Tuesday, 6 January 2015

Diane Abbott Gets LVT Horribly Wrong

From the Telegraph:

Ms Abbott, a veteran Left-winger who hopes to run for London mayor told World at One: “I’m very surprised John (sic) Murphy is making these boasts. I support the mansion tax in principle but there are to big problems.

“It’s effectively a tax on London – 80 per cent of it will come from London – and there are problems. The super-wealthy plutocrats, who will all think should pay the mansion tax, probably using their lawyers and accountants will evade it.

If you support a Mansion Tax in principle, the of course it's going to be a tax on London. That's where most of the £2m homes are. In fact, if you support it in principle, as a tax on unearned wealth, you'd actually want more of it hitting London and the odd person with a massive country pile in the cheap bits of Wiltshire to not be paying it.

And does Diane Abbott really have any idea what the hell she's talking about when she talks about lawyers and accountants evading it? Unless the government writes some daft loophole, you can't evade owning a house. Where are you going to put it? Under a mattress? Ship it to Monaco? Of course, even if you ship the house to Monaco, you can't shift the valuable bit of a house in London which is the location.

“But you could be a teacher in Hackney literally who bought a house at the beginning of the ‘80s for £50,000 and it’s worth £1 million and climbing. Jim Murphy can’t surely mean he is going to expropriate money from Londoners to win an election in Scotland.”

She said many people bought homes 30 years that were in areas that were unfashionable then but are now “very worried” about the levy, before adding: “Jim Murphy isn’t helping matters.”

Did those people do anything to make them "fashionable"? No, they didn't. House prices in London rose because of things like government improving railways, selling off council houses and spending billions on housing benefit in London.

Just to add on this: there's a myth about how fashion raises house prices, when it's actually the other way around. You have a run down area, government does something like improving the rail line and it now makes it a place that commuters would like to live in. Rents rise because they can now get commuters to rent the place, which means that you get people who can afford to eat at Gordon Ramsay's rather than McDonalds.


Dinero said...
This comment has been removed by the author.
Mark Wadsworth said...


Although Jim Murphy is selling it very, very badly.

There's another theory on gentrification, which is that "artists" move in first (they have low incomes but are fun people to be around) and that makes the area "cool" and then the yuppies follow, driving the original artists out again.

I've read it many times in different contexts in different countries and actually seen it happen a couple of times.

Dinero said...

Your last paragraph - very good - gentrification probably does happen after rent rises which is contrary to what estate agents guff on about.
The knocking of Abbott statement not so much as you are approaching it from a different perspective than her - and hers is the political where it affects people in the context of their own lives, and so relevant in her context. Same as your comment about some person with a massive pile in Wiltshire , that actually is what people would aspire to as a lifetyle and what the peops being ask to cough up aspire to. You are approaching it as a matter of accountancy. And the Jim Murhpy commentary well that maybe the last nail in the coffin, I am supised that labour are pursuing it - well in this manner, anyway.

Bayard said...

"House prices in London rose because of things like government improving railways, selling off council houses and spending billions on housing benefit in London."

I disagree. Gentrification, which is what we are talking about here, happens when an area's land values are depressed from what they should be given the location, by the grottiness or perceived grottiness of that area. You get a few richer pioneers moving in, who are prepared to put up with the seediness in return for cheaper land prices and two things happen, they start making the area better and their higher buying power starts putting prices up, forcing out the poorer people and replacing them by more people who are prepared to spend money smartening the place up. Certainly improving railways and selling off badly maintained council houses helps the process, but it is not what causes it.

Kj said...

Aargh, I really despise when pol's do their hypothecation exercises. Taxation and spending are two entirely different debates. Arses. Although she has no clue about the economics, Abbott is correct about Murphy's intentions, which is to do the 'ol bleed the rich to pay for cause x. Which is about what imagination in politics consists of these days.

Kj said...

Brilliant app on the right by the way. There is one thing in the explanatory notes I am curious about, could you explain how the allowance on income tax works with the Citizen's dividend?

Lola said...

Usual muddled thinking from Fatbutt.

Anonymous said...

Reflecting on what Bayard says. I immediately thought that logically some/much of the increase in land values comes about through the migration of yuppies into areas that are somewhat cheaper than other areas but still commutable to their places of work and that as they move in shops servicing the new locals spring up and so the virtuous circle. Which comes first, the government infrastructure spending and council sell offs [which clearly contribute] or the natural migration from too expensive areas to less expensive by aspiring professional types and entrepreneurs etc is moot. Isn't it?

James Higham said...

Abbott's a bona fide meathead and hypocrite. This comments thread is too short to list the ways.

mombers said...

@paulc156, yup, it is moot in my opinion. Whether it's the government infrastructure or private individuals who have COLLECTIVELY raised the rents, they are not due to the individual landowner and as such are fair game for collection by the community. People on hard earned incomes £10,500 face a marginal income tax and NI rate of 40.1%, surely 0% on unearned rental increases is immoral

Ben Jamin' said...

It doesn't matter why house prices(land rent) have risen. Exclusive occupation of a valuable location without compensating the community, is a financial/welfare burden on that community.

Land rent and taxes are interchangeable. So, we already have a Mansion Tax, privately collected by banks and landlords. Does Ms Abbott therefore think that rent and mortgage interest collected in London should only be spent in London?

And, of course, North Sea Oil revenues are also land rent. So, is Ms Abbott going to campaign that 40 years worth of Petroleum Revenue Tax revenue, spent in London should now be collected and paid back to the Scots?

Contact YPP said...

Bj, exactly. I'm getting heartily sick of these endless discussiosn of what does or does not create land rents. Suffice to say, it is not the landowner.

But Scotland did get the North Sea oil revenues! It was referred to as the Barnett Formula. Perhaps it's a coincidence, but the oil revenues were rouhgly equal to the extra per person spending in Scotland.

Ben Jamin' said...

"But Scotland did get the North Sea oil revenues!"

At 2007 levels, they might cancel out, but not at 1980-2000 levels perhaps.

But, AFAIK, oil revenue was not hypothecated . The Scots received more revenue per capita do to the added cost of providing services to remote locations. Rightly or wrongly.