Wednesday, 10 September 2014

Killer Arguments Against LVT, Not (335)

We're really running out of raw material for this series, but it's nice to see some good old KLN dredged up again by people who must know that the argument has been disproven by actual recent events, it is null and void on the facts:

Emailed in by MBK from The Telegraph:

A mansion tax could wipe almost £1bn off government revenues [and deter] wealthy investors from buying in London, according to new research from Savills.

The maths on the £1 bn fall in other revenues is shaky at best, so let's ignore that. Let's go with their assumption that the tax would increase the cost of buying in London.

Don't they know that the cost of buying in central London has been increasing at a double-digit compound rate for years if not decades? So each year, the cost of buying in London has gone up by ten per cent, but the foreigners keep piling in, it's a status thing. Maybe the Mansion Tax would add ten per cent to the cost of buying in London, why would that suddenly stop them?

Oh... the Homeys then admit that the Mansion Tax would not increase the cost of buying in London, because prices would fall accordingly:

"The imposition of mansion tax is likely to result in a reduction in the amount people are willing to pay for the assets on which it is charged," said Lucian Cook, head of residential research for Savills.

In summary, the tax would have no effect, or an effect which is so small as to be immeasurable either way. Mr Cook keeps digging:

Both the Liberal Democrats and Labour have rejected early plans to impose a 1pc levy on value in excess of £2m, and now back a banded proposal that mirrors the annual tax on enveloped dwellings (ATED)...

"If it were to be of the order of scale of ATED … [it] has the capacity to put a fairly sizeable spanner in the working of London's prime property market," said Mr Cook...

The Savills report recommended that the Government should scrap mansion tax and add more council tax bands.

The ATED is, in effect, like another four Council Tax bands, being an annual charge of between 0.4% and 0.7% of each home's current selling price. So in absolute terms, the tax is more than Council Tax, but in percentage terms it's less. And although it's calculated differently to the Mansion Tax, in absolute or relative terms it is much the same.

And what effect did the ATED have?

Precisely none, the government expected super-wealthy people to unpick their fancy offshore ownership ruses, but they didn't. They just happily paid the tax and revenues so far have been five times what the government expected. Maybe having a fancy offshore ownership structure and paying the ATED is like a status symbol to these people, like having your fancy Ferrari shipped over for the summer season?
And to round things off, Savills have completely contradicted their own earlier tried and tested KLN of last year:

Ed Miliband has reopened the mansion tax debate, but such a tax would be complex and inefficient, raising little revenue at great potential cost and could unintentionally hurt the asset rich, cash poor long term owners of high value property.

Ho hum.

In their world view, the only people who own homes in central London are either Poor Widows or wealthy foreigners.

These two groups are diametrically opposed in all respects; what's good for one is bad for the other; what applies to one does not apply to the other. So if Mansion tax is bad for one group, it is good for the other.

If we want more wealthy foreigners to buy homes in central London (good for balance of payments etc) then from whom should they buy their homes?

The answer must surely be from Poor Widows, if one wealthy foreigner buys from another, then that does not mean a cash inflow to the UK or more spending here.

The Mansion Tax won't discourage wealthy foreigners from buying, that's borne out by their own arguments and actual facts, but it might nudge the potential heirs of a few Poor Widows to encourage them to sell up.

Win win!


mombers said...

I think the higher than expected ATED payments have a lot to do with people being willing to pay up to remain anonymous so that the folk who they plundered their loot from don't find out where it is...

Bayard said...

I'm sorry to say that I agree with Savills, slimy tentacle of Big Land though they be; it's a bit daft having two different taxes on the same thing (yes I know we have two different taxes on income, but that's daft, too)and there really should be an extension of the Council Tax up to band Z. However I'll be donning my crash helmet against low-flying pigs before that happens.

Mark Wadsworth said...

M, exactly, it's in the grey area between tax and blackmail and it raises money. What's not to like?

B, but if you add ATED and Council Tax together, which we might as well do, at least it levels it out a bit i.e. if you express council tax + ATED as a % of the value of each home.

Bands up to Z and scrap ATED (scrap a lot of things, in fact) would be better but hey...

Ben Jamin' said...

ATED brought in five times more?

Perhaps this shows how grossly underestimated property wealth at the top 1% really is?