Killer Arguments Against LVT, Not (495)

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?)

A tax increase to pay for... a tax increase. Brilliant.

From The Mirror:

Almost every person could see their council tax bill rise next year due to the government raising National Insurance to pay for the country's growing social care bill.

The new levy was announced last week, and will see the National Insurance paid by businesses and individuals rise from 12% to 13.25% next April. Councils with directly-employed staff get part of a £2 billion pot from the government to help with this cost. But MPs last night said the issue will really hit councils which outsource services like bin collections to private companies....

This is arrant nonsense of course on an economic level. It's all just the government paying money to itself. If HMRC collects more in NIC from people directly or indirectly employed by the government, they can use some of the revenues to increase block grants to councils and it all nets off. But any old excuse to increase taxes. And of course they should have added the 'social care levy' to Council Tax in the first place.

I've also fixed the banner add for them:

Excellent work by Fairer Share

From The Sun:

RISHI Sunak is facing calls to scrap council tax and stamp duty. Households would pay a single property levy under the plan backed by nearly 100,000 people.

The change would benefit residents in the Chancellor’s Richmond, North Yorks, constituency by £650 a year, research by WPI Economics found. Charity Fairer Share, which came up with the plan, said one in four adults regularly borrowed to pay council tax...

The article is light on detail even though the suggestion is very simple. Unsually for The Sun, it is not totally negative. Inevitably, most of the comments are. For more details go to Fairer Share. Which is a community interest company and not a charity AFAIAA.

Council Tax non-logic

Home-Owner-Ist logic says that "council tax pays for local services", which is why there is a single person's discount and many councils offer discounts for second homes and empty homes (unused, derelict or being refurbished).

Fair enough.

On the other hand, a few years ago, Cornwall decided that leaving homes empty is a waste of housing, so imposes a council tax surcharge of 50% on them and also scrapped the second home discount because locals are being driven away. A few years after that, the Welsh Assembly decided enough was enough and allows local councils to impose a surcharge of up to 100% on empty homes and second homes.

So we have two entirely opposite policies for the same factual situation.

There is no need for a Single Person's Discount. By and large, they live in (or should be living in) smaller homes with a lower Council Tax bill. Families will be in a larger home and pay more Council Tax anyway.

What is the fundamental difference between:
a) a single person owns a home with some spare bedrooms in the same house (and gets a discount)
and
b) a single person lives in a flat and owns a second home somewhere else with some spare bedrooms (for which some councils give a discount and others impose a surcharge)?

Or, taking this to extremes (Bayard's real life example), a single person lives in a house and gets a 25% Single Person's Discount on the whole thing. If he converts his house into two flats, he only gets the 25% discount on the flat he lives in and has to pay (up to) double on the other one.

Far better and consistent to have Land Value Tax at a flat rate on everything. If one household owns a house worth £300,000, they would pay the much same amount of tax as another household which lives in a £200,000 house and owns a £100,000 holiday home. And I see absolutely no reason why one household should pay more (or less) than the other one.

Reader's Letter Of The Day

The Evening Standard published three scathing letters on the subject of the proposed reduction in Stamp Duty Land Tax "to help hard-pressed first time buyers get on the property ladder", including mine:

There is no doubt about it, a stamp duty cut will feed directly into higher prices, as a seller can increase the price by the amount of the stamp duty reduction, leaving the first time buyer no better off. Exactly the same has happened with Help to Buy, which the large builders have admitted is the main reason for their recent profitability.

Rather than pumping ever more money into the private land market, we would be better served if Help to Buy was scrapped and stamp duty and regressive Council Tax were replaced with a flat Land Value Tax, which is both progressive and efficient.

Mark Wadsworth, Young People's Party

"Eye watering", "black hole", "shocking", "whopping".

From today's Taxpayers' Alliance mass email:

News broke yesterday that Surrey County Council is to hold a referendum asking residents for permission to hike council tax by an eye-watering 15%... The reason the Council is doing this, it says, is to plug a black hole in their finances to pay for the increasing costs of adult social care.

Now, there is no doubt that appropriately funding social care is one of the most challenging policy issues we face. But a 15% tax hike in Surrey is shocking... The scale of this tax increase would put a whopping £190 per year on a family's bill for an average Band D property in Surrey.

Ho hum.

From Homelet:

• The second half of 2016 has seen a considerably slower rate of rental growth, compared to the same period in 2015
• The average UK rental value was £892pcm - this is 1.7% higher than the same period last year (£877pcm)
• Since July 2016, rents in Greater London have seen a slower pace of annual growth than last year
• This month the average rental value in Greater London is 2.0% higher than the same period last year

£892pcm - £877pcm = £15pcm = £180 per year.

I'm looking forward to the TPA email:

News broke yesterday that UK landlords are asking tenants for eye-watering rent increases... The reason landlords are doing this, they say, is to plug a black hole in their finances to pay for the increasing costs of foreign holidays and new cars.

Now, there is no doubt that going on holiday and replacing your car are the most challenging policy issues landlords face. But a 1.7% rent hike is shocking... The scale of this tax increase would put a whopping £180 per year on a tenant family's bill for an average Band D property.

Remind me, who's the 'snowflake' generation?

Is Home-Owner-Ism reaching the high tide mark?

Spotted by DBC Reed in The Sun, "which regrettably these days is more on the ball than this blog which is too often down with the Beleavers on the beach worshipping the Brexit Cargo Cult.":

Back in the early 1990s, low and middle-income workers needed to save five per cent of their wages for three years, on average, to build up a deposit for a first-time property. Today, they need 24 years of such ­savings. That’s why home ownership has dropped sharply, particularly among youngsters.

As house prices spiral way ahead of wages, driven not only by a growing supply- demand chasm but also ultra-loose monetary policy, more and more youngsters from relatively affluent families are being priced out. The emergence of “generation rent” means the political geometry is shifting.

“If prices keep rising, home ownership will fall further and for the Conservative Party, with its base in home ownership, that’s disastrous,” says Alex Morton, who was Cameron’s housing expert in the Downing Street policy unit, “Tories want a society where if you work hard and do the right thing you can own your own home and get on, and that’s becoming ­increasingly difficult.”

More than half of first-time buyers in 2015 had assistance from “the bank of Mum and Dad”, rising to two-thirds in London and the South East. Such realities lay bare an uncomfort- able truth — the growing gulf between “property haves” and “property have-nots”.

There then follows a load of gibberish saying that high prices are due to lack of supply, it can be explained far more simply than that. Moving on...

Sajid Javid, the Communities Secretary (who grew up above a shop in Rochdale in a two-bedroom flat with his four brothers), has come out fighting. Last month he used his speech at the Conservative conference to accuse the UK’s large house-builders of ­deliberately restricting supply to boost prices, and therefore profits.

The “big developers” have “a stranglehold on ­supply”, said Javid, and are “sitting on land banks”, while “delaying build-out”.

The idea of “land-banking” — with the biggest house-builders remaining on go-slow to up their profit on each unit — used to be dismissed as a conspiracy theory. In recent months, that has changed. A quarter of all new homes in the UK are built by the biggest three providers and more than half are ­provided by the top eight.

There’s increasing evidence, though, that while the ­planning system remains cumbersome, more and more permissions are being given. Yet the homes are not being made. Internal government figures show that in the past three years, while there was a 46,600 rise in building units granted permission, there was a 94,300 rise in such units remaining unbuilt — with the entire increase in planning permission being absorbed by increased “land-banking”...

Fired by such evidence, the Government is set to publish a white paper on housing next month, with fines on building delays being touted and developers possibly being charged council tax on unbuilt units after a certain period. “There will be carrots and sticks,” says Javid.

It's not exactly LVT, but it's a start.

My talk on how the Council Tax system can easily be tweaked to be much like Land Value Tax

Here's my summary of a fifteen-minute talk I did last weekend, I think that some people understood it, or at least understood that I understood it.

What annoys me is that the the Homeys have a favourite KLN that it would require an army of expensive and intrusive surveyors but that the LVTers don't have a proper plan on how it could work on a tedious administrative level to shut them up.

To cut a long story short, all we need to do is set Band D Council Tax in each area as a fixed proportion of the site premium/land value of a Band D home in that area, instead of it being about £1,200, +/- £200 everywhere in the country. So on Day One of the new system, Band D Council Tax would be close to £nil in the very cheapest areas, about £1,400 in median areas, rising to £10,000s in central London. The rest falls into place.

Each of the steps is quite simple in itself, but you have to grasp them all to see how they fit together...

1. There is a fairly fixed relationship between selling prices, gross rental values and site premiums

The three concepts are quite different, but we all know what selling prices and gross rental values are, and selling prices are actually just a multiple of rents. On the whole the multiple is about twenty, which means that gross rental yields are about 5%. This multiple is lower in low rent areas and higher in high rent areas, which exaggerates the differences in selling prices, but hey.

However you calculate the site premium, it is a certain fraction of gross rental values, lower in low rent areas (maybe one-quarter or less) and higher in high rent areas (maybe three-quarters or more). The median is about half and the average for total UK site premium divided by total UK gross rental values (skewed by the top end) is about three-fifths.

Clearly, site premiums at the very lowest end are zero, if you do the numbers, the differences in selling price multiple of gross rents and the site premium as fraction of gross rents largely cancel out and you end with with site premium = +/- 3% of current selling prices. This percentage tapers away to 0% at the very lowest end, of course, where site premium is £nil.

Suffice to say, there are different ways of calculating the Site Premium, this is the least of our worries. Selling prices would be flattened by higher LVT, so can only be used as an indirect check on whether assessed values are about right in future.

2. In any smaller area, there is a fairly fixed relationship between the values of different sized homes

It does not matter whether you are looking at cheap or expensive areas; in most areas, the selling price of gross rental value of a one-bed flat is around 60% of the basic unit of housing, which is a 3-bed semi in the same area; a terraced house is 85% as much and a detached house is 154% as much. The ratio between gross rents is much the same. Therefore we can safely assume that the ratio between site premiums is much the same.

3. How Council Tax works

See Wiki.

To give an example and cut a long story short, a small local council has a spending budget of £100 million and receives grants from central government (out of income tax, NIC, VAT etc) of £76 million. So it needs to raise £24 million in Council Tax.

Homes were originally banded by selling prices in 1991, at the time prices were fairly flat across most of the country, so most one-bed flats ended up in Band A, most 3-bed semi detached homes in Band C or Band D, all the way up to the biggest and most expensive detached houses in Band H.

Council Tax in Band A is 6/9 of whatever it is in Band D and so on, up to the largest homes in Band H where the Council Tax is 18/9 as much.

The council adds up the total number of Band D equivalent homes, so a Band A home counts as 6/9 of a Band D home, a home in Band H is 2 etc.etc,

The council then simply divides required revenues of £24 million by the number of Band D Equivalent homes. If there are 20,000 Band D equivalent homes in that council area, the Council Tax for a Band D home is £1,200.

Having calculated that, the tax in the other Bands follows automatically, Band A is 6/9 x £1,200 = £800 and so on up to Band H where it is £2,400.

Note - Council Tax is thus a highly arbitrary amount, it is a balancing figure between two arbitrarily decided numbers divided by an arbitrary number, LVT can't possibly be worse than this.

4. Put the first three together, and hey presto, Council Tax is in fact a low level LVT

Let's take the same local council, and assume the annual site premium on a 3-bed semi in Band D is £5,000.
3-bed semi's are in Band D, costing £1,200 = 24% of their site premium.
One-bed flats are in Band A, costing £800 on a site premium of about £3,000 = 27% of their site premium.
Terraced houses are in Band C, costing £1,066 on a site premium of about £4,250 = 25% of their site premium.
The largest detached houses in Band H cost £2,400 on a site premium of maybe £10,000 = 24% of the site premium.

That is a fairly flat tax (always something to be welcomed) - but only if you compare the tax bills within a small area. Across the country, the tax rate is hugely regressive, with an effective rate of 30% or 40% in the cheapest areas and 3% or 4% in the most expensive.

So people at the top end are paying nowhere near enough in annual Council Tax (quasi-LVT) but are paying far too much in the 'progressive', transaction and one-off taxes on housing (and private wealth), i.e. Stamp Duty Land Tax, Inheritance Tax, the ATED charge and other assorted nasties.

These all raise surprisingly little money (half as much again as humble old Council Tax) while causing huge amounts of grief to the few paying it and generating loads of work for the pinstriped professionals who leech off the already wealthy at no overall benefit to the economy.

In the spirit of fairness and neutrality, let's assume that our LVT replaces regressive Council Tax and progressive SDLT, IHT, ATED etc. That gives us target revenues of £36 bn a year.

5. Sorting homes/plots by size instead of value

It would be easy to sort homes/plots into bands by absolute size rather than 1991 values. So one-bed flats go into Band A, two-beds into Band B, terraced houses into Band C etc. all the way up to the largest detached homes into Band H. That can be done quickly and cheaply by looking at OS maps, walking up and down the streets and looking at them, seeing what kind of homes they were originally (ignoring extensions etc), how wide the frontage is (far more important that how long the back garden is). Each council can develop its own guidelines and rules of thumb, it's doesn't really matter as long as they are consistently applied.

This will be a lot easier and less contentious than the original Council Tax valuations, which were relatively uncontentious themselves. If we just did this and left Council Tax as is, most bills would not change. That is the beauty of maths, maybe in some areas everybody would go up a band; this increases the number of Band D equivalent homes, so the Band D tax falls accordingly.

This is a one-off exercise and does not need to be repeated for the system to work.

6. Dividing each council up into smaller valuation areas

In most councils, there is quite a discrepancy in values between the cheapest and the most expensive areas, so they would have to be divided up into smaller areas where values are similar. My preferred option is postcode sectors, with about 3,000 homes in each, this size is small enough for there to be little variation but large enough for decent sample sizes on selling prices and market rents.

With a bit of interpolation and sampling, it is a doddle to find out what the site premium of a 3-bed semi, i.e. a Band D home in each valuation area is.

The find the total tax base, we multiply up the site premium of a Band D home by the number of Band D equivalent homes in each smaller valuation area - exactly the same as under the current system - add 'em up to local council level, and then add those up to national level.

We end up with a total site premium for the whole of the UK of anywhere up to £200 bn, but let's call is £150 bn for tactical reasons.

This tells us that the tax rate would have to be 24% of site premiums, 24% x £150 bn = £36 bn, required revenues from 4. above.

The Band D site premium in an area x 24% is then the Band D tax in that area, and the tax bills in all other bands in that area follow automatically - exactly as happens now, see 2. above. Using my worked example in 4. above, tax bills in that council would barely change.

I see no reason why there has to be any great justification of why Band D tax is what is under this system any more than there is under the current system. There is no logic to SDLT or IHT rates and exemptions either.  It is just a tax you have to pay for choosing to own a home with at least some economic justification rather than being completely arbitrary bundle of different overlapping taxes as at present.

7. But Council Tax is a local tax to pay for local services!

… or so people believe, let them believe it if they want to, it is all smoke and mirrors anyway.

In the examples so far, central government will lose £12 bn in revenues from IHT, SDLT etc, so it can simply reduce total grants to those councils where people are now no longer paying so much SDLT, IHT etc. Central government breaks even.

So if our example local council above has lots of high value areas and a total tax base of £125 million, it will be expected to collect £125 million x 24% = £30 million in revised Council Tax, its budgeted spending is still £100 million so its grant from central government is reduced from £76 million to £70 million, Band D tax on average across the council will be £1,500* instead of £1,200 and so on and so forth.

* Clearly, in the cheapest areas within that larger local council area, the Band D tax will be about £1,000 and in the most expensive it will be about £2,000. So the tax on a one-bed flat in a cheap area will be £666 and on the largest detached homes in the most expensive areas it will be £4,000. Which puts paid to the nonsense that some people will be uprooted from their friends and family and forced into ghettoes, you will only have to move a couple of miles to cut your tax bill by 80%, so your previous friends and family will still be in easy reach - perhaps they will even move with you.

At the very bottom, there might be a few local councils where Council Tax will go down and their grants will increase and at the very top, there might be a few councils who are expected to collect more in Council Tax than their actual spending budget, this can all be sorted out and will all net off, let's not get bogged down in the bookkeeping between government departments.

8. Having got the ball rolling, we just keep going

Each year…
a) National taxes (income tax, NIC, VAT etc) are reduced a bit (or a lot),
b) This gives us higher targeted Council Tax/LVT receipts and lower central government grants to higher value areas,
c) Site premium valuations in each area are re-assessed, indexed up, recalculated, whatever,
d) These are totted up to give us the total tax base for the whole country
e) Divide b) by d) to get your new tax rate in %, that sets Band D tax in each area, the council enters that into its master list and everything else falls into place.

Oddly Edited Reader's Letter Of The Day

From The Evening Standard:

Zac Goldsmith grabbed headlines with his claim that a fare freeze by Transport for London would mean a 59 per cent increase in council tax [February 9].

However, anyone who reads the article will see that the true increase would be 17 per cent. Even his claim that the fare freeze would add £175 to an average council tax bill is deeply flawed.

[Missing third para, explaining that the required annual council tax increase would be more like £33.]

This seems like a sensible option to me, especially if the increase were targeted at the super-expensive homes in Zones 1 and 2 who pay the least toward TfL while getting the best value from it.

Mark Wadsworth, Young People's Party.

Tories apply common sense to a funding issue...

… but only for the little people in 'the regions':

HOMEOWNERS* living in flood-hit areas could be forced to pay higher council tax adding insult to injury to thousands of homes devastated this winter by rising waters…

Environment Secretary Liz Truss said Somerset, where local authorities have been able to increase taxes 1.25 per cent to bolster defences, is a "very good" model" in evidence to MPs.

In total, six authorities are allowed to bump up council tax by 1.25 per cent above the cap of two per cent in 2016-17. But now it looks as though the scheme could be rolled out further.

When asked by MPs, Ms Truss said: "I think if you look at the structure for the Somerset Rivers Authority that now has the shadow precept so they are raising that funding locally and I think there's also a role for that as well. I think the Somerset Rivers Authority is a very good model."

… But Labour peer Lord Clark of Windermere said: "Flood defences are primarily a national responsibility and the Government shouldn't just pass the buck on to local authorities and in turn to local taxpayers."

Obviously, if it were a question of flood defences for London and the Home Counties, the Tories would probably see it as a "national responsibility", but there you go.

* Tenants pay Council Tax too, you know?

"Council tax puts strain on family budgets"

The FT possible inadvertently trots out some Homey propaganda:

Council tax has overtaken credit cards as the most common debt problem in Britain, highlighting the strain on family budgets from years of stagnant incomes.

Citizens Advice, which has more than 3,000 centres around the country, said there had been a notable shift in problems away from consumer credit on discretionary items and towards basic household bills.

It expects to deal with 191,400 cases of council tax debt in 2014-15, up 20 per cent on the previous year.

The Homeys extrapolate from this to LVT and make outrageous claims about Council Tax being "the single biggest bill facing families" and LVT being regressive or unaffordable.

Nope.

The problem is in the way it is collected.

Leaving any other tax or welfare reform aside, council tax is barely one-seventh as much as PAYE deducted from wages at source. That's why very few individuals rack up "PAYE arrears". The point is that PAYE is withheld at source - you don't get the opportunity to get into arrears.

But if you are strapped for cash, it is tempting to delay paying £100 a month in Council Tax and given the trivial amounts involved, councils don't always chase up if people are a few months overdue.

Thought experiment: what if the tables were turned:

a) Council Tax were deducted at source from wages (or pensions or indeed other welfare payments) that would be no more than £250 a month in Band H (or Band I in Wales) and very few people would even notice the difference, and

b) People received their wages gross and were asked to self-assess their PAYE and pay it over in monthly instalments, then PAYE arrears would go through the roof.

That way lies madness.

(But what if Council Tax were collected at source (by adjusting people's PAYE codes, for example, all perfectly do-able)? That would make it much easier to transition to higher but more progressive land value taxation with a corresponding reduction in income tax and National Insurance.)

The Good Old Days

Simon Jenkins in yesterday's Evening Standard:

The new proposed rate of £3,000 ['Mansion Tax' on homes worth £2 - £5 million] will come on top of the average of £2,000 that H-band properties already pay in council tax. Indeed, London valuations are so out of date that many bands E, F and G may pay mansion tax.

But the total tax will still be way below what such properties would be paying had the old rates been indexed rather than abolished (for the poll tax) in 1989. Tony Travers, the local government expert at LSE, estimates that the rates on “mansion-taxable” properties would today be in the range of £6,000 to £20,000 a year.

It's not that far off actually, if you add Council Tax and Mansion Tax together. So anybody who bought pre-1989, i.e. all the Poor Widows In Mansions, has no reason to complain; that's what they signed up for.

As we were saying yesterday...

From City AM:

BRITAIN’S housing market is inflated by tax rules, which push up prices, and is left vulnerable to booms and busts because of stamp duty, the European Commission (EC) warned in a report yesterday.

Transaction taxes such as stamp duty can cost buyers tens or even hundreds of thousands of pounds on each purchase, forcing them to hold on to property longer than they would like.

"Transaction taxes on properties tend to discourage transactions, which might ultimately make the market thinner and thus hamper the price discovery process," said the report on taxes across the EU.

And the failure to update council tax in line with house prices also pushed up prices, the EC said.

"Failure to update the tax base regularly risks leading to erosion of the tax base — and thus revenue — over time, while giving further support to rising house prices," the report said.

Solutions could include cutting stamp duty – which ranges from zero to seven per cent, depending on the sale price – and reforming council tax to make it more progressive and more in tune with the current housing market.

Correct. SDLT at higher rates and IHT (bad taxes as they impede transactions and/or are jealousy surcharges and/or semi-regressive) primarily collect that element of land values which are unaffected by Council Tax (bad tax because it is regressive to the point of being a Poll Tax).

So why not merge the three into a flat tax on land values or house prices? We could call it "Domestic Rates" or something. Once you start along these lines, you realise that there are plenty more of these stupid little taxes on wealth or transactions which we could chuck into the mix, to the overall benefit of everybody.

More fun with Poor Widows In Mansions (there are hardly any)

From the FT:

Statisticians removed one of the obstacles to a mansion tax on Thursday, showing a very small number of poor British households lived in very expensive properties. The Office for National Statistics reported that only 1 per cent of households with incomes in the bottom 40 per cent had property wealth of more than £500,000...

The question of asset-rich, income-poor households has dogged proposals to introduce steeper property taxes on expensive homes for years, and has been one of the reasons cited by Conservatives for refusing to introduce such a levy...

Labour and the Liberal Democrats have suggested that elderly people without high incomes will be able to make any liabilities to a mansion tax payable at death, rather than being faced with an annual charge. The ONS data suggest that few households will need to take up that option so long as the mansion tax bills are not too large.

Tee hee.

I think £500,000 is the top ten per cent or so of homes, so another way of expressing this is that only 4% of households who are in the top ten per cent by landownership are in the bottom 40% by income; seeing as there is a high correlation between income and wealth there will be barely households with low incomes who own houses in the new, higher Council Tax bands (i.e. ATED or Mansion Tax or whatever you want to call it).

The whole thing is dumb, instead of people coming up with these pathetic arguments against, we should be debating which other taxes should be cut as a quid pro quo (I nominate the bad taxes on land and wealth - Inheritance Tax, Stamp Duty, capital gains tax).

From the ONS report itself:

Median household wealth was about seven times larger than median household gross annual income.
• The distribution of wealth was more unequal than the distribution of income.
• Households in the top income quintile held 44% of aggregate total wealth.
• Whilst over half (55%) of households in the lowest income quintile had no property wealth, 7% of households who found themselves in this bottom income group had net property wealth of £250,000 or more.

Seeing as most "wealth" is land, it is inevitable that in the absence of LVT or similar, wealth will become ever more concentrated, far more so than incomes.

Think about it, if you earned £40,000 this year, what are the chances that you will earn less or nothing next year? It can and does happen, and we all have to retire sooner or later. So averaging out the population, your next year's wages will be barely higher than this year's.

But if you own land worth £200,000 this year, what are the chances it will be worse less or nothing next year or generate no income or benefit for you next year? Small to negligible. It is far more likely that it will go up, and by more than wages.

And "land" is not really net wealth in itself, it is a measure of the flow of income or benefits from non-landowners to landowners. So the latter group is getting richer at the former's expense, non-landowners have to run to keep still, while paying far too much tax on their earnings etc.

Council Tax Freeze - unintended consequence.

The Tories' Council Tax Freeze was a pure Home-Owner-ist electoral gimmick, of course: vote Tory and we'll reduce taxes on land ownership.

It's nonsense, because the central government has to bribe councils to freeze their council tax with higher grants out of centrally collected taxes; so people think they are "saving" £100 in tax (highly visible Council Tax) but they are not, on average, saving anything because they have to pay an extra £100 in income tax, VAT etc.

(That said, I don't know whether to laud Council Tax for at least being a distant cousin of Land Value Tax or to damn it for being, in practice, a Poll Tax. In the grander scheme of things it is an irrelevance, raising only about 5% of all taxes).

Labour were no better when in power, Tony Blair used to boast that Labour councils had the lowest average Council Tax. This is quite possibly true, but that was not because they spent less, it was because they got much higher grants from the Labour-controlled central government.

On The Sunday Politics today, a Tory MP pointed out that the reason why the Tories had lost control of so many London borough councils to Labour was precisely because of the Council Tax freeze; voters could merrily vote for Labour to run their council, knowing that the Tory central government will protect the from Council Tax increases.

Readers' Letters Of The Day

Both from today's Evening Standard (page 57):

MY wife and I hope one day to move to NW5. While we could never afford the £2.5 million price tag on Ed Miliband's Dartmouth park residence, I agree with him that its valuation is driven by lack of supply. This needs to be addressed by achievable means: new housebuilding can only do so much where urban land is limited.

Like the Milibands, my wife and I were in the privileged position of both owning a London home prior to our marriage. The problem with selling these to buy our dream is the cost associated with moving: £100,000 in stamp duty, agents' and legal fees. Barriers to moving could be reduced and supply increased by scrapping stamp duty. The lost revenue would be recouped with a bump in council tax for all.

Increasing the annual cost of ownership in this way would create an incentive for home owners to rent out their unused space - not only a handful of foreign investors but all those living in large London homes.

Surely it's reasonable for them to pay the social costs of their living choices?

Timothy Wiffen, SW11.

WHEN house prices rose at over £1,000 last year, the impact of doubling council tax for a Band D home as a means of tackling enmpty properties will be minimal.

The fact that council tax on meag-buck mansions is barely more than that on a Band D home also needs addressing.

David Reed.

Red Ed on the rampage: World's oligarchs tremble with fear.

From yesterday's Evening Standard:

A crackdown on "ghost homes" being hoarded by wealthy investors across London is unveiled today by Ed Miliband, in an exclusive interview with the Evening Standard.

New laws under Labour would hit rich owners who leave some 60,000 desperately-needed properties standing empty in the capital, and drive up house prices for everyone else...

Amid fury that thousands of flats have been sold to foreigners who never use them, but simply pocket the profits of a surging housing market, he pledged that Labour would take action by...

* drumroll *

... Doubling council tax for owners who let their flats lie empty and unused. After the property has been empty for a year, councils would have powers to impose a 100 per cent increase on their bills — which this year average £1,296.44 for a band-D home in London.

Lib Dem Minister makes a fair point

From the BBC:

[Stephen Williams] also took issue with his department's insistence that authorities raising council tax by more than 2% must hold a referendum to get public backing.

"A referendum on tax rises is absurd," he said. "If we had it for income tax, VAT, then the country would probably grind to a halt."

What sort of pseudo-democracy is it where people have a veto if the council wants to increase their council tax by more than £20 or £30 per household per year (thus indirectly voting for corresponding increases in other taxes), but weren't even consulted when the government increased their VAT bils by an average of £300 - £400 per household per year or their National Insurance bills by an average of £600 - £800 per working household per year?

Clearly, his concluding remark about the country grinding to a halt is nonsense, but there you go.

Meanwhile, on Planet Zog...

From The Evening Standard:

A resident of “Billionaires’ Row” today said it is “great” that a third of all properties in the area lie empty because it gives locals peace and quiet. Pablo Teixeira, 35, is one of a dwindling number of full-time residents on The Bishops Avenue in Hampstead, north London…

Mr Teixeira, 35, who lives in an £8 million, 12-bedroom house that his parents in Brazil bought five years ago, said his neighbours pay enough tax to do as they wish with their properties.

He said: “If they buy the property they can do what they like with it. It is up to them. It isn’t a scam, they are not taking anything from anybody. They pay a lot of tax to afford a property here. Council tax is extremely expensive. I understand the curiosity but people shouldn’t be poking their noses in it.”

That's no way to collect Council Tax

From the BBC:

Hundreds of thousands of people have been taken to court in England for non-payment of council tax owing to benefit changes, according to the Labour Party...

Before April of this year, millions of people on low income in England paid no council tax at all, or had their bill substantially reduced. The council tax benefit system was then replaced.

The government said this was part of a wider package of changes designed to control the spiralling cost of welfare (1) - and encourage councils to find ways of helping those on benefits into work.

It reduced the overall level of funding by 10% and said each council should decide how much support to offer residents - although pensioners were protected from any cut.(2)

1) That's simply not true. The amount spent on/rebated for working age and child welfare has been very stable at around one-tenth of government spending since the dawn of mass unemployment/Home-Owner-Ism in the 1970s.

The Tories love saying that it's one-third of all government spending - but that includes the one-fifth spent on old age pensions (a cost which could be more accurately described as "spiralling" although "drifting steadily upwards" would be more apposite).

2) Inevitably.

The main point is this though, the government gives with one hand (welfare, pensions) and takes with the other (in this instance, Council Tax).

Whatever the rights and wrongs of all this, why not just withhold Council Tax at source i.e. deduct it from welfare and pensions payments? That would save a fortune in admin costs and hassle.

The same applies to rents for social housing or whatever nominal contribution a low income or claimant tenant renting from a "private" landlord is expected to make.

That would at least throw into stark focus how much (or how little) money welfare claimants get to actually live in.

We observe the same madness with the TV licence fee:

Southwark Council has issued a mass court summons to 5,800 residents failing to pay council tax, sparking fears that rent arrears could increase in the borough as a result.

The council asked around 19,000 people who previously paid nothing to start contributing £12 per month after the government scrapped council tax benefit in April.

Why not just deduct £3 a week from their welfare or pension payments and leave them in peace? For that matter, they could just add the TV licence to everybody's Council Tax bill and divvy up the spoils between themselves afterwards.