Killer arguments against LVT, not (50)

I had intended to do the Poor Widow In A Mansion Bogey again to celebrate the half-century of this series, but I'll allow myself to be sidetracked by comment 21 by easybetman over at HPC:

... the total LVT bill for a 10 stories flat occupying say 0.3 acres should be the same LVT as a semi house with a 0.3 acres plot size then? ... the large number of people in the flat will consume more public services and those who live in 'houses' will be subsidising them..."

1. OK, let's take a step back and summarise how things work now: about seventy per cent of government revenues are taxes on income, output and profits, and (apart from quango spending and other waste) the largest items of 'public services' by cash cost are state and public sector pensions, the national health service and education. Unemployment benefit in the narrower sense is a fraction of the cost of any of these, in case you were wondering.

2. Let's assume that this is a politically acceptable balance of spending, so under current rules people with higher incomes (actually people with any sort of earned income whatsoever) are subsidising, in particular, pensioners via state and public sector pensions (and health care costs for the elderly are about half of health care expenditure) and children/education. Always remember that the 'consumption' of public services is not by people generally, it is by certain defined types of people, wherever they live.

3. If we scrapped all existing property or wealth related taxes and taxes on incomes etc and collected as much as we could in Land Value Tax, then we can safely assume that spending on those groups (pensioners, children) and merit goods (health and education) would still be given priority. On the spending side (or 'consumption of public services' side) little would change (except the government would have to try and get better value for money because they are spending the receipts of an in-your-face tax, not a stealth tax).

4. So to put some numbers on easybetman's example, let's say the owners of the two semi detached houses would be paying £10,000 a year in LVT and the owner of each flat would be paying £2,000 a year (figures for illustration purposes only). And let's assume that pensioners are paid an additional amount, in cash, so that most state pensioners can still afford to continue living in an average semi.

5. If the owners of the semi-detached houses don't like paying five times as much LVT as the people in the flats, then they could simply trade down and allow somebody from the block of flats (let's say a young couple keen to start a family) to trade up. Maybe a pensioner living in the semi trades down, he or she hits the jackpot; they still get their state pension; an extra amount to cover an 'average' LVT bill; 'free' healthcare and only pay £2,000 a year in LVT. Problem solved.

6. Or the owners of the semi-detached houses might want to stay put - because the LVT they now pay is less than the income tax, National Insurance, VAT and corporation tax they used to have to bear. If they are serious about Protecting The Hallowed Green Belt then they will have to put their money where their mouth is and stump up. Problem solved.

7. Or the owners of the semi-detached houses might suddenly realise the price that their NIMBYism has been imposing on the people stuck in the flats, who would probably rather live in a house. In which case they simply allow eight more semi-detached houses to be built, and for the block of flats to be converted into two large houses. Hey presto, a year or two later, the construction and alteration work is complete, and each of the twelve households is occupying the same amount of land and they are all paying (say) £4,000 a year in LVT - a six thousand pound a year saving for our ex-NIMBYs. Problem solved.

7a. Or indeed, the owners of the semi-detached houses might get together and have their houses replaced with a block with six nice big flats; the block of flats also gets converted to nice six nice big flats and each household ends up paying the same amount of LVT, say £3,000 or £3,500 each. Also, problem solved.

8. Even better than that, the total tax revenue would go up slightly of course, in example 7 from £40,000 to £48,000, or in example 7a from £40,000 down slightly to £36,000 or up slightly to £42,000 (figures for illustration purposes only), and the extra amount that has to be paid to pensioners to cover an average pensioner's LVT bill goes down, so there's yet more money sloshing around in the common fund which we can use for paying off the national debt (or whatever takes your fancy). Another problem solved.