Killer Arguments Against LVT, not (88)

Sobers dons his politician's hat and speaks thusly:

... 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. [and by implication that the poor long suffering homeowner would be 'priced out']

That is the sort of fact-free polemic that voters in this country go for, I'm afraid, which is why we are in the mess we are in. So let's re-run that example with cold hard facts. Let's do a Real Life Example.

1. As it happens, where I used to live was a normal London suburb (part of Waltham Forest) - mainly houses, with a high street, a couple of small industrial areas and a sodding great supermarket/car park.

2. Using the Big Bath approach, we established that the LVT rate in Waltham Forest would be in the region of £44 per square yard per year, and using the "total value x 8%" approach we get a rate of £93, so let's split the difference and call it £68. This is the rate we'd require assuming we were to replace all other taxes.

3. Helpfully, we can look up the supermarket on the VOA website and establish that it the building (single storey) is 7,984 sq yards and the Business Rates bill is about £704,000. The car park is not listed on the VOA website (assume very low Business Rates, if any), but it is one-and-a-half times as big as the building, giving us a total area of 20,000 sq yards and an average Business Rates of £35 per square yard.

4. We know that the supermarket can easily afford the increase from £35 to £68 (it's TESCO, for crying out loud).

5. The next question is, would people in the mainly terraced houses surrounding the supermarket be able to afford to pay £68 per square yard? The gardens are very small, the average total plot size is 300 sq yards, let's say, so the typical tax bill would be £20,400 per annum.

Let's compare that with the current tax bill of somebody who'd like to buy a house in the area:

6. Houses round there are very expensive, say £350,000, so if you want to buy one with a £50,000 deposit and a mortgage of four times salary, you'd be earning £75,000 gross, or more realistically, a couple earning £37,500 each.

7. The Online PAYE Calculator tells us that the tax deducted from a salary of £37,500 is £9,700 each, plus the Employer's NIC of £4,000 each, plus VAT, which is about 7% of gross incomes = £5,200 (for the couple), plus Council Tax £2,000 = so the total publicly collected taxes borne by that couple are £34,600.

8. Under LVT/CI, they'd be paying £20,400 a year (from 5. above) and would be getting a Citizen's Income of £3,500 a year each, so their net tax bill would be £13,400, a lot less than £34,600, eh? The LVT rate would have to be £139 per square yard before this potential couple is worse off by buying a house there (in which case, they'd just offer a lower price).

Yes, I accept that there's a margin of error with these figures, and I haven't taken into account changes in house prices/land values, but as you can see, a reasonable rate for the supermarket is not an unreasonable rate for people who want to buy a house in the same postcode sector.