Sobers adopts the tactic of ignoring everything I explain about what the tax rates would be, abandoning logic and knowledge of how free markets work. He kicked off the debate with the reasonable question:
"... are you disregarding the land usage entirely? Does a supermarket, generating millions of pounds of sales, pay the same LVT as a small factory (but on a similar sized plot)generating a few hundred thousand in sales? Or are you taxing somehow taxing the planning permission value as well, which is not locational at all, but in the gift of the local authority?"
To which, for clarity, I replied:
If they are next door or near each other, in same postcode sector - which is highly unlikely - then yes. Have you never noticed that industrial estates are normally either far out of town (where rents are lower) or in less desirable areas (near railway lines, sewage works etc)? So factory owner might well up sticks and move a bit further out of town.
Sobers then ignored the fact that in the post I had explained that the rate per sq yard of developed land per year would be between £30 and £60 for developed land in most parts of the country (city centres and London is different kettle of fish), and that this would raise sufficient revenues to replace all other taxes* and countered with this:
This is where your version of LVT falls down then. Because there are plenty of examples of different types of planning consents, in otherwise identical buildings, right side by side. Take any small town High street. You'll have totally different classes of retail shops, and offices, which will all have different values depending on what you can do in them, as the profits will vary with usage. But as their square footage is pretty much the same they will all pay the same LVT. Ordinary retail will be less profitable than a pub or takeaway for example. A restaurant will have different profitability to an estate agent's office. But due to planning restrictions they cannot all be whatever the most profitable use is. Planners won't allow you to turn your shop into a pub if there's one next door**, or a takeaway if there's already several in the street.
If the only thing you can do with a shop is the most profitable (because you're paying the same per square foot whatever) the high street will become a race to the lowest common denominator very quickly. Businesses that cannot pay the LVT will go bust, and unless the property owner can convince the local authority to grant change of use, it will stay empty. The high street will lose even more of the independent businesses that we all say we want to encourage - the quirky little shops that sell weird stuff, the old fashioned butchers, bakers etc.
???
OK - fun with numbers. Let's assume an average rate of £45/sq yard/year and imagine an average shop in an average village or small town, how big is the plot on which the shop stands? Let's call it 400 sq yards (maybe there's a car park at the back or something), so the tax bill would be £18,000; and at least a third of that could be covered by renting out offices or flats or storage space on the first and second storeys.
What's the current total tax + rent bill (whether publicly or privately collected) for that average shop (neither pub nor takeaway)? Turnover half a million, VAT = £75,000; profit and salaries £100,000, so income tax + PAYE about £40,000; actual or notional rent or mortgage interest £10,000; Business Rates £4,000, total = £129,000. There's a huge margin of error here, but it strikes me that whatever assumptions you make, the current tax + rent bill of £129,000 is an order of magnitude greater than a typical LVT bill of £12,000 (the overall balance of taxation would be shifted from 'businesses' to 'residential land', of course).
As a secondary issue, all these restrictions he explains are completely anti-free market; it's just barriers to entry to protect existing pubs and take-aways. Would it be so terrible if these were abandoned? What would happen? Would we find that all retail outlets across the whole country would close down, to be replaced by pubs and take-aways? In any event, why would the local council deliberately cut off its own source of tax revenue by preventing premises being put to their best use?
Even if the tax were 'too high' by some objective or subjective measure, all that happens is that the selling price of the building goes down correspondingly; if the landlord can't get any rent to cover the LVT and sells the building in a fit of pique, the discount that the purchaser gets will be enough to cover the future tax bill; the current landlord knows this perfectly well, so he might as well sell the building to himself (i.e. keep it). Having decided to keep it, and faced with an annual LVT bill of £x,000 and no prospect of future capital gains, wouldn't the rational landlord then make damn' sure he got a paying tenant in ASAP?
And as to Sobers' last bit (The high street will lose even more of the independent businesses that we all say we want to encourage - the quirky little shops that sell weird stuff, the old fashioned butchers, bakers etc), I am a free market liberal. Shoppers will vote with their feet. I would love it if the shops nearest to me sold computer supplies; guitar strings; and second hand books. And I wouldn't mind having an all night off licence and a VW repair workshop within a couple of minutes walking distance.
But clearly there is insufficient demand for that sort of shop where I live; it's all posh restaurants, cafés, ladies clothes shops, hair & beauty salons and a couple of take-aways. That's what people want, that's what they get. The fact that I would prefer something else is neither here nor.
* As a rough guide, the tax would need to raise about £300 billion/year. There are about three million acres of privately 'owned' developed land in the UK. £300 billion/year ÷ 3 million acres = £100,000/acre. £100,000 ÷ 4,840 = £21/sq yard/year, but people have twisted my arm into giving exemptions for pensioners, and no doubt there'll be special pleading for church yards, school playing fields and other such Righteous matters, and some of that land might be worth less than £21 anyway, so let's round it up a bit to be on the safe side.
** As well as a flat-rate LVT, there is the concept of 'discriminatory pricing'. I happen to know that you can increase the selling value of commercial premises by £100,000s if you obtain consent to use them as a pub or a betting shop. If the local council, in its infinite paternalist wisdom, decides that there 'should' be no more than two pubs and two betting shops on the High Street, then it can hold an open auction for two pub permits and two betting shop permits, which would bring in another 4 x £30,000 a year (or whatever). Surely it is far better for the council to collect that money and spend it on five-a-day advisors Meals-on-Wheels than for some absentee landlords to collect it?
Surprised by the outcome
2 hours ago
23 comments:
The planning system MUST change. My view is that anything which is not greenfield should be allowed to be used for anything. Obviously noise and pollution would still be regulated separately...
BE, yes, completely agreed. Planning resictions = anti-free market; high taxation of income + light taxation of land = anti-free market. But as I have tried to explain, they are separate albeit overlapping topics.
Businesses that cannot pay the LVT will go bust, and unless the property owner can convince the local authority to grant change of use, it will stay empty.
So the problem with LVT is the planning system it has to work with is broken? Well, yes. That needs changing, too.
Blue Eyes,
Exactly. None of us LVTers are against sensible planning. We don't want a nightclub or a large warehouse built in the middle of a residential area.
But my own council wanted to block a change of use a site from hotel to supermarket, simply because it would compete with the convenience store. That's a supposedly free market Conservative council, incidentally.
Much of the dereliction in our towns is the result of this. Shop premises sit empty in a street near me because the council insists on trying to balance shops with bars and financial services companies. In layman's terms, they think there's too many of the latter, so won't change a shop to an estate agency. So, instead of having a smart estate agency, we have an empty shop that falls into decline.
JT, good anecdotal, but this puzzles me: "We don't want a nightclub or a large warehouse built in the middle of a residential area."
Even in the absence of express laws against noise, is there any reason to assume that a potential night club or warehouse owner would want to do so?
The night club has to be in the centre of town, near the bus stops, taxi rank, train station, kebab shops, cinema; and/or at the edge of town with plenty of parking.
Similarly, a warehouse owner will prefer a warehouse in an industrial estate on the edge of town, where the roads are wider, rents lower and where there might be a road side café for the lorry drivers.
A residential area would be wholly unsuited for either - even in the absence of noise abatement laws - not to mention that residential land is far more expensive than land at the edge of town.
This is my point. If planning was liberalised, then many if not all, of the problems you associate with 'Home Ownerism' would disappear. Lower (by a significant amount) house prices, thus allowing more people to buy their own place. Stable house prices - the supply of land is as you often point out pretty large in the UK, so if a boom took off, the market would kick in, more houses would be built, prices come down again. Better quality of houses - with the desire to squeeze as many houses per acre onto a planning permission gone, houses with decent sized gardens etc could again be within the reach of the average man, just as they were before planning constraints were imposed.
LVT without planning liberalisation is just a mechanism to tax the value created by planning restrictions. And as planning permissions are not in the control of the landowner but the State, it seems unfair IMO to tax them.
You of course will disagree.
@Sober - yes, I agree with you. MarkW version of LVT (i.e. averaging) doesn't work (or rather, creates funny outcomes) under current planning system.
If we do away all other taxes, those high value added (whatever that means) corporation like Invest banks will be laughing all the way to the tax office. Say the tax is £120 per square meter (let's use metrics), a 30 stories InvBank office may take say 10000 square meters (about 2.5 acres) and the tax they pay will be 120 x 10000 = £1,200,000 (about the cost of hiring a banker...)
S, the existing tax system is shit, the existing planning system is shit, but this claim: "Stable house prices - the supply of land is as you often point out pretty large in the UK, so if a boom took off, the market would kick in, more houses would be built, prices come down again." is, I'm afraid to say not borne out in practice by e.g. China, Spain, Ireland who all had construction booms and house price booms at the same time.
"LVT without planning liberalisation is just a mechanism to tax the value created by planning restrictions."
Perhaps to some extent yes - but there are those who benefit from those restrictions and those who lose out from those restrictions; is it not fair to base the tax system so that those who benefit from it pay more, and those who are disadvantaged pay less?
In any event, seeing as this is my 'programme for government', let me tell you that once we have liberalised planning laws, the total rental value of land in the UK will GO UP!
To put it crudely, let us assume that DEFRA decided that one half of UK agricultural land could only be used for something less profitable, like growing trees. In this case, the total rental value of UK farm land would clearly plummet. So lifting this restriction would push the rental value back up again.
Anon, investment banks like to base themselves in certain very expensive parts of London, where the tax would be upwards of £1,000 per sq yard (based on current rents, selling prices), so you're out by a factor of ten, but apart from that, point taken.
BUT... also in the MW manifesto is a tax on certain bank assets, which will cream off the super-profits/rent element of money-lending (i.e. simply being a bank) and bring in another £30 billion or so.
Anon, also don't forget, those 'Investment Bankers' probably live in multi-million pound mansions, so while they save £100,000s in income tax, NI; they will be paying £100,000s in LVT on their main residence. Some will end up better off; some will end up worse off, but it is not a one-way-bet.
If we do away all other taxes, those high value added (whatever that means) corporation like Invest banks will be laughing all the way to the tax office.
If you want to do away with priviledge it is of no use to strike at the branches (which is what income tax/profits tax/capital gains tax etc. is actually doing). You have to go to the root. What is the source of the priviledge in the banking sector? There's two main ones:
1) Seignorage - the benefit of being the entity that issues the currency.
2) Being the ultimate beneficiary of rents via secured loan repayments.
and of the two, the second is far greater. The banking sector is so large because they get the rents. As soon as they stop getting the rents they'll go back to business lending (and they won't worry about collateral as it won't be worth anything to them), which is where they should be anyway.
If planning was liberalised, then many if not all, of the problems you associate with 'Home Ownerism' would disappear.
Not really. There would be temporary relief, sure, until all the newly available land was claimed forever, and then the cycle would start again, and then once back here, people would again say "just liberalise planning and it'll all go away!", and all the while the banks continue to be dysfunctional and government continues to punish work and enterprise. How many more generations need to be bankrupted before we understand what's really going on here?
I've just thought of something else - doesn't your postcode valuing system mean that if a postcode has a land usage in it that is very high in value - a supermarket say, that the LVT value per sq ft is going to be very high in that postcode? So any other business that shares the postcode with the supermarket will have to pay a massively higher LVT as a result? But an identical business just down the road in another postcode pays far less?
Equally how is a small business based in a otherwise residential postcode valued? Do you compare it to the residential values around it, but which are for a completely different land use type? I'm thinking corner shops, garages, many small businesses in rural and semi rural areas.
Mark, I've been following this for some time and the longer I read the less I understand. I live in a country where only 30% of the population actually owns land (or property). If there is the need for taxes (and I think this is debatabale as well as there are - admittedly small - societies that don't understand the concept of taxes at all) why don't we tax on consumtion? I guess you heard that before. However, a structured VAT to replace ALL taxes is my thought on the way forward. Having said that, I have no idea about taxes and I don't pay many anyway.
F, ta, excellent. I forgot that one in the heat of the mo'.
S: "doesn't your postcode valuing system mean that if a postcode has a land usage in it that is very high in value - a supermarket say, that the LVT value per sq ft is going to be very high in that postcode? "
Non-issue. Forget lofty principles and sound bites and think about actual maths and facts etc.
1. I never said 'postcode' (too vague), always said 'postcode sector', which is about 3,000 adresses.
2. Looking at a map of where I used to live, there is a huge supermarket with even huger car park, (two or three acres?) but this is still rather less than 10% of the total surface area of that postcode.
3. There is no reason to assume that the buildings occupied by the supermarket are higher value than other buildings (it's a single storey metal shed) and the car park is used by people who shop elsewhere.
4. Therefore the average selling value/sq yard of that supermarket (which we will use as a starting point for valuations) is much the same as the average value of everything else, and even if it is higher or lower, it only distorts the values by 10% of the average difference.
5. The proximity of the supermarket is good for surrounding residential property values (handy for shopping, job opportunities), but not so good for small grocers and you get more traffic (also not so good for residential values) so it all comes out in the wash.
6. So it may well turn out that the LVT in EE 12 3... (where the supermarket is) comes out at £35/sq yd/year; and the tax in EE 12 4... (the adjacent postcode) is £30 or £40 - who's to say how much of that £5 plus or minus is due to the supermarket?
7. How many hundred other factors are in play? You explained yourself yesterday that a £5 or £10 difference might be down to one being a 'nice' area and one being a 'rough' area. There is absolutely no need to be hyper-scientific about this.
"Equally how is a small business based in a otherwise residential postcode valued? "
It's all done at exactly the same value, why should we distort the tax system against, or indeed in favour of, business usage as against residential? What about somebody who runs a business from home? What do you have against corner shops?
Anon: "Why don't we tax on consumtion? I guess you heard that before."
Do you mean VAT, that is The Worst Tax of all, it is not a tax on 'consumption' in any way, shape or form, it is a tax on output, turnover and free exchange of goods and services. It probably destroys more jobs and businesses than any other tax. It is the politicians' dream tax - being hugely damaging but completely stealthy, and not only can they hike the rate as much as they like, they can exempt their Vested Interest friends from VAT. It's imposed by teh EU.
Click the 'VAT' label for endless rants.
"I live in a country where only 30% of the population actually owns land"
Which country is that? It's not relevant anyway. Whether you are a tenant or freeholder, everybody OCCUPIES land, so learn to see LVT is a tax on 'consumption' of land, but unlike a tax on 'consumption' of goods and services (which is a disguised tax on PRODUCTION of goods and services), land is not produced, so the tax does not reduce amount supplied or consumed or people's total enjoyment thereof.
S, I have checked the rateable value of that supermarket on the VOA website, it is £1,760,000, so business rates are currently about £700,000. The area is given as 6,676 sq m = 8,241 sq yards.
Houses are expensive (£350,000) and gardens are small (200 - 250 sq yards) so the LVT in that area will be in the order of £125/sq yard.
Go back to the supermarket, 8,241 x £125 = £1,000,000, so the rates on the supermarket go up a bit (but they save all the other taxes).
The supermarket plot is smaller than I thought, so is probably only 5% of postcode by area, so whether it pushes the overall average up or down barely matters.
Anon,
LVT has been partially implemented quite a few times, particularly at the end of the 19th and beginning of the 20th centuries. Most of the great North American cities owe their early growth to it as do countries like Taiwan or Hong Kong. So we know what the effects are.
The practical effect of replacing all other taxes with sales tax or VAT is that shopping becomes more expensive and wages lower, so life becomes harder. Plus you will find it more difficult to get a job than it used to be. The reasons are as Mark states in his reply to you above.
The practical effect of replacing other taxes with LVT is that shopping is cheaper and wages higher. Also jobs become more plentiful. This is because the rent that you pay to your landlord now pays for your taxes as well as for your home or business premises instead of paying for his land purchases.
This is what has happened where-ever the LVT has been implemented at a high enough rate. Unfortunately while ordinary people and small businesses do better under LVT than under the current system, the landowning elite does worse. So there is always a strong political pressure to reduce or repeal LVT. And that is what has happened in most of the places where it was formerly implemented in any effective manner. The results are particularly obvious in a city like Detroit which built up an extremely prosperous car manufacturing industry when it raised its revenue through land taxes but which is now a husk of its former self since switching to other taxes.
It would be interesting to chart the life cycle of LVT in a city like Detroit. LVT > prosperous manufacturing > wealthy elite > wealthy landowning elite > repeal of LVT > decline of manufacturing > (speculating) > decline in value of land > decline of landowning elite > ????
Agreed. I'd love to see a chart like that. In the absence of such a chart, the inestimable Mason Gaffney has something to say about the history of LVT in Detroit (and other US and Canadian cities) and its correlation with booms and busts. I posted this link in the comments on Haiti the other day but it got sent to the spam queue until Mark rescued it, so I guess that not many people saw it. I think it's worth posting again for those who missed it.
B, charts like that are almost impossible because of difficulty in deciding who is 'land owning elite'. Yer average home-owner would not consider himself as such, but at least he stands above under-30s who don't have an earthly chance of ever buying a house. But yer average home-owner is still under the cosh of income tax and VAT; and under the cosh of the mortgage repayments.
D, I don't know why that comment went to spam. Your last two comments seem to have appeared as normal. The study by MG rocks, BTW.
A LVT averaged over a postcode sector would be vastly better than the tax system we have now, but I think it is necessary to consider individual plots in the light of what is permitted by the planning authorities.
Does a supermarket, generating millions of pounds of sales, pay the same LVT as a small factory (but on a similar sized plot)generating a few hundred thousand in sales?
I would say yes, iff the factory site also has permission to be converted into a supermarket. As Mark said, this is an unlikely comparison, a better one may be a supermarket inside a residential area. If the supermarket site has permission to be re-zoned to houses, then freeholder of the land the supermarket sits on would pay the higher value given to residential land. Of course, the value of the existing houses surrounding the supermarket may fall if it closes. Such are the choices for the local council planning office to make. Yes, we still need to have planning permission. I'm in favour of a much more liberal planning regime but not a complete absence of regulation.
Investment bank skyscraper problem:
£1,000 per sq yard (based on current rents, selling prices), so you're out by a factor of ten, but apart from that, point taken.
Lets assume that is the going rate for say 3-5 storey buildings in that location. Replacing some of those buildings by a 30-50 storey skyscraper will of course require planning permission due to its impact on local infrastructure (water, power, transport etc), provision of emergency services for disaster situations, blocking light to other buildings, etc. If we grant permission to this skyscraper I don't see why that can't involve a re-valuation of just that site for LVT purposes, increasing the tax considerably (e.g. 10x).
Ed, those are all sensible tweaks.
As I suggested in the post, there is such a thing as 'discriminatory pricing', and over time it may turn out that a post code sector is too large an area - so over time these will be sub-divided into High Street/back street; up the hill/near the river; 'right side of tracks'/'wrong side of tracks'.
"It is necessary to consider individual plots in the light of what is permitted by the planning authorities."
As far as commercially used land is concerned, as I explained, the total tax bill on activities carried out there will fall massively. I can only imagine one business in a thousand for whom it might increase, and these are exactly the businesses that should be 'creatively destroyed'.
As far as residential land is concerned, my government will go for 'zoning', i.e. if the average density in an area is two storey houses with a 25% 'footprint', then we add on ten per cent for luck and that is then the default for all buildings in that zone. You will not require any special planning permission to knock down a bungalow with a huge garden and stick up two semi-detatched, but if you want to stick up a three storey block of flats, it will be put to the vote and the council is entitled to ask fora 50% surcharge on that plot (or whatever) and to grant a five per cent discount on other plots within a fifty yard radius (or whatever). This is all just down to horse trading.
"difficulty in deciding who is 'land owning elite'."
AFAICS, the "landowning elite" would be landlords, residential and commercial. Very few owner occupiers are ever going to own enough land to be likely to be bothered about LVT or have enough political clout to do anything about it if they were.
B, I did a Venn Diagram, I'd definitely include bankers with the rent-seeking éilte, but they need to enlist owner-occupiers as foot soldiers, who in turn enlist first time buyers as cannon fodder
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