Thursday, 3 July 2014

ONS WAS is rubbish.

As a follow on from the FT article on the Mansion Tax below, one of the other things it also brought to light is a dispute about the ONS methodology.

The results were based on the ONS Wealth and Assets Survey, which has come in for criticism recently by US and French academics who allege that it does not sufficiently record the assets of the most wealthy households. Professor Thomas Piketty, the author of the best-selling book Capital in the 21st century, said the survey was “particularly bad at measuring the top part of the wealth distribution of the UK”.

The ONS plans to respond to these criticisms on July 18, but said in a statement yesterday that its results came from “a large sample survey specifically designed to collect information on all aspects of individual and household wealth for all private households across Great Britain”. The wealth survey retains the official quality-assurance Kitemark of a “national statistic”.


Here is what the IPPR had to say in its 2013 paper "Property and Wealth Taxes in the UK"

The IPPR wealth tax model allows us to consider the impact of a property tax, with some important limitations. The Wealth and Assets Survey (WAS) data that underpins the model does not capture the value of residential properties that are owned by entities other than private individuals and households.

It is difficult to ascertain the proportion of residential properties owned by companies and trusts, but HMRC stamp duty statistics show that the share of properties whose buyers were not private individuals tends to rise with property value.

For example, two-thirds of properties bought for more than £2 million in 2011 in the UK were purchased by companies or trusts, compared to around 10 per cent of properties worth less than £500,000.

It is also likely that a relatively large share of high-value properties are owned by foreign nationals who are not permanently resident in the UK and are therefore unlikely to be captured in household surveys. In the ‘prime central London’ market, where the majority of high-value properties are located, foreign buyers accounted for more than half of property transactions in 2010.

Furthermore, the ONS puts total (net) UK property wealth at £3.4trn. Even allowing for £1.3trn in mortgage debt, this still puts them some way off the £6.3trn residential property is now reckoned to be worth.


While it's easy to have some sympathy with the ONS, it's figures are relied on in the debate surrounding inequality and tax policy. But, it seems as though they may have grossly under reported the true levels of wealth disparity in the UK.

19 comments:

Mark Wadsworth said...

No it's not rubbish, it understates the case but even what they report is alarming enough.

Sobers said...

The idea that property value is wealth is nonsense. Could everyone who owns a house realise that value? Of course not - if even 20% of people tried to extract the 'value' that is nominally in their houses there would be no buyers and you wouldn't be able to give them away. Its a giant Ponzi scheme, just like fractional reserve banking. As long as only a few people want to cash out their chips at any given time, and there's enough people joining up for the first time to match those leaving then a lucky few can have their cash. But if everyone wanted it, it wouldn't be there. So the idea you can tax this chimera is absurd.

DBC Reed said...

If, as it says, two thirds of houses worth £2m+ are owned by corporations and what have you,this rather skittles the poor widow argument over the Mansion Tax.

Dinero said...

Sobers

Fractional reserve banking does not work like that. Banks have at all times the assets required to meet their depositor's requests. Actually they are required to have more assets than deposits.

About taxing a person on the notional value of their property asset, is there enough money moving around to meet the tax, well if the government spent it a again quickly enough then I suppose yes.

Mark Wadsworth said...

S, you know that you are talking nonsense.

What about Business Rates, council tax, Domestic Rates, even Stamp Duty Land Tax? What about council housing, Housing Association housing and Crown Estates? Why are people willing to pay so much money to landlords and in mortgage repayments (to partly state-owned banks)?

There are hundreds of examples of governments collecting land rents and having taxes on land values and it works exactly as predicted, but better.

DBC, a firm of accountants or solicitors actually claimed that there were some Poor Widows whose house was owned via an offshore trust, for entirely innocent reasons, of course, who would be unfairly "clobbered" with the ATED.

Din, of course the government can get taxes from land, it's easy peasy, see above.

The government always spends all the money it collects - what's worse is when the government spends MORE than it collects.

Sobers said...

"Fractional reserve banking does not work like that. Banks have at all times the assets required to meet their depositor's requests"

Rubbish. Why are there runs on banks then? Why did Northern Rock nearly go t*ts up? Because the assets they have to balance their deposits are loans, not cash. If 20% of the people who have deposits in a bank turned up on Monday morning and asked for their cash they wouldn't all get it, and the bank would be in serious trouble unless someone (ie the State) lent it a shed load of hard cash to tide it over. Banks borrow short and lend long, and get away with it by the pretense that everyone can have their money if they want it, when they can't.

"There are hundreds of examples of governments collecting land rents and having taxes on land values and it works exactly as predicted, but better."

Name me one State that gains even 51% of its tax revenue from taxing notional property values, either now or at any time post WW2 (ie modern economic history).

Mark Wadsworth said...

S, that's easy: Hong Kong and Singapore.

What is the significance of 51%?

Or are you playing both sides of the game:
a) The rental value of land is so low, revenues would be barely worth collecting, and
b) The tax would be crushingly high and everybody would be forced out of their homes?

Make up your mind.

Dinero said...

Sobers

cash is just another deposit. A deposit held at the Bank of England and written on a loose leaf of paper instead of on the page of a ledger .

Banks source them as the time they are required if they have the statutory assets and the conroversy over Northern Rock was that maybe they didn't.

Fractional resrve banking is really referincing American textbooks as in the UK there is no mandated requirement for reserves. The reserve sheme is voluntary in the UK.

Bayard said...

"The idea that property value is wealth is nonsense"

Would you say cash in the bank is wealth? If so, and you take all your cash out of the bank and use it to buy property (i.e. land with a house on it), where has all that wealth gone? Have you suddenly become very poor?

Sobers said...

"What is the significance of 51%?"

Because you want to raise all the State's revenue from LVT and I was being generous in only asking for an example of just over half of revenue coming from property.

So Singapore and Hong Kong. Two small city states (only 12m population combined), that have low government expenditures (15 and 17% of GDP respectively) and relatively little democracy. Do you think they are really a good comparison for the UK, when its govt expenditure is currently 50% of the economy? Any examples of larger mature social democracies?

"Would you say cash in the bank is wealth?"

Less so than property. But the value that property is given here (sum of all market values) is nowhere near the true value, its far lower. The idea that there's Xbn in property value in the UK, so applying tax rate Y% will raise a predictable amount of revenue is utter nonsense.

Mark Wadsworth said...

Sobers, yes, I've heard this about HK and S only having a small tax to GDP ratio.

Of course! That's because the government owns most of the land and so instead of an overt welfare and pensions system (which the Homey idiots count as government spending) paid for from taxes on income and output, they allow people to occupy land at below the unregulated price (which in fact is what the UK used to do until the 1980s).

The discount you get to the unregulated price is worth as much as the welfare and benefits you would have got. Sorted.

And as per usual, you are accusing me of suing things I never said. I made it quite clear that in the medium term, we could reasonably expect to raise about 40% - 50% of UK tax revenues from land and monopolies.

Bayard said...

"The idea that there's Xbn in property value in the UK, so applying tax rate Y% will raise a predictable amount of revenue is utter nonsense."

It really isn't difficult to work out the effect that LVT will have on land prices and hence allow for Y to increase as land values fall from their current inflated levels. Only a fool or a politician would fix a tax rate that depended on land values remaining unchanged.

Ben Jamin' said...

@Sobers

All taxation, ultimately comes out from land rents.

Therefore, there's easily enough for a single tax to cover State expenditure.

Land has no cost of production. Everything else, logically, follows on from there.

Sobers said...

"Only a fool or a politician would fix a tax rate that depended on land values remaining unchanged."

Oh dear. Thats exactly what MW has been doing for years on this blog.

Sobers said...

"All taxation, ultimately comes out from land rents."

Really? There's no wealth creation at all in the entire economy, its all just land rents? How do people pay the land rents? Do they receive rents of their own to pay their rents? Are we all just renting out our houses to someone else, and living on the income?

Mark Wadsworth said...

B, exactly, however LVT is a tax on the rental value of land, which is entirely unchanged by the tax. We can express the tax as a % of selling prices for convenience, that's all.

S: "Oh dear. Thats exactly what MW has been doing for years on this blog."

I really don't understand your strategy. Do you assume that if you tell enough lies about what I have been saying that enough people will believe you? Assuming they are reading this blog, then the chances are, they agree with me and think that people like you are a tiresome nuisance.

And there you go, deliberately misinterpreting what Bj said, I do not believe that you are genuinely stupid, so the assumption must be that you are quite intelligent but a total twat.

I'm sorry, but there it is.

Sobers said...

So how many posts have you done showing that UK property is worth X, and if you apply a LVT rate of Y we can raise Z amount of revenue to replace existing taxes? How many posts showing that the majority of people will be better off under LVT? All predicated on the idea that both absolute and relative property values will be the same after the introduction of LVT as before.

As as for Bj, how exactly have I 'misinterpreted' his post? Its there for all to see - 'All taxation comes ultimately from land rents' Which is utter nonsense, as you know.

Hwfa Morgan said...

"But the value that property is given here (sum of all market values) is nowhere near the true value, its far lower"

I find it hard to believe that, even at today's inflated prices the "true" value of all the property (i.e. land) in the UK is actually higher than its market value.

"The idea that property value is wealth is nonsense"

"Would you say cash in the bank is wealth?"

"Less so than property".

Therefore, logically, it follows the idea that the value of cash in the bank is wealth is also nonsense.

Mark Wadsworth said...

S: "So how many posts have you done showing that UK property is worth X, and if you apply a LVT rate of Y we can raise Z amount of revenue to replace existing taxes?"

Lots. But I understand maths and you pretend not to.

Clearly, rental values and selling prices are fairly closely correlated (agreed, the 'yield' is lower for very low and very high value homes (and higher in the middle and upper range), we have discussed that. So as an approximation, I express the site rental value as a % of selling prices.

"How many posts showing that the majority of people will be better off under LVT?"

Lots.

"All predicated on the idea that both absolute and relative property values will be the same after the introduction of LVT as before."

The gross rental values will probably go up. The Homeys say "Landlords will pass on the tax" and the Georgists say "If tenants' income tax is cut, they will have higher net incomes so landlords can charge higher rents".

Comes to the same thing.

And relative values might change slightly - but this is exactly how business rates work. They have a target yield £x, they work out total rental values £y every five or so years, and then they divide £y by £x to get the multiplier.

In the grander scheme of things, it doesn't actually matter whether £y is total rental value or total selling price. Use the former you get a high % age and use the latter you get a lower %age, but £x is always the figure you first started with.

Keeping valuations up to date is not difficult, even if you didn't, so what? Council Tax is loosely based on 1991 prices and it raises revenue.

"As as for Bj, how exactly have I 'misinterpreted' his post? Its there for all to see - 'All taxation comes ultimately from land rents' Which is utter nonsense, as you know."

For the benefit of people interested in the topic, nobody ever said that "Most taxes are taxes on rental values".

What we say, backed up by evidence and logic, is that taxes on income depress gross rental values.

This is exactly the same point as I made above re "landlords will pass on the tax". No they won't. Without income tax cuts, landlords would have to take the tax on the chin.

With corresponding income tax cuts, the gross rental value will go up. Even if there were no tax on rents and general income taxes were cut, gross rental values would go up.

So at present there is little tax on rental values directly, it is all indirect.

HM, no, Bj's point is that ONS figures for current selling prices is understated. I emailed them about this and they told me that their total value was based on the number of houses in the 1991 council tax bands, which they then just multiplied by four or something.