Killer Arguments Against LVT, Not (445)

In response to Vince Cable's LVT for Business Rates swap idea, let's watch a professional KLN-disseminator at work:

John Webber, Head of Business Rates at Colliers International... said: “Whilst it is good to see the Lib Dems are taking the issue of business rates seriously, it is a shame they did not think through the disastrous decision to delay the business rate revaluation from 2015 to 2017 which has caused so much trouble when they were in Coalition and Vince Cable was business secretary!”

The Lib Dems had little say in the Coalition, that was the Tories staving off the inevitable.

"... the idea to replace business rates with a full commercial landowner tax is not the answer. And reading the report in depth makes you think the Lib Dems have drifted into Alice in Wonderland.

Strange jibe, seeing as he takes guidance from Through The Looking Glass: ‘When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean–neither more nor less.’, as we shall see below.

"Business rates were set up to pay for the amenities and services businesses use in the community.

Outright lie. They are a successor tax to Poor Rates which Queen Elizabeth I introduced to pay for a rudimentary welfare system. But let's assume it's true, LVT is just a charge on the "amenities and services" provided at that location, for which the landlord then charges rent. Nobody has ever managed to explain why landlords should get most of their 'raw material' for free.

There is surely no dispute that they should pay something for these services. To replace the levy with a total land tax on landowners would impact on land values...

That's a feature not a bug.

... and discourage investment into property generally...

No it wouldn't. LVT is a sunk cost, for investors it is balanced out by the fact that land is cheaper (which is a bad thing, according to him). Unlike Business Rates, it would not deter improvements, buildings and so on.

... (among other things, this would not be good news for pension fund holders).

As if pension funds don't also invest in proper businesses, who will benefit from this. It all averages out.

"The additional tax would also result in landlords getting the money back by hiking up the rents they charge to occupiers...

Woah! If landlords can simply pass on the tax, then his first claim, that land prices would fall can't be true. Make up your mind, dickhead.

And funnily enough, when it suits them, the Vested Interests are happy to argue that Business Rates is economically borne by landlords in terms of lower rents (see Executive Summary on page 6 of this).

It's a a bit Humpty Dumpty, isn't it?

"We would therefore have a system whereby businesses would end up paying more to the landlord but unlike the present system would be unable to appeal against their combined rent and rate bills that the landlord would introduce. So how would they benefit?

Market forces, you twat. The same market forces that makes landlords bear three-quarters of Business Rates (link above) would make them bear an even larger share of LVT. The landlord in turn is perfectly entitled to appeal if he wants, the tenant couldn't care less as he is unaffected.

"Other parts of the report also show naivety. The Lib Dems claim that land will be valued on its "best permitted use" and that this would encourage landowners to work their land better. This implies they are not doing so now and ignores considerations of commercial viability. They seem to think that without a land tax, land will be sitting empty and largely undeveloped, again ignoring the commercial realities of development in today’s marketplace.

Jolly good, if it is true that all landowners are already putting land and buildings to their "best permitted use", then they have nothing to worry about, eh? He's the expert, and must know that most landlords are making the best of it, but a minority clearly are not.

"Even more concerning is that they admit the system would not produce enough tax income and the gap would need to be filled by also raising corporation tax. Again, I question how businesses would benefit from that?

This is more DoubleThink. Elsewhere in his screed he calls for Business Rates freezes and reductions; he then claims that Vince's suggested LVT revenues would be overall lower than total Business Rates i.e... a freeze and reduction, overall. Why is the former good and the latter bad?

"This leaves a 'gap' which would also need to be 'filled' by hiking other taxes, like corporation tax."

He is silent as to which taxes he would increase to compensate for freezes and reductions in Business Rates. (I've seen this Home-Owner-ist magic before - LVT would simultaneously be unaffordable, yet bring in insufficient revenues.)

“...What the Lib Dems are therefore suggesting is a complicated system that many would struggle to make evidence based. The only other land tax systems currently in Europe are used in Denmark, Estonia and Russia. Do we really want to follow them in our approach to land?”

Yes.

"Walsall Council plans to install street skips to tackle fly-tipping"

From the BBC:

Skips could be placed on streets in a bid to tackle repeated fly-tipping, a council has announced.

Last year, there were more than 4,000 reports of illegally discarded waste across Walsall, with 2,000 tonnes of rubbish removed from the borough.

The local authority has now proposed putting a skip in each of its 20 wards every Saturday*. Clearing up fly-tipping cost the council more than £400,000 last year, bosses said.

And why on earth wouldn't they?

1. The cost of collecting rubbish is about 1% - 2% of the selling price of new goods sold, and so anybody who wants to chuck something away has paid for the cost of having it collected ten or twenty times over via VAT.

We take our larger items to a council recycling centre; they have signs up saying "Household refuse only". I really don't see why they draw this distinction, businesses have paid VAT just like anybody else and have the same entitlement to dump their rubbish.

2. The test of whether something is a good idea is to imagine the opposite situation, i.e. there are plenty of skips dotted around for people to dump larger items in, and let's assume most people do the decent thing and use them. Would any sane council announce that it intends to save a few quid by withdrawing the service? You'd hope not.

* I don't quite understand that sentence. Will the skips be there on Saturdays, or will they be emptied on Saturdays?

City AM - gloriously missing the point.

From page 2 of today's paper edition:

Land and housing boom The UK's net worth rose £492bn last year due to surge in property prices and the value of land... Almost all of the rise was fuelled by a £450bn land value rise, while housing added £40bn

The UK's net worth clearly does not change one single penny because land values change. At best, land values are an indication that the productive economy is doing well and the country is being well run.

Firstly, the value of land fluctuates inversely to interest rates (or proportional to credit availability) so it is not real, hard capital. Do we as a nation become wealthier just because interest rates fall? I doubt it.

Secondly, land values are merely the net present value of wealth that will flow from elsewhere to today's landowners, whether that flow is direct (rent or selling prices) or indirect (all the public services funded out of taxes on output and employment).

If you take into account the net present value of the equal and opposite flows of wealth from tenants, buyers and taxpayers, the net value of land is at best £nil, and probably a negative.
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UPDATE, Dinero, in the comments:

I don't deny that defining wealth is a subtle point, but I don't see that it is obtuse to define expected future income as wealth.

Money is an IOU from the bank financed from its creditors future income and that is considered wealth.

Even physical commodities like oil and gold are valuable because of the expectation that someone will them it in the future.

If you are going to include future income from other people as wealth, then you must also include the future expenses to be incurred by those other people as negative wealth, in which case the net value of land is still nothing.

Money, like land, is wealth from the point of view of the depositor or landowner. But money is even less net wealth than land is. If one person has 'money' then somebody else somewhere owes the same amount, if you take all positive money balances and all negative balances (debts, mortgages) it nets off to precisely zero. Money is merely a measurement of indebtedness from one person to another and not net wealth.

Oil and gold are actual, useful things. They are real net wealth. Just because one person has oil or gold doesn't mean that somebody else has negative oil or gold, i.e. it would be theoretically possible for everybody in the world to own a small amount of gold and a small amount of oil. It is impossible for everybody to have a positive money balance.

Me in The Guardian

From The Guardian:

Mark Wadsworth, the head of the Campaign for Land Value Taxation, said: “The minority with a vested interest in high land values will no doubt celebrate higher values, saying that is shows the importance of land to the UK economy.

“In truth, land values are not a net addition to national wealth, they merely represent the benefits that accrue to landowners because of government spending on public services funded out of general taxation; land values are actually just a measure of ongoing transfers of wealth from taxpayers to landowners and a zero-sum game.”

It's nice to have a journalist contact you for a quote and then publish it verbatim, unlike my experience with The Telegraph who twisted everything on its head (not that I didn't expect it from them, but all publicity is good publicity).

So why do Mum and Dad keep voting for this?

From Moneywise:

A survey carried out by insurer Legal & General and the Centre for Economics and Business Research (CEBR) has found that 17% of so-called ‘Bank of Mum and Dad’ lenders are already worse off, or would be, after providing financial help to the younger generations.

One in 10 (10%) said they felt less financially secure, while 4% postponed retirement after supporting their family to get onto the housing ladder. The research showed that more than a quarter (26%) of women felt they had sacrificed their living standards versus 13% of men.

More than a quarter of homes bought in 2018 backed by the 'Bank of Mum and Dad'

Funding public services out of a 'service charge' on land values (aka Land Value Tax) instead of imposing taxes on output and employment might well reduce selling prices, but every £1 paper loss incurred by Mum and Dad saves each child £2 in future mortgage repayments.

Even if selling prices didn't change much (as is quite possible), every £1 paid in LVT will save the next generation £1 in mortgage payments, as well as saving Mum, Dad and every child about £1.50 each in other taxes.

That's what I call "helping your loved ones get on the housing ladder"!

Ransome values

From The Daily Mail:

A group of 26 ambitious homeowners are hoping to sell their properties as one big 'super site' to maximise their profits.

The residents in Baulkham Hills, in Sydney's north-west, have joined forces to create what they are calling 'Hillsview Central', a site almost two hectares in size... The average median house price for the area is $1.15 million, but residents are hoping to get approximately $2.3 million per property if the new deal goes through.

Well done Mrs Papas for getting this all off the ground! That planning uplift has to go somewhere, and (in the absence of LVT), if the current owners do the site assembly themselves, then they get all get a share of the gain. This must be preferably to a large developer mucking about for years or decades buying up the sites piecemeal in the hope of banking the entire gain for himself - but making himself more and more vulnerable to a ransom demand as time goes on.

This illustrates the point that all ultimately all land values are ransom values, despite RICS' flummery, in the criminal sense. Every landowner is holding everybody else to ransom.

As we see from the photograph, there are two gaps along the front row, let's call them Plot 2 and Plot 13. This puts Plots 1 and 14 in a very weak position, as I doubt a large developer would be interested in such a wonky shaped plot.

Heck knows what the (owners of) Plots 2 and 13 are playing at. Are they:

1. Just complete spoilsports who don't understand the maths of all this and who don't care if they ruin things for Plots 1 and 14, and probably dilute the gains for everybody else?

2. Hoping to do private deals with Plots 1 and 14 whereby those two have to hand over a chunk of the marriage value to Plots 2 and 13?

3. Gambling on the developer buying all the plots including 1 and 14 and then holding him to ransom for an even larger amount?

4. Risking the developer just buying up plots 3 through 12 and cracking on with it, in which case Plots 2 and 13 fall in value considerably and have to put up with being next to a building site for a year or two? Plots 13 and 14 in isolation have little marriage value and will be stuck between a block of flats and an office block, so Plot 13 is playing the more dangerous game.

It might be a long time or never before there's an opportunity to sell Plot 2 to a future large developer who wants the land to the left, in which case the boot is on the other foot and Plot 1 can hold Plot 2 to ransom.

Killer Arguments Against LVT, Not (444)

Back to the tried and tested: "But land doesn't generate income!"

The traditional rebuttal is that if you own your own home and you could rent it out for £10,000 but prefer to live in it, then clearly it is generating value worth more than £10,000 to you personally, or else you would rent it out, rent somewhere cheaper and pocket the difference. And try telling that to 1.4 million private landlords in the UK (the group which campaigns most solidly against LVT).

"But I've paid for my land out of taxed income"

Maybe you did, but that's all in the past. The point is that the UK government spends at least £350 billion a year on public services which increase rental values. Somebody has got to pay for that, and at present, most of that is paid for out of taxes on output and employment. An LVT is just a pro rata contribution towards that £350 billion, like a service charge.

I might as well give a counter example that I paid for my cars out of taxed income, without expecting all the repair and insurance costs to be paid out of taxes on other people. So why should non-landowners be forced to pay for things which only benefit landowners? If non-landowners want to benefit from all this, they have to pay rent for it (i.e. pay for it twice).

"What about ability to pay? What's wrong with taxing higher earners to pay for services which benefit lower earning homeowners?"

Nothing wrong with that at all in principle, but why focus redistribution from higher earners to lower earners... who happen to own land? What about lower earners who don't own land, who are clearly worse off? What's wrong with universal benefits/redistribution (or indeed none at all)?

And, given the actual distribution of earnings and concentration of landownership, the overall redistribution is not downwards but upwards, from the majority working population (all but the lowest earners make a small net contribution) to the minority who own the most land (by value).

Of course plenty of the working population are also home-owners, in which case it's not redistributive at all (hooray), a tax shift just means that they pay directly rather than indirectly for the value they receive qua landowner.

Nobody move or the bottom of the barrel gets hurt!

From the BBC:

What's in the no-deal Brexit plans?

In the 24 documents, which cover industries including medicine, finance and farming, it says...

* New picture warnings will be needed for cigarette packets as the EU owns the copyright to the current ones

FFS.

Von Thünen's/Ricardo's Law of Rent, part the manieth.

From The Metro:

Jobs website Adzuna compared average advertised salaries with average rental figures across the UK to find the most and least affordable towns and cities for renters to live. In Swindon, workers typically spend 11.5 per cent of their take-home pay on rent, compared with a national average of 22.1 per cent.

Bradford, Hull, Dudley and Durham complete the best-value top five, with workers in these areas typically paying less than 13 per cent of their net wages on rent. At the other end of the spectrum, Londoners typically shell out 41 per cent of their pay on rent while those in Oxford can expect to see it swallow up 39 per cent of their take-home wages...

Andrew Hunter, co-founder of Adzuna, said: ‘Even though workers may be paid a higher monthly salary, their left-over cash is often smaller after paying steep living costs and local property premiums.’

Correct. Why would you expect any other outcome?

They list the areas with the lowest and highest rent-to-income ratios, quite unsurprisingly, these are pretty much in line with the local average wages that people in their twenties and thirties can earn.

Nobody move or the pensioners get hurt!

They're softening us up for a second Referendum, so have embarked on Project Fear #2.

From The Sun:

EXPAT Brits who have lived and worked in Europe face losing access to their pensions in a No Deal Brexit scenario, Ministers will admit on Thursday.

Most at risk are Brits who have worked in EU countries and built up pension funds abroad that are then paid into a UK bank account. Under Brussels pensions rules, funds that cross borders can only be paid into a bank account registered in an EU country.

Pensioners who have worked in the EU and now live in countries outside the union are currently made to open bank accounts in an EU state to collect their funds.The UK will become a “third country” on 30 March 2019, sparking the risk of expats and former expats with British bank accounts having their payments cut off.

That rule sounds plausible, it's basically protectionism for banks in EU Member States. But all people need to do it open another bank account in an EU Member State, that's hassle and a few extra Euros in bank charges every month, but not the end of the world.
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Rather less plausibly, from This Is Money:

A technical paper published by the Department for Exiting the EU raised fears that UK citizens in Europe may lose access to insurance contracts and other financial services if British-based companies cannot use passporting rights, as is likely to happen if the UK and EU cannot agree a deal.

At a press conference following the publication of the government’s technical papers regarding a no deal Brexit, Raab said British expats' access to their pensions would be 'a practical issue that we will be able to resolve'.

Again, I can imagine that insurers in the remaining EU Member States will be pushing their governments to deny British insurers from peddling their services in their countries, and why wouldn't they? I've no idea why any sane person would want to take out insurance with a foreign company anyway, they are slippery bastards at the best of times, but getting an insurance company abroad to pay out must be a nightmare.

Existing pensions contracts are under UK law, UK based savers paid in their premiums under UK law (before they went abroad) and are entitled to their pensions payments under UK law. If the remaining EU Member States really were to do the stupidest thing imaginable and block such flows of money into their countries (a kind of invisible export), then all expat pensioners need to do is have their UK pension paid into a UK bank account first, and then take the money from there.

The interesting point is that under tax law in most countries, a UK pension received by a UK expat is taxable income in the country where the expat lives, so the other country should be encouraging people to declare them. If they do what is threatened, they would be actually encouraging tax evasion (having hidden the source, the expat would be daft to then tell the authorities that they receive it).
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While I'm on the topic, I saw a related headline on BBC News 24 today, to the effect that EHIC cards would no longer be valid. The most up-to-date article I can find on the BBC is this, which is as misleading as is possible without actually lying:

If you are getting ready to go on holiday to another EU country or Iceland, Liechtenstein, Norway or Switzerland, you are likely to be packing your European Health Insurance Card (EHIC) along with your passport. The EHIC entitles you to state-provided medical treatment* should you need it while visiting one of those countries...

A House of Lords report in March 2018 warned that "in the absence of an agreement on future relations that covers this topic, the rights currently enjoyed by 27 million UK citizens, thanks to the EHIC, will cease after Brexit".

* Not true, the cards just entitle you to medical treatment on the same terms and conditions as people in the other country would get, so if a country has prescription or treatment charges for its own residents, a British tourist has to pay the same charges. And by and large, there is no 'state-provided medical treatment' in most European countries. It is usually privately provided (even if that is by government bodies acting as private businesses) and funded/regulated by the government (or some quango or other, which is controlled and regulated by the government).

But it only takes two minutes to find the actual official UK government website which explains that EHIC cards have fuck all to do with the EU:

An EHIC lets you get state healthcare* in other EEA countries and Switzerland at a reduced cost or sometimes for free.

* Same mistake again, but hey.