Tuesday, 24 December 2013

Killer Arguments Against LVT, Not (311)

City AM Forum mixes hard facts with mathematical errors, lies and complete bollocks as per usual:

... the real problem comes from the government’s decision to postpone the 2015 [Business Rates] revaluation by two years, billed as offering more certainty for business.

This is a hollow claim, as the two following examples demonstrate. Menswear retailer Hackett has just opened at the former Ferrari store at 193/197 Regent Street, having signed a new 15 year lease at a street-record Zone A rent of £645 per square foot. The deal reflects significant competition in an area where property rarely becomes available, and expenditure has been rising rapidly – fuelled by tourism and overseas investment.

However, Hackett’s annual business rates bill will continue to be based on rental levels from 2008 – when Zone A rents on the same property were just £278.50 per square foot. Hackett will face a rates bill on the ground floor alone of £285,000 per year, compared to £767,000 if the revaluation had gone ahead. With two further floors included in the lease, Hackett’s total savings on business rates due to the delayed revaluation will be well over £500,000 a year.

Good bit of digging there, although the UK government prioritises the interests of bankers and landowners above everything else, it is also the case that London landowners rank above mere provincial landowners.

Now consider the fortunes of a shop in High Street Canterbury, in the supposedly affluent South East. In 2007, the rates payable were £45,154 per annum, which has risen to £51,744 in 2013.

But the difficult retail climate has resulted in the rent falling by 44 per cent from £116,000 in 2007 to £65,000 by the beginning of 2013. In 2007, rates payable represented 39 per cent of the shop’s rental value. By early 2013, they represented over 80 per cent. In many northern towns, the position is far bleaker.

Again, probably factually correct but the maths is shit.

If the rent collected by the landlord is £65,000 and the Rates are £51,744, the total rental value is £116,744, so the Rates are 44% of that, which is probably pretty close to the site-only rental value, i.e. Land Value Tax.

When calculating these things, you cannot compare the net amount received (by the landlord) with the tax paid, or else you could say that a 45% income tax payer receives £55 and pays £45 tax so that's a tax rate of 82%. No it's not, it's a tax rate of 45% (itself much too high, different topic).

Our Homeys round it off with a nice Big Fat Lie:

Given that most prime retail property is owned by pension funds or publicly-owned property companies, this effectively means that pensioners and savers are subsidising the tax take of government through the rating system.

While it is true that two-thirds of commercial land and buildings are rented, there is nothing to suggest it is owned by Poor Widows In Mansions pensioners and savers.

i) Even if it were true, there are two classes of saver: existing and future savers. If Business Rates go up, then the value of the building to the owner goes down, the share price of REITs goes down and tomorrow's savers get better value for money.

ii) There are also two classes of pensioner (in this context): those who have already retired and bought an annuity, who don't care any more (the annuity companies invest primarily in longer term bonds). And there are tomorrow's pensioners, i.e. pension savers who will not lose anything.

iii) The only narrow category of category of "pensioners and savers" are those who have loads of money (indirectly) invested in RETIs or poorly diversified unit trusts etc and who are coming up for retirement. Well tough.

iv) You can't base a tax system on the status of the investor. If it turned out that pension funds and savers all invested in drug smugglers, child abduction rackets and human trafficking, would we then make those things legal/tax exempt, etc? I'd like to think not.

Conversely, what if it turned out that the bulk of commercial land and buildings were owned by people who are diametrically opposite to "pensioners and savers" such as sovereign investment funds, foreign kleptocrats, speculators and hereditary landowners? Is that not then an argument for taxing them?


Lola said...

It does me 'ead in. Don't they see the the logic failures when they write this stuff?

Dinero said...

I dislike the word "effectively". Something either is or is not. Nothing is effectively. There is a meaning of the phrase "has the effect of" which can be shortenened to "in effect" if used presisley but usually "effectivley" means

"blah blah blah I don't know what I'm talking about please don't analyse it to literally as it may not be true"

that said
I don't see how you assert that RITS become better value, if the the price remains relative to the returns.
Also yes "subsidising" is incorrect however if the government is absorbing more of the totality of rental value then it follows that there must be less in total for a mechanism of private saving.

Mark Wadsworth said...

L, they know it is full of lies and logic failures but they don't care, they have to keep hammering the same message home one way or another and they don't care.

Din, they become better value because the risk of a future rate rise is decreased, it is then a better investment.

" if the government is absorbing more of the totality of rental value then it follows that there must be less in total for a mechanism of private saving"

You could say that for any tax. And land speculation is not "saving" and it not "investing" either.

Dinero said...

to be presise I meant to type Rent not rental value.

You suggest that you can't base a tax system on the status of the investor but the government does base the tax system on its effect on behaviour

Mark Wadsworth said...

D, "the government does base the tax system on its effect on behaviour"

Yes, but they only take politics into account, i.e. how much they can get away with in tax on earnings and subsidies to banks and landowners and still be re-elected. They completely ignore economics, equity and so on.

Dinero said...

Are you having Chilli con Carne for Christmas Lunch, personally I am having a Beef joint.

Mark Wadsworth said...

D, no that's this evening. 25th is vegan and 26th is normal turkey etc. Beef sounds good though.

Isaq90 said...

this z hot.....haha...Poor Widows In Mansions