We're coming up to the 200th commemorative edition, so keep 'em coming, all you Homeys and Faux Lib's.
The New Statesman has rehashed last week's FT article by Samuel Brittan. Let's pick over the rubble in the comments and see what we find...
Simon Tax the rich...tax home owners...tax everyone and piss it up the wall on more tax credits for the underclass! Get a grip for fucks sake. What is wrong with working bloody hard in your lifetime and aspiring to own property and land as something to pass down to your children?
He's clearly not read the article. The aim of the game is to reduce other taxes and to encourage a wider spread of home ownership. I trust that he is aware there are about 27 million homes and 27 million households in the UK, so the optimum position is that every household owns one home. That's basic maths and logic. And you can't pass something down to your children unless you've bought it first.
Despite his rantings, it's a basic mathematical fact that if we replaced the entire tax system with a fiscally neutral LCT/CI system, the sensible, 'hard working' couple who have scraped together a 25% deposit for an average semi-detached house and take out a three-times salary mortgage would be vastly better off. The all-encompassing spreadsheet in my quick links widget tell us that they would pay something like £20,000 a year less in tax and if/when wife is at home with two children, they'd still be paying £15,000 a year less in tax (and that's ignoring the privately collected tax element of the mortgage).
So if they can afford it, surely an older couple who can both work, whose children are grown up and who have a smaller or no mortgage can get by? Or have I missed something?
rob andersen we should tax fresh air and water as well, people love that stuff so it's money for old rope!
Like land, air is a free gift of nature, but luckily, nobody has worked out how to privatise is, so nobody has to pay for it, therefore its market value is £nil; there is no need to tax it and taxing it would be impossible. The reverse applies to land, another free gift of nature, which has been privatised, new entrants have to pay for it, the market value is easily measurable, there is a strong rationale for taxing land rents rather than incomes and taxing it would be easy. That's just a few key differences between 'land' and 'air'.
Let's imagine the worst: that they did privatise the air. Then of course people would be very grateful if they inherited the entitlement to a supply of air, but as things stand, the air is free. So if land were easily affordable for all, you wouldn't be too fussed how much you inherit, in fact, you'd prefer it if your ancestors chose to live in more modest housing to reduce their living costs and leave you with more of the folding stuff instead.
careful Have to be careful that land tax does not screw farmers who are, largely, not wealthy
A tax on the pure rental value of farm land would be rather less than the income tax minus agricultural subsidies they currently pay/receive. The amount raised would be peanuts anyway so it's not really central to the debate. And how do tenant farmers manage - they currently have to pay full rent and income tax and their landlord gets the subsidies?
Stu So we're going to tax all the farmers out of business, and then end up starving like Zimbabwe? Great idea.
No we're not, see previous comment. Idiot.
Male Talkers
10 minutes ago
24 comments:
"tax everyone and piss it up the wall on more tax credits for the underclass!"
Well, he's right in that tax credits are a shite idea, but, surely, they are very small beer when it comes to governments pissing the taxpayers' finest up the wall.
"and their landlord gets the subsidies?"
Round here the tenant farmers get the subsidies. Is this a Welsh thing?
B, Working Tax Credits are small beer - the huge item is Child Tax Credits, which is three quarters of tax credits and is a £50 a week bung for unemployed single mums, on top of normal Child Benefit.
Yes, ag subsidies are paid to the tenant farmer, but the landlord then just ups the rent accordingly - or supermarkets reduce the price they will pay for milk etc. In the end, the tenant farmer does not benefit.
It's the same as council tax being collected from tenants - this just reduces the rent which the landlord can charge.
"or supermarkets reduce the price they will pay for milk etc."
For years I've been convinced that the whole point of subsidies is to benefit the supermarkets.
Interesting question as to whether the supermarket or the landlord benefits more from the subsidies paid to the tenant farmer. My guess is that the split is dependent on the relative elasticities of the farm land and of the farm products. So if it's easier for the tenant to switch farms, most of the money goes to the supermarket; if it's easier to switch supermarket, most of the money goes to the landowner.
Generally I would expect it to be easier to switch supermarket.
B, it's certainly an unintended consequence.
D, I've been mulling that for a while, and there must be some sort of split between landowners and supermarkets.
We often hear people wailing on that farmers sell their milk to supermarkets for less than it costs to produce, which can only be true if the government pays them to produce milk to sell at a loss.
We also know, as a fact that if ag sub's go up, then rents go up, but the question is, does the price they get for milk then go down or stay the same?
And what about an owner-occupier farmer? The supermarket can choose to import (subsidised) milk from e.g. France if it so wishes, and the price the o-o gets for his milk must be the same as for the tenant?
The o-o passes on as much of the ag sub's as does the tenant, so in the lack of more detailed facts and figures, i shall cheerfully assume a 50/50 split of the ag sub's between land owner and supermarket.
That's a very sensible assumption. You've thought it through in more detail than I had. I hadn't considered owner-occupiers or foreign milk.
It would be nice to develop some sort of theory about it though, because a similar issue comes up with the Citizen's Dividend. On the one hand you could say that it allows landowners to raise the rent. On the other hand you could say that it allows employers to reduce wages. The truth may well be that it does a bit of both. But then again it would be nice to know what the split was.
D,
CD and rent is a good one. Yes, CD raises the rent, and raising the rent increases LVT which increases the CD and so on. What it boils down to is people's relative preference between spending on housing and spending on other stuff; other stuff will get relatively cheaper so at a certain stage, the positive feedback loop stops.
CD and wages is probably irrelevant. The CD means that people are ever so slightly less likely to want to work, so wages will have to be slightly higher to compensate. On the other hand, CD will reduce the amount that employers have to pay, because people won't need quite as much.
And so on. But the CD is not actually an aim in itself, it is just that it is better to collect all the potential LVT and "do something" with it than it is to not collect the LVT in the first place. The other worthwhile thing would be paying off the national debt.
CD and wages is probably irrelevant. The CD means that people are ever so slightly less likely to want to work, so wages will have to be slightly higher to compensate. On the other hand, CD will reduce the amount that employers have to pay, because people won't need quite as much.
I've been wondering about this. The thing I would worry about was that all the CD would do would be to up land rents by the same amount, and then make the CD useless as a safety-net. But maybe the effect on wages would cancel this out.
Kj: The thing I would worry about was that all the CD would do would be to up land rents by the same amount...
Do not worry!
Let's say adult CI is £3,900 a year, and LVT for an average house is £14,000 a year. A working household will be happy to pay that much, that sets the upper limit and the rate. If there are four or five other adults on low incomes, they will share a house.
The individual landlord may say "If I rent to a family, I want £20,000 a year inclusive of LVT, and if I rent to four adults sharing I want £25,000 because it's more hassle" but that is his business decision.
The four or five low income adults can always trade down to an even smaller house or a cheaper area, which enables a working household in a cheaper area to move to a nicer area, and so on.
And what about an owner-occupier farmer? The supermarket can choose to import (subsidised) milk from e.g. France if it so wishes, and the price the o-o gets for his milk must be the same as for the tenant?
Which makes me think that 100% of the subsidy goes to the supermarket. The supermarket isn't bothered whether their suppliers are tenants or o-o's, they will pay the lowest price they can get away with, which means taking all the subsidy from the o-o's. That sets the price for the tenant, who has no subsidy left over to pass to the landlord as higher rent.
B, yes, having thought about this a bit more, the supermarkets probably get more than half, and possibly all of the subsidies.
supermarkets probably get more than half, and possibly all of the subsidies
That may be true. As anectodal evidence, my family runs a dairy-farm, rents most of the acreage in use, and if you spread out all the subsidies on each acre, only a quarter goes to land rents. Ofcourse, a lot goes to buying in concentrates, which have land rents attached to it, but still not more than half.
Interesting topic. Here's some further confused thoughts.
As a dairy farmer, one has two jobs each of which requires land of a specific type. The first job is producing milk and requires a place to keep cattle; the second is swapping milk for cash and requires a place where customers with money can be found.
If an individual doesn't own either land type, he can rent the one that isn't owned. So Ricardo's law of rent can be applied to both types of land to estimate the rent that needs to be paid.
For the cattle-raising job the rent will be the difference in productivity between a typical farmer using marginal pasture (where the costs and benefits of production just balance) and a typical farmer using someone else's more productive (in milk terms) pasture. For the milk-selling job, the rent will be the difference between a typical farmer using a marginal shop (where costs and benefits of selling just balance) and a typical farmer using someone else's more productive (in sales terms) shop (ie the supermarket).
Now the nature of the subsidy also counts. If it is a fixed payment for being a dairy farmer, he won't care how much milk he produces as long as he can afford to maintain one milch-cow. So I would expect that type of subsidy to be split between the farmer and the person who owns the pasture land with most going to the landowner. If the subsidy is a payment based on milk produced I would expect the same. In both of these cases you can see how this works if you imagine a subsidy so big that the farmer doesn't care whether he sells the milk or not.
If the subsidy is based on milk sold, I would expect the payment to be split three ways with the majority going to the supermarket landowner and the farmer's share being split as in the first two cases with the majority of that going to the pasture owner.
Derek: production-related subsidies are wildly unpopular in international trade circles, and it seems that the CAP is moving towards straight per-hectare payments, to the benefit of landlords ofcourse.
D, exactly, the tenant farmer is stuck between a rock (the landowner) and a hard place (the supermarket).
Methinks the whole thing would work better if the supermarkets just owned the land and employed their own farmers directly. And their shops and the farms were subject to LVT.
Kj, the EU started off by having minimum prices, then they tried per unit subsidies, about ten or fifteen years ago it was straight subsidies to land (which was exactly the opposite of LVT, so for forest land you got £10 per acre and for best arable land was £100) but about five years ago they started changing it over to yet another system which is a mish mash of everything. I'm not really sure what the system is without looking it up.
Re supermarkets owning farms, I think that the Co-op used to do exactly that at one time. Don't know if they still do.
Re: actual subsidies, Yes it's tricky thinking up something that works as intended. That's why I'm inclined to just to put farmers on the LVT/CI plan like everyone else and otherwise withdraw all subsidy.
Ah, they still do.
D: " I'm inclined to just to put farmers on the LVT/CI plan like everyone else and otherwise withdraw all subsidy."
Yes of course we'll stop the subsidies, yes of course farmers get the Ci and yes, they'll pay LVT on their homes the same as anybody else. Whether it's worth the hassle of taxing actual farmland in order to raise tuppence ha'penny on top is debatable.
IEA came out with this report yesterday, and it's already gotten attention in farm circles here... Good to hear that they focus on this in the summary:To a large extent, subsidies become capitalised in land values, thus increasing costs to farmers. Between 1992 and 2009 – the period since the introduction of direct payments under the CAP – the value of agricultural land and buildings in the UK rose 400 per cent compared with 38 per cent general inflation. This suggests that one of the effects of removing direct payments would be a decline in land prices, rents and associated production costs.
Kj, awesome find, thanks.
Now would be a good time to start phasing out these subsidies because food prices are relatively high at the moment, I read in the FT that UK meat exports have trebled to £1.5 bn a year over the past decade or so; that's a staggering 1% of GDP. Well done, farmers!
Damn, I just realized something quite obvious. I was wondering why rental values weren't higher for the family farm, actually the land rents were lower as a portion of subsidies than a quarter, less than 20% (incl. imputed rents on owned land). Since milk imports is tariffed over here, there isn't much of a case for the supermarkets taking it either. But, we've got milk quotas! The rental value of the milk quotas (which are quoted online), are approximately 40% of total subsidies. The milk quotas are essentially land from 10-15 years ago (production at a certain point in time at farm x), decoupled and traded just like land, so most of the subsidies does actually go to land (quotas + land rents + land rents embedded in bought feed) in this case.
Kj, another excellent point.
In the UK, you can trade the quotas separately to the land, and you can also trade the right to receive the agricultural land subsidies separately to the land.
So yer developer buys his ag land, sells the milk quota, sells his right to the subsidies, get PP for residential and laughs all the way to the Cayman Islands. This is getting close to the Church selling indulgencies.
Mind you, I suspect the FBRI is one of the factors behind the paying of subsidies to farmers in the UK. The IEA article mentioned "more efficient use of land", but that means modern farming practices, whereas the FBRI wants farming to be locked into a pre-war time warp.
B: milk quotas/tradeable subsidies makes perfect sense for incumbent farmers. Hence the rather strange situation that a major portion of my potential inheritance is a tradeable license to do something productive...
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