I linked to an article which claimed that retail prices are slightly lower in London than Swindon, and Sobers (correspondent for farming and Swindon, and as it happens, landowner and hence anti-Land Value Tax campaigner) hit back with one that pointed out that prices were much the same.
Fair enough, for the sake of this discussion, we might as well assume that retail prices are more or less the same anywhere in mainland Great Britain. I resisted the temptation to move the discussion on to LVT, but Anon, in the comments did it for me:
Interesting but as a resident of [London], LVT would probably make things more expensive for me as London shopkeepers who bought their premises at a low price now have to pay high LVT.
Well, exactly not. That's the whole point.
1. We know that rents for retail premises in central London are (say) ten times higher than in e.g. central Swindon, but why? It's not because retailers can charge so much more for clothes, electronic goods, stationery, whatever, in central London, it's because they can sell ten times as many goods from the same size shop. It's not so much that London landlords arbitrarily demand ten times as much in rent, it's that retailers are prepared to pay ten times as much; it's like if there were an alternative fuel to petrol which gave you 400 mpg instead of 40 mpg, then people would be prepared to pay ten times as much for it.
2. We also know that the UK tax system has something very close to LVT, called Business Rates, which is about a third of the total rental value of commercial land and buildings (OK, it's about 40% of the net rental value after deducting Business Rates, a circular calculation which comes out at about a third). So the Business Rates per square yard of retail premises in central London is also ten times as high as the Business Rates per square yard in central Swindon.
3. We know, on the basis of evidence submitted, that retail prices for generic, freely tradeable and easily transportable physical goods are pretty much the same in London or Swindon. Therefore we can safely conclude that Business Rates (and by extension LVT) does not increase the price to the consumer or cut into the profits of the retailer, they merely take a chunk of that balancing figure which would otherwise go to the landlord.
4. The anti-LVT crowd will then retort "Ah, that's fine in principle for tenant businesses, but what about owner-occupier businesses 'who bought their premises at a low price and now have to pay high LVT'?" Well, what of them? They currently pay ten times higher Business Rates in London than in Swindon, which has absolutely no effect on selling prices or the profitability of retailing, so why would replacing Business Rates with LVT have any effect either?
5. We know that some retail premises are rented and some owner-occupied, and that this clearly does not make a difference to retail prices. These big retail chains probably own some of their shops and rent others, but they do not sell for lower prices in the shops they own and for higher prices in the shops they rent. Or, why would a landlord ever rent out his premises to the highest bidder if he could use the shop himself to undercut nearby tenant businesses?
6. As a parting shot, the idea behind full-on LVT is to replace taxes on economic activity with taxes on rental values. When you buy something for £100 in the shops, approx. half of that goes to HM Revenue & Customs (in VAT/import duty, National Insurance, income tax or corporation tax). And to end up with that £100 in your pocket which you spend, you must first create about £200 of value for somebody else. And so on ad infinitum.
7. So the current tax system clearly pushes up retail prices enormously and/or depresses your own income, so even if (which I don't admit), Business Rates or LVT were to push up prices slightly (for which there is no evidence), it's pretty obvious that reducing other taxes, £ for £, would double your employment or business income and/or halve the prices you have to pay in the shops.
Just sayin', is all.
It's as bad as the US
40 minutes ago
4 comments:
I think the issue with owner occupier businesses is this: will the savings from no VAT, NI and taxes on profits outweigh the rent they would be paying if they didn't own their premises? If they do, then they will be OK. If they don't they will either have to raise prices to compensate, or close up.
I think most businesses would be OK, though there could be an issue with zero rated shops, ie mainly food store - butchers, bakers, greengrocers etc. They will gain nothing from VAT going, as they don't charge it now, and if they employ no-one either there wouldn't be any NI saving.
But overall I would foresee business making out like bandits under LVT, which again rather leads me to suspect it's political suicide.
S, stop worrying about who OWNS the business, and look at business as an ACTIVITY which benefits owner, employee, investor, supplier and customer (in no particular order). If tax on that is close to zero, then ACTIVITY will not be stifled and we'll all be the better off for it.
Stop fretting about owner-occupier businesses, they will NOT put up their prices (that's what the post is about) and if they don't make enough profit from their own business to pay the LVT, then clearly they would be better off renting out their premises to somebody else, giving the owner a small, guaranteed profit for no effort whatsoever and enabling a more successful business to be established.
WIn-win, what's not to like?
But there must be some element of higher prices involved - if a shop is currently owner occupied and under LVT decides to close up and rent it out (as that would be more profitable) presumably the new tenant would have to charge more to pay rent+LVT?
I do think that some (how many I have no idea) small shops are effectively 'subsidising' the consumer by the fact that they do not have to pay rent, which allows them to price lower than otherwise. A small butcher for example who owns his own shop would perhaps be able to price within reasonable distance of Tesco prices, thereby keeping his trade up. If he had to pay LVT as well he MIGHT have to raise his prices, which could make him uncompetitive with supermarkets.
I can see that LVT would favour the big chains (with large economies of scale) against small owner occupiers.
S: "if a shop is currently owner occupied and under LVT decides to close up and rent it out (as that would be more profitable) presumably the new tenant would have to charge more to pay rent+LVT?"
Well, he could try running exactly the same type of business with higher prices and he might succeed. Or he might fail even more miserably.
Or he could try selling more stuff from the same space, selling 'premium stuff', better service, longer opening hours, offering home delivery etc. Or he could choose to operate a tanning salon or nail bar instead of a family butchers.
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