Monday 31 December 2012

Fiscal Cliff

Please, please will someone truthfully explain the 'fiscal cliff' to me?

(Clearly I am not MW!)

Fun Online Polls: Working age welfare and New Year's Honours

The responses to last week's Fun Online Poll were as follows:

Working age and child benefits amount to what percentage of UK's GDP?

1% - 14 votes
2% - 16 votes
5% - 13 votes
10% - 16 votes
20% - 21 votes


The correct answer is of course 5%, which any sane person can guesstimate by assuming that a tenth of the population are on working-age welfare and that their income is half that of working households (certainly in pre-tax terms and probably in post-tax terms as well).

You could make all sorts of up- or downward adjustments, and at a pinch, you might just about be able to arrive at 2% or 10%, but how is it even possible to have a sensible debate about welfare spending when half of people don't even have a clue how much it is?

If you want the actual numbers (in £ millions):
Employment and support allowance - £6,554 (the new 'Incapacity Benefit')
Jobseeker's allowance - £5,455
Income support - £5,121
Incapacity Benefit - £2,847
SSP, SMP and Maternity Allowance - £2,770
Carer's Allowance - £1,859
Working Tax Credits - £6,999
Child Tax Credits - £22,915
Child Benefit - £12,221
Total - £66,741


GDP is said to be around £1,575,000 million. So that looks like about five per cent to me, or about ten per cent of total UK government spending.
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And lo to the last Fun Online Poll of the year 2012!

Further to The Stigler's recent post about the New Year's Honours IT mixup, I wonder which of the people on the list accompanying this BBC article would have been on your New Year's Honours list?

Vote here or use the widget in the sidebar. Pollcode counts the number of voters, so if you just vote for one or two, that automatically shows up as a negative vote for everybody else on the list.

Sunday 30 December 2012

The Army Of Surveyor (updated)

I've done some more work on this and so have updated the original post, the main point was to show that establishing the 'site-only rental value' (aka 'site premium') of 99% of residential or commercial plots of land is relatively easy. While I was on the topic I have also calculated the potential LVT tax base. If LVT receipts are used to reduce other taxes, this will grow quite significantly (leading to a virtuous circle), but let's learn to walk before we can run..
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Further to point (2) of my earlier post, here is how I would envisage it working. The people from HM Land Registry have already done all this in a far more sophisticated fashion (and would fall about laughing if they read this post), it's just that the politicians have told them to keep quiet about it:

1. We split up the UK into smaller areas (there are about ten thousand local council wards or postcode sectors, so there are about 3,000 homes in each sector) and use the average three-bed semi detached houses in each sector as our reference point for that sector.

2. Proper LVT is based on the 'site premium' element of annual rental values, i.e. if two physically identical houses in two different areas rent for different amounts, the difference between the rents relates to the "location, location, location" and that is subject to LVT. All we need to do is decide what the zero base line is.

3. Data on rental values is harder to find (you can look up current asking prices on Rightmove and so on, but there is little official 'history') and not as well documented as selling prices, but there is a clear enough link between the two.

4. I was bored one weekend in May 2012 and set up a spreadsheet and typed in the recent average actual selling price of semi-detached houses in each of 2,780 inhabited postcode districts using the HM Land Registry data available via e.g. Rightmove (there are three or four postcode sectors per postcode district). I added a column for rental values (as at December 2012) and entered the current average rental asking price for a three-bed semi in every 100th district (sorted by value) plus a couple extra in the upper range and ended up with the following chart:

5. Excel's trendline has a gradient of 3%, it crosses the y-axis at £4,000 and the coefficient of correlation is 0.96. So if you know the current selling price, the rent you would expect to get = [selling price x 3%] plus [£4,000]. Anything over and above the £4,000 a year (to cover maintenance and return on cash invested in bricks and mortar) is the site premium, so we could also say that the site premium is 3% of the current selling price.

6. For example, from an area which is well into the top decile by value:
. £429,000 x 3% = £13,000 a year, against a gross rental value of £22,000 plus Council Tax, which leaves the landlord or owner with plenty of net income to cover running costs.

7. So to establish our total tax base, all we need to know is the total current value (at selling prices) of all housing in the UK and times it by 3%.

a) The figures quoted by Nationwide and Halifax of around £160,000 are misleading, the mathematical average is far higher than that at around £230,000, as Acadametrics explain. According to my spreadsheet, and assuming just under 100,000 homes in each postcode district, the average is about £250,000, but let's go with their lower figure.

b) 27 million homes x £230,000 = £6,210 billion total current value (selling prices), social housing is probably worth a bit less than privately owned, but by the same token, the government also has the income from the bricks and mortar, so I see little point in adjusting for that.

c) £6,210 billion x 3% = £186 billion potential tax base, to which we can add the £28 billion of the rental value which is already taken in Council Tax = £214 billion (a year).

d) For sure, this is going to have to be finessed a bit; all houses are not semis, so having established the site-premium for a semi in each sector (it would be £4,300 a year in the median sector), then we can call it 150% of that for a detached house with decent sized garden in the same sector, 125% for a detached bungalow; 80% of that for a terraced house; 60% of that for a large flat and 50% of that for a small flat (or a semi converted into two flats)*, or whatever the ratios are, and we can save ourselves a lot of hassle by putting homes into bands (like for Council Tax but narrower) and rounding everything down a bit, but hey ho, we'd then end up with a total site rental value of £200 billion a year.

8. So assessing the rental value of all but the most extraordinary or unusual homes is a doddle; we know the rental value of an average semi in that sector, and we then just assess all other homes as a proportion of that. The Valuation Office Agency already have records of all commercial land and buildings for Business Rates purposes, so that requires minor tweaks only.

Remember: it's only relative and not absolute values which matter. For example, if you are in a room with a dozen people all milling around and you have to guess how tall each one is in feet and inches, you'd struggle, but getting them to line up tallest on the left, shortest on the right is easy enough. If you are then told that the sixth and seventh people are 5'6" tall, you can easily guess how tall the others are.

9. It's then a question of which taxes we want to replace. "How about just cutting government spending?" shouts the crowd, well, we're currently running a deficit of over £100 billion a year, and getting that back to a surplus, assuming a constant tax take will be difficult enough, so let's not confuse the two issues.

If we just want to replace Council Tax (£28 billion a year), your new bill is 14% of the site rental value; if we want to replace C Tax and SDLT, your new bill is 19% of the site rental value; if we want to replace C Tax, SDLT and IHT, your new bill is 21% of the site rental value and so on.

10. Having got rid of existing land or wealth-related taxes borne by households (which raise about £50 billion a year), we'd still have £150 billion a year left over which we could collect (if we wished) in order to be able to get rid of the really bad taxes, so we could get rid of VAT (thus getting ourselves chucked out of the EU), get rid of higher rate income tax and make some headway into reducing National Insurance. There will be positive feedback from all this, so in a year or three, we'll be able to get rid of National Insurance as well, which boils the whole tax system down to two flat taxes: LVT and a flat 20% income tax (raising similar amounts each).

There, that wasn't difficult, was it?
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* According to the 2001 Census, about 27% of homes are semi-detached, 25% are detached, 25% are terraced and 22% are flats, with 1% 'other'. So we could use standard 3-bed terraced houses as another reference point, and e.g. purpose built 2-bed flats as another one, and so on. And a weighted average of the relative values I suggested is about 100%, which means that semi-detached houses are a pretty good guide to total rental values.

Saturday 29 December 2012

New Years Honours in IT mixup

The Honours Committee have today had to reluctantly admit that many recipients of new years honours were the results of a test data mixup.

"The team always uses some names in their test data that are never going to get honours, you know, Mao Tse Tung, Genghis Khan, Jedward. This year, they had those and also added Hector Sants, Cherie Blair, Alan Budd and Margaret Beckett."

"It's designed so that if the test data run accidentally gets printed, at least the postman will stop them. Unfortunately, the postman couldn't quite put his finger on who they were, but thought they sounded plausible and let them go. Of course, having been sent, we didn't exactly want to own up to it and thought no-one would notice amongst the Olympic honours. We thought it was easier to let them slide".

Visits still holding up nicely

Here's a screen shot of my Sitemeter page, showing total visits for the last four years, and a big "thank you" to everybody who reads this 'blog.

Friday 28 December 2012

The Life of Pi, Rise Of The Guardians

Once again, Wadsworth's Inverse Law Of Film Reviews holds good.

The Life of Pi got four and five star reviews, we went to watch it yesterday and it is of course a load of vacuous drivel. It's not even about his life, it's about a few completely irrelevant childhood experiences and one adult experience which might or might not have been hallucinations. Duh. The only good things I can say for it is that there were lots of pretty colours and it wasn't quite as bad as Black Swan.

While we were watching that, three of my kids went to watch The Rise Of The Guardians, and they all gave it a big thumbs up.

So now you know.

Thursday 27 December 2012

"Car pollution, noise and accidents cost every EU citizen £600 a year'"

Emailed in by David C, from The Guardian:

The perennial complaint from drivers that they are excessively taxed has been challenged by a study which concludes that road accidents, pollution and noise connected to cars costs every EU citizen more than £600 a year.

The report by transport academics at the Dresden Technical University in Germany calculated that even with drivers' insurance contributions discounted these factors amounted to an annual total of €373bn (£303bn) across the 27 EU member states, or around 3% of the bloc's entire yearly GDP. This breaks down as €750 per man, woman and child...(1)

The study, The True Costs of Automobility, accepts that such calculations necessarily have an element of approximation but give an important overall picture. In a national breakdown it says UK drivers accounted for £48bn of costs, second only to Germany, or about £815 per person per year.(2)

The figures deliberately do not offset motoring-connected taxes unless they are specifically ringfenced for car use, for example a motorway toll where the money is set aside for highway maintenance. The authors argue that other motoring levies form part of the general tax pot and are no more reserved for the impact of cars than alcohol duties are reserved for healthcare or policing drink-fuelled disorder.(3)

Even if motoring taxes were taken into account there remains a significant shortfall in the UK. Fuel duty and its associated VAT along with vehicle excise duty contribute around £38bn a year to the Treasury's coffers, £10bn less than the estimated cost.(4)


1) OK, let's call it £600 each.

2) Or £815 each for the UK, which gives us a total cost of a nice round £50 billion. The report appears to exclude the cost of building and maintaining roads, which is no more than £10 billion a year in the UK, so let's call it £60 billion all in.

3) What is the relevance of this? The government has to get money from somewhere, so the taxes it collects from motorists (minus direct costs) either reduce the amount of tax which non-motorists have to pay or are spent on stuff which benefits non-motorists.

UPDATE: as David C himself puts it in the comments: "...according to EU Greenie Logic, motoring can never cover its external costs, because whatever tax revenue it contributes to society is either hypothecated and doesn't count or non-hypothecated and doesn't count. QED!"

4) But "fuel duty and associated VAT" are not the end of the story. There's also VAT on new cars, car repairs and car parts; road fund licence; insurance premium tax; the P11D scale charges way in excess of the actual cash cost or value; parking charges; parking and speeding fines. It all adds up to rather more than £50 billion a year, if we include all the other taxes which car manufacturers, repair workshops etc pay then we are well over £60 billion. So as a matter of fact, the taxes cover the costs.
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The wider points are the more blindingly obvious ones:

5) As a matter of fact, most households in the UK own at least one car, so each household is simultaneously causing and suffering approx. 1/27 millionth of these external costs, so is breaking even, give or take a couple of hundred quid a year.

6) We can guesstimate the external costs of motoring, but what about the external benefits? For sure, we used to somehow manage without private cars and lorries, and if this country had a massive horse-breeding and railway building programme (the costs of which I can't even be bothered to guesstimate), we might just about manage again, but what would the impact be on GDP?

Allow me to guesstimate somewhere in the region of fifteen per cent, so motoring brings an external benefit of £200 billion per year. As well as the pleasure from simply owning and driving your own car, go where you like when you like in a comfy seat with your own choice of music etc.

7) Of course, the bulk of these external benefits accrue to motorists themselves (more jobs to choose from, or, for a given workplace, a far wider choice of places to live within commuting distance; more shopping and leisure opportunities), but these benefits still spill over to non-motorists (i.e. they buy stuff in the shops which was delivered by lorry, their rubbish gets taken away by lorry, relatives with cars come and visit them more often than if they had to walk there).

So by definition, the average household is considerably better off (a share of £200 billion benefit; the external costs and the tax net off to zilch on both sides), even those households who bear more than their "fair" share of the external costs are benefitting from some share of that extra GDP and £50 billion tax paid and must be at least breaking even.
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As ever, they bung in some land value points towards the end:

"...it must be stated that car traffic in the EU is highly subsidised by other people and other regions (7) and will be by future generations: residents along an arterial road,(8) taxpayers, elderly people who do not own cars,(9) neighbouring countries,(10) and children,(11) grandchildren and all future generations subsidise today's traffic."

8) Woo hoo! What 'other regions'? As far as I am aware, 'other regions' i.e. oil producing countries make a pretty penny out of our motoring habits as this boost the value of their land (the oil under it).

9) Yes, house prices and rents are lower along arterial roads, but you get a discount when you buy it; there's your compensation. By the same token, house prices in outlying commuter villages or industrial estates are higher. If the price of fuel doubled overnight, then the value of homes (and business premises) in inner suburbs would go up and values in outlying commuter villages and industrial estates would fall. Land Value Tax would be an automatic compensating mechanism, whatever happened to fuel prices.

10) Poor Widows Without Cars. Presumably In Mansions.

11) Repetition.

13) Yes, but children benefit if their parents go to work, and most people go to work by car. And children like being ferried around by car. As harsh as this sounds and without wishing to make light of individual tragedy, if ten million children can benefit by having parents with a job and being ferried around and a couple of thousand are killed or injured every year, that's still an overall benefit to "children".

Wednesday 26 December 2012

80% of UK Population Lack Mental Arithmetic Skills

From the ES:

Almost 80% of Britons are incapable of roughly dividing £9bn by 71m, according to a new poll that shows that most people can't do rough mental arithmetic that shows a troubling state of mathematics.

A Guardian/ICM poll showed that 78% of voters believed the Olympics "were probably costing me about the same as a box of Milk Tray", as compared with just 20% who had done the sums and knew that they were actually spending at least half their family's mortgage to get exactly what they would have got if Paris had hosted them.

Town planning: Parks

Having looked at infrastructure, let's assume that our economically rational, benevolent town-planning monarch (the idealised 'state') is now thinking about parks.

He starts with the basic area of 100 'units' from the previous example, with 48 plots for homes/gardens, 36 units of roads (including utilities) and 16 units of spare bits (which could be used as mini-parks, allotments or larger back gardens), and he decides to 'lose' three built-up plots and one unit of 'spare' and have four units of 'park' instead.
Those 'parks' will cost money to maintain and will also generate a little bit of income (charges for bowling greens, tennis courts, rowing boats and income from the hut which sells tea and ice cream), or the 'park' might be a municipal swimming pool, but let's ignore that.

Once we join up these units we end up with a larger park in the middle, which covers 16 out of 400 units, i.e. only 4% of the whole area:
Instead of having 4 x 48 = 192 plots which he can rent out or sell off, he now only has 4 x 45 = 180, so superficially, he's lost just over six per cent of his potential income, but is it not likely that that the average rental value of those remaining plots is not (say) ten per cent higher? Wherever you live, you are within a couple of blocks' walk of a few different parks, each one catering for slightly different tastes, and the houses directly overlooking an open green space or a boating lake will have a rental value that is even higher than the other houses.
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Thus the notion that a council would seek to maximise its income from Land Value Tax by selling off (or granting planning permission for) all the publicly accessible open spaces is a nonsense, there is an optimum level for everything and the optimum level for the amount of parks is far greater than zero per cent (whether it is five or ten or fifteen per cent, I do not know, it's not as scientific as that).

For a real life example of this, see Central Park in Manhattan, where the planners bought up and demolished existing buildings in order to have a nice big park. The amount of property tax income 'lost' is far outweighed by the extra value which teh park adds to every occupied plot.

Monday 24 December 2012

Real Estate Downfall

"Chart 8: Rental costs have also risen"

Richard linked to this speech by some Bank of England bod, who was trying desperately to prove that UK house prices are not in a bubble etc. Well, he would say that wouldn't he?

Chart 8 is handy. It shows how rents have risen as a share of income over the last forty years. The chart heading, referring to rents as "costs" is misleading, because from for landlords, landowners and bankers, rental income (or potential selling price, or potential mortgage interest) has risen.

This is the important point: taking society as a whole, rents (and mortgages) paid are neither costs nor income, rents are a government-engineered transfer of wealth from producers to a self-selected narrow group of consumers, and the more the producers produce, the easier for these consumers to skim some off for themselves. It's like the "bloated welfare state" but about five times bigger and with a terrible veneer of respectability.

The steepest increases appear to be during recessions, which is probably because wages fall faster than rents during recessions, but the overall trend is clearly upwards:

Queen's Christmas Message Hails Taxpaying Stars

From the BBC

The Queen is to pay tribute to the nation's taxpayers in her Christmas broadcast.

She will hail the "splendid year of taxpaying" and highlight how the taxpayers allowed rent-seeking parasites like Olympic athletes to train off their hard work, doing a load of events that no-one watches except to have their own deluded sense of British greatness reinforced.

During the address the Queen will say: "As Britain hosted a splendid year of taxpaying, all those who worked hard all year were wondering why the hell they were having £11bn taken from them under threat of violence for a 3 week festival of hop, skip and jump.

"By trying to give them and their families a better live, they allowed the rest of us to live in luxury for doing a lot of pointless things".

Sunday 23 December 2012

Killer Arguments Against LVT, Not (295)

David E. Cooper, himself an LVT supporter, in the comments to an article at ConHome slagging off an article which he wrote recently:

Your points [i.e. those from Team LVT] are welcome, but please don't overstate the advantages of LVT. There is no evidence it eliminates property booms - look at the recent news from Taiwan, where LVT is used, and there is an ongoing property price boom.

Indeed one possible consequence of of LVT is that the government, finding that its revenues rely on property prices, takes active steps that encourage ever higher property prices. Something like this occurs in Hong Kong, where most revenue comes from the sale of long term land usage rights, and as a consequence the government is very keen to spend money on infrastructure which enhances their sale value.

Booms and busts will always happen.


Taiwan and HK are separate topics, let's look at the UK.

Commercial land and buildings are liable to Business Rates (pretty close to LVT, the implied rate on site values alone is around fifty per cent) while residential land and buildings are only liable to Council Tax (about as far from LVT as an annual land tax can get; it's more of a Poll Tax plus premiums for larger homes minus reductions for low-income households, making it a bit like Local Income Tax), and which is only about a fifth as high as Business Rates would be on a similar building used commercially.

Apart from that, these two types of land (or land use) face exactly the same other influences (state of the economy, interest rates, planning restrictions etc). So, if the claim (that LVT dampens bubbles) is true, then the bubble in commercial prices would have been a lot smaller than the one in residential, yes?

Oh, it was...*
Call me jaundiced or something, but it seems fair to say that:
- Commercial prices rose fifty percent over four years, reverted to the old level within two years and have since undershot their old level.
- Residential prices rose one hundred and fifty per cent over eight years and are still nowhere near their old level (admittedly, the UK government has been throwing everything it can at preventing them falling back below 2004-05 price levels).

Common sense also tells us that you can make a windfall gain by buying commercial land and buildings (the price of which is depressed by Business Rates, i.e. quasi-LVT) and obtaining permission to change them to residential use (which are only liable to Council Tax, which reduces the annual tax bill by 80% or something). This is pretty much common knowledge among property developers.

* Chart from the Bank of England's Feb 2010 Inflation Report (click to download Powerpoint slides, via the ever reliable Tutor2U

Fun Online Polls: Garage conversions and "the bloated welfare state"

The results to last week's Fun Online Poll were as follows:

What do you see more often?

An integral garage converted into an extra room - 88%
A spare room converted into an integral garage - 12%


This ties in with my general observation of the world around me; I'd like to add that for every downstairs-room-converted-to-a-garage which I've seen, I've seen about ten integral-garages-converted-into-an-extra-room, if we could factor that in, the ratio between the two might be much, much higher.

Thanks to everybody who took part as usual.
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Dave Scotland left this highly inappropriate comment: "If we build more homes the nig nogs will come and fill them in no time."

Even if that were factually correct, that's not much of an argument, is it? You might as well say "There is no point improving our education system, as a load of foreigners will just come over here and send their kids to our schools", or "If we improved the NHS, then..." or "If we got crime down, then...".

If we take this Home-Owner-Ism to its logical conclusion, the government would be perfectly justified in allowing the country to go to wrack and ruin as a kind of poison pill defence against immigrants. Enforcing some kind of sensible immigration system is just one of many things which the government ought to be doing.
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I've been busy this weekend updating the workings on page 2 of the Citizen's Income Trust's pamphlet. Unsurprisingly, replacing the entire welfare and pensions system and various income tax/NIC reliefs like the personal allowance/primary threshold with a universal Citizen's Income/Citizen's Pension (set at current Income Support/Pensions Credit Minimum Guarantee rates) is as affordable now as it ever was, and that's before we factor in Laffer Effects.*

But one thing that is surprising is how much is spent on working age welfare. I've included just about everything you can think of: Income Support, JSA, ESA, Incapacity Benefit, Child & Working Tax Credits, Child Benefit, SMP, SSP, student grants and loan write-offs, other bits and pieces**. Remember that a large chunk of these (a third?) are paid to working families.

Can you guess what percentage of UK GDP they add up to?

Guess here or use the widget in the sidebar.

* Let's assume the revenue maximising income tax rate is 50%, in that case the benefit withdrawal rate which minimises the cash cost of welfare (or maximises the amount of welfare clawed back through means testing) must also be 50%. Current overall withdrawal rates for most household types are about 80% on anything up to a median sort of income.

** But not severe disability benefits or Housing & Council Tax Benefit.

Saturday 22 December 2012

Nobody move or the puppy gets it!

Splendid bit of shroud waving by the bankers in yesterday's Evening Standard:

Homeowners could struggle to get mortgages under proposals to stop a repeat of the financial crisis, banking chiefs claimed today.(1)

They also argued that small businesses may continue having difficulties obtaining loans if the blueprint, by the Parliamentary Commission on Banking Standards, is adopted.(2)

Today the commission, led by senior Conservative MP Andrew Tyrie, urged ministers to beef up government plans to ringfence banks’ risky investment operations from savers’ deposits...(3)

But Anthony Browne, chief executive of the British Bankers’ Association, claimed the commission’s proposals would impact on bank customers. “They urge for a smaller leverage ratio, and this could mean there is a constraint on business for banks (4) — they could actually be banned from offering mortgages even to good, safe homeowners: non-risky mortgages.”(5)


1) That bit beggars belief, if people already own a home, why would they need a mortgage? They might already have one, but as long as they keep paying, everybody's happy.

2) The debate rages as to how important bank lending to business is in the first place.

3) The plan itself is a bit pointless, and would do nothing to prevent leveraged land-price bubbles, but hey.

4) Outright lie. Increasing the ratio does little or nothing to influence the total amount of lending, all it means is that banks will have to finance themselves with relatively more share capital and relatively less debt or bonds.

5) If you are a borrower in this category, you have nothing to worry about, and these are the kind of loans which banks will always be able to make. It's the younger people with lower deposits etc who are being frozen out. If house prices were eventually to fall, then that would turn out to be a blessing in disguise for them, but Homey policy appears to be to try and concentrate land ownership in fewer and fewer hands, which is why high house prices coupled with strict lending rules pretty much hit the spot as far as they are concerned. Banks just want to collect as much land rent (in the form of mortgage interest) as possible, and they are probably happier collecting it from a BTL landlord than a first time buyer.

Friday 21 December 2012

When A Gearchange Is Born

Not in a stable two thousand years ago, but in the middle of this song after 2 minutes 20 seconds:

Killer Arguments Against LVT, Not (294)

Ben Jamin' in the comments to an earlier post:

LVT is supposed to be unavoidable, what about Gypsies? I'd like to see you give them an LVT bill. Good luck with that one.

Easiest thing in the world. LVT is just ground rent. We know that:

a) The general public has certain sort of prejudices against gypsies, be they justified or otherwise, and they want gypsy camps (settlements?) to be as far away from them as possible.

b) Gypsies on the other hand would probably prefer, all things being equal, to be closer to rather than further away from urban centres, because they have to go shopping etc just like anybody else.

c) Mainly, gypsies want to be left in peace and quiet, and they are prepared to pay for this.

So it's up to each town to identify a suitable site and offer to rent it to gypsies (who have their own clans and family structures, impenetrable to me). The closer that site is to the town, the higher the rent will be (the town's residents will want 'compensation' and the gypsies will be happy to pay more), and the further away it is, the lower the rent will be (for equal and opposite reasons).

So the rent the town's residents would demand for a field right next to the town would be £100,000s a year, and the rent they would demand for a field which is three miles out of town might be only £10,000 a year. By applying usual market forces and a kind of bidding-auction process, we will find some sort of optimum, maybe it's a field one mile out of town and the rent is £30,000 a year.

So our thirty (or whatever) gypsy families agree to pay £30,000 a year rent for that field, chipping in £1,000 a year each. If they don't pay, they get moved on, but seeing as they agreed to pay this, why would they not pay?

There, that's your LVT (aka ground rent) collected. We can also assume that at least some of those gypsies will be legally resident UK citizens entitled to their Citizen's Dividend. The adult-rate CD would be about £3,500 - £4,000 per year, so as long as ten or more of them are entitled, their LVT bill and CD entitlement can be netted off, no money actually changes hands.

Thursday 20 December 2012

Best of luck for tomorrow, eh?

My personal view is that the Mayan apocalypse won't happen, but keep in touch anyway.

The clue bat is that although 21/12/2012 looks vaguely meaningful on the Gregorian calendar (20/12/2012 would have been better), the Mayans didn't use the Gregorian calendar, that wasn't designed until AD 1582.

Also not clear is at what time tomorrow we can all heave a sigh of relief. Do we have to wait until after midnight Central American time or something, that's like six in the bloody morning our time?

Killer Arguments Against LVT, Not (293)

Over at ConHome, an anonymous author couldn't even be bothered to think up some new and original KLN's, so he goes for a couple of "tried and testeds":

First of all taxation should always be related to the ability to pay. Just because someone owns land it does not mean they are making money from it. They could, of course, sell some or all of it to pay the tax – which could encourage more productive use of the asset; but when it comes to people’s homes, it is surely deeply immoral to apply such an argument.

That's the Poor Widow Bogey again. Is it really beyond the wit of mankind to think up some transitional system of exemptions, deferments etc? And why is it "deeply immoral" to make people pay market value for where they live? All tenants and first time buyers have to do it, don't they? The whole landowner-banking pyramid is based on the fact that they can and do.

Secondly, where property is rented, the cost of the tax would most likely be passed on to the tenants. In effect, the burden of the land value tax would fall upon the shoulders of the landless. Some irony.

"Most likely"?? Answer is, it wouldn't be. Simple common sense tells us this*; supply and demand curves tell us this; all the available evidence and statistics tell us this; the fact that the "landed" spend all their time campaigning against LVT tells us this - because simple lack of LVT enables them to obtain more and more land, while the "landless" subsidise them (either directly via rent or indirectly via taxes on earned income).

Do these Homeys have any real life examples or actual hard facts at all to support their contention?

* The total rent a landlord can charge bears no relation to his actual cash costs, it is all down to location. The cash costs of actually providing and maintaining buildings are pretty much the same everywhere in the UK but rents and selling prices are wildly different. Those differences are entirely down to the location. If it were true that rents depend solely on the landlord's costs, then rents and selling prices would also be pretty much the same across the UK, but they aren't.

It's easiest to consider the position of new entrants under an LVT-only system:

A tenant is choosing between two physically similar homes, one in a nicer area costing £12,000 a year rent; and one in a less-nice area costing £8,000 a year rent. That differential is decided by the markets, so we can assume that all tenants, taken together are indifferent between the two. Market equilibrium is established.

An investor wants to invest in buildings to rent out. He can buy the home in the nicer area, rent it out for £12,000, pay £7,000 LVT and keep £5,000 to cover his costs and his own return on capital. Or he could buy the home in the less-nice area, rent it out for £8,000, pay £3,000 in LVT and keep £5,000 to cover his costs and his return on capital. So we can also assume that actual and potential landlords will be indifferent between the two - the cash cost of buying either house will be much the same (about £80,000) and the annual net return on capital will be much the same (£5,000 minus cash costs). Market equilibrium is established.

If you try applying Homey non-logic to this equilibrium, it would be impossible for a market equilibrium to be established. Why would our potential investor buy the home in the nicer area and then imagine that he can rent it out for £19,000?

I suppose the Homeys would argue: "Aha, you have just proved our point! When deciding his rent, the landlord takes his costs plus minimum return on capital, adds on the LVT and then makes the tenant pay it! So the tenant does bear the tax!".

False comparison!

The point is that tenants and first time buyers already pay LVT, it is just that it is collected privately. LVT is not a tax on tenants, it is a tax on landowners. If we had LVT for a couple of years, the new equilibrium would be established and everybody would be happy - but what if we then reduced LVT again or scrapped it? Would all the landlords drop their rents from £12,000 to £5,000, or from £8,000 to £5,000, to reflect their lower costs?

Of course they f-ing well wouldn't. They'd keep their rents the same. So reducing the LVT benefits solely the landowner.

"Bavarian-style Christmas markets"

The Daily Mash did an article recently pointing out how pointless and depressing these are.

Now, you may think that something got lost in translation, that the Germans have proper Xmas markets (they are not inherently Bavarian) and that the UK version is somehow a pale imitation and blatantly commercialised copy.

Nope.

I went to one of these in Bavaria a quarter of a century ago, and it was just some people garden sheds with fairy lights and cotton wool snow on the high street selling overpriced vaguely Xmas-themed tat. So we all had a couple of plastic beakers of over-priced Glühwein (that's like mulled wine but close to boiling point with a shot or two of vodka in it) and buggered off home again.

Wednesday 19 December 2012

We're doing our bit for global warming

Here's what the gas/electricity company sent us to cheer us up at Xmas time. I hope that once the 'planet' has warmed up a bit, it'll reduce our heating bills at least:

Reader's Letter Of The Day

I've only just got round to reading today's City AM - they edited down my original letter to its bare bones and printed it in today's Rapid Responses:

How about taxing land values instead of turnover, income and profits? Starbucks has its shops in Britain, Google has offices and data centres, and businesses that sell through Amazon have warehouses, car parks and the like. This would be an effective way of ensuring companies pay at least some tax.

Mark Wadsworth.

Authoritarians missing their own point, as per usual

Spotted by Bob E in The Telegraph:

The Bill for Welfare Cash Card is designed to stop welfare claimants buying what Shelbrooke deems “NEDD” goods – Non-Essential, Desirable and often Damaging – which include cigarettes, alcohol and gambling. It would not affect those who cannot work and receive disability-related payments or those on the state pension, but it would apply to all other in-work or out-of-work benefits.

1. Yes, booze and fags are very expensive in this country, precisely because the authoritarians have burdened them with such high taxes, three-quarters (or whatever) of the cost is tax.

2. The self-same authoritarians then say "We don't like welfare claimants spending so much money on expensive booze and fags. If they have enough money to spend on things like that, then they are getting too much money."

3. The fact is, it sorts itself out. If a welfare claimant spends £30 a week on booze and fags, of which £22 is tax, then the authoritarians say that his welfare payments should be cut by £30 a week. Actually, that welfare claimant has just voluntarily reduced his own net welfare payments by £22 a week, because that money goes straight back to the government, he's only getting £8's worth of booze and fags.

4. As a thought experiment, what if booze and fags weren't taxed, and the welfare claimant was only spending £8 a week on them? Would the authoritarians then be so niggardly and judgemental as to want to cut his welfare payments by £8? Probably yes, but hey.

Tuesday 18 December 2012

Town Planning: Terraced houses (2)

Following the comments on the earlier post, allow me to summarise thusly:

Assuming
- plots are 9 yds wide and 36 yards deep
- the house has internal area 120 sq yds
- the garage is 3 yds wide and 8 yds deep
- you can choose between a semi-detached on the left or a terraced house on the right, which is the better layout?

I am pretty sure that the cost of building the semi-detached and separate garage is higher (in terms of foundations, bricks and roofing materials), but let's ignore that. What it boils down to is: a semi-detached with three rooms downstairs and up (of which one on each floor is usually too small) or a terraced house with two rooms downstairs and four rooms up (all OK in size)?

To my mind, the terraced layout is better: to keep everybody happy, I have pencilled in an integral garage downstairs with doors at the front and back so that people can carry mucky stuff from the garden to the front (most people will promptly convert this to an extra downstairs room, of course). And what you lose in the wasted strip of driveway at the side, you gain in a much bigger back garden (198 sq yds instead of 153); you could in fact make the terraced plot five yards shorter (lose the bit above the dotted line) and the garden is still 'better' as it is 'squarer'.
And terraced housing is almost infinitely scaleable. Here's a screenshot from Google Maps of some three-bed terraced houses in Leyton (without integral garages), including the roads in front and behind, that works out at 30 homes per acre (or "350 habitable rooms per hectare", to use the modern jargon):

Athletes 'healthier' than TV chefs

From the BBC:

Prominent TV chefs are less healthy than footballers and Olympians, Newcastle University researchers say.

Jamie Oliver, Lorraine Pascale, Nigella Lawson and Hugh Fearnley-Whittingstall were compared to Premier League players and members of Team GB. The TV chefs' bodies contained more calories, fat, saturated fat and sugar - but less muscle.

The researchers said this was not about "bashing" chefs as many campaigned to tackle obesity. The team said it was widely agreed that cooking from scratch was healthier than buying prepared meals, but nowhere as good as pounding the track or pumping iron for up to ten hours a day, however, they said there was a lack of scientific testing of the claim.

In the study, published in the British Medical Journal, they compared 100 TV chefs, who had books at the top of the bestseller charts, to 100 top sports personalities. These were then compared to fitness guidelines set by the World Health Organization...

Prof Martin White, from the Institute of Health and Society at the university, told the BBC: "Both athletes and TV chefs are not as healthy as they could be. We're not bashing TV chefs, and some younger male members of the team were even of the opinion that Lorraine Pascale is in fact fitter than her opposite number, Jessica Ennis."

They asked for it

Douglas Carswell muses on how the internet and the concept of licensing "intangible assets" enable companies to avoid paying taxes designed for a system of physical production (mines, factories) in today's City AM Forum, and concludes thusly:

"But if the tax base turns out to be a river that can flow away," you ask, "how are governments going to manage to raise revenue to pay for all the things that governments do?"

How indeed. Perhaps they won’t. Without a dependable tax base, maybe the era of Big Government is over.


How about taxing land values instead of turnover, income and profits? Costa Coffee trades from 700 shops; Google has offices and data centres (and their employees all have to live somewhere); the businesses who sell goods or services via Amazon or eBay still need somewhere to store their goods; they need parcel companies to deliver them, who have their own offices, warehouses and car parks etc etc. And if those premises are currently abroad (for whatever nefarious reasons) then let's build more suitable premises in this country and invite them all over.

Just for a giggle, I've emailed this post to theforum@cityam.com, feel free to have a go yourself.

Monday 17 December 2012

Darcey Bussell has triangular nostrils



Going off on a tangent

From The Evening Standard:

Environmental health inspectors have been told to take a hard line on burgers that are not fully cooked through, but Michelin-starred Angela Hartnett, chef patron at Murano in Mayfair and York & Albany gastropub, said Westminster city council should stop meddling and concentrate on “bigger issues”.

She said: "I’ve eaten raw meat, well-done meat — it has never done me any harm. Why not sort out the bike lanes or the traffic?"


Suitably fired up, the Mayor of London has promptly swung into action...

From the Evening Standard:

Boris Johnson has branded rickshaws dangerous and called for them to be banned from the West End.

The Mayor said even responsible operators "cannot ensure the safety of their passengers" and are adding to night-time traffic jams. He wants new laws that would give him the power to sweep the unlicensed and often uninsured pedicabs from central London.


So if "eating a raw burger travelling through London in a rickshaw" is on your things-to-do list, you'd better hurry up. It is unreported whether rickshaw drivers have contacted the council suggested they keep their nose out of people's private travel arrangements and concentrate on bigger issues, like food poisoning.

Delightful Headline Of The Day

From The Evening Standard:

Spending on public toilets slashed

Daily Mail on top form!

From The Daily Mail*:

A troubled 20-year-old loner with a history of autistic behavior is the monster behind a horrific shooting at a Connecticut elementary school that left 26 people, including 20 children, dead on Friday. Adam Lanza shot his mother, Nancy, at the upscale suburban home they shared together and then took three of her guns and drove to Sandy Hook Elementary School about 9.30am...

Lanza and his mother, Nancy, lived in a well-to-do part of Newtown, a prosperous community of 27,000 people about 60 miles northeast of New York City. Neighbors said that the mother always took great pride in her Colonial-style house, and always kept her home tidy. The four-bedroom, three-bathroom house is estimated to be worth around $537,000, and is situated on 2.19 acres of land.


* Via Peter_2008 at HPC.

Fun Online Polls: Government spending & Integral garages

Thanks to everybody who took part in last week's Fun Online Poll:

Who gets the most cash from the UK government?

Welfare claimants and OAPs - 11%
Public sector workers and pensioners - 29%
Nominally private sector businesses (whether for goods and services supplied or as subsidies) - 60%


Sixty per cent of you were correct; that type of spending is about 40% of UK government spending. If the UK government really wanted to make cuts, that is the place to start.

It would also appear that the second largest item is welfare and pensions* spending, but not by a huge margin, it's a bit more than 30% (but no more than 35%) and the total salary and pension costs of six million public sector employees is a bit less than 30% (but no less than 25%).

* Three-quarters of that is old age pensions of course, working age welfare is surprisingly small amounts.
-----------------------------------
The comments to my previous post show that there is quite a divergence of opinion as to whether integral garages are a good idea (rather than having an extra downstairs room).

That's entirely a matter of personal taste and preference of course (for example, if you have motorbikes or bicycles etc which you need to store securely), but what's the majority opinion?

The only way to test this is to observe the real world and compare how many people have converted an integral garage into an extra downstairs room and vice versa.

Vote here or use the widget in the sidebar.

Sunday 16 December 2012

Town Planning: Terraced houses

Two huge advantages of terraced housing over semi-detached or detached housing are as follows:

1. You don't absolutely need to lock your back door to the garden, and stuff which you have in the garden is far less likely to be nicked. This doesn't apply so much if you are at the end of the row, but it applies even more if your back garden backs on to the back gardens of another row of terraced houses behind. (The minor downside of this, as BJ points out in the comments, is that you have to be a bit careful carrying garden waste through the house).

2. You get less traffic noise when you are sitting in your back garden. I currently live in a detached house, and both my house and the building next door are built to within one yard of the fence, so the sound of cars going past is amplified if anything as it echoes through the gap. If you sitting in the back gardens between two rows of terraced houses, you notice the traffic noise much less, or at least, it is a steady background noise rather then you noticing individual cars.

3. The downside of living in a terraced house is that it doubles your chances of having an idiot neighbour who makes a noise. But assuming only a minority of neighbours do so (3%), the chances of not living next to and suffering from an idiot only goes down from 97% to 94.09%. This is the more relevant comparison.

4. A third more subtle point is that with a row of semi-detached houses, the strip of land between your back door (which in England is usually at the side, go figure) and the fence to your neighbour's house is either used to park the car or as access to a garage behind the house. This appears to be the least valued part.

In the heyday of semi-detached house building, cars were pretty leaky things, so it was good to park them in the garage when not in use, but nowadays, cars are much more resilient, and you can leave them parked outside to no ill effect. It is an absolute mystery to me why so many relatively new houses have inbuilt garages, it is a complete waste of space, you'd be better off leaving the car outside and having an extra room downstairs.

So when people want to extend their semi-detached houses, the first thing they do is a loft conversion (because that's the cheapest), and if they want to extend the footprint, they don't extend at the front (because that would spoil the appearance of the street and is usually against planning regulations for that very reason) and they don't want to lose any of their back garden, so they tend to build sideways, thus ending up with what is effectively terraced housing (image from Francis Builders):Usually this ends up looking a bit of a mess, it would usually have been better to build terraced houses with a wider frontage from Day One.

5. As we also know, on-street parking is in some respects better than in your own driveway:
a. Getting and out of traffic flows and crossing the pavement (half the time in reverse) is a right old faff, you have to be really careful about pedestrians, other motorists don't like it when you have to stop in the middle of the road to reverse in, and they don't like stopping for you when you have to come out again.
b. If your car is on your driveway, burglars know which house to burgle if they want to get the keys. If you have an old car in your driveway, you are at little risk of this, but if you have something swanky, it increases the chances you will be burgled. Apparently, some insurance companies offer lower premiums to people who park on the street.
c. You don't need to worry about some inconsiderate b*****d blocking you in on your driveway.

The obvious down side of on-street parking is that you can't always get a space right in front of your house (although parking spaces could be marked and allocated to houses, I suppose), which is not such an issue.

6. The two observations, that terraced housing is best and on-street parking is best can lead to a conflict if households on a street have more cars than will fit on the street.

Having paced this out on the street just now, I can report that cars parked lengthways on the street require about six yards of road. We also know that the average plot width of a typical terraced house is five-to-seven yards and of a semi-detached is about eight-to-ten yards. So as long as households only have one car on average, there is enough road space for everybody to park on the street; but every household has two cars, then the frontage would have to be about twelve yards.

Killer Arguments Against LVT, Not (292)

Over at Lib Dem voice, Joe Bourke is broadly in favour of LVT as opposed to other forms of taxation, but he advances this KLN:

3. LVT [can not] pay for all Government expenditure, with a surplus, and only capture unearned incomes/economic rents.

Maybe, maybe not, but I fail to see the relevance:

1. The government currently spends about £665 billion a year and hopes to raise £569 billion in tax (and £32 billion in rental and other income) this year (from the public sector finances databank). So clearly, not even the current tax system can raise enough; there's going to be a deficit of about £120 billion (yes, I know those figures don't add up, don't blame me).

2. Even the biggest of the big taxes, income tax (average rate about 25%), will raises £150 billion this year, which is only a quarter of all taxes raised, and only a fifth of all spending. That's not really an argument for or against income tax, so why is it an argument against LVT?

3. If we had kept public spending down to pre-crisis levels, say 2005-06 levels and added 3% inflation each year, public spending would be £595 billion and there would be no deficit. If we had kept public spending down to 1999-00 levels and added 3% inflation each year, we would 'only' be spending £477 billion a year.

4. To keep this discussion simple, let's assume that spending had been frozen at 2005-06 levels plus inflation, in which case spending and total receipts would be about £590 billion a year. The relevant question is, how much of that could be raised in LVT, even if it is not all of it?

5. There is a lot of circularity involved. You need to actually know how much current taxes raise and that there are two quite separate Laffer effects. The better known one is that once income tax rates are past a certain level, total receipts start to fall. I suspect that we are at or close to that level.

6. The lesser known Laffer effect, but more important one is the measure of deadweight costs of an economy, which appears to be the overall tax rate cubed, i.e. if overall tax rates on income are 50%, the size of the economy is depressed by 0.5 x 0.5 x 0.5 = 12.5%. Overall average rates of taxes on earned income (income tax + NIC + VAT) are slightly more than 50%, so it is a reasonable to assume that our economy is only 87.5% of its potential.

7. Whether the current rental value of all UK land (excl. buildings) is £150 billion a year (Joe's low estimate) or £250 billion a year (my higher and more scientific estimate), it is a huge flow of wealth, value or potential tax. Let's split the difference and call it £200 billion.

8. Let's assume we introduce LVT as an additional tax, in theory we could put an end the deficit straight away.

6. Or, my preferred option, we get spending down to a sensible level and could use LVT as a replacement tax. An LVT rate of about 25% on the site-only annual rental value of residential land would be enough to replace the usual list (Council Tax, CGT, SD, SDLT, IHT, TV licence, Insurance Premium Tax, total £49 billion). And Business Rates could also be replaced with LVT of about 50%.

7. If LVT were at 100% of current rental values, it would raise (say) £200 billion a year. With that extra £150 billion revenue, we could reduce or replace the worst taxes (VAT £102 billion, NIC £106 billion and higher rate income tax £50 billion-ish).

8. So with VAT halved (from 20% to 10%), NIC halved (from 25.8% to 12%) and no higher rate income tax, average tax rates will be 40%, so the economy will grow from 87.5% of its potential to 93.6% of its potential, that's an extra £100 billion money being earned, most of which will flow through into higher rents (observable fact, I can't be bothered explaining it again).

9. So now we have potential LVT receipts of £300 billion, so with the extra £100 billion, we can rinse and repeat; get rid of VAT and NIC entirely. This means that the marginal rate of tax on earned income is only 20%, at which stage the deadweight cost is 0.2 x 0.2 x 0.2, less than 1% and can be more or less ignored.

10. That's another £100 billion extra rental values, so we could then reduce income tax from 20% to 12% or 15% (or whatever). There'd be no further secondary Laffer effects from this, apart from the economy would grow slightly faster from a higher base, but let's ignore this for uncertainty.

11. Now, under current rules, the 'average' household is paying or bearing about £21,000 a year in tax (directly or indirectly). About £2,000 of that is Council Tax or Business Rates, so the split it 10/90. With only two major taxes, LVT and flat income tax, the average household would be paying or bearing (say) £10,500 LVT and £10,500 income tax (however directly or indirectly). Why do we assume that £21,000 is 'affordable' if collected 10/90 between [Council Tax, Business Rates] and [income tax, VAT, NIC etc], but not if it collected 50/50 with LVT and a low flat income tax?

12. And if 50/50 is 'affordable', then why not 60/40 or 80/20 or even 100/0? From here on in, it would be just a question of nudging up the LVT rate and reducing the income tax rate a bit each year, after five years at most, we could have a full-on LVT only system.

13. Yes, the chances are that once the LVT system is bedded in, most households are paying much the same in tax as they do now, but so what? Their gross earnings will be higher, and, if they are willing and able to pay more in LVT, then in return they get to live in a nice house with a low or no mortgage. Surely that is better (in free market terms) than people who are willing and able to earn more being forced to pay loads of income tax and getting nothing in return?

Saturday 15 December 2012

Killer Arguments Against LVT, Not (291)

Paragraphs 3.16 to 3.23 of the CPRE's report on "property taxation" of 2005 are all fairly positive about LVT, then we get into the "ah, buts"...

3.24 An LVT appears to have desirable incentive properties for using vacant sites close to existing amenities, and encouraging the upgrading of the existing stock.(1) One concern is that the land-value tax increases pressures to develop all land;(2) there may be added incentives to develop on greenfield sites(3) which would also be subject to a holding tax.(4) Also, the LVT may lead to “concrete jungles” in urban areas, since the holding costs mean fewer land-owners are willing to maintain open spaces.(5)

1) Correct.

2) Nope. What does he mean by "all"? For sake of argument, let's assume we stick with existing planning rules. As LVT is based on the annual site premium assuming optimum permitted use, LVT on land without planning would never be more than its agricultural value of peanuts.

3) Not true, in fact quite the opposite. Agreed, it is much easier to build houses on greenfield sites (no demolition costs, fewer neighbours to impeded things, but the costs of extending all the utilities connections and so on are higher).

However, the main driver for this is, in the absence of LVT, that the land value uplift is enormous. If you own farmland and are given planning permission, its value goes up a hundred-fold, the landowner/builder, taken together can earn an extra £50,000 - £100,000 for each house they build compared to...

... a builder who buys urban land for a price which already includes the value of the planning permission. He can only earn money by actually building houses, which is difficult, risky, expensive and so on, there is no windfall.

So the town spreads outwards while the centre rots. See this fine article by an Lib Dems ALTER member in the Daily Mail.

With LVT in place, the incentives would be entirely the other way round. There would be no windfall gain on rezoning greenfield, and there would be pressure on owners of empty or derelict buildings in urban areas to bring them back into use ASAP, or, in extremes, knock them down and start again.

Would things automatically be perfect? Nope. Would they better than now? Yup.

4) Who says? What "holding tax"? Does he mean LVT? In his footnotes, he says "This problem could be reduced if agricultural land were exempted from the LVT." Surely he knows that if agricultural land subsidies were scrapped, the rental value of UK farmland would be so close to zero as to be barely worth taxing (under a full-on, fiscally neutral LVT only system, the tax would be about £16/acre per year, about one-tenth the average value of food produced per acre).

5) This is a town planning issue rather than a tax issue, but realistically, how many privately owned "open spaces" (which I take to mean public parks etc) are there, which have actual planning permission for development (and are not subject to a restrictive covenant etc) but where the owner generously lays some paths and benches and flower beds for the general public instead?

Answer, pretty much none*. So the problem is non-existent.

Under LVT, there is a trade-off, if a private owner (like the original owner of Leicester Square) says that he is happy for his land to be used as an "open space", then what is the rental value of that plot? More or less nothing, might even be negative. So what's the LVT? Nothing.

And as we know, open spaces in urban areas vastly add to the rental value of surrounding plots, so there is an overall net increase in rental values if some land is left "open". So given a reasonably sane council which wants to maximise LVT receipts, they would make sure that ten or twenty per cent of land is set aside as public parks, bowling greens, five-a-side pitches etc.

* Developers are not totally stupid either, one of the reasons why the original owner of Leicester Square [might have] placed the restrictive covenant on it was because he also owned the surrounding plots, so he gained £2 in extra rental value from those for every £1 he "lost" by not building on the square itself. It is unfortunately only larger developers who can take this wider view, if you only have one plot, you've no incentive to turn it into a park, in which case it is the planning authority which has to take the wider view.

Friday 14 December 2012

More Xmas Gear Changes! Four for the price of one!

Tommy Steele's version of "Must be Santa" from 1960 has at least four semi-tone gear changes in it, the first verse starts in C and the last one starts in E, plus some extra to-ing and fro-ing in between.

Interestingly, when Bob Dylan covered this fifty years later, he only did two semi-tone gear changes, starting in A and ending in B:

Top tips if you're thinking of going on a sailing cruise

You can pay £1,000s for this:

Plague ship passengers return home to describe hell of 'vomit-strewn corridors' and how the sick were 'treated like animals' - but Oriana sets off on new cruise TONIGHT

Or just pop down to your local town centre on Friday evening.

Apparently "aluminium" never caught on in the USSR

From The Daily Mail:

Thank you for flying Soviet airlines: The vast airplane graveyard in Russia where 9,000 giants of the sky have been left to rust

Slightly Bizarre Reader's Letter Of The Day

From City AM's Rapid Responses:

[Re: Decline in homeownership is the result of bonkers red tape, yesterday]

Unfortunately, the housing shortage is London is not just an issue of “idiotic planning rules” but a fundamental unwillingness to allow the city to expand physically.(1) The debate has artificially divided into supporters of the green belt and those who want to brick over the south east.(2)

Surely there’s an alternative. Cities like Copenhagen show the possibilities – it has green fingers (rather than a belt), which stretch attractively into its centre. People can live in large suburban homes, and the danger of unattractive, faceless exurbia (like you see in Los Angeles) is carefully avoided.(3)

Growth doesn’t need to be ugly.

Caroline Morgan.


1) The "idiotic planning rules" and "unwillingness to allow the city to expand" are the same thing. There's always a trade off between 'upwards' and 'outwards' and the same unprincipled opposition to either. And the quickest way to fix this is to encourage more efficient use of existing buildings and already developed land, but we get the same unprincipled opposition to that from the same people as well.

2) Woah! A majority in this country are indeed BANANAs (build absolutely nothing anywhere near anything), a lot of the people reading this will be BANANAs. But I have never, ever met anybody who saw any advantage in "bricking over the south East" such people are a fiction of fevered BANANA imagination, like some sort of bogeyman that they use to frighten their children.

3) Exactly! Having talked crap so far, the writer redeems herself by giving real life examples of good and bad town planning. The "green belt" model is the worst of both worlds, as it happens;

Thursday 13 December 2012

Town planning: Infrastructure

NB 1: What I write here may seem blindingly obvious, but sometimes is worth restating what everybody already knows and takes for granted and looking at it from an ever so slightly different angle.

To cut a long story short, roads aren't there to join up the buildings; buildings are there to make use of the opportunities which roads offer.

NB 2: I have used "roads" as a proxy for "infrastructure", because they are the oldest and most basic kind of infrastructure. Everything else, mains water, sewerage, mains gas, electricity, telephone lines and broadband, follows the roads, both in a chronological and literal sense. And 'public services' like policing, fire brigade, refuse collection also need "roads" to get access to your house (and you need your telephone to get in touch with them - mobile phones are a special case which I won't cover further).
--------------------
Let us assume that town planning is carried out by an economically rational, reasonably benevolent monarch (the idealised state), and that he has to do town planning for an area of 100 units, where each unit is big enough for a house and garden. (It could just as well be a campsite owner dividing up his site into plots big enough for one tent/one caravan who wants to maximise his rental income, but enough with the analogies).

Option a) is to simply divide up the area into 100 plots with no roads between them. Clearly, the monarch would be able to sell off or rent out the outside ring of plots, but if you live in the next layer in, you won't be willing to pay much to live there, because every time you want to get out you will need to agree with one of your neighbours that you can cross his plot. Those three or four rows inwards will be nigh worthless:


Option b) is the default option. The monarch dedicates 36 units to roads and ends up with 48 plots and 16 spare plots, which could either serve as little communal parks for the surrounding 12 plots, or end up as larger back gardens:

Would the total value of these 48 plots, all with access to "roads" (and sewerage etc and whatever they invent next after broadband) be higher than the total value of the 100 plots in option a)?

Yes of course. Or else towns and cities wouldn't be laid out like this.

Now, does the monarch need to somehow pay for the roads out of the goodness of his own heart and/or do they reduce the income he can generate from those 48 plots to less than what he could get from the 100 plots in option (a)?

No of course not.

He knows that he can charge fuel duty which will cover the cost of road maintenance three times over; that he can allow privatised utilities to pay for the pipes and cables and that they will make their money back and more by charging you for water, gas, electricity etc.

With option a), how much would residents of the inner plots be willing to pay for police, refuse collection, fire brigade? Not much, because those services won't be able to reach the inner plots without having lengthy and expensive negotiations with the residents of all the outer plots first.

With option b), residents will be quite happy to pay for a share of these services, as these things are per-capita-cheaper the more people share the cost and the more easily accessible your house is. The benefit of these things vastly outweighs the cost of providing them, so that boosts the rental value of the plots even further.
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Q: But ultimately, what are people on the plots in option (b) really paying for?

A: They are paying for access to other people. A resident in (a) can only freely contact 8 other residents. A resident in (b) can freely contact all the other residents, and as the town expands, he has access to more and more people; this enable specialisation, for work or for hobby purposes and so on.

The roads, telephone lines and broadband are not really an end in themselves (even though they generate profits for the people who build and operate them). They only have a point if you can drive somewhere, ring somebody up or look something up that somebody else has put up on the internet.

The utility companies make money by providing you with stuff far more cheaply or conveniently than you could provide for yourself; part of the cost is the length of the pipes and cables, so the closer together people live, the lower the per capita cost of having them.

Much the same goes for police, fire brigade and refuse collection, even if people are paying towards the cost. They enable more people to live together more safely, securely and hygienically, thus still making a net overall profit after the costs have been paid. And the closer together people live, provided they have access to more people as a result (in a literal or figurative sense), the cheaper the utilities, the more people can specialise, the more they can find like-minded with whom to socialise, the more people they can exchange goods and services with and thus the more wealth is created.
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So:

- the notion that roads and utilities are a cost to the people who provide them is a nonsense; given sensible town planning, people can make a profit by providing them. So there's a producer surplus, and clearly there is a consumer surplus too (people are prepared to pay more for a house which has good transport links, mains water, broadband, whatever whizz bang invetion comes along in a few decades that we haven't even dreamed of yet, etc).

- ultimately, the only real driver of the values of the plots are simply the people who live there. Having more potential customers = producer surplus, having more potential suppliers = consumer surplus. The road and utility owners/providers need paying customers far more than people need utilities (compare and contrast Humber Bridge with Channel Tunnel).

- quite what role the original "landowner" plays in all this wealth creation (the producer and consumer surpluses) is still completely unclear to me.

Theatrical dry cleaners & eye-watering parking charge increases

I spotted a delivery van today bearing the name Upstage: Theatrical Dry Cleaners.

I bet they are sick and tired of people who turn up for a job interview and launch into this speech.
--------------------
From The Evening Standard:

Tube station car park charges to go up by eye-watering 18.73%... From January 5, weekday parking fees will rise an average 18.73% - going up from £4.27 to £5.07.

No, that's not an eye-watering increase. This is:

18.735362997658131415926535897914142135623731 %

"They own land, give them money - BUT GIVE ME A BIT AS WELL PLEASE!"

There's a splendid summary on David Ireland's blog* of some of the hundreds of millions of taxpayers' finest which the UK government has thrown at the "house builders", ostensibly to help "first time buyers", but as he points out, all that has happened is that construction levels have fallen and "house builders" have booked much larger profits. Which is what you would expect - all subsidies to land ownership go to landowners. He missed off the £80 billion "Funding for Lending Scheme", but hey.

Now, who is this David Ireland chap? He's Chief Executive of the fakecharity "Empty Homes".

And what's their Big Idea..?

The loans fund was one of the demands of Channel 4's “Great British Property Scandal” campaign led by architect and independent Empty Homes Adviser George Clarke. Government operated empty homes loans funds have already been announced in Scotland and Wales, this fund will operate across England.

Loans will be available to pay for works needed to bring empty properties into use. The resultant homes must be affordable. This means that they will need to be let an affordable rent (no more than 80% of the market rent) for at least five years. Homes will also need to be renovated to at least the Decent Homes Standard.

The fund will be run jointly by Empty Homes and a building society. It has been made possible by a grant from the Department for Communities and Local Government’s Empty Homes Community Grants Programme.


In other words, more of the same. He primarily wants to give more taxpayers' money to landowners, ostensibly to help tenants, but applying his own logic, at best this will just push up landlords' profits and at worst achieve nothing. And secondarily he'd like to funnel off a little bit for himself as a commission, of course.

* Via SBC at HPC.

A lot of people will have been wrestling with this theological dilemma

From The Daily Mail:

In a 2008 interview with the paper headlined 'Aliens are my brother' [Father Jose Funes, the Vatican's top astronomer] said:

"Just as there is a multiplicity of creatures on Earth there could be other beings, intelligent ones, created by God. This does not clash with our faith because we cannot set limits on God's creative freedom. To quote St Francis, if we view earthly creatures as our brothers and sisters, why can't we speak of a brother from another planet?"

In the interview, Father Funes, who took over at the Vatican Observatory in 2006, also suggested aliens might not need to be 'saved' to enter Heaven, especially if they were 'more evolved' than humans.


At last! An end to those sleepless nights worrying about whether ET would go to Hell or Heaven! Not clear what the position for non-Catholics is though, what about a non-Catholic or atheist alien life form? Questions, questions...

Car Attack

Continuing my occasional series.

Hampshire, 10 December 2012: A speeding driver smashed his £100,000 supercar into a fence and destroyed a garden while racing back to a pub. Property developer James O’Brien careered across the lawn in his 196mph Audi R8, where children had been playing hours earlier.*

The car... demolished the fence, a hedge, a shed and a bench and scattered kids’ toys, a court heard. Shocked Andrew and Paula Rigby were woken by the 1am crash and found the empty car on their drive.


* Yeah, like about eight hours earlier.

Wednesday 12 December 2012

Killer Arguments Against LVT, Not (290)

We've got ourselves a real f-ing smart arse over at Liberal Conspiracy:

... the poorest still have to pay rent don’t they? And who do you suppose is going to see their rentals go up in price [if we had LVT]? You can’t stop tax incidence...

[LVT would be] paid by farmers isn’t it? So instead of costing X it would cost X+1. Well to cover that cost farmer will charge X+1 won’t he (or is most often the case X+1+a little extra). You are not going to stop the passing on of tax costs to the next link in the chain and finally the consumer. Again, tax incidence.


The incidence of a tax on the rental value of land is always entirely on the landowner. It cannot be passed in higher rents or higher prices.

Can shops put up their prices just because their rent goes up? Nope. They either pay the higher rent or go bankrupt. That sets the upper limit of the rent. Can a landlord with a mortgage put up his rent because interest rates (privately collected LVT) go up? Nope, because there is an upper limit to rents and he is already charging it!

Let's take a simple example of why high taxes on earned income kill the whole economy stone dead and why high taxes on rental income have no such effect:

1. The council owns some sites for market stalls which it rents out. Local wages are £20,000 a year and if you trade from one of these sites, you can make £40,000 a year profit. So people are happy to pay up to £20,000 a year rent.

2. Let's assume that the local council has power to set income tax rates, and the rates for trading income and rental income are currently both 30%.

3. The council then decides to sell off the market stalls and some bright spark in the finance department lays out the following options:

a) Sell off the market stalls and keep the flat 30% tax rate on both types of income,

b) Sell off the market stalls, reduce the tax rate on rental income to 0% and increase the tax rate on trading profits to 100%, or

c) Sell off the market stalls, increase the tax rate on rental income to 100% and reduce the tax rate on trading profits to 0%.

4. We can rule out (b) because if it is impossible to make a post-tax profit from trading from a market stall, nobody will want to rent them and the rental value will also be £nil.

5. (a) is of course a possibility worth considering. On total profits of £40,000, the site owner and the trader between them would pay £12,000 in tax, and the council gets a lump sum receipt from the sale of the plots, which is soon spent.

6. But what happens if the council goes for option (c)?

- Investors will clearly not be interested in buying up the sites because their net rental income would always be £nil so the price they will offer is no more than £nil.

- The only people who will be willing to buy the sites will be the traders themselves. They know, for a fact, that they can earn £40,000 profits (before rent) and that they are happy with post-tax income of £14,000 (because local wages are £20,000 less 30% tax = £14,000), so they will be happy to buy the sites subject to an LVT of £26,000. They will have no upfront cost of buying the site, because a 100% tax depresses the purchase price to £nil (investors won't out-bid them).

- So really, the council could achieve the same thing by selling the tenants the sites with a 100% interest-only, non-repayable, non-recourse, variable-rate mortgage. It just has to set the price and the interest rate so that the interest comes out at £26,000.

7. Remember that rent, taxes on rent and mortgage interest are the same thing. So before the "privatisation" of the sites, the council was collecting £20,000 in "rent" and £6,000 in "tax". Now it is collecting £26,000 in "LVT" (or indeed interest from the interest-only mortgages).

8. Why does anybody think that market traders would then put up their prices? The amount of money which their customers can spend has not changed, so neither do their prices or their turnover, or their gross profits before rent etc.

9. Even though market traders think that they are paying tax on their "profits", this is not true. The incidence of the LVT is entirely on them in their capacity as "land owner". For example, if one of the traders wants to retire and sub-let his site, can he charge more than £26,000 a year in rent to his sub-tenant? No of course not.

10. Would the retiree not make bloody sure that he gets a tenant in ASAP, seeing as he needs to cover his LVT bill? Of course. So the tax is no disincentive to trading from that site, no more than the rent was originally.

Here endeth.

[Beyond satire] "We're all in this together"

From the BBC:

Hector Sants, the former chief executive of the Financial Services Authority, is joining Barclays bank.

He has been given a new top job to improve the bank's reputation with governments and regulators internationally. His salary is not being disclosed, as he will not be a board director.

Barclays chief executive Antony Jenkins said Mr Sants would ensure that all staff met the spirit and letter of the law and regulators' expectations.

"Relationships with our regulators and governments around the world are obviously also of critical importance to us," Mr Jenkins said. "With a huge wealth of private and public sector experience, and having most recently led one of the world's pre-eminent regulatory authorities, I can think of no more suitably qualified person than Hector Sants to take on these challenges."


Words fai

"Executives who masterminded £1 trillion deception of young and vulnerable people jailed for land banking fraud"

From The Daily Mail:

The directors of Britain's largest home building companies have become the first in Britain to be jailed for land banking fraud today after being convicted of conspiring with mortgage lenders to trick young and vulnerable people out of up to £1 trillion over the past twenty years.

They masterminded the deception, conning people into buying badly built homes on plots of land that were either worthless or massively over-priced. Investors were promised a stream of future capital gains that failed to materialise.

The Office of Fair Trading is also looking into claims that the companies control up to half a million plots of land with planning permission but are deliberately withholding these from the market in order to ramp up prices.

Following a separate investigation, the Financial Services Authority has set up an enquiry to establish whether senior figures in the City of London were aware of the scheme, as they also stood to benefit if the victims could be persuaded to borrow money secured on the over-priced land.

A source close to the investigation added: "The LIBOR-fixing scandal was nothing compared to this."

The Tory party treasurer confirmed that all donations the party had received from home builders or the financial services sector in the past ten years would be forfeited and paid over to the Electoral Commission, but denied any knowledge of the sleazy practices of their donors. A spokesman from the Serious Fraud Office refused to comment on rumours that several million NIMBYs were about to be charged with aiding and abetting.