"We want to encourage pension funds to invest in non-productive assets"

Tory MP Nick Boles took his first tentative step over to The Dark Side on page 15 of today's FT:

... there is a version of the Land Value Tax that works – and it is in operation in New South Wales in Australia. Crucially, farmland and people’s main homes are wholly exempt so it does not strike at hard-pressed farmers or elderly people on low incomes living in houses that have become very valuable (3), which would be hit by the Liberal Democrats’ preferred mansion tax.

Instead, the tax bears down on vacant land, holiday homes, investment properties and commercial properties. If we were to implement it in the UK, it would need to be deductible from business rates so that struggling retailers and other firms were not faced with a devastating double whammy – and it might in time replace business rates altogether.

Thus targeted, the tax would deter speculative land banks and would encourage property owners to develop brownfield sites and put rundown areas of inner cities back to good use. Over the longer term, it would lower the price of development land and help us get off that quintessentially British rollercoaster of house price booms and busts.

Well worth a read. The FT allows a Home-Owner-Ist to get his retaliation in first on page 3:

Mark Pritchard, secretary of the 1922 committee, who led the right’s attack on Mr Boles and other "purple plotters" last year, said on Thursday that he disagreed with Mr Boles’ latest proposal.

"This is a regressive tax masquerading as a progressive tax (1) ... over time this land value tax would lead to a decrease in pension funds (2) that invest in property portfolios and for which millions of pensioners rely on for decent returns in retirement (3). British businesses already pay enough tax. (4) What is needed is for the state to be smaller (5) and for government to learn how to spend taxpayers money far more wisely. (6)"

1) He appears to see 'progressive' as A Good Thing and 'regressive' as A Bad Thing, fair enough, let's examine the rest of his comments in this light (for example, they could make the LVT very progressive indeed by simply doling out the money as extra Citizen's Pension, full stop, I'm sure he'd be none too chuffed with that idea).

2) By and large, pension funds are run for the benefit of pension fund managers, not pensioners. Their very existence is inherently a 'regressive' redistribution of wealth.

3) Nick Boles plays the plain vanilla version of the Poor Widow Bogey (i.e. that it is unfair to tax unearned income or gains), but the 1922 guy goes for an interesting variant. Does Mr 1922 have the slightest bit of evidence for his claim? He also knows f- all about tax or maths, simple fact is, if they applied full Business Rates to unused land, the amount of money you can make by bringing them back into use is far in excess of the Business Rates (by definition), so pensioners would end up better off (and who cares whether that's progressive or regressive).

And if these pension funds invest in residential, they are probably collecting rents from young people, so this is merely a mildly regressive form of wealth transfer from young workers to old people who have built up a pension fund, and to pension fund managers of course. And the more that today's young people have to pay in rent (or mortgage interest), the less they will have to save up for their own retirement, so the Ponzi scheme is self-perpetuating.

Either way, Mr 1922 lets the Home-Owner-Ist mask slip: despite its stated aims, in reality, Home-Owner-Ism has absolutely no intention of encouraging a wider spread of owner-occupation. The whole idea is for future generations to be tenants so that the incumbents (pension fund managers, bankers, landlords etc) can live off the rental income.

4) Agreed. But if pension fund managers spend all the money entrusted to them on vacant, derelict and unused sites, that constitutes a business how, exactly? It's not, is it? It's one of the least productive uses of money you can imagine, as we can't all live off capital gains, remembering that these are a negative sum game overall. Further, if and when these sites are brought into use, they will be liable to Business Rates anyway (which isn't a tax on business either, not in any way shape or form).

5) Agreed. In the later article, the Tory MP makes it perfectly clear that he's plumped for this moderate form of LVT as a "least bad" option and sees it as a way of stimulating business activity (which would generate returns on the shares held in pension funds, so their net overall income would go up; creating more jobs etc.) as well as a replacement for other, more damaging taxes. He singles out Employer's NIC as something which could be reduced, for example.

6) The Tories ARE the f-ing government, so that's not much of an argument is it: "I'm sorry that we can't shift from bad taxes to good taxes because we're only going to waste it all anyway"? When it comes down to it, it's less bad for the government to waste LVT receipts than to waste VAT or NIC receipts, and that is the end of that.