Derek's rough draft on LVT implementation

From the comments here:
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Kj wrote, "everyone loves a tax credit".

That was the thinking, Kj. It's the first of the five politically acceptable steps to LVT which I thought up as an attempt to get "from here to there". Each of them is supposed to be so obviously neutral or beneficial to the majority of voters that it would be difficult to argue against them.

I may have mentioned them here before but for the record they are:

1. Introduce an Income Tax credit for any Council Tax paid during the year for every UK resident. So for every pound of Council Tax you pay, you pay one pound less in Income Tax.

2. Do the same for UBR and Income Tax/Corporation Tax for any citizen running a UK business or any company registered within the UK.

3. Replace Council tax with UBR for everyone

4. Replace HMG's current Social Security and Pensions system and income tax personal allowances with a cash payment for each UK resident of 80% of the UBR take divided evenly between all eligible residents.

5. Abolish all taxes other than UBR, increasing the UBR to compensate for the loss of revenue.

Just a rough draft which could probably be improved and definitely not the only possible route (our esteemed host has also come up with some good ideas) but it's important to try and devise strategies like this if we're to have any chance of seeing LVT implemented soon.
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Seems fair enough to me, whether we call it Council Tax, Domestic Rates or UBR is neither here nor, it's all "LVT". But for clarity...

1. I would make it absolutely clear that you get a £1 income tax reduction for every £1 LVT you pay, and not the other way round, so that it is clear that your irreducible base level of tax is determined by the rental value of the land which you or your business occupies, and that the income tax is just an extra bit on top for high earners in small houses (which will be phased out anyway - see 5.)

2. and 3. Agreed. But again, what people overlook is that in the UK, income tax is only a third of all taxes collected from earned incomes/private wealth etc. For every £1 income tax you pay, on average, you are paying £2 in other taxes (mainly VAT or NIC).

4. That's a presentational thing. For half of households, the "cash payment" would be less than their LVT bill, so to save fraud and error, admin and hassle, it would be netted off at source and the LVT bill reduced accordingly. For the other half of households, the "cash payment" would be higher than their LVT bill, so the LVT would be deducted first and those households only given the balance in cash (again, to save fraud and error etc). If the "cash payment" is your only or main source of income, then you will have to minimise your LVT bill, e.g. by sharing a house in a cheap area etc.

5. That can be done in stages.

They own land, give them money

From The Telegraph:

The Bank has estimated that as much as 8pc of UK mortgages are in forbearance, equivalent to about £100bn of debt. On commercial real estate loans, it reckons a third are in forbearance – or roughly £75bn. In other words, banks are more at risk than they claim to be on £175bn of UK debt – and that’s before mentioning any eurozone exposures.

The Bank may have given the banks state guarantees to boost lending, but as long as they have a smouldering keg of dynamite on their balance sheets they are not going to volunteer to lower lending standards and load up on more risk. Hence the regulators’ desire to make banks own up and clear their potential losses.

There is another angle in this for UK growth. Ask any economist for a key reason the economy is struggling, and they will invariably answer that it’s because there is no consumer demand...

There are three solutions. To reduce the stock of debt, to reduce mortgage rates , or to raise disposable incomes. So far, the action has been on lowering rates. But a growing body of economists reckon the real, longer-term solution is some form of debt forgiveness – wiping out a portion of a borrowers’ obligations.

One swallow DOES make a summer: shock

Spotted by Bob E at a Work Programme provider website:

A support package from a Work Programme provider has helped a vehicle distributor find three suitable candidates who have been offered a job, the Derbyshire Times has reported. The company’s managing director, Nick Holland, said ‘it’s been a remarkably smooth employment process’, adding that working with the provider proved to be very effective and made things easy. The support included CV-sifting, hosting recruitment days and on-going support for new staff.

Some members of a group of 20 long-term unemployed residents from Stoke-on-Trent, who received their NCFE employability skills qualifications after training with another Work Programme provider, have also found work, The Sentinel has reported.

After spending umpteen billions on The Work Programme, twenty-three people have found work, eh? And how many people would these employers have taken on anyway? Twenty-three, perchance? Perhaps they would have used a private, for-profit, non-subsidised, taxpaying recruitment agency, and possibly sorted out the work-related training themselves. And I hardly think that getting an NCFE employability skills qualification is of much relevance to anything.

Reader's Letter Of The Day

From City AM's Rapid Responses:

Taxing income flows, rather than wealth, is unfair on the cash rich but asset poor. They cannot acquire assets due to the asset boom – especially in housing, which is artificially propped up to ensure that the borrowings secured by financial institutions on these assets don’t go underwater.

With regards to negative effective tax rates*, look at the costs of living – the actual costs, rather than the manipulated official figures ­– compared with wage growth. The benefits these people are receiving are not welfare for them, they’re welfare for their employers.

Carl Thomas

* He is referring to the CPS report, see my post of this morning.

Well duh.

The CPS got a fair bit of coverage for their report yesterday, which reminded us that "39.6 per cent of [working age] households received more in benefits than they paid in taxes in 2010/11 compared to 31.7 per cent in 1979 and 29.0 per cent in 2000/01.".

In their 'Questions for policy makers', they ask "Is there too much “churn” – taxing people and then returning many of the same funds to them in benefits?" to which the answer is almost certainly yes, but apart from that, so what?

Here's their Table 4 on original and final incomes, which is original income minus tax plus cash benefits and benefits in kind such as 'free' state education and NHS:
If you put those figures in a chart with a line of best fit, it looks like this:

So once you've done the netting off, what it all boils down to is a flat tax on incomes of 41% and benefits worth £12,825 for each household.

Now, you would be correct to argue that even a flat tax of 41% has huge deadweight costs, and that it would be far better to reduce this to a flat 20% and collect the balance with a tax on the rental value of land (perfectly do-able, as I showed at the weekend). And while there is a lot of evidence to show that allowing the state to be the monopoly provider of education or healthcare does not lead to the best outcomes, that does not mean that these cannot be funded out of taxes (via a voucher system - see plenty of European countries, schools in Sweden or nursery vouchers in the UK).

But the bold statistic that "39.6% of working age households receive more in benefits than they paid in taxes" itself is fairly meaningless.

Killer Arguments Against LVT, Not (243)

Kj reminds us that we get the same crap in Norway:

In the proposed state budget for 2013, the government wants to increase the tax on secondary residences. In the assessment of the wealth tax (top rate 1.1 %) secondary residential and commercial property has been valued lower than other investments. For the 2013 budget, Government is proposing to increase the assessment from 40 to 50% of market value.

Peter Batta, President of the National Homeowners' Association, said the proposal to increase the assesment value is an anti-social proposal as far as tenants are concerned. "If the government increases the assessed values of secondary residences from 40 to 50 percent, the effect will be to increase taxes for those who have extra housing for rent. At the same time, the consequence is that the profitability of letting will fall and many will sell their rental property (1)" Batta said in a statement.

The National Homeowners' Association estimates that more than five percent of the housing market is secondary residences and that between 20,000 and 30,000 units of rental housing will disappear (2) from the rental market as a result of the tax increase in the state budget.

"In addition, tenants will be left with higher rents, since all costs over time will be passed on to the tenant (3). In other words, a very anti-social proposal for anyone who is in the rental market," says Peter Batta.

Classic KLN!

(1) and (3) cancel each other out: if they can pass on the costs under (3), then profitability would be the same as now. But no, according to (1) profitability will fall, and under (2) 20,000 to 30,000 units of rental housing will not be sold but will just disappear!

Presumably they would be put on the market, but the effects of the release of 20,000 to 30,000 units is not something that benefits the paying members of the NHA, even though it will benefit future homeowners, which can't be a good thing can it?

Also worthy of note: a 10% increase in the assessed value a £150K apartment means a £165 increase in taxes, hardly anything in the greater scheme of things.

Freddie Starr fondled my hamster

Fun Online Polls: Labour and Tory conferences

The results to last week's Fun Online Poll were as follows:

What is the craziest idea to emanate from the Labour Party conference?

Spending 4G licence money on propping up house prices - 54 votes
People have forgotten everything before 2010 - 33 votes
One Nation Under Ed's Groove - 22 votes
Means testing Universal Benefits - 18 votes
Replacing Ofgem with a "tough new regulator" - 8 votes
Introducing a "Technical Baccalaureate" - 6 votes

So "Spending 4G licence money on propping up house prices" will go through into the final round, together with the most crackpot idea from the Lib Dem conference, which was "Use your pension fund as a mortgage deposit" and whichever idea floats to the surface of this week's Tory Party conference.
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The Tories have got off to a flying start: they are going to eliminate the deficit, but not by reducing spending - no, they will do this by increasing taxes on "the rich" (Wot? Having reduced the top rate of tax slightly and ruled out any sort of Mansion Tax..?); freezing Council Tax; indexing welfare payments with wages growth not price inflation (Wot? Wages normally rise slightly faster than prices, so they'd have to change this back again in a couple of years.) and maybe taking away Peter Stringfellow's bus pass.

Please leave your suggestions in the comments here or in the comments to this post, we'll then have the Grand Final next week.

"Two thirds back mansion tax on £1m homes"

This article in The Metro cheered me up:

Although such a levy has been ruled out by both David Cameron and chancellor George Osborne, their Liberal Democrat partners are all for it – as are 57 per cent of those questioned in the Harris Interactive poll for Metro.

The same number would support higher levels of tax on foreign-owned second homes, while 45 per cent back the idea of an increased levy on empty properties. Some 70 per cent of those polled would back fines of £100,000 for tax dodgers who own properties worth more than £1million.

A Lib Dem spokesman said: "It’s good to hear that people support a mansion tax. Liberal Democrats have long favoured a mansion tax and it is something we will continue to campaign for, in government and at the next general election."

The poll of 1,164 over-16s living on mainland Britain was conducted online by Harris Interactive between September 25 and October 1.

BBC to examine Jimmy Savile "alligators"

From the BBC:

The BBC has promised a "comprehensive examination" of whether the late Sir Jimmy Savile was an amphibious reptile.

Director General George Entwistle said all "unexplained flesh wounds and missing limbs" would be addressed - but only after "police had finished everything they have to do".

He also apologised to people involved "for what they've had to endure here". A growing number have come forward over the weekend to say they were mauled by the large toothed presenter who also tried to drag them under water. Some have also spoken of a broader BBC culture which tolerated attacks on bathers and anglers in the 1980s.

On Sunday, Prime Minister David Cameron called the Savile claims "truly shocking", and said that alligators needed to be "properly looked at, properly investigated" by the corporation itself.

Speaking on BBC Radio 4's Today programme, Mr Entwistle said: "The victims involved here have gone through something awful, and something I deeply regret they should have had to go through, and I would like to apologise on behalf of the organisation to each and every one of them for what they've had to endure. We need a comprehensive examination of what went on." he said.

But he added that criminal alligators at the heart of the case must first be investigated by police. "The way to deal with those is to make sure the police - who are the only properly constituted authority for dealing with criminal investigations, apart from maybe Crocodile Dundee - are allowed to make the examinations and inquiries they need to make."

Mr Entwistle denied he was kicking an inquiry into the mangrove swamp and insisted he was "putting all the BBC's resources" at the disposal of the police. "When the police have finished everything they have to do, and when they give me the assurance there is no further danger to swimmers and sunbathers, I will take it further and ensure that any outstanding questions are answered properly," he said.

Particularly, the organisation would look at "the broad question of what was going on and whether anybody around Jimmy Savile knew that he was a carnivorous giant lizard".