Anon alerts me to something at the Adam Smith Blog:
One report tells me that there are about 4 million social housing units in England. No, they're not all 3 bedders, but taking that average discount to market rent of about £200 a week that's....eek! That's £40 billion a year in subsidies. And yes, charging lower than market rent really is a subsidy, it's money foregone....
... I'm quite happy with the idea that we'll ameliorate some of the rougher edges of market outcomes. Subsidise, for example, those left grasping firmly the ordure stained end of the stick. But I still want us to be using markets as the pricing and allocation mechanisms: precisely so that we don't get these absurdities as we do with social housing, where we've a £40 billion subsidy that no one seems to even recognise, let alone acknowledge.
To which I responded:
Yes of course there are purely notional subsidies to social housing i.e. their rents only cover the rent for the bricks and mortar, they do not pay rent for the location value.
But it is inconsistent to look at the £40 billion annual subsidy accruing to 4 million households in social housing or housing association housing, without also looking at the [ballpark] £200 billion annual subsidy to owner occupiers, who do not pay for the location rent of the homes they occupy.
So by all means, hike social rents by £40 billion a year but only if you also start charging owner occupiers for the location rent.
To paraphrase: "Not charging Land Value Tax really is a subsidy, it's money foregone."
And then think about all the taxes you could scrap with that extra £240 billion coming in - how about the messy little taxes - like council tax, stamp duty, inheritance tax, capital gains tax, TV licence fee - and a couple of the big bad ones - VAT and National Insurance?
Saturday 23 October 2010
When is a subsidy not a subsidy?
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8 comments:
Shouldn't councils also pay the LVT on council houses as well to central government?
And of course either pass the cost on to tenants or if it is no longer economic to rent out, sell the houses?
Anon, yes of course.
Under my grand plan, LVT is set at a rate designed to collect about 25% more than is absolutely necessary. So to avoid 'hardship cases', councils will be allowed to retain and/or not collect one-fifth of the LVT that they could be collecting to subsidise/exempt people on very low incomes, pensioners, churches (or whomever); or indeed collect it and spend it on care for the elderly, libraries, swimming pools (or whatever).
Whether you call that 'a subsidy to pensioners' or 'a tax break for pensioners' is neither here nor there.
"And of course either pass the cost on to tenants or if it is no longer economic to rent out, sell the houses?"
That does not stack up. If it is no longer profitable to rent out houses, the capital value will be depressed so that it is no longer profitable to sell them either.
Remember that the selling price is merely the capitalised value of [gross rent minus LVT]. As the LVT would be the same whether the council rents out the houses or if they are owner-occupied, it doesn't make much difference in terms of future tax receipts.
What it WOULD achieve is to end 'over occupying'.
@Mark
"That does not stack up. If it is no longer profitable to rent out houses, the capital value will be depressed so that it is no longer profitable to sell them either."
Not really. Imagine a house costs LVT of £x per year but you can only rent it out for >£x per year.
You should then sell it, even for only £0.1 x because you are saving money each year.
"So to avoid 'hardship cases', councils will be allowed to retain and/or not collect one-fifth of the LVT that they could be collecting to subsidise/exempt people on very low incomes,"
Why ? Aren't we going to still have a needocracy for housing? Where the quickest way to get nice housing is to become a pro single mum?
The main difference between the £40bn and the £200bn is that the £40bn would be paid by the poor and the £200bn would be paid by the rich (as well as the poor). Taxing the poor is politically OK, it is what has always happened. Taxing the rich is not, it has very seldom happened.
Kapow!
TM "..charging lower than the market rent is a subsidy :its money foregone."
MW "Not charging Land value Tax really is a subsidy: its money foregone."
So good I'm going to steal it for the organised left!
Seriously, what gets me about TM is that he pays lip service to LVT but LVT doesn't affect the rest of his thinking.Like the English gentleman who attends church dutifully but does n't let it influence his behaviour.
Anon: "Imagine a house costs LVT of £x per year but you can only rent it out for >£x per year. You should then sell it, even for only £0.1 x because you are saving money each year."
I don't do "should". If LVT is £10,000 and rent is £15,000 and bricks and mortar cost is £5,000, then it makes no difference, short term whether you keep net rent of £0 or sell it for £0. In the long term, it is better for the council to keep it, because that way they have a direct stake in making the area more desirable.
"Aren't we going to still have a needocracy for housing?"
OK, I've just put you in charge of a council. Do you want to give the exemptions to pensioners, single mums or low income people? Make up your own mind and see how it goes down with the voters (politically, pensioners always rank higher than everybody else).
B, splendid stuff. And we can simultaneously untax wealth creation (whether that is 'progressive' or 'regressive' is of no immediate concern to me).
DBC, be my guest. We all nick each other's ideas and polish them a bit. I doubt whether I've ever said anything particularly original :-)
"OK, I've just put you in charge of a council. Do you want to give the exemptions to pensioners, single mums or low income people?"
No. When I was on a low income I had to rent a room - I certainly would not have benefited from any LVT exemptions.
I have this idea you work you get a nice house. Not you get pregnant by a stranger and get a house
Anon, like I said, you're in charge. If you don't want to give exemptions to 'single mothers' then don't do so. I know that I wouldn't.
Having sorted that out, as to your second idea, that's not how it works either, is it?
The harder young people work, the more house prices go up. Put having kids on hold and slave away for a deposit, hey presto, there'll be another young couple - who've also put having kids on hold - who are slaving away a bit harder who will snatch that house from you etc etc.
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