Friday 27 January 2012

Lib Dems talk sense (and nonsense) on tax

From The Daily Mail:

Nick Clegg yesterday demanded a £9billion tax raid (1) on ‘serious unearned wealth’ (2) to pay for tax cuts for low and middle income earners. (3)

The Deputy Prime Minister pointed out that billionaire oligarchs with £20 million properties do not pay much more council tax than people in homes worth a fraction of that price. (4) He also pushed for new taxes on air travel and pollution. (5)

The Liberal Democrats are privately backing ‘super’ council tax bands above the current top band, I, which kicks in on homes which were worth more than £424,000 when the bands were created in 1991. (6) This is a variant of the party’s demand for a ‘mansion tax’ on properties worth more than £2 million, which has been rejected by the Tories.

Mr Clegg insisted that his planned reforms were aimed at the super-rich. He said: "I know the mansion tax is controversial, but who honestly believes it is right that an oligarch pays just double the council tax of an average homeowner, even if their house is worth 100 times as much? And who seriously thinks we would kill aspiration through a levy on the 0.1 per cent of the population who own £2million homes? (7) The mansion tax is right, it makes sense and the Liberal Democrats will continue to make the case for it. We’re going to stick to our guns."

However, local government secretary Eric Pickles is opposed to tinkering with council tax bands because he fears it will spark a nationwide revaluation process that the Tories have promised to avoid.(8)


1) Some people refer to all taxes as "a raid". Meaningless.

2) It's a big mistake describing the rental value of land as 'wealth', that allows the Home-Owner-Ists and Faux Lib's to confuse the issue. While it is a good measure of the wealth of the whole economy, land rental values are themselves not net wealth at all, as one man's benefit is another man's burden. This does not apply to any other form of true wealth: does anybody get poorer if my neighbour gets a pay rise and buys himself a nice new car?

3) Hooray! That's a sensible adjunct to reducing people's benefits slightly.

4) At the very least, they could slap a Mansion Tax on all housing owned by non-UK resident persons (as somebody suggested to me yesterday), and in the interests of fairness and administrative simplicity, scrap the £30,000 levy on non-domiciled UK residents.

5) I don't agree. The best tax on air travel is on the value of the landing slots, this has little to do with the environment, as such.

6) I love this bit! Doing the revaluation/rebanding would, by The Morbidly Obese One's own admission only cost around £5 - £10 per home, HM Land Reg have got all the information they need on its databases. All that remains to be decided is

a) Whether homes will be banded by capital or rental values; and whether those should include the value of the bricks and mortar or just the land.

b) What the total receipts will be. Council Tax currently raises +/- £25 billion, so if he wants an extra £9 billion to pay for higher personal allowances, that'll go up to £34 billion. £1 million+ homes in Band Z would end up paying £10,000+ a year in New Council Tax, so people will then (correctly) point out that Stamp Duty Land Tax and Inheritance Tax are double taxation (at the moment they aren't - they merely tax the value unaffected by Council Tax), so let's scrap those as well (increasing the required total receipts from New Council Tax to +/- £40 billion), and so on and so forth, the resulting tax bills would end up at +/- one per cent of the current value of a home, so much the same as Council Tax for most homes.

To put that in perspective, £40 billion is about 6% or 7% of all tax revenues, i.e. not a huge amount, really, and still a lot less than income tax, VAT or National Insurance Contributions.

7) Good question. Allister Heath from City AM claims that this is entirely justified, and he can't be the only one.

8) When Council Tax was introduced in 1991 - it only took them a few months to do the valuations and get everything in place, of course, and it'd be even quicker nowadays with computers and everything - was there a promise that the bandings would never, ever be reviewed or updated? Methinks not. In other countries (most US states, for example), all houses are revalued annually, or certainly very regularly.

13 comments:

Tim Almond said...

I don't agree. The best tax on air travel is on the value of the landing slots, this has little to do with the environment, as such.

Actually, you could put the two things together and make it work, maybe. Sell off the slot, but stick an annual environmental levy on which is based on type of aircraft and number of flights and destination from that slot.

I have no problem with correctly priced air pollution charges - you pollute the air, you pay it. Even if you charge it at Stern prices (which are based on worst cases of a corrupt quasi-political UN organisation), we'd get a discount on the current prices.

The problem is that the current calculation is derived from environmentalism-as-religion as opposed to environmentalism-as-economics. Rather than charging the owners of the aircraft for the economic damage they cause, which would incentivise more efficient use of seats and encourage them to use more efficient aircraft, the passenger has to personally offer religious sacrifice to the keepers of the temple of Gaia as penance for their sinful ways.

Mark Wadsworth said...

TS, having an extra tax on pollution (i.e. oil consumption) is fine in theory, but...

- by and large, airlines use as little fuel as possible/necessary because it is bloody expensive.

- we could up the ante by slapping e.g. fuel duty on aviation fuel, but what happens then?

i. The value of the slots goes down, because the value of the slot is merely the value of total income (fixed by market) and the true cost of running the airline (also fairly fixed), in other words, the value of the slot is the monopoly element, so if you increase the costs, you just reduce the monopoly value.

So the total tax revenues would not change, and the total cost to the airlines wouldn't change either.

ii. With cars, the rule of thumb is, as far as the enivornment is concerned, once it's built it's more energy efficient to drive it until it falls to bits. It makes no sense to scrap a car that does 40 mpg in order to buy one that does 50 mpg. I'm guessing the same applies to aircraft.

Anonymous said...

MW: Since I've gathered you don't mind fuel duty, and that you don't like exemptions, surely a fuel duty on all fossil fuels based on CO2-content isn't that objectionable even without climate change arguments, on top of LVT on landing slots. Granted, the demand for jet fuel is more elastic than petrol, but still, it levels the incentives.

-Kj

Mark Wadsworth said...

Kj, in principle, it's a good idea. In practice, it's a bad idea as we'd lose custom to French and Dutch airports (who don't charge fuel duty on aviation fuel, let's assume, it's an EU thing), thus eroding the auction income we get from our slots even further.

And the reason why I like petrol duty is because it is "rent for roads", it's like road pricing but without the CCTV cameras, admin and faff. Which is why it is perfectly justified for farmers to get cheaper fuel for their tractors (used in fields, not on public roads).

How we'd do road pricing if everybody drove an electric car I do not know, but there would be/will be a £40 billion revenue shortfall if/when nobody uses petrol any more.

Anonymous said...

How we'd do road pricing if everybody drove an electric car I do not know, but there would be/will be a £40 billion revenue shortfall if/when nobody uses petrol any more.

Some have suggested tire-taxes, since wear and tear corresponds to road-usage, but I'd imagine it's pretty prone to fraud and would encourge unsafe vehicle maintenance... I'd say that local roads is best funded out of LVT. As for motorways, I like the idea of pre-paid toll transmitter thingys, where nothing is photographed unless you're empty. Taxing insurance-policies per mile would also be an idea for general road funding.

-Kj

Mark Wadsworth said...

Kj, you're really get into the swing of these sweeping tax reforms! I completely agree with your analysis of tyre taxes or insurance tax, hence your suggestions on LVT and motorway tolls must be the correct ones.

However... motorway tolls are inefficient because the cost of collection is so high. I don't mind paying £1.50 toll for the Dartford crossing - it's the fifteen minutes in the queue which I hate.

Anonymous said...

Kj, you're really get into the swing of these sweeping tax reforms!

I'm a compulsive tax-suggester unfortunately.

I don't mind paying £1.50 toll for the Dartford crossing - it's the fifteen minutes in the queue which I hate.

That's why we have something called AutoPass-transmitters, you just drive through, and the toll is deducted from an account. If they could be made pre-paid and not linked to vehicle that would be better ofcourse.

-Kj

Bayard said...

It's hard to fathom why revaluation of Council Tax bands is a political loser, unless people are honestly so stupid as to think that when their house isrevalued, it will move into a higher band (using the existing banding) and hence they would pay more council tax. But then, do not the English know that all houses have been revalued in Wales and they just adjusted the banding to suit once they'd done it?

Anonymous said...

Air Passenger Duty is high, but it's still cheaper to fly direct from Heathrow to Hong Kong than via Paris or Amsterdam if you book early, or if you want to go right now.

If you're going to Australia, you can avoid APD by transiting Heathrow and taking advantage of the fact that BA wants to attract European passengers. Buying a ticket CDG-LHR-HKG-MEL-HKG-LHR-CDG as well as a return to Paris is often cheaper than going direct from Heathrow. You only pay APD to the UK if you fly to France first, but you can avoid that by taking the Eurostar (not always cheaper)

Mark Wadsworth said...

Kj, I'm happy with that if it's pre-paid and anonymous.

B, Wales = excellent real life example, thanks. But even back in 1991, that was a real life example, they valued people's houses en masse using largely guesswork and that was the end of that.

Anon 12.14, sounds complicated. But the good thing about slot auctions is that it costs the customer nothing.

Derek said...

My properties in Alberta and Nova Scotia get revalued every year. No fuss, no muss. If I don't like the valuation I can appeal it. But it's pretty close most years, so not really worth the bother. As I recall it was the same when I lived in Scotland. Although I believe that the Scots have since been daft enough to go down the same no-revaluation route as England.

They'll be sorry...

Mark Wadsworth said...

Derek, can you give us a crash course in land/buildings taxes in Canada?

Correct, Scotland went over to Council Tax bands with no revaluations at the same time as England (give or take a year). Northern Ireland is the only one to have a point valuation system/Domestic Rates, which they updated as at 1 Jan 2005 without too much fuss, and as Bayard points out, they did a rejigging in Wales a few years ago, but that was still Council Tax bands.

Derek said...

Well I'll do my best but I'm only really familiar with Alberta and to a lesser extent Nova Scotia.

Canada has two levels of Government, federal and provincial, each of which can levy tax. Property taxes are levied at the provincial level, so what the taxes are depends on the province. Most of the provinces assess the market value of individual real properties (land plus building) once a year and the cities or counties use that as the basis of their tax demand. For certain properties such as farmland which don't come up for sale too often, an alternative method based on assessing property value as capitalised rental value may be used. The actual tax rate set by the county or city (known as the millage rate) is calculated by taking the total spending budget for the city/county and dividing by the total property value of the city/county. Individual property owners can then calculate their tax liability by multiplying the millage rate by their property's assessed value.

In addition to the above, many provinces levy a Land Transfer Tax on property sales (although luckily for me not Alberta, Saskatchewan or rural Nova Scotia). Ontario for example taxes progressively with LTT starting at 0.5% below $55,000 and rising to 2% above $400,000.

That's a crash course but one of the nice things about Canada is that all this info is available online in a fairly readable format. Alberta in particular has good info on its tax-and-spend plans.