Killer Arguments Against LVT, Not (136)

A lot of Homeys bandy about the notion that if we replaced taxes on incomes or output with taxes on land values (as well replacing the welfare system and the tax-free personal allowance with universal cash benefits) that housing would somehow become unaffordable and somehow we'd all be 'forced out of our homes' or forced to sell them to evil property companies who then rent them back to us at unaffordable prices. Or everybody would flee abroad. Or something. Their logic was never quite clear to me.

Evidence that this is clearly not true is the taxes paid by owners of motor vehicles in the UK, which is about £55 billion per annum, see workings below, on assets worth a total of £300 billion (34 million vehicles x £9,000 each second hand) and which are depreciating at the rate of about £50 billion a year (i.e. the total amount we spend on new cars is £48 billion, see VAT workings 2 and 3, but the total value of all motor vehicles is not going up much). As against taxes on UK land and buildings also of £55 bn (Council Tax, Business Rates, Stamp Duty Land Tax) on land and buildings worth £4,500 billion and which are not depreciating at all (in the long run).

But miraculously, most people in the UK can still afford a car, or at least far more people can afford a car than can afford to buy a house, and cars still get manufactured, imported and sold.

The main tax on motor vehicles (and the only one with any merit) is taxes on fuel, about two-thirds of total tax revenues from motor vehicles, which is not really a tax on fuel at all, it is pre-paid rent for the right to use UK roads (which is why red diesel for off-road use attracts lower duty).

Roads are about one per cent of the UK by surface area and residential land is about three per cent, so clearly, the sky wouldn't fall in if total taxes on residential land were 3 x £55 billion = £165 bn per annum, especially if other taxes were scrapped - for £165 bn you could rid of Council Tax, Stamp Duty, Inheritance Tax, Capital Gains Tax and the TV licence (about £45 bn in total, see PSFD), leaving you plenty of spare change to get rid of VAT (£86.1 bn) and/or Employer's National Insurance (about £50 bn) or to pay out a higher Citizen's Pension if you are so inclined.
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Workings:

Fuel Duty £27.3 billion (from Public Sector Finances Databank)

Vehicle Excise Duties £5.7 bn (aka 'car tax', also from PSFD)

Insurance Premium Tax £1 bn (a third of total from PSFD)

VAT £19.5 billion

1) Fuel duty was 59 p/litre for unleaded petrol, and at an average pump price of £1.30 and average VAT rate of about 18% in the year (it went up from 17.5% to 20% towards the end of the year), the VAT on a litre was 20p, so for £27.3 bn Fuel Duty there was another £9.1 bn in VAT.

2) Two million new cars were sold in 2010, average price (say) £20,000 of which £3,000 was VAT (£20,000 x 18/118) = £6 bn.

3) 257,000 trucks and vans were sold in 2010 and 7,000 buses and coaches, let's guess average price at £30,000, so that's £4,500 VAT each, another £1 bn.

4) Let's guess repairs per car per year £500, that's another £100 in VAT x 34 million registered vehicles (Dept For Transport) = £3.4 billion.

Other bits and pieces £1.5 billion, for congestion charges, tolls, parking fees and fines, income tax on NIC on the company cars.

I'll not include the income tax and corporation tax paid by the motor industry generally or VAT on resold second hand cars for uncertainty, and because then I'd have to include an even smaller and less certain negative figure for tax relief on motoring expenses.