Killer arguments against LVT, not (72)

Returning to The Fat Bigot's opinion:

"Is it right that taxation policy should force people to move from a home they could previously afford? This is illustrated most acutely by those on modest incomes who own a "high-value" property.. The existing tax arrangements allow them to retain their home whereas LVT makes it unaffordable so they are forced to sell and move to something cheaper."

1. Let's gloss over the obvious retort: "Is it 'right' that income tax policy; artificially low interest rates; bank bail outs; light taxation of property income and gains; and NIMBYism 'force' younger people to live in much smaller homes than they would otherwise be able to afford?" and just do the numbers for the example he mentions - as we'll see, their incomes would have to be very modest and their property value very high before there is any noticeable impact.

2. The break even point is about seven, i.e. the rule of thumb is that if we replaced all taxes (apart from petrol, fags and booze duty) with LVT, those owner-occupier households whose homes are currently worth more than seven times their gross income would be worse off on a static basis; and those whose homes are currently worth less than seven times their gross incomes would be better off.

3. To illustrate this, let's pick a "high value property" in the eighth decile by value, which is worth £300,000 (so is almost certainly in London or the South East) and has a normal sized garden for homes in that area. It's occupied by a married couple in their fifties whose children have left home and who have paid off the mortgage. Under the LVT/CI system, the LVT would be 8% x £300,000 = £24,000* and they would get £70 a week each in Citizen's Income, so their net tax bill is £16,720 a year.

NB, I have decided to cave in on the Old Widow point and all these calculations assume that pensioners' main residences would be exempt from LVT, subject to certain caveats.

4. £16,720 a year sounds like a lot of money, and as their home-to-income ratio (£300,000 divided by £39,000) is well over seven, we'd expect them to be a bit worse off. The question is by how much? How does £16,720 compare with the tax they are currently paying?

5. What does TFB consider to be "modest incomes"'? Let's go with what the NSO says: "Median earnings of full-time male employees were £531 per week in April 2009; for women the median was £426" (remembering that the median is less than the mathematical average). Hubby would be on £28,000, and let's assume wife works 2.5 days a week and earns £11,000.

6. Using the magic fag packet, the income tax and NIC on their salaries is £11,770. They pay £1,600 in Council Tax and TV licence and £3,000 in VAT (total VAT divided by 27 million households). That adds up to £16,370 so they would indeed have to pay £350 a year more in tax under LVT/CI.

7. That's a quarter as much as the bullet that the Lib-Cons expected higher rate taxpayers with two children to bite (a measure which gives us plenty of losers and no winners), so doesn't seem unreasonable when weighted against the huge number of people who will be better off after the transition to LVT/CI. I don't think having to make cut backs of £7 a week out of a disposable income of £428 - or for the women to be 'forced' to work an extra four days a year - is going to have this particular couple on the barricades, is it?

* Before I get grief from the purists, the tax would of course NOT be expressed as a percentage of anything, it would officially be "£60 per square yard" for homes in the area under consideration, assuming the average residential plot in their area is 400 sq yards. Further, however the initial rates are calculated, as long as the Citizen's Income is more than enough to cover the costs of the bricks and mortar, insurance, repairs, utility bills, then by definition, the balance must be a tax on the location rent.