession, cannot afford to buy a flat, let alone a house. This forces them into the twilight world of short-term rents and disreputable landlords.

Those who benefited from the property boom of the Blair-Brown years, or bought their first properties following the housing crash of the early 1990s when repossessions were rife and prices low, are relatively asset-rich and too often complacently unaware of the struggles of those who are younger or less fortunate; those who, in a perverse reversal of the assumption of generational progress, are destined to be poorer than their parents.

Given that there is a direct correlation between land scarcity and high house prices, why isn't land reform more urgently debated today? Why is our national conversation about taxation so conservative? Why are our political and media elites so reluctant to investigate new ways of taxing unearned income, especially at this time of extreme austerity, when Britain already has the fourth-highest marginal tax rates in the world and countries such as Sweden are rejecting the social-democratic model after many decades in favour of a smaller state and tax cuts?

In an important essay in the New Statesman of 20 September this year, Peter Kellner argued that social democracy needs a "new business model". We are at or near "the maximum level of taxation that the electorate, and Britain's status as an open economy, will bear", he wrote. "Even without the recent recession and sharp increase in government spending, social democracy in its familiar form was on the verge of becoming unaffordable."

Kellner, our leading pollster, has a better understanding of public attitudes than most politicians. He is right that the challenge for social democrats, especially after the collapse of the Brown government, and with it Labour's reputation for fiscal and economic competence, is to look at new ways of raising taxes and of shifting the tax burden from earned to unearned income (profits from property sales, inheritance, land ownership, and so on).

Before he went to work in Nick Clegg's private office, Richard Reeves, biographer of John Stuart Mill and the then director of Demos, argued persuasively for the introduction of capital gains tax on the profits made from house sales. I asked his successor at Demos, Kitty Ussher, the former Labour Treasury minister, what her position was on this. Like Reeves before her, she favours introducing capital gains tax on primary properties.

“This should be relatively straightforward to achieve, as we already do it on second homes," she says. "I'm extremely in favour of it, though I know the Daily Mail would hate it . . . if we'd had such a policy in place during the housing boom, it would have taken the edge off rising house prices for sure."

I asked Ussher what she thought of introducing a land value tax - in effect, a tax not on the value of residential or business property, but on land ownership itself. "Umm. I remember when I was at Oxford someone senior at Balliol telling me that the college owns half of Scotland or something like that.

“But surely it all depends on how much the land you own is worth. Even if you owned a huge bit of Scotland, it would depend on the value of that land - but if you owned a chunk of Knightsbridge, then the tax could have a powerful effect. “Surely this tax would have most effect in the early years, because it would encourage divestment and changes in behaviour. The yield would go down."

Yet if a new land tax encouraged divestment and the dispersal of concentrations of land ownership, all the better. Dave Wetzel of the Labour Land Campaign favours the introduction of an annual land value tax. "One option," he told me, "would be to value the annual rental income of all land for its optimum permitted use - but, as we all require a little land on which to locate our homes, to exclude all occupied homes except those that are valued as council tax band H. The Chancellor would then apply an annual percentage levy on this value."

An annual land value tax would not only provide a new and fairer source of income, Wetzel said, but would encourage owners of empty buildings and empty land to put their properties to good use. Towns and cities would become more efficient and the need for urban sprawl would be reduced.

“All Labour governments since the Second World War have tried to tax 'planning gain' with a development land tax," Wetzel said, "but this has failed because it is easy for landowners to avoid a one-off tax that only arises when a development takes place. With an annual land value tax, the income is collected whether or not a development happens."

Fertile ground

H G Wells wrote that history "is in a race between catastrophe and education". On our present course, with the coalition government committed to a doctrinaire deficit reduction programme and with the principle of a universal welfare state under ideological attack, it feels as if we are on course for some kind of catastrophe: rapidly rising unemployment; a "lost generation" of young people who cannot find work or who cannot afford to go to university because of high tuition fees; the urban poor being cleansed from our city centres through the imposition of benefit caps.

Yet perhaps education, and a more enlightened attitude towards taxation, is the way forward. In his first major speech as the new Labour leader, Ed Miliband lamented how our high streets had become so grimly uniform. What he did not say was that high corporate rents were a contributory cause of this bleak homogeneity, with the small, entrepreneurial trader being closed out. This state of affairs should no longer be accepted as if it were somehow the natural order of things, as inevitable and uncontrollable as yesterday's weather.

When I last interviewed Ed Miliband in July, he said that, as a nation, we had "to find ways of making our tax system more progressive. Unless you convince people that tax is the price we pay for the good society, and not simply a burden, progressive politics is always going to struggle."

Miliband's challenge in the months and years ahead is to explain exactly what he means by progressive taxation and how it might work above and beyond simply raising income tax. Above all, he needs to be imaginative and define his leadership against conventional expectation and group-think, from both left and right. What better way to begin than to start shifting the tax burden from earned to unearned income, and to take the low-paid out of tax altogether?

The Business Secretary, Vince Cable, in his rather good speech to the Liberal Democrat conference in Liverpool (quoted at the beginning of this piece), suggested that a progressive alternative is to shift the tax base to property, and land, "which cannot run away" and "represents in Britain an extreme concentration of wealth". That seems right. Ed Miliband's rival for the Labour leadership Andy Burnham, now shadow education secretary, also raised the possibility of a "land tax" during the contest.

This should be fertile ground for the Labour opposition as it strives to build a new centre-left consensus, with support perhaps from the social-democratic wing of the Liberal Democrats. If Miliband is to speak for and represent a new generation, he must break definitively with the orthodoxies of the recent past. The aim, as with the early Thatcherites of the late 1970s, should not be simply to return to power; it should be to change society irreversibly through the force of ideas. "Someone had to question the unquestioned," Alfred Sherman once said to me of his work at the Centre for Policy Studies, "to think the unthinkable, set our problems within a broader historical framework."

Questioning the unquestioned, thinking the unthinkable: it would do as a good model for Miliband and his supporters to follow as they set about trying to create a more progressive taxation system and a more equal, less disturbed and riven society.

Jason Cowley is editor of the New Statesman

Additional reporting by Duncan Robinson