Wednesday, 3 March 2021

Institute for Economic Affairs on top form

From the IEA:

* The UK could have a tax system that has a low negative effect on welfare and efficiency, with small compliance and administration costs; a system that is nondiscriminatory, avoids double taxation, and that is transparent and easy to understand.

* As such, we suggest that the TV Licence, Inheritance Tax, Stamp Duty Land Tax, the stamp duties on buying shares, the Apprenticeship Levy, Vehicle Excise Duty, Capital Gains Tax, the bank surcharge, and duties on alcohol, tobacco, and gambling, could be scrapped.

* Other property taxes such as Council Tax, the Community Infrastructure Levy, business rates and affordable housing and other s106 obligations, could be replaced with a single land value tax. Under this proposed system, disincentives for property improvements and housebuilding would be removed.

I would have added "the TV Licence, Inheritance Tax, Stamp Duty Land Tax... Capital Gains Tax" to the next list of truly wealth/land-related taxes to make it clear to Joe Public that LVT is a like-for-like swap. In more detail...

A land value tax

Our solution to the problems raised with the four previous taxes would be to create a land value tax system to provide a reliable source of income to local authorities, encourage development and reduce complexity in the tax system.

A single land value tax would tax the owners of property only on the value of the land itself. Buildings, improvements and land use would be of no concern to the tax system, avoiding the current disincentives for property improvements or housebuilding. Such a tax would also enable councils to receive part of the planning gain (the increase in the value of land when it is re-zoned for development, such as agricultural land being granted planning permission for housebuilding), giving local communities a major incentive to allow development.

I don't understand the insistence on LVT being a 'local tax' and hence inherently regressive, but it's an excellent start.


L fairfax said...

I think these "duties on alcohol, tobacco, and gambling" are levied with the aim of changing behaviour.
Now we can argue whether this is desirable or not. However we can assume that the Government does think this is desirable - so therefore why would they do this under any circumstances?

Bayard said...

LF, I suspect that the moral element of the sin taxes is simply a smokescreen to keep the puritans and DM readers happy. The real reason why these things are taxed is the inelasticity of demand. Ditto fuel/Greenies.

Mark Wadsworth said...

LF, heck knows why they jumbled in those, no chance they'll be reduced as B explains.

B, agreed.

benj said...

"I don't understand the insistence on LVT being a 'local tax' "

Because everything has to be about supply/deregulation, even when it isn't.

I left a polite comment on Twitter for one of the authors asking that if they recommend going to the trouble of enacting a LVT, why not raise a bit more and cut VAT or Income Tax? No reply.

ontheotherhand said...

"I don't understand the insistence on LVT being a 'local tax' "

Don't the local council need some incentive to invest to improve the amenity? e.g. if they tunnel a high street bypass and create a cobbled pedestrian street and park. Can they keep the extra LVT having made the land more valuable?

Mark Wadsworth said...

B, baby steps. Let's get rid of council tax and the stuff on their list first.

OTOH, make up your own rules and how uplifts are shared. I'd have thought the main incentive for local councillors was getting re-elected.

benj said...

"Don't the local council need some incentive to invest to improve the amenity?"

They improve the wealth and welfare of their constituents? The uplift in locations values merely represents national/international demand for proximity to enjoy that improvement. I see no moral or economic rational for either landowners or local taxpayers to claim those location values for themselves.

Mark Wadsworth said...

B, that winds me up as well. The police are there to keep crime down. Teachers are there to teach etc. Both those things enhance local values if done properly. They get paid to do their job. They don't get an extra share of local land values if they get crime down or their pupils get better grades. Why should a local council?