LVT opponents never tire of saying that businesses wouldn't be able to afford Land Value Tax. And as I've said many a time, we have something called Business Rates in the UK, which is the closest we have to Land Value Tax (it's on buildings, not land is all).
Even though business income/the economy is depressed by PAYE, VAT, corporation tax etc, total Business Rates receipts of £24.4 billion (in 2009-10, from the Public Sector Finances Databank, tab C2) are nowhere near as much as would soak up the entire rental value of land occupied by commercial premises - we can tell this quite easily because the selling price of commercial premises is still far more than the pure rebuild cost/value of the buildings themselves.
If we assume we need to raise £300 billion per annum from Land Value Tax to replace all other taxes (after exempting one-sixth of land for political reasons, such as exemptions for pensioners' main residences) and divide this figure by the total amount of developed residential and commercial land in the UK from the Generalised Land Use Database (the figure is for England & Wales, so scale it up for UK population, 62 million over 51.4 million), we arrive at an average figure of £31 per square yard per year (the median would be about £23).
We can do the same exercise for current Business Rates, by dividing total receipts of £24.4 billion by the amount of land used for 'non-domestic buildings' of 272,000 acres to arrive at an average figure of £19 per square yard per year.
So ball-park and on the whole, LVT (£31 per square yard) would be a like a two-thirds hike in Business Rates (£19 per square yard) and that would be the end of that as far as business taxation is concerned - no faffing about calculating and paying over PAYE, VAT, corporation tax, income tax etc*.
* These other taxes currently raise ten times as much as LVT on commercial premises will raise, so don't tell me that businesses wouldn't be able to afford LVT, or that such a tax would collect more than 100% of the rental value of commercially used land.
Thursday, 6 January 2011
Business Rates
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10 comments:
I think business would love LVT. No VAT, no duties, no income tax, no NI, no CGT. They'd be quids in. Which is the problem. There's no way any politicians would a) allow that to happen or b) resist the temptation to raise extra revenue by taxing business more if LVT were ever implemented.
Can you imagine the hue and cry that would ensue when some hedge fund operating out of a small office in the City makes hundreds of millions in some investment coup and pays its traders multi million pound salaries and bonuses, all totally free of tax? Or bankers pay in general?
Its just not going to happen.
S: "I think business would love LVT"
I'd like to think so too - but think about where most people's income comes from (leaving aside welfare state and the massive quangocracy) - isn't the bulk of everybody's income from "business"? You might only be a shelf stacker or security guard or check out girl at a supermarket, but your income is from "business" in exactly the same way as the income of the board of directors or shareholders of that supermarket is from "business".
"There's no way any politicians would... resist the temptation to raise extra revenue by taxing business more"
Correct. And as 'businesses' do not have the vote as such, it would be important for residential and commercial land to be taxed at the same rates.
"Or bankers pay in general?"
Without house price bubbles, where are their billion pound bonuses going to come from? Answer = from nowhere, there won't be any (and to nail this down, we'll have a tax on the rental income of banks, i.e. the profits they can make in their sleep from creating credit out of thin air).
Well, no not everyone is reliant on 'business' for their income, not directly anyway. There are large public, benefits and pensions sectors to consider. And to be honest I doubt that a checkout operator earning little over minimum wage is going to be be very happy at the idea of people earning hundreds of thousands paying zero tax. Its simple human nature.
People aren't going to say 'You know what, it doesn't matter that businesses are making massive profits and paying no tax on them, as it will result in greater economic growth and better wages for everyone'.
They're going to say 'Those fat cat bankers/phone operators/petrol companies/supermarkets (pick any bete noir of the corporate sector) should be paying more tax, so I don't have to pay so much, and we can have more schools'n'hospitals etc etc'.
Any govt that proposed implementing LVT as you suggest would be outflanked by the Socialists within days, if not hours, of the proposal hitting the newspapers.
Face it, its political nitroglycerine. No-one would touch it with a bargepole.
It does occur to me however that the benefits to business would be somewhat unequally distributed. Any business that requires no or little space (ie is purely office based, and perhaps has no physical product) will benefit, whereas any business that requires large amounts of area could be wiped out completely.
Consider the water supply industry. They must need hundreds if not thousands of acres of land for their reservoirs, sewage treatment plants, water plants etc etc. Ditto coal mines, railways, docks etc.
Whereas banks can be run out of high rise office blocks that take up little space, supermarkets make very large profits on not large areas, in fact thinking about it, it would favour the 'Mr 10%' type of business over the real producer. The agents and dealers who wheel and deal in front of a computer screen would pay virtually no tax at all while the producer would be struggling to make ends meet. Estate agents (never the most popular businesses at the best of times) would be be in favour certainly!
S; "I doubt that a checkout operator earning little over minimum wage is going to be be very happy at the idea of people earning hundreds of thousands paying zero tax. It's simple human nature."
Well yeah, while the high earner will be paying zero tax on his INCOME (and neither will the checkout girl), he will probably be paying - entirely voluntarily - tens of thousnds of pounds on his mansion. For the check out girl, her Citizen's Income more than covers her LVT and the high earner ends up a net taxpayer.
As to your last comment, I do not understand. Can you seriously not envisage a system where nobody pays income tax (or VAT etc); everybody has a modest Citizen's Income; and everybody pays rent? (or in the case of owner-occupiers, they pay approx. half the market rent, because they don't have to pay rent on their own bricks and mortar)?
In such a system, why would everybody suddenly become a middle man and all producers shut down?
My point was that actual production takes physical space, whereas trading something, or being the middle man does not, or considerably less. Thus the middle men will gain from LVT (being office or shop based, and therefore not much area) whereas the producer will lose out from LVT (having a large area to pay on).
Thus economic activity will tend towards the non-productive (the middle man) rather than the productive.
To take the extreme example, agriculture.(I know you have said agricultural land would be exempt, but I can't see that being very popular to be honest). Farming takes a massive area, but is not that profitable, per square metre. So it could not continue under LVT. At £31/m2 my LVT bill would be about £125m! Even at £1/m2 it would be over £4m.
Whereas Tesco makes as much profit itself as the entire farming industry. But its LVT bill would be massively smaller as the amount of physical space required is so much smaller.
S, you know more than most people about land values.
So you know perfectly well that good farmland rents for less than £100 per year per ACRE but rents on Bond Street in London are £500 per annum per SQUARE FOOT.
The ratio is something like 200,000-to-1, so a tax on land values would reflect this.
And you know perfectly well that shops and offices have to be in town centres, where rents are higher (£100 per square yard land?) and factories and so on that require large amounts of space are further out of town near the motorway junctions, railway stations etc where rents are much lower (£20 per square yard?).
Your comments are akin to somebody saying "We can't tax incomes because then a shop girl pays as much as the managing director".
But it isn't a tax on land values, the way you've set it up is it? Land values in the UK are largely determined by planning restrictions. Your version of LVT is a tax on the AVERAGE land value in a given area, of indeterminate size. So the permitted planning usage of any given property is irrelevant - its subsumed into the average for the area. But you can't have an average planning permission. You either have permission for a shop, or a pub or a house, or you don't. Its not divisible.
So a row of shops in an otherwise residential zone will pay the same as a house, whereas a house in a high street of shops will pay the same as the shops (by and large).
And when you have different land use types side by side (which happens a lot in towns and cities) you get the situation of a house paying the same rate of LVT as a business like a supermarket. One being a private residence with the only money coming in being the owners income, and the shop bringing in hundreds of thousands.
LVT only works if there are no planning restrictions - ie the property owner can put his land/building to the most profitable use with no restrictions by the State. If the State takes the same LVT from a householder as a shop owner, IMO the State cannot say 'You must keep your house residential, and not turn it into a shop, even though it is more profitable'. It is the fact that a business pays more tax than a house that makes the planning restrictions 'reasonable'. You only pay for what you can do. If the tax is to be the same, you should have the freedom to decide what use the property should be put to.
S: "... you get the situation of a house paying the same rate of LVT as a business like a supermarket. One being a private residence with the only money coming in being the owners income, and the shop bringing in hundreds of thousands."
That is nonsense and you know it is. A supermarket occupies a huge area and has a huge carpark, a house and garden is a tenth or a twentieth of the size. The supermarket has its income, pays out wages, and the bloke in the house might well be working for the supermarket, so ultimately it is the supermarket paying his LVT as well.
And if it is more profitable to use the house as a shop, then use it as a shop, for crying out loud.
I have done the numbers for you over and over again - LVT will be like Business Rates plus 50% or 75%; LVT for houses will be approx. equal to the income tax etc that you no longer have to pay.
Free markets will sort all this out.
And yes of course, we would be better off scrapping all the stupid planning restrictions, but seeing as this is my manifesto for government, they will be scrapped as well, of course.
That's like saying "MW, you can't scrap VAT because the EU say that we have to keep it", we're leaving the bloody EU under my plan.
S, and you keep saying "houses will pay as much as commercial premises" which is backwards logic. The truth is, commercial premises will be paying as little as houses.
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