Killer arguments against LVT, not (77)

It's nice when people propose entirely contradictory 'killer arguments against LVT', usually neither of them stacks up and they cancel themselves out anyway:

Sobers, in the comments to Part 44: I'll give you an example. A friend of mine bought an old run down pub in a small market town in Wales 20 years ago. The most economically efficient usage would probably have been to close it, turn it into flats, or a single dwelling, and sell it, or rent it out. So that's what she would have been taxed on. But she chose to run it, slowly turning it into a restaurant/bar, and opening a shop on part of the premises as well.

Her business now is very successful, generates more profit than the rent from a few flats would, and is undoubtedly worth more to the ambiance of the town than more flats. Everyone told her she was mad, but she had the vision to create something different, something that 'the markets' were not providing. If she had had to pay LVT based on the potential capital value, rather than income tax (which she paid virtually none to start with as the business took time to get off the ground) it would never have happened. And the area and its inhabitants would be the worse off for it.

Sobers, in the comments to Part 75: So the current idea is postcode areas, and a LVT charge based on the average of sale prices (on a square footage basis) within that area?

Not necessarily the fairest valuation system is it? By definition the most expensive (in square footage terms) properties will pay less (being above average) and the cheapest pay more (being below average)... If you want to arrive at an average value per square foot that is for the land only, each plot would need to be valued individually - taking us back to the massive valuation bureaucracy you seem to be trying to avoid.

Ho hum. Like I've said, we could scrap all taxes and replace them with a tax on land values, which would be between £30 and £60/sq yard/year for most developed land in the UK (regardless of the use to which it is put). Rates would be much higher in town centres (£hundreds) and especially in and around London (the rate in the West End would be about £1,000).

Let's assume that the rate is £30/sq yard/year in a 'small market town in Wales' and Sober's friend's pub occupies a 500 sq yard plot, her tax bill is £15,000 a year. It's her call whether she wants to build a four flats (who'd pay LVT £3,750 each); a rather grand town house (which would pay £15,000 a year LVT) or use the building as a pub. Or maybe have the pub at ground level with flats above?

Assuming a turnover of a mere £100,000 (equivalent to 50 pints of beer and 28 meals a day), her VAT bill alone will be more than £15,000 under current rules (adding together her net VAT payments to HMRC and the input tax she pays to suppliers), let alone the PAYE and income tax she has to pay. And in economic terms, she doesn't pay a penny of that £15,000 - the NPV of all these future payments (about £300,000) would depress the purchase price of the 'run down pub' accordingly, so she'd have snapped it up for a song, and would either have correspondingly lower mortgage payments or £300,000 in cash left over for the refurbishment.

From there on in, it matters whether her pub does really well (her tax bill is fixed) or is a miserable failure (in which case she might sell the pub for a similarly low price, or change her mind and turn it into flats). The only reason her tax bill would go up is if the area becomes more desirable, but if it does, then the chances are that this gentrification will benefit her trade by rather more than any theoretical tax increase.

Conversely, there'll be lots of other 500 sq yard plots in that 'small market town in Wales', which are used for a detached house; or allotments; or for selling second hand cars; or as a block of flats; or maybe there's a derelict building on it; or a tiny bungalow with a single occupant*. Either way, the tax on each plot is also £15,000 a year.

If somebody enjoys the luxury of having a huge allotment or a huge back garden in a town or village centre, and is prepared to pay for it, good luck to them. Or they might consider renting a tenth of an acre from a local farmer for £100 a year instead and growing their vegetables there instead.

Is that person being 'forced' to sell? Is 'the State' dictating the use to which each plot is put? Nope, people are paying for exclusive possession of the use value of the location they wish to occupy, is all, it is entirely up to them what they actually do on it.

Maybe one plot has a small block of badly built, run down flats; and another has a well built and well maintained small block of flats. Either way, they are occupying the same amount of space; enjoying the same benefits of the same location and excluding 'everybody else' therefrom, so there is no justification for the people in one small block of flats to pay a penny more or a penny less than the other.

And in case a £3,750 annual tax bill for somebody in a block of flats seems a bit steep, don't forget that each adult also gets a Citizen's Income of approx. that amount, so a couple would actually be paying net negative tax.

* There'd be exemptions, discounts and/or deferment option for pensioners, of course, before anybody plays the 'Poor Widow Bogey' for the zillionth time.