Reader's Letter Of The Day

From today's City AM (my emphasis):

Re: Deadlocked MPs reject soft Brexit as Tory MP quits party in protest

It is a sad comment on the state of our politics when 261 MPs are prepare to vote for a proposal which is a legal impossibility.

I refer to the crazy plan promoted by Nick Boles MP, under which we would join the European Free Trade Association (EFTA) and therefore be required to remove all customs duties on goods from other EFTA states, while continuing to allow the EU to determine what customs duties we would apply, including on imports from other EFTA states.

So, to take on example, the EU dictates that we must impose a 13 per cent tariff on Norwegian smoked salmon and continuation of that tariff would obviously be incompatible with the zero tariffs which operate within EFTA.

The legal impossibility of this 'compromise' scheme was pointed out by a Norwegian politicans in a UK national newspaper as far back as December [2018] saying: 'It is not an option for the UK to stay indie the customs union... if you are part of the EFTA platform.'

But Mr Boles chose to ignore that, and now his suggestion has rightly been rejected.

Dr D R Cooper, Maidenhead

I emailed Denis Cooper to say well done, he said he didn't think rejoining EFTA was a good idea anyway, so we disagree on that, but hey - I always thought there was something fishy about Boles' plan.

Reader's Letter Of The Day

From yesterday's Evening Standard (page 41, top left):

Don't blame the planners for the lack of land for housing in London (July 26).

There is enough land with planning permission for many thousands of new homes. Developers are not building on these sites either because of lack of finance or because they expect land prices to rise and are speculating.(1)

The Coalition has made many promises to solve the housing crisis but instead fuels the next land price bubble by under-writing homebuyers' deposits. As planning minister Nick Boles has previously admitted, the only way to seriously deal with this speculation is to tax vacant urban land on an annual basis.

While this would cause a temporary fall in house prices it would also make the existing homes more affordable to first-time buyers and stimulate the housing market, with a knock-on benefit to the wider economy.

Dr Tony Vickers, Professional Land Reform Group.

1) Actually there's a contradiction there. If the banks (or others with a bit of spare cash) are unwilling to lend to developers, that must mean they fear price falls; if the developers are hoarding land, that must mean they expect prices to rise. They can't both be right.

A cow attack, NIMBYism and racist undertone, all in one short article.

Spotted by Duncan Stott in The Guardian:

Really, I'm just dredging up reasons not to care about the country and prepare myself for a post-Boles concrete future, when we won't have much countryside left. Nick Boles, planning minister, wants us to build on an extra 1,500 square miles of countryside.

Boles, for all his faults, merely stated that we could build another ten million homes if we were prepared to use up about three per cent of land which is currently undeveloped (or whatever the exact figures were). What sort of complete idiot do you have to be to describe the remaining fifty million acres of countryside as "not much"?

Killer Arguments Against LVT, Not (167)

A letter writer in the FT adopts a typical Home-Owner-Ist tactic of being an insufferable know-it-all who deliberately misrepresents what LVT is all about (or is possibly so stupid that they don't understand the difference between "annual rental value" on the one hand and "construction operations" or "transactions" on the other), thus forcing people like me to waste time debunking their crap:

Sir, I refer to the article by Nicholas Boles proposing a land tax (It sounds bonkers but we should embrace a land tax, September 30) and Geoff Copeland’s letter (October 6) giving further support.

They are too late! There are already six such taxes. They are as follows: business rates (when occupying or even not occupying a property) (1), stamp duty land tax (when purchasing) (2), Section 106 payments (when building on the land) (3), the community infrastructure levy (also when building) (4), corporation tax or income tax (on rental income)(5) and capital gains tax (when selling the land).(6)

How many more taxes are they proposing?

Clifford Lawrence, London SW1, UK

(2) and (6) are taxes on transactions, they are bad taxes as they discourage efficient use of land and are easily avoided (by simply not buying or selling), they are a random percentage of the price paid, and the price paid in turn relates to the purchaser's estimate of the NPV of the future rental value of any buildings or improvements on the site (minus any development costs). They are a million miles from LVT.

(3) and (4) are even worse, as these taxes are only incurred when a site is being developed, they discourage development (and when it's finished, it's usually sold, triggering Stamp Duty Land Tax, bleurgh). And he missed off the obligation for residential developers to sell off 'affordable housing' which is another kind of tax. For sure, the amount that the local council can cream off is vaguely related to the capitalised rental value, but apart from that they are about two million miles from LVT.

Nick Boles did not go into infinite detail in his original article, but it is quite clear that these four taxes would be among those to be replaced: "... [land value] tax would deter speculative land banks and would encourage property owners to develop brownfield sites and put rundown areas of inner cities back to good use."

(5) Income tax and corporation tax are general taxes on all income, and are only paid if land and buildings are being rented out (but a business tenant claims equal and opposite tax relief); there is no charge for owner-occupation and nothing if they are empty. For sure, imputed rents of owner-occupier businesses are included in taxable profits as well, but income and corporation tax are at least three million miles from LVT.

(1) Business Rates is the tax that comes closest to LVT, as it is an annual tax based on the annual rental value of commercial land and buildings (payable whether occupied or not, by and large), but
a) it does not differentiate between the buildings and the site itself instead of just taxing the site rental value and
b) is NOT applied to derelict or undeveloped sites, so that in itself discourages development (although when Labour reduced exemptions for empty premises in 2008 or thereabouts. occupancy rates of existing buildings went up, as we would expect).

(7) Mr Boles had this to say on Business Rates: "If we were to implement [LVT] in the UK, it would need to be deductible from business rates so that struggling retailers and other firms were not faced with a devastating double whammy – and it might in time replace business rates altogether" which seems very sensible to me. Mr Boles is a proper Tory MP, for Heaven's sake, his whole article explains that his version of LVT would be a replacement tax, and he also names Employer's National Insurance as a Bad Tax which LVT receipts could be used to reduce.

"We want to encourage pension funds to invest in non-productive assets"

Tory MP Nick Boles took his first tentative step over to The Dark Side on page 15 of today's FT:

... there is a version of the Land Value Tax that works – and it is in operation in New South Wales in Australia. Crucially, farmland and people’s main homes are wholly exempt so it does not strike at hard-pressed farmers or elderly people on low incomes living in houses that have become very valuable (3), which would be hit by the Liberal Democrats’ preferred mansion tax.

Instead, the tax bears down on vacant land, holiday homes, investment properties and commercial properties. If we were to implement it in the UK, it would need to be deductible from business rates so that struggling retailers and other firms were not faced with a devastating double whammy – and it might in time replace business rates altogether.

Thus targeted, the tax would deter speculative land banks and would encourage property owners to develop brownfield sites and put rundown areas of inner cities back to good use. Over the longer term, it would lower the price of development land and help us get off that quintessentially British rollercoaster of house price booms and busts.

Well worth a read. The FT allows a Home-Owner-Ist to get his retaliation in first on page 3:

Mark Pritchard, secretary of the 1922 committee, who led the right’s attack on Mr Boles and other "purple plotters" last year, said on Thursday that he disagreed with Mr Boles’ latest proposal.

"This is a regressive tax masquerading as a progressive tax (1) ... over time this land value tax would lead to a decrease in pension funds (2) that invest in property portfolios and for which millions of pensioners rely on for decent returns in retirement (3). British businesses already pay enough tax. (4) What is needed is for the state to be smaller (5) and for government to learn how to spend taxpayers money far more wisely. (6)"

1) He appears to see 'progressive' as A Good Thing and 'regressive' as A Bad Thing, fair enough, let's examine the rest of his comments in this light (for example, they could make the LVT very progressive indeed by simply doling out the money as extra Citizen's Pension, full stop, I'm sure he'd be none too chuffed with that idea).

2) By and large, pension funds are run for the benefit of pension fund managers, not pensioners. Their very existence is inherently a 'regressive' redistribution of wealth.

3) Nick Boles plays the plain vanilla version of the Poor Widow Bogey (i.e. that it is unfair to tax unearned income or gains), but the 1922 guy goes for an interesting variant. Does Mr 1922 have the slightest bit of evidence for his claim? He also knows f- all about tax or maths, simple fact is, if they applied full Business Rates to unused land, the amount of money you can make by bringing them back into use is far in excess of the Business Rates (by definition), so pensioners would end up better off (and who cares whether that's progressive or regressive).

And if these pension funds invest in residential, they are probably collecting rents from young people, so this is merely a mildly regressive form of wealth transfer from young workers to old people who have built up a pension fund, and to pension fund managers of course. And the more that today's young people have to pay in rent (or mortgage interest), the less they will have to save up for their own retirement, so the Ponzi scheme is self-perpetuating.

Either way, Mr 1922 lets the Home-Owner-Ist mask slip: despite its stated aims, in reality, Home-Owner-Ism has absolutely no intention of encouraging a wider spread of owner-occupation. The whole idea is for future generations to be tenants so that the incumbents (pension fund managers, bankers, landlords etc) can live off the rental income.

4) Agreed. But if pension fund managers spend all the money entrusted to them on vacant, derelict and unused sites, that constitutes a business how, exactly? It's not, is it? It's one of the least productive uses of money you can imagine, as we can't all live off capital gains, remembering that these are a negative sum game overall. Further, if and when these sites are brought into use, they will be liable to Business Rates anyway (which isn't a tax on business either, not in any way shape or form).

5) Agreed. In the later article, the Tory MP makes it perfectly clear that he's plumped for this moderate form of LVT as a "least bad" option and sees it as a way of stimulating business activity (which would generate returns on the shares held in pension funds, so their net overall income would go up; creating more jobs etc.) as well as a replacement for other, more damaging taxes. He singles out Employer's NIC as something which could be reduced, for example.

6) The Tories ARE the f-ing government, so that's not much of an argument is it: "I'm sorry that we can't shift from bad taxes to good taxes because we're only going to waste it all anyway"? When it comes down to it, it's less bad for the government to waste LVT receipts than to waste VAT or NIC receipts, and that is the end of that.