Monday, 29 May 2017

Killer Arguments Against LVT, Not (414)

From The New Sratesman, it was published in 2010 but I've only just noticed this bit:

Before he went to work in Nick Clegg's private office, Richard Reeves, biographer of John Stuart Mill and the then director of Demos, argued persuasively for the introduction of capital gains tax on the profits made from house sales.

I asked his successor at Demos, Kitty Ussher, the former Labour Treasury minister, what her position was on this. Like Reeves before her, she favours introducing capital gains tax on primary properties.

“This should be relatively straightforward to achieve, as we already do it on second homes," she says. "I'm extremely in favour of it, though I know the Daily Mail would hate it... if we'd had such a policy in place during the housing boom, it would have taken the edge off rising house prices for sure."(1)

I asked Ussher what she thought of introducing a land value tax - in effect, a tax not on the value of residential or business property, but on land ownership itself. "Umm. I remember when I was at Oxford someone senior at Balliol telling me that the college owns half of Scotland or something like that.(2)

"But surely it all depends on how much the land you own is worth. Even if you owned a huge bit of Scotland, it would depend on the value of that land - but if you owned a chunk of Knightsbridge (3), then the tax could have a powerful effect. Surely this tax would have most effect in the early years, because it would encourage divestment and changes in behaviour. The yield would go down."(4)

1) The KLN she trots out at the end applies in spades to the tax she favours - capital gains tax on main residences. It has been observed over and over that the revenue-maximising rate of CGT is very low indeed as you can avoid it by simply never selling - this is the opposite of what LVT would encourage, the yield would be very low indeed and by gumming up sales and purchases, might push prices up rather than down.

2) Yes, the government of the day always buys off the opinion formers.

3) Well duh, that's why it's called Land VALUE Tax. An acre of Kinghtsbridge is worth as much as all the farmland in Aberdeenshire (give or take a bit).

4) That makes no sense whatsoever. As it happens, the Dukes who own central London probably wouldn't change their behaviour, they'd accept a cut in net income from £10 billion a year to a mere £1 billion a year and bide their time until they can push tax policy back in their favour. If it did change behaviour and they sold off all their thousands of homes and business premises, then the purchasers (ex-tenants) would be paying the tax instead. The yield would be entirely unaffected by this change.
From a recent article in the FT:

Sir Peter Rogers, chairman of the New West End Company, a lobby group that represents hundreds of businesses around Oxford Street, Bond Street and Regent Street (1), has called for a radical rethink.

“Our proposal is a more appropriate tax, possibly a sales tax or turnover tax, which is difficult to avoid, easy to collect (2) and reflects the economic performance of individual businesses.(3)”

1) Nope, look at the list of their members and supporters, it's all big landowners and banks with a few token actual businesses as a fig leaf.

2) Is he having a laugh? Property taxes (Business Rates or LVT) are nigh impossible to avoid and easiest to collect. Turnover taxes are at the other end of the scale.

3) Business Rates reflects the rental value of buildings, which in London is largely location value so barely different from proper LVT. It is a tax on those rental values.

Funny how landowners always recommend the most Socialist of policies.


Bayard said...

"As it happens, the Dukes who own central London probably wouldn't change their behaviour, they'd accept a cut in net income from £10 billion a year to a mere £1 billion a year"

I thought we'd been through this lots of times: all that LVT would do is change the tax base. The tenants would have more take home pay by the amount of VAT/income tax they are no longer paying/companies would be making greater profits by the amount of VAT/corp tax they are not paying and this would mean they could pay higher rents which would more of less cancel out the LVT paid by the landlord. The people who would be losing out are not so much the landlords but the moneylenders.

"2)Is he having a laugh?"

"when I've said it three times, it's true" (Hunting of the Snark). You can't repeat a lie too often if you want people to believe it.

Mike W said...

Thanks Mark, Good find.

Have put the article on my to do list.

Anonymous said...

On point 4 (reducing yield after "bedding in" due to behavioural change), surely there is a point there dependent on exactly how the tax is administered?

Under the YPP policy of 4% of value per annum, is it not likely that with land ownership now carrying a previously absent liability, land prices will drop. In that case, assuming that the 4% figure remains constant, the absolute yield will drop, won't it (since if the cumulative market value of the nation's land drops, 4% of that value drops too)?

If there was a policy to allow land forfeiture to the state in lieu of tax payment (which seems to me might be necessary to convince the public of the "fairness" of LVT, avoiding the spectre of unwanted albatrosses), then it would also be possible for the total privately owned land base to diminish.

Of course, if you didn't set the tax as an absolute percentage of market value, then it would be possible to maintain the tax base: with an outside reference figure you could simply collect the total sum required on a proportional basis, with landowners being liable for the same percentage of the total tax requirement as the fraction their land value composed of the cumulative national land value. And if land gets moved between state and private ownership, or if land values fluctuate, then individual fractions of the total bill change to meet those changing circumstances.

That's right, isn't it?

Linking a Citizen's Income to such a tax on proportions of the national land holdings seems to me to also make a intuitively comprehensible argument: "Land is a shared asset of the nation, you can have exclusive use (ownership) of it, but depending on how much you use, we ask that you fairly compensate (LVT) the rest of society (CI) based on that usage."

Of course, there is (if I understand correctly) a ready figure isn't there? Isn't it the intention of YPP to raise half of tax through an LVT and half through a flat 20% income tax for individuals/companies (I thought I saw/heard that somewhere, but can't find it now. Maybe I made it up...)? So with that income tax figure determined by the incomes of the population in any particular year, one could set an equivalent amount to be raised by LVT and apportion that to individual land tracts dependent on the fraction of total land value they represented.

That would be the way to ensure an absolute steady level of taxation, wouldn't it? But would involve an adjustable percentage of land value being due as LVT rather than a fixed 4%, right?

Mark Wadsworth said...

B, that whole circular calculation is rather maddening, we do not know exactly where we would end up. But if rents go up, then that means we can increase LVT and reduce taxes on earnings even more. There must be an upper limit.

N, we recommend proper LVT calculated on basis of "site premium" i.e. what the annual rent is minus the annual cost of maintaining bricks and mortar/depreciation.

Some people think this is a strange concept, so to simplify it a bit we have explained that a full on LVT "would be about 3% of CURRENT selling prices" to give people an idea of the approx numbers.

The fact that selling prices might go down in future is irrelevant, the tax will still be about 3% of the selling price BEFORE LVT came in.

Clearly if you want to raise significant amounts, then you shouldn't express the tax as a % of selling prices.

See here.