Thursday, 7 December 2017

That's put the cat among the pigeons...

When the Guardian or the Daily Mail publish something a bit edgy (judged by their readers' standards), they usually block comments, which The Daily Mail did for this article:

As UK land value hits 5 trillion pounds, calls for new tax rise

Land is Britain's most valuable asset, increasing more than fivefold since 1995, the country's statistics office said on Tuesday, prompting calls to introduce a new tax to curb a soaring housing market driven by rising land prices.

To my pleasant surprise, they allow three organisations to put in a favourable word for LVT (New Economics Foundation who are left-wing, the Institute for Economic Affairs who are right-wing and Shelter who are bleeding heart liberals) and no comments from Home-Owner-Ist organisations.

The underlying ONS statistics are most interesting:

To sum up:
Land - £5,018 bn
Buildings - £3,518 bn
Machinery and stocks - £1,097 bn
Intellectual property etc. - £189 bn
Deposits minus debts - £(21) bn
Total - £9,801 bn

Yup, land and buildings is 85% of the total, which illustrate why having a general wealth tax is completely pointless.

The net value of financial assets and liabilities is, unsurprisingly, plus/minus nothing, so not worth taxing. Firstly because financial assets are already taxed anyway (tax on interest income and inflation), and if you did impose a wealth tax on them as well, the corollary is you'd have to allow liabilities as a deduction, which encourages gearing and leveraging, which is part of what causes the problem in the first place.

Machinery and intellectual property generates income, which is already taxed, which is much easier than getting people to declare what they own and agreeing values. And we'd rather have more of this stuff not less (assuming that the real value of patents etc is unchanged when the statutory protection expires). For sure, privately owned/used cars and equipment don't generate taxable income in themselves, but so what? We still want more of this stuff, not less.

That leaves bare land (excluding actual buildings thereon, which are real capital), which makes up (by ONS measurement) more than half of total 'wealth', as the only major category worth taxing (doesn't depreciate, relatively easy to value and can't be shifted abroad).

My estimate of total rental value of UK land is about £250 billion, which works out (as I expected) at about 3% of the value of land and buildings, or 5% of the underlying land value. LVT is calculated on the basis of the land element but is secured on the building as well, so the 3% is the more relevant figure.


DBC Reed said...

Crikey! Do you think there is some kind of connexion between Tony Blair's recent conversion to LVT and Daily Mail coming out with this?

Mark Wadsworth said...

DBC, bloody mystery to me. But it's all good.

mombers said...

Correct me if I'm wrong, but there is zero -ZERO - tax on owning land. There's occupation tax (council tax and business rates) and taxes on purchase and sale, but £0 p.a. payable if you just hold. WTF?
On a related note, is CAP paid to the occupier or the owner? That would make a direct negative tax on agricultural land if it was the owner. Of course all taxes reduce rents but the fact that landowners can get away with not writing a cheque of any sort is just ridiculous.

DBC Reed said...

On reading the piece again, it says that the ONS has for the first time released valuations that separate land values out from the rest of the property, buildings etc.
Something weird appears to be happening in the Establishment deep down below the political level it would appear, probably by accident but you can't be sure.

Mike W said...

DBC Reed,

Could be something.We are seeing more discussions in the media for sure. As you have posted here, and Musgrave has posted elsewhere: saying this article, 'Henry George in all but name' or 'MMT in all but name', Keynes in.. etc, etc.

However, behind the curtain the 'movers and shakers' of our social order are certainly able to discuss the pros and cons of what they are doing. We have all seen the famous Bank of England paper but many other 'reflective' discussions too.For example:

A few years later the political/economic elite carry out a vault face without most folks even noticing.

I guess you will find the 'economic' text books that have recently allowed only: capital, labour and entrepreneurs as 'factors of production' will suddenly have whole chapters on Land as a factor - perhaps even lift the Laffer curve and LVT work from here :) So looking more like a 'liberal text', 'mixed economy' that a Samuelson, 'Economics' from the 1960s looked like - with Henry George in :)
It could be as simple as mathmatics and statistics, as professions, has not been consumed buy finance-economics and simply set their own parameters for data collection?

Whatever, I'm pretty sure Mark and others will be mining it for a long time.Hopefully it will be a 'go to paper' like the Bank of England loans create deposits paper.

Not on topic, but I noticed Machinery, equipment and.... weapons systems in the asset data! Mark we need to do a thread on understanding civilian/military 'depreciation'!

Mark Wadsworth said...

M, the landowner can sell his right to receive cap payments to a third party.

DBC, the ONS always had a mischievous streak.

MW, let's hope so.

Lola said...

I do think the Powers That Be are affected by the newsflow. In the case of LVT the trick is to get them to appreciate that it is a tax on rents, and maybe. just maybe, 'they' are getting that. The problem is that both Labour and the Tories live off their respective rents, the Tories more so on direct land rents. And neither seem to see LVT as a replacement tax.

Mark Wadsworth said...

L, the Tories are more likely to see it as a replacement tax. But less likely to implement it, which puts us back to square one.

DBC Reed said...

Lola is right : there has been some talk about LVT but not about its vital role as a replacement for taxes on wages and profits. Perhaps HG was right to keep banging on about the Single Tax.This description
at least challenged the whole concept of various forms of taxes playing different economic roles so people can say Tax "XYZ can collect as much as LVT without any additional assessment".
@MW The case of the BoE bulletin on Money Creation in the Modern Economy is a bit of a warning.The most rarefied stratum of the Establishment tried to point out that the whole of economic management is pointless when,as now, the State has to borrow off the commercial banks who then make up the money and charge the State interest on sums which the State could just as easily make up for themselves. Nobody politically ,not even Tony Blair, has followed where the Bank of England led.

Lola said...

DBCR. The banks ability to create credit is a special privilege from government. It's a nexus. Even Mervyn King says in his book something to that effect. So how does the common man get the reforms needed?
IMHO that is the underlying story of history. The common man getting out from under one extractive class after another. The Banks, the government, the central bank, the regulatory bureaucrats, the EU are the current crop.

The other thing full fat LVT would do would be to constrain government spending. They really would have to ask us nicely for their cut. And that's why it won't happen.

Kj said...

Here is apparently why the ONS has started separating out land, taken from a paper I found in trying to find a valuation for my own country;
In the balance sheets of Norwegian National Accounts, land is missing; however, the estimates of land are required to be included in the balance sheets for nonfinancial assets and reported to Eurostat, with estimates for land owned by Households sector (S14) and Non-profit institutions serving households (NPISHs) (S15) starting from 2017, and those by other sectors on a voluntary basis (see Table 26 in EU (2012)).

Mark Wadsworth said...

Kj, hooray for Eurostat!

DBC Reed said...

So this critical land valuation for UK comes at the behest of Eurostat , an agency of the European Commission! So much for all the bellowing about bureaucrats , European at that.
There are many more bureaucrats in the private sector: London is solid bureaucracy; they don't manufacture anything there any more, with the result that, absent pumping, the water table is rising.This used to be the old Socialist argument: competitive industry would have at least two sets of everything HR,marketing etc; public ownership would have only one bureaucracy. This logic has been taken over by take-over experts; take over (and cut competition)and you reduce bureaucracy and save overheads.

Mike W said...

Thanks KJ.That clears that up. Wait a minute...But now a bigger loop of curtain pulling experts away from our gaze?