That's a start, I suppose...

From The Guardian:

The leading Labour moderate Tristram Hunt moved to reclaim the issue of inequality for his wing of the Labour party, calling for a property wealth tax [and] reversal of cuts to inheritance tax... within 100 days of a Labour government coming to power.

Making the case for a property wealth tax to replace the existing regressive council tax, Hunt pointed out that 14 OECD countries – including the US – raise a recurring tax on the value of residential property. An annual 0.5% tax upon the value of each property – less than most countries – would completely cover the cost of replacing the council tax, he said.

The tax would be raised on owners not occupiers, taking “generation rent” completely out of local taxes altogether.

He might as well just call it "Domestic Rates" and have done with it.

As per usual he is way off piste with Inheritance Tax though. It raises laughably little money, so you could get rid of that as well and bump up the Domestic Rates from 0.5% to 0.55% and keep going from there. SDLT, CGT and the TV licence fee are the next obvious candidates to be replaced, which would require a total rate of 0.65% or something like that.

My wife will be wondering why I am rejoicing at the fact that our Council Tax bill just went up by £1,700 a year, but needs must.

I didn't realise that "in your face taxes" was a widely used term.

I pinged off my submission to The [Scottish] Commission on Local Tax Reform, which they have put online here.

Out of interest, I read the first submission by Kenneth McKay, which merrily demolishes The Poor Widow Bogey thusly:

14... Arguments against Domestic Rates and property-based taxation in general have included that tax liability should be based on income rather than the value of property occupied and the classic comparison between a widow living alone with 4 adults living next door which brought us the Poll Tax. There are in fact very few households consisting of 4 adults!

15. Although there is not a direct link between house values and income there is reasonable correlation...

But what cheered me up most was his description of Council Tax, Domestic Rates etc. as "in your face" tax in para 12.

I always assumed that we on this blog had coined this term, perhaps not after all.

Poor Widows In Mansions In Northern Ireland

Northern Ireland never had Council Tax, they stuck with Domestic Rates, the last revaluation was in 2005 and the rates are about 0.8% of each homes 2005 value (or probably more than 1% of its current value). Sadly, the 2005 value is capped at £400,000, rather than having a higher or no cap and a correspondingly lower rate, but there you go.

They sensibly introduced a deferment option for Poor Widows In Mansions to shut up the Mylene Klasses of this world.

A few years later they did a review of the scheme, Andy Wightman uncovered this fine document:

Analysis carried out by NISRA for the Department in 2008 found there were 132,343 pensioner owner-occupying households.

Since its introduction, there have been 116 applications to the scheme – a take-up of 0.09%.

64 of these did not proceed beyond the initial stages. Of those that proceeded further in the application process, 21 were successful (in terms of a deferment agreement being entered into) and 18 were refused.

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.

Institute of Fiscal Studies on top form

Apart from the irritiating use of the word "property" when they mean "residential land and buildings", of course.

From their Green Budget 2013, Chapter 9:

Far from looking to raise more money from SDLT, the government should be looking to reduce SDLT or preferably abolish it altogether and make up the revenue elsewhere – perhaps from a reformed council tax in order to avoid giving out windfall gains to owners of high-value properties... A sensibly reformed council tax, increased to make up the revenue from abolishing SDLT, would make for a much more coherent system for taxing property...

The taxation of housing is a mess. There is no good argument for taxing housing transactions, as stamp duty land tax does. There are good arguments for levying a tax on property values – but not for charging a lower percentage tax rate on high-value properties and basing it on valuations that are 22 years out of date, as council tax does.

Increasing council tax rates for high-band properties would go some way towards making council tax more proportional to property values, but it would be better to conduct a full revaluation and make a reformed tax fully proportional to those up-to-date valuations, preferably replacing the revenue from an abolished SDLT in the process.

"Rates debt in Northern Ireland doubles in last five years"

... screams the headline at the BBC:

The amount of rates debt in Northern Ireland has doubled in the last five years and now stands at £160m.

A report from the assembly's Public Accounts Committee (PAC) said the body responsible for collecting [Domestic Rates], the Land and Property Service (LPS), must explore all ways to help those in rate arrears to pay their debts.

The recession has made the job of recovering rate debt more difficult. In recent years, a further £53m worth of debt has been written off...

Land and Property Services is responsible for the billing and collection of rates on 840,000 properties in Northern Ireland. Over £1bn was raised in rates revenue in 2011-12.

Ho hum, so cumulative arrears and write offs in the last five years were [half of £160 million] = £80 million arrears + £53 million now written off = £133 million arrears/write offs, divide that by five is an annual uncollected amount of £27 billion.

Compared to the total revenues of £1 billion, that's a collection rate of ninety-seven per cent. Not exactly briliant, but still much better than the collection rates of taxes on output, employment, profits etc (which are only ninety per cent at most).

The LPS Annual Report 2011-12 shows that it tales a thousand civil servants to collect all this cash; their total net running costs are £36 million a year (Note 5.4), which is 3.5% of the amount collected*. Again, not brilliant, but still a lot lower than for other taxes, remembering that the compliance and form-filling costs for the Domestic Rates payer is precisely nil (unlike taxes on output etc, where filling in all the forms costs payers another couple of per cent on top of the amounts paid over/collected).

* Please note: the 3.5% running costs is a separate issue to the 3% demanded but not collected.

Outbreak of common sense in Ireland, sort of.

Spotted by Khards at HPC in The Independent:

THE Government is considering a 'super property tax' for owners of large, expensive homes. Under the proposals, the rate of tax levied would rise with the value of the property, the Irish Independent has learned.

Similar to income tax, the property tax rate would go up in bands linked to the value of the house. That means owners of such houses would pay a higher percentage rate of tax due to its greater value. This 'super tax' would help the Government to sell the property tax to the public as homeowners would clearly see the rich paying more.

So far so good. Here come the "sort of" bits...

It will spark concern among those who already stretched themselves to buy a relatively expensive property, and have already paid stamp duty.

Nonsense. People shouldn't have stretched themselves in the first place; slapping them with a one per cent (?) progressive property tax is no worse than a 1% hike in interest rates; and the Stamp Duty was borne by the vendor anyway, it gets knocked off the purchase price, not added to it.

The Government is moving away from a site-value tax because it would throw up anomalies. For example, two houses -- one rundown and one modern -- on the same-sized site would have the same property tax bill.

That's the point of site-value rating. Why should the person who can afford to buy a house and allow it to fall derelict get a tax break? What would you rather have next to you - a run down house or one in good condition? Presumably the latter. Further, it is simpler just valuing the site/the value of the planning permission as it is the same for each house and requires no internal inspections.

In urban areas, houses on the same road tend to be more uniform -- with the site and the house being, more or less, the same size and value. But in rural areas there are often houses of different sizes and values built side-by-side.

Fair points, which is why site value rating is much easier for urban areas. Farm houses will always be a bit fiddly, again why it's easier to just value the sites.

Although the site-value tax is favoured by economists, the Government is finding it difficult to identify a country in Europe where it is used effectively.

So what? Somebody has to go first, in for a penny in for a pound. The closest comparison is of course Domestic Rates in Northern Ireland which is a flat 0.7% per annum of the value of a home as at 1 January 2005, capped at the first £400,000 (so the maximum bill is about £2,800 a year).

The Irish version is better; instead of expensive houses having their tax bills being capped, they pay more. This actually makes it a bit closer to proper LVT - a flat rate LVT would almost certainly be a higher percentage of high value homes than of low value ones because a larger part of the value of high value homes is the location value. Clever stuff.

There are some splendid KLN's in the comments, hard working families, generations of family memories, a tax on the prudent blah blah. I liked this man's style though:

Irish In NJ: Why is this newsworthy? We pay huge property taxes in the US. It's simply part of owning a house. More than 25% of my monthly payment is towards property tax... it pays for my local schools, the street cleaning, the garbage pick up etc... the bigger the house, the more the land, the more you pay. Simple. Ireland likes to adopt most things implemented in the US... taxes should be no different.

Welfare Reform

1. People clearly have different levels of income and assets and the welfare system is an attempt to redistribute this somewhat, or to alleviate poverty:
2. For some reason, people like 'contributory benefits', where those who have earned most and paid most taxes are paid higher old age pensions or seen as more deserving recipients of unemployment benefit, despite this is just like a belated tax rebate and it would have been better to simply not collect the tax in the first place. Most pernicious of all are subsidies to certain assets, in particular land ownership (manifested with things like cash subsidies for buying a home; Housing Benefit payments which only benefit landlords in the long run and the fact that land ownership generally is nothing more than a state-sanctioned transfer of wealth, i.e. a subsidy):
3. Then there is a strange coalition of a) Socialists who think that people with low or no incomes deserve more than those who have (or have had) higher incomes and have built up some savings; and b) right wingers who like means-testing because they think it saves money (what they don't realise is that means testing is like a stealth tax on incomes and non-land assets which are taken into account for means testing):
4. So as things stand in the UK, we have a mish mash of subsidies to land ownership, means tested and contributory benefits, so the Socialists, right wingers, authoritarians, bureaucrats and land owners are all happy. The effect of having two overlapping and parallel systems means that people actually receive pretty much the same whatever their level of income or assets (ignoring the net subsidies to land ownership which are lightly taxed and not taken into account for most means-testing):
5. So why not merge the two systems with all the huge administration costs, fraud and error and traps and loopholes with a flat rate Citizen's Income, payable in cash. The cost of which can be largely funded by clawing back the subsidies to land ownership, i.e. by imposing a land value tax such as Domestic Rates, which would mean that the Citizen's Income received by a median household in a median home would be equal and opposite to the Domestic Rates due on that home?

"Running around the edge of the field with the goalposts under your arm"

Parting shots by born again idiot Richard Dean, in response to a proposal at Lib Dem Voice to replace Council Tax with a fiscally neutral system of Domestic Rates like in Northern Ireland (i.e. a flat annual tax on all housing of about 0.6% of their current values):

Through mechanisms like what I described earlier (1), [Land Value Tax] tends to concentrate power in the hands of landowners, and tends over time to concentrate land ownership in fewer hands. In this long term this is very bad for democracy, and so very bad for an economy whose output depends crucially on the willingness of people to put energy into work.(2)

The modern economy is very different from the one even 50 years ago, let alone the times of Smith and Ricardo.(3) LVT simply isn’t an answer to today’s problems.(4)

1) He did no such thing of course.

2) No, that's the current system (heavy taxation of earned income and profits; heavy subsidies to and light taxation of land ownership) which does that. His observation is complete bollocks of course, as evidenced by the fact that the Home-Owner-Ists keep voting for heavier taxation of incomes, heavier subsidies to land ownership and even lighter taxation of land, and the Home-Owner-Ist elite (bankers, large landowners, landlords, politicians, posh estate agents, property porn stars off the television etc) keep pumping out propaganda about Poor Widows In Mansions.

If there really were something in it for them, wouldn't they have introduced LVT by now rather than phasing it out? Or does anybody out there think that these people have nothing but the best interests of maybe 1% of the population, the PWIMs, at heart and mould policies affecting the other 99% to suit? That our whole economic, social and political system has to be dictated by the interests of PWIMs?

3) Yes, the economy has progressed, as a result of which, a far larger share of GDP goes to land rents than it did when we were largely an agricultural economy, that's a simple matter of observation. Smith and Ricardo both foresaw this and explained why.

4) Not to all of them, no, but shifting from taxing earned income and profits to raising revenue from the rental value of land would solve most economic problems which are solvable, e.g. land price booms and busts with the associated credit bubbles and financial crises; the drag on GDP and unemployment caused by taxing earned income and profits; the war which NIMBYs are waging on 'everybody else'; misallocation of public and private investment etc etc. Some problems aren't solvable, so what?

The post header is TM Henry Law.

Sir Simon Jenkins comes over to The Dark Side

Writing in the Guardian, the chairman of the National Trust on the topic of the 50p tax rate:

Let's find progressive ways to tax the winners in our trickle-up economy... there are other ways of taxing the rich that have specific social benefits. The obvious candidate is the one tax that has been in steady decline over the past quarter century, and that is on property. This fiscal Cinderella, once called rates and now council tax, has been hated by chancellors down the ages, largely because it is not collected and controlled by them.

The decline of local property taxes from 12% of total revenue in the 1980s to under 5% today – largely replaced by VAT – has been so stark that some councils, such as Westminster, now get more revenue from the owners of cars (in parking and in fines) than they get from buildings.

The banded council tax has degenerated to being almost the poll tax that it replaced, since there is only a one-to-three ratio between band A and band H. The top band is all houses that were valued at above £320,000 in 1991. Sheer political cowardice has prevented either revaluation or the introduction of higher bands (other than in gutsy Wales).

The Liberal Democrat Vince Cable made a stab at reinvigorating property as a revenue source two years ago, with his ham-fisted "mansion tax" of 1% on houses worth over £2m. He was shot down on all sides. It would have been far simpler, and more honest, just to revive the old rates, perhaps by increasing the number of council tax bands to reflect a wider spread of house values, and with automatic revaluation. Every year council tax gets more regressive, and the rich get away with fiscal murder.

Throughout Europe and America property and local business taxes form part of the revenue mix. In smart New England they can be as high as $20,000 a year. They tax wealth modestly and they tax the nation's scarcest resource, living space. As such they are an incentive to the fairer allocation of housing in both public and private sectors.

Property taxes cannot be evaded, and properly imposed are a fair generator of government revenue. Better, they are traditionally paid in anger. Any tax paid in anger is a good tax – the opposite of a stealth tax, because the payer demands to know how it is spent. Property taxes are thus a spur to democratic interest and activity. That, of course, is why politicians detest them.

Outbreak Of Commonsense...

... in Northern Ireland. Spotter's badge to Paul Lockett for this one.

As background, as we all well know by now, in Northern Ireland, they never went through the rigmarole of replacing Domestic Rates with the Community Charge ('Poll Tax') and then replacing that with Council Tax like in the rest of the UK. Instead they revalued all residential land and buildings as at 1 January 2005 and replaced the old Domestic Rates with a fiscally neutral 'Progressive Property Tax' of about 0.7% of the capital value as at that date.

So this is pretty similar to what I have been suggesting all along. Another thing which I have been suggesting all along is to alleviate things for pensioners (who are the biggest stumbling block with any kind of land tax reforms) by allowing them to defer the tax to be rolled up and repaid on death or a subsequent sale.

Lo and behold, from the BBC (3/3/10):

Pensioners in Northern Ireland are to be able to defer rate bills until they die or sell their properties.

New legislation, outlined by Finance Minister Sammy Wilson, will allow those who are struggling to meet mounting bills in retirement will benefit most. A reduced rate of interest will be charged. Assembly members backed the law, which comes into effect in April.

"Deferment is not a new relief or allowance and importantly does not represent free money," Mr Wilson said, "It will however allow pensioners to roll up their rate bills at a concessionary rate of interest, generally until their death or the sale of the property."
---------------------------
Of course, you might wonder why capital values for NI Domestic Rates purposes are capped at £400,000, but you have to remember that the Inheritance Tax threshold is currently £325,000 (the tax on the excess is 40%, but that is only paid once a lifetime, i.e. on death) and it would be a tad unfair to make the 'top slice' of the value of more expensive homes liable to both Domestic Rates and to Inheritance Tax.

But wouldn't it be better and simpler to scrap Inheritance Tax and simultaneously abandon the £400,000 cap, which would mean increasing the rate to about 0.8% to make up lost IHT receipts? To soften the blow of an 0.1% increase for people in cheaper houses, you could also scrap the TV licence fee and increase the rate to 0.9%, and having gone that far, and assuming that part of the purpose of such a tax is to encourage 'right sizing', why clobber people who do the decent thing with Stamp Duty Land Tax? Again, you could scrap that and make up the lost receipts by hiking the rate to a nice, round 1%, chucking in Capital Gains Tax and Insurance Premium Tax for good measure.

Job done.

One good, simple tax to replace six complicated bad ones with very few winners or losers. For sure, the purists say you should tax land values not buildings, but because a tax is always borne by the least elastic factor, a tax on buildings always acts like a tax on the land element rather than the building element, and in any event, any residual tax that falls on the building can be compensated for by child benefit, welfare and pension payments, a generous personal allowance for income tax etc.

Northern Ireland

Interestingly, Northern Ireland never replaced Domestic Rates with Poll Tax or Council Tax. The old valuations had got a bit out of date, so they revalued all residential properties as at 1 January 2005 and then calculated the rate required to raise the same amount of tax, which happened to be 0.78% per annum (plus local precept, where applicable) on the updated capital values.

They cap the value per property at £400,000, so the biggest annual bill you can have is £3,120 (plus local precept if applicable). That, taken in isolation, was a daft thing to do, but I suppose it's only fair as they still have Stamp Duty Land Tax and Inheritance Tax, which are jealousy surcharges on properties worth more than £250,000 (3% band) or £500,000 (4% band) or estates worth more than £325,000 (40%).

That strikes me as a lot fairer than Council Tax in the rest of the UK, which is in 8 bands (annual bills between £850 and £2,550) so it is less regressive, i.e. does not have a Poll Tax element.

Further, if it were up to me, I'd get rid of SDLT and IHT as well and get rid of the £400,000 cap. I suspect that this would be a modest net benefit to people in homes valued at more than £400,000, i.e. would you rather pay lots of 0.78% instalments or have your heirs pay one big 44% or 43% chunk when you die? Either way, it keeps things nice and simple and enables us to shut down the departments at HMRC dealing with SDLT and IHT.

Ten reasons to hate the Tories (6) Part 2

Point 6 from Cameron's Blueprint for Britain was this:

"We will cut corporation tax to create jobs (1), reform inheritance tax to encourage saving (2) and build a stronger society by rewarding families in the tax and benefit system (3)."

As to (2), WTF?

Being a bit old-fashioned, I always understood "saving" to mean "spending less that you earn and building up cash reserves" i.e. "avoiding debt like the plague", however, as the military wing of the Home Owners' Party, I suspect that the Tories are desperately trying to palm off "owning a home" i.e. "borrowing as much as you can today in the vague hope that the next generation but two will be dumb enough to borrow an even higher multiple of their income in order to be able to buy your home off your heirs at a massive overall profit to your heirs but at a huge cost to themselves" as "saving", which is an abuse of language to say the least.

So I guess that this wasn't quite the way that the Tories mean it.

I agree that Inheritance Tax is, taken in isolation, a totally evil tax which is levied at a savage 40% on the value of estates above the nil rate band (but subject to a thousand exemptions) and raises about £3 billion a year, i.e. bugger all in the grander scheme of things, about half a per cent of total tax revenues or as much as the TV licence fee.

You can't reform it, all you can do is scrap it. But, as Inheritance Tax is a crude form of wealth tax and property wealth is the simplest, most easily taxable and least mobile of wealth, that would give us the golden opportunity to replace the existing eight Council Tax bands (A to H) with twenty six bands (A to Z).

At present, Council Tax on the smallest/cheapest homes in the UK (worth maybe £40,000) is £900 (about two per cent of the total capital value) and Council Tax on the most valuable homes is capped at three times that, £2,700 (about one per cent of one cent of the capital value of a top end mansions). So what's wrong with having twenty-six bands, starting at £100 and going all the way up to £10,000?* This would save people at the bottom a few quid, obviate the need for Council Tax Benefit or Council Tax Discounts and raise the extra £3 billion at the top end as well.

Job done, taxes simplified and collected, economic justice served, what's not to like?

* On a maths point, there are currently eight council tax bands, about 17% apart (1.17^7=3), I'd rather see twenty-six bands 20% apart (1.2^25=100). Or even better, a progressive property tax like in Northern Ireland (a flat rate of about three-quarters of a per cent on total market values without banding) or a flat tax on rental values like Business Rates in the UK. Or even better, a flat tax on pure location values. I can but dream ...

Hopes raised, hopes dashed

George Obsorne, after showing a glimmer of intelligence over the whole B&B debacle, has now  reverted to type. This bit of his conference speech sounds all well and good:

"We built an economy on the engines of finance and housing and government spending, and the government never stopped to think what would happen if the engines stalled. Now the credit has dried up, the engines of the economy have stalled, the party is over."

As does this ...

The [tax] freeze would be paid for by cutting consultancy budgets by £270m in the first year and £770m in the second. Budgets for frontline services such as NHS, schools and police - and the Department for International Development - would not be cut.The Central Office of Information budget would be cut by £230m in each of the two years.

Great. £1 billion of waste down, £99 billion to go ...

But which tax do they want to freeze first?

Council Tax, of course! According to this Tory opportunist "Council tax bills are the third highest monthly bill after housing and fuel bills - local councils must deliver high-quality services at the lowest cost to the taxpayer."

Does this joker not realise that all taxes are ultimately borne by individuals/households? So applying his 'logic', Council Tax (£20 bn) is only the seventh-biggest monthly bill after income tax (£130 bn), National Insurance (£85 bn), VAT (£80 bn), corporation tax (£40 bn), housing costs and fuel bills.

Agreed, The State should be delivering high-quality services at the lowest cost (or not at all), but why restrict this to a narrowly defined range of expenditure that happens to be covered by Council Tax, which raises barely 4% of total government revenues? AFAICS, nearly all services are local services. So if councils can run things more efficiently than central government (and they probably can - less layers of bureaucracy and corruption), why not devolve more stuff down to them, even if that means that local taxes (primarily Council Tax and Business Rates) go up a bit? 

It's all well and good George Osborne railing against an economy based on credit, but the flipside of the credit bubble is the house price bubble, which are now both bursting in tandem. So if you freeze Council Tax (which is more akin to a user charge than a tax) rather than cutting economically damaging national taxes (which are purely confiscatory; primarily VAT and Employer's National Insurance), all this will do is to kick-start the next house price bubble. Which is exactly what happened after they got rid of Schedule A taxation in 1964 and after it became clear that they were going to get rid of Domestic Rates in the 1980s.

Ah well. It's a good job I sold to rent last year, so I can make another small fortune during the next bubble. I'm going to keep doing this until they learn their lesson and replace all existing property and wealth related taxes with Land Value Tax. Twats.