Killer Arguments Against LVT, not (78)

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?