Sobers came up with a corker recently. My thinking is that trying to establish pseudo-accurate valuations for each individual home is pointless, and we should do averaging and banding of similar homes (by size or type, or plot size or plot frontage/width etc) in each area and have same the LVT bill for all homes in the same band. We are used to Council Tax banding, and ATED (mansion tax lite) is by very wide bands. SDLT operates in bands etc. To me this makes sense.
Sobers pointed out - rather too gleefully IMHO - that in some small areas (one postcode sector or local council ward or whatever), there can be a wide range of values between similar homes. He referred to an unnamed town near him and said that semi-detached ex-council homes on a 'scuzzy' estate there sell for £300,000-ish while semi-detached homes in the nicer parts sell for £400,000-ish.
I'll take his word for it that this is all true (I am sure that there are such places), that they are all in one postcode sector or local council ward, and that valuers wouldn't pick this up and split that area into two separate valuation areas, or the valuers wouldn't discreetly classify the ex-council homes as small semi-detached in Band C and put the nicer ones into the default Band for normal semi's, Band D.
Therefore *drumroll* LVT would act like a Poll Tax where 'the poor' have to pay as much as 'the rich'! Game over for LVT!
On closer inspection this is of course nonsense on stilts, LVT is the polar opposite of a Poll Tax (it has all its advantages with none of the downsides). How can LVT be simultaneously 'an attack on wealth' and a poll tax? But we have seen The Powers That Be do such fear mongering on an industrial scale, expecially with the Cameron referenda (alternative vote, Scotland, EU) and I wouldn't put it past the Mailexpressgraph to come up with this sort of shite.
I haven't thought of a punchy slogan to rebut this yet, but credit where credit's due.
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Another one came up in conversation with Henry Law. We agreed that local taxes are inherently regressive (which we, like most people, think is A Bad Thing, opinions differ) and so LVT would have to be a national tax at a national rate, the same as most other taxes. So instead of local councils getting central govt funding for 80% - 90% of their expenditure and topping up with a bit of Council Tax, they all get grants to cover 100% of a reasonable level of expenditure, end of.
Whether that is flat-rate, per capita funding, or with loads of extras for 'deprived' areas or 'rural areas' or wherever the government of the day wants to buy votes, like the current system is a separate debate. I always prefer flat-rate, per capita of course.
The weak argument FOR local taxes is that it encourages fiscal responsibility by local councils and/or some democratic safeguards against high spending councils. So a national LVT that is divvied up equally everywhere, same as income tax or VAT receipts that pass through central government, is undemocratic..?
How exactly are fully-funded councils undemocratic? Is a fully funded police service undemocratic? Should the police meet their finance needs with on-the spot fines? The local/national distinction is in itself nonsense, if you think about it - nearly all spending is 'local' to somewhere. So your democratic safeguard is being able to vote for a low-spending government (if that were possible, you can choose between high spending Labour and tax-raising, black hole spending, fiscally irresponsible Tories).
The next layer of democracy is that local councils would still be elected, and you would judge them on results. Their job is to keep as many people as possible happy within a limited budget, so they have to choose fixing potholes vs having more cycle lanes; better old age care vs more daytime nursery places; longer library opening hours vs better upkeep of parks and playgrounds. Judging them by how high (or low) Council Tax is, is idiotic anyway, the level of your Council Tax depends largely on how 'generous' the central government is when it comes to funding your council.
(Which is why we pay twice as much Council Tax as people a few hundred yards away who are in Greater London, not Essex. So what? We paid accordingly less for the house and would be able to sell it for accordingly less. We could halve our Council tax bill by moving, but that would cost us £100,000s, so what's the point?)
Tuesday, 8 November 2022
Killer Arguments Against LVT, Not (495)
My latest blogpost: Killer Arguments Against LVT, Not (495)Tweet this! Posted by Mark Wadsworth at 16:12
Labels: Council Tax, KLN, LVT, Poll Tax
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18 comments:
"and that valuers wouldn't pick this up and split that area into two separate valuation areas, or the valuers wouldn't discreetly classify the ex-council homes as small semi-detached in Band C and put the nicer ones into the default Band for normal semi's, Band D."
Nor did valuers pick up similar anomalies when it came to Council tax bandings. So what? That's what the appeals system was put in place for.
The current system is extremely odd. Let's say that Paul McCartney or Sir Elton (and please don't let this happen) are single and lose their marbles. We currently exempt them from local taxation, but no-one at all suggests they should be exempt from national taxation on their royalty income or inheritance taxes later on. Oh noo, Westminster would like some of that, but the Civic Centre gets nowt.
Or if a couple separate or study full-time then they pay a lower rate of local taxation, but the national rules and allowances remain unchanged for them.
It's a turtle mess, and a move to something imperfect but less bad is welcome.
"I'll take his word for it that this is all true (I am sure that there are such places), that they are all in one postcode sector or local council ward, and that valuers wouldn't pick this up and split that area into two separate valuation areas, or the valuers wouldn't discreetly classify the ex-council homes as small semi-detached in Band C and put the nicer ones into the default Band for normal semi's, Band D."
Well that just makes a mockery of your tax as an LVT then. The whole point of an LVT is that its supposed to be the location that creates the value you're trying to tax. Physical proximity to services, amenities, community property etc etc. If an LVT is to mean anything then similar properties in identical locations relative to the community amenities should pay the same tax. If they don't then its not an LVT any more its just another arbitrary tax on wealth for the sake of it. A 3 bed semi next to a park and half a mile from the town centre and the station should pay the same LVT as another 3 bed semi thats next to a park and half a mile to the town centre and the station, regardless of the fact the first one is on a council estate and the second one in a upscale middle class area. If you gerrymander the boundaries to make sure the two are valued separately so as to take into account one being more expensive than the other then you're no longer taxing community created locational value, just capital values.
We have three potential problems: LVT being set too high; too low; or different in different places.
The first problem is genuinely a problem. If LVT is too high, it eats into the capital component of the property (the buildings) and disincentivises maintenance.
If LVT is too low, this isn't really a problem. The state is leaving money on the table, but all rents will continue to be collected, just by private landlords. It's not distortionary.
If LVT is set differently for different properties, this is not in itself a problem. If it's too high or too low, that's really just a version of the first two problems. As Mark pointed out, we already have different levels of LVT in different boroughs, and it doesn't cause any problems.
How about you cut HMRC out of the loop for collection, but get them to set a maximum LVT rate and get it collected by local authorities? Of the set max they have to transfer Y% back to central gov for defence etc.. Just askin'.
B, a cop out, but a good one. I'm an economist, not a valuer.
AC, thanks for back up.
S, come on. With wider bands, you say it's a Poll Tax, with narrower bands you say it's a tax on capital. We both know it's neither.
I accept that you are trotting out stuff that the brainwashed Home-Owner-Ists will faithfully parrot, but what is your real, personal objection to simplifying taxes on land, buildings and wealth generally?
JJ, ta, but I think that those are minor issues and it's easy to find a fair middle path. Ab initio, the required rate to replace Council Tax, SDLT, Inheritance tax etc would be about 30% of site only rental values.
L, because LVT has to be a national tax at a national rate, like nearly all the others. For example, Dept of Transport has only so much money to spend, and if it builds a by-pass in Town A then Towns B to Z that don't get a by-pass are losing out. So residents of Town A (assuming that the by-pass adds value) will be indirectly compensating residents of Towns B - Z.
Why would a local council invest in improving the amenities and location value of the resulting uplift in LVT goes to central government? I seem to remember that Osborne allowed Croydon council to keep the uplift in business rates from improving the city centre. Good idea?
" but what is your real, personal objection to simplifying taxes on land, buildings and wealth generally?"
Firstly an LVT isn't a tax on wealth in its entirely. Financial assets are ignored. It also does not discriminate between those who own their houses outright and those who owe most of the value to the bank.
Secondly my fundamental opposition to LVTs is nothing to do (despite your constant snide insinuations) with the taxes I would pay under one, I suspect I would make out like a bandit under a LVT, because most of my assets are non-property ones. No, I oppose them because they fundamentally change the position of power between the individual and the State. It effectively makes the State the de facto owner of all land, and charges everyone rent to occupy it. If you don't pay the LVT/rent you are ultimately evicted and the property seized by the State. As such you would never truly own land any more, you are always subservient to the State rent demands. That is not a position I wish to be in. And historically its not been a good place for a society to be either.
OTOH, because they want to be re-elected.
If people want to tweak the formula so that councils keep some of shorter term uplift, that's fine by me.
MW I get LVT has to be a 'national tax' at a consistent rate. What I was trying to suggest is that say LVT is set a max 5% nationally. And out of that say 2% (40%) has to go to nation al government - or roads and stuff. The balance is then available locally, and collected locally (at County level?). Then local residents would be up close and personal with tax collectors - good thing. Might that not lead to 'tax competition' as different ares tried to level lower rates to attract more taxpayers etc?
"The whole point of an LVT is that its supposed to be the location that creates the value you're trying to tax. Physical proximity to services, amenities, community property etc etc. "
Er no, you've missed out the biggest element of location value: how "nice" the area is. That's why a three-storey, stucco-fronted C19th house in, say, Chelsea, is worth more than the same house in, say, Whitechapel, despite Whitechapel actually being closer to the City of London.
"It effectively makes the State the de facto owner of all land, and charges everyone rent to occupy it. If you don't pay the LVT/rent you are ultimately evicted and the property seized by the State."
The State already is the de facto owner of all the land. All the freeholder owns is a licence for exclusive occupation at zero rent. That's why, if a foreigner buys an estate in the country, that estate cannot become part of his native country, even though he is the "owner "of it.
Regardless of what tax you owe the state, if you don't pay it you can be taken to court and be forced to sell your property in order to pay what you owe to the government. Just because LVT is a tax on land, doesn't mean that arrears can only be paid by the seizure of that land. Any asset may be converted into cash to pay your tax liability. Going by what you say, in your case, your house would be a long way down the list if you failed to pay your LVT. LVT is not mortgage payments.
I've just thought: the reason why buying and selling land is not like say, buying and selling a car, even though you can pay more for a car than a house, is that with land, you are not buying and selling something physical, instead you are transferring, for a consideration, a state licence, which is why lawyers need to be involved.
B Exactly. A 'freehold' is a perpetual rent free leasehold
L, they can invent all the tweaks they like, that is all secondary.
I'd prefer a system where each council gets their flat rate amount, and if they come in under budget, can hand out a flat £xx rebate to each household, or knock of Y% from next year's bill. That's real tax competition, you see the ££ benefit directly.
B, it is not too difficult to collect LVT out of people's income via PAYE or SA returns (most income), or out of assets. Pensioners can roll up until death (or get discounts or exemption). Short term reliefs for people made redundant and divorces. Means tested crapola for PWIMs. Maybe one in a hundred cases of arrears would lead to actual repossessions, like with abandoned homes or land, pour encourager les autres.
It's up to each council to decide how to fudge things. But arrears and write offs they make will be shown openly as a cost in the council's accounts. So the council can say, "Sorry, no discounts or cash back this year because of all the hardship cases" and either your sympathise with them and take it on the chin or you're a decent law abdiding taxpayer who votes for a party that takes a harder line.
B, 2nd comment, yes, you are buying and selling a govt granted licence. But the govt plays no direct part in the sale (SDLT aside), it is just now obliged to provide the new owner with the same bundle of services as it was providing the previous owner. I don't see why the govt shouldn't be charging a fee for these services.
L, yup.
B, on my law degree, the lecturer admitted that although they try to fit land into the normal system of contracts, it doesn't really fit and a load of special rules and terminology apply.
For example, if you buy a tin of beans, you buy a tin of beans. But you don't actually buy land - you buy a TITLE to land i.e. a state granted privilege.
MW Exactly. You do not own and. You have a 'title' to it. You don't have a 'title' to a tin of beans. You own it.
It seems to my legally uneducated mind that the England has evolved a pretty good system of dealing with land titles. The system is well developed. The core principle is that the Crown owns everything - and the Crown is not the state. And the Tax collectors are Crown employees not state employees. I recognise that is a nice argument. Where it all falls down is that the principle that it is land (rents) that are most fairly taxable (as opposed to honest toil) has been massively eroded. And that differentiation between honest toil / Land rents is in accord with the classical liberalism (libertarianism?) principle that the individual is sovereign and free and has self ownership (plus, of course -personal responsibility). That is, taxes on honest toil are tantamount to slavery whereas taxes on land location values are the recovery of unearned special privileges.
As it were...??
L, yes, except 'Crown' is a very vague term and means different things in different contexts. Again, this is something a lecturer mused about my law degree.
AFAIC, state, govt, Crown, country etc are all the same thing in practice. They have similar and confusing overlapping terms in every country. No point splitting hairs.
MW. Indeed. I think the hair spitting is quite useful between 'Crown' and 'State'. The state can still exist if the crown changes hands..
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