Killer Arguments Against LVT, Not (244)

Let us turn our attention once again to Poor Widows In Mansions. The arguments often advanced are that "My council tax pays for local services", that "All services should be paid for by a Poll Tax", that "I've already paid taxes during my working life and/or I've paid into the National Insurance Fund" as well as "Do you mean that my parents will be thrown out of their home, which they bought out of taxed income?".

OK. I realise that the Homeys don't do logic or reason, let alone facts, they are the greediest, most blinkered, spiteful and vindictive bunch going, but let's look at it this way:

1. Let's imagine we go half-way and replace 90% of the tax system with a flat tax on the rental value of land (a bit less than 4% of house prices, at current selling values, Business Rates would remain pretty much as they are) and a flat income/corporation tax of 20%. VAT, National Insurance, Council Tax, SDLT, Inheritance tax, TV licence, blah-di-blah etc all fall by the wayside.

2. Of the £200 billion a year collected in Domestic Rates, pensioner households would be paying about a quarter, or £50 billion a year, i.e. 7 million households paying a median of £5,000 and an average of £7,000 a year.

3. The income tax they pay on their (private) pension income of about £50 billion a year and taxpayer funded pensions of £25 billion a year would be unchanged at 20%, call it £15 billion a year in income tax.

4. What would pensioners households get in return for paying their £50 billion Domestic Rates + £15 billion income tax each year?

a) From DWP's Annual Report and Accounts 2011-12 pp 124 - 125:

State Pension - £74.2 billion
Pension Credit - £8.1 billion
Attendance Allowance - £5.2 billion
Carers' Allowance - £1.7 billion
Bereavement Benefits - £0.6 billion
Plus other bits and pieces like Winter Fuel Allowance, add that up and stick on 4% inflation = £95 billion.

For comparison - all working age benefits added together are only £25 billion a year.

b) Other taxpayer-backed pensions, i.e. public sector, civil service and para-statals like Royal Mail, BA or BT, at least £25 billion a year.

b) Non-cash benefits - mainly NHS and old-age care, reports say that half the NHS budget is spent on pensioners, then there's the cost incurred by local councils on old-age care of about £10 billion. Other sources say that these cost on average £5,000 per pensioner per year, so let's call it £60 billion a year, all in. Chuck in free bus passes and so on under this heading for free.

c) And of course, they get to enjoy exclusive occupation of land with a rental value of a bit more than the Domestic Rates they are paying, call it £55 billion.

5. So they are paying £65 billion a year and getting cash, benefits in kind and enjoying land rents of £235 billion, so they are still getting four times as much out as they are paying in, a net transfer of £170 billion. The Poll Tax idea is a nonsense of course, if pensioners were asked to contribute £5,000 a year each for medical insurance/treatment I'm sure they wouldn't take too kindly to that. And clearly, funding the state pension with a Poll Tax on pensioners is a nonsense as well.

6. For sure, most pensioners have paid tax in the past, too much on their incomes and not enough of their land's rental value, but there we are. By and large, the two would have netted off. And yes, pensioners have some sort of moral right to being looked after, but they knew all along that there was no National Insurance Fund and we are where we are, the simple fact is that today's working taxpayers are making net transfers of over £200 billion a year, all I am proposing is that we reduce this to £170 billion. If pensioners want to reinstate the status quo ante, they can all trade down a couple of bands so that they are only paying £20 billion a year in Domestic Rates and hey presto, sorted.

7. And to those people who say "But my parents will end up being thrown out of their cherished family homes etc" I reply, hey, that's YOUR problem. I am perfectly happy to chip in towards that net transfer of £170 billion to all pensioners generally, but if you want extras for your own parents, then you will have to spend some of your own tax saving on their Domestic Rates.

8. ... or we can abandon logic and facts and just say that pensioners' main residences get exemptions, discounts or deferments. Each local council can introduce its own scheme, as long as they make clear to people which services are being cut back - like shutting down all local schools or hospitals or something.