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.

This merits the widest possible circulation...

The BBC as it should be seen...

"We can hardly be blamed

for summer having arrived earlier than expected" says spokesperson for the BBC, adding "the good news is that a new series “The Best of Homes Under the Hammer” starts shortly on BBC1, with a repeat the same day on BBC2.”

Another useful template

From City AM:

I agree with the Tax Commission’s findings on inheritance tax. Inheritance tax is a tax on capital, on money that has already been fully taxed as income or otherwise. It’s pernicious and destroys the UK’s capital stock to pay for current government spending. Inheritance is often the seed-corn for small businesses, putting capital in the hands of people who would never want to risk a bank loan.

And any inheritance not used by the recipient is recycled through the banking system to productive businesses. Government spending has to be reduced to allow capitalism to work properly and make us all better off in the long run.

John Hill.

As we well know, the TV licence fee raises slightly more than Inheritance Tax, so let's try this:

I agree with the Tax Commission’s findings on the TV licence fee. The fee is a tax on capital, on money that has already been fully taxed as income or otherwise. It’s pernicious and destroys the UK’s capital stock to pay for current government spending. Money spent on the fee could otherwise be the seed-corn for small businesses, putting capital in the hands of people who would never want to risk a bank loan.

And any money not used by the recipient is recycled through the banking system to productive businesses. Government spending has to be reduced to allow capitalism to work properly and make us all better off in the long run.

John Hill.

It's a bit long-winded, but the conclusion is excellent

From the Institute for Fiscal Studies/Mirrlees review of UK taxation, Chapter 16:

16.4 Conclusions

The taxation of property [a term incorrectly used to refer to 'land and buildings'] in the UK is currently something of a mess. As we have seen when considering the practicalities involved in implementing an ideal system, up to a point that is understandable. But it remains both desirable and feasible to clear up much of the mess. Out conclusions can be summarised thus:

* There is a strong case for introducing a land value tax. The priority should be to use it to replace the economically damaging business rates system.

* Council tax should be reformed to relate it more closely to actual property values: levied as a proportion of up-to-date values with no cap and no discount for unoccupied or single-occupancy properties. We have called this a housing services tax to reflect its underlying economic rationale as a tax on housing consumption to substitute for VAT.

* [bullet three is arcane to the point of being gibberish]

* Finally, stamp duty land tax should be abolished and the revenue replaced as part of the housing services tax (for domestic property) and land value tax (for business property).

This is a radical set of proposals, and the changes would need to be phased in carefully. But this is also an area where the current practice is a long way from an economically rational and efficient system. Stamp duty and business rates defy the most basic of economic principles by taxing transactions and produced inputs respectively. Income tax and capital gains tax create a significant bias in favour of owner-occupation.

Meanwhile, council tax is indefensibly regressive and, thanks to spineless government refusal to undertake a revaluation, we find ourselves in the absurd position that tax bills are still based on relative property prices in 1991. Over time, this arrangement will some to be seen as more and more untenable. At some point, some government will have to grasp the challenge of making the case for intelligent.
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1. The 'housing services tax' they refer to is a copy of the new system of Domestic Rates in Northern Ireland, i.e. a flat 0.6% per annum on up to date capital selling values, which they would have instead of Council Tax/Council Tax Benefit. The include a chart on page showing that only owners of houses worth £500,000 or more (which is the top five per cent of houses by value) would be more than a couple of hundred quid a year worse off. An excellent place to start.

2. Stamp Duty Land Tax is 3% on sales of homes for £250,000 - £500,000, and 4% on sales of homes for more than £500,000. If there's a sale every twenty years, it costs owners of houses worth more than £500,000 about 0.2% a year on average (i.e. £1,000 a year for a £500,000 home; £2,000 a year for a £1m home etc). To replace SDLT, we'd need to increase the 0.6% rate by +/- 0.1% a year (on all properties).

3. They don't mention Inheritance Tax in the chapter, which is 40% on the total value of most assets (in particular housing, cash and quoted shares) in your estate above the threshold of currently £350,000-odd. Let's assume this is payable once every forty years, to replace this would mean hiking the rate by another +/- 0.1% (on all properties).

4. Owners of second homes would be a bit miffed with all this, so it'd only be fair to scrap Capital Gains Tax on land and buildings liable to the 'housing services tax', for much the same reason as the arguments against SDLT. This would mean hiking the rate by another +/- 0.1%.

5. At this stage, owners of expensive houses and/or second homes can be pretty satisfied with the outcome - what they lose on the Council Tax swing, they more than win back on the SDLT, IHT and CGT roundabouts.

6. But owners of the vast majority of houses that aren't liable to 3%/4% SDLT every time they are sold, which are beneath the Inheritance Tax threshold and/or which are not second homes would end up one or two hundred quid a year worse off with an 0.9% rate. So let's just go the whole hog, round up the rate by another 0.1% to a nice round 1.0% and scrap the TV licence fee instead (currently £142.50).

Job done.

What's everybody so scared of?

1. While the 'failed old parties' bandy about fairly similar manifestos, let's remind ourselves of the biggest immediate problem facing today's younger 'hard working families'.

They aren't just looking at the additional future publicly collected tax bill required to pay off the accumulated national debt which the current lot has run up, they also have to borrow and pay off an average of £160,000 or so to 'jump on the housing ladder', of which around half is a privately collected tax, in other words, the price of an average house in excess of the bricks and mortar value.

2. Having ploughed through Fred's new book on the way home, the most telling part is this (page 266):

Was I being paranoid?

One man knew the answer to that question: Matthew Taylor [New Labour's policy director for the 1997 General election, also charged with drawing up the manifesto for the 2005 General Election]. And, as it happens, he too was a speaker at the Warwick Economics Summit. We met in the hospitality room, and I told him about my 1997 alert to Blair, Brown, Darling, Mandelson and Campbell. Ten years, enough time for a government to prevent a house price boom that would otherwise peak in 2007, driving the economy into recession.

Taylor knew the inside of New Labour's policy-making process like no-one else. So I challenged him with a question: "What was the one policy that the government could not countenance?"

He replied without hesitation: "The Land Tax".

3. I have, on this blog and elsewhere, allowed myself to be bogged down into the finer points of land valuation, which is a secondary issue. With my simplification campaigner's hat on, here's what a Land Tax boils down to:

a) all the taxes on property occupation and ownership and wealth generally*, which could and should be replaced, amount to about £60 billion per annum.

b) There are about 4 million acres of privately-owned, developed land in the UK

So to replace the entire list below would require a tax of about £15,000 per acre or £3 per square yard per annum. So the Land Tax bill for an 'average' semi in an 'average' area would be £1,000 a year or something (slightly less than the current Council Tax bill plus TV licence fee).

If the tax is to be more proportional to actual land or property values, then round my way** it would be more like £10 per square yard per annum, and in town centres it would be much more - as much as £100 or £200 per square yard per annum in prime Central London*** (which is no more than what they currently pay in Business Rates). Conversely, the tax would only be £1 or £2 per square yard per annum for ex-council houses or industrial estates outside the South East (which is slightly less, on average, than they currently pay in Council Tax less Council Tax Benefit plus TV licence fee; or in Business Rates as the case may be).

Where we take it from there is another topic.

* From the Public Sector Finances Databank for 2009-10:
Council Tax £24.8 billion
Business rates £23.7 billion
Stamp duties £7.4 billion
Capital gains tax £2.5 billion
Inheritance tax £2.2 billion
Insurance Premium tax £2.3 billion
Then minus off Council Tax Benefit and agricultural land subsidies (about £3 billion each) and add on the TV licence fee (also about £3 billion).

** Where I live is probably in the highest quintile of areas by property value. If I multiply the area of my house by £10 per square yard, then that amounts to rather less than a quarter of the rent we pay every year, or about half of what our landlord currently has to pay in income tax on the rent, plus the Council Tax and TV licence fee we pay. So this all seems 'about right'.

*** So somebody living in a flat in Central London in a ten-storey block with no private garden or car park can divide the size of his flat by ten to work out his share of the Land Tax.

Unlikely heroes ...

... Noel Edmonds!

As somebody who believes that while the tax burden could and should be reduced generally (around 20% of gummint spending is pure waste - quangocracy etc) it is the tax burden on the poorest that should be reduced most of all - the TV licence fee is a crude Poll Tax (which adds 10% to the average Council Tax bill), and as it relates to property ownership/occupation, should be rolled into Land Value Tax.