I haven't done one of these for ages, mainly because I've done them all and Sobers isn't trying to invent new ones. However, I tend to ramble on a bit with my rebuttals, and would like to simplify them as much as possible.
Here's a classic KLN:
"LVT would discourage improvements, like the Window Tax did. Buildings would fall into disrepair." Sometimes expressed as "Developers would all go out of business."
Short answer: only if the tax payable on each plot were directly related to the current condition of any buildings and improvements on them. As long as the owner's actions have no impact on their tax bill, they will just get on with making the best of things (or not, according to attitude and available cash). ENDOF.
I have always said that valuations will/should be carried out as follows:
1. Grouping, banding and averaging the values of similar buildings/plots within each smaller valuation area,
2. Assuming that the average £ values for such buildings/plots in the lowest value areas represents the £ zero location value baseline,
3. Subtracting the baseline value from the average values for similar buildings/plots in each other smaller area across the whole country,
4. The excess in values for similar buildings/plots over this baseline in all other smaller areas is due to their location alone, which is what LVT should be taxing.
5. The amount payable for all similar buildings/plots in each smaller area will be exactly the same, regardless of the condition of the building itself.
6. As a final tweak, compare the valuations for different types of building in the same smaller area. For example, semi-detached houses should be less than detached houses and more than terraced houses, and maybe apply some sort of fixed ratio between overall types, for which we can use the normal Council Tax bands, so larger detached houses pay 18/9 and bedsits pay 4.5/9 of whatever is payable for a bog-standard 3-bed semi with one off-street parking space, which would be 9/9.
This has the merit of simplicity/cheapness if nothing else. Whether those valuations are based on total selling price or rental values, and whether they are adjusted down to ignore the likely value of the buildings and improvements are secondary issues on which I am heartily indifferent, I don't think it really matters.
Tactically, it is better to go for a low official valuation (and apply a higher tax rate) to get the target amount. This reduces the number of appeals against the valuation, and people tend to accept the tax rate as a given. Economically, as long as average selling prices are higher than rebuild costs, which can be taken from typical insurance quotes, then the tax is less than 100% of location value and no harm done.
While we're on the topic, there is a long list of features of the current tax system which actually do discourage improvements, with which I won't bore you. These reduce the after-tax benefit of making them by about half.
The follow up KLN is then this:
"But the LVT will take money out of people's pockets, leaving them less to spend on improvements."
All taxes do that, that is the whole point of taxation. Whether you've paid £1,000 income tax, NIC, VAT or LVT leaves you the same net cash. At least with LVT, you know that you get twice the bang for your buck if you do pay for improvements. And a large part of the tax money spent by govermnent goes back into maintaining location values. With LVT, that would be a primary aim of govermnent - they are like a landlord business trying to maximise their rental income (on behalf of their 'owners', being every single voter in the country, who get dividends in cash or in kind) by keeping things as nice as possible.
Claptrap
9 hours ago
25 comments:
Point 6, is this necessary? Is the value of the building not subtracted from the land value, when you remove the baseline value, so that the type of building on the plot does not affect the plot value?
"Economically, as long as average selling prices are higher than rebuild costs, which can be taken from typical insurance quotes, then the tax is less than 100% of location value and no harm done."
If you are "lucky" enough to own a listed building, the rebuild cost is already likely to be way higher than the selling price, because listed buildings can have a negative value, especially if they are in poor condition.
B, that is actually covered by point 2.
Point 6 is just because there will be quirks, in most areas, average value of semi will be a bit more than average value of terraced. But maybe one area is an outlier and they come out equal, because the nicer terraced are over-represented in known sales and rental figures.
So we put bog standard semi's into Band D (9/9). Bog standard terraced go into Band B (use less land area) so 'should' pay a bit less, so we put them in Band B and they pay 7/9 of what semi's pay in that area. And so on.
The tax valuation doesn't need to truly represent the same % of market value (a moving target) in all cases, it just has to be something where the appeals tribunal can say "Piss off. The rules are sensible and were followed correctly" or possibly "Good point. They forgot your house was listed, so we will pop you down 2 Bands, from E to C" (or whatever precedents the tribunals develop).
Listed buildings have their own category, we compare listed mansions in your area with similar listed mansions in cheapest area etc.
I don't think you get my point. If it is the location value that is being taxed, the building sitting on the plot is irrelevant. So long as it is a single dwelling, it should not matter if it is terraced, semi-detached or detached. except to the extent that the plot is larger. So if you buy a pair of semis, knock them down and build two detached houses, or do what I once did, which was buy an end-of-terrace, partially demolish it and rebuild it as a detached house, it shouldn't affect your LVT, should it?
As for listed buildings, should they pay more LVT than a non-listed building of the same size and type, as the baseline value is less, or should they pay less, as the listed status is something imposed by the state and depresses their location value?
B: "the building sitting on the plot is irrelevant. So long as it is a single dwelling, it should not matter if it is terraced, semi-detached or detached. except to the extent that the plot is larger."
That's my rationale. On the whole, detached are on larger plots than semi's, which are on larger plots that terraced etc. And these categories are things people can understand.
When valuers are allocating homes to Bands, they will be also looking at plot width. The newfangled "link-detached" which sit on narrower plots than semi's would go in Band C, same as smaller sei's (the ones with no parking at the side, just a narrow path separating you from neighbour).
"if you buy a pair of semis, knock them down and build two detached houses... it shouldn't affect your LVT, should it?"
Yes and no. It's not just plot size, it's the amount of stuff you are allowed to build that really matters. That's just something to haggle over when you apply for planning.
You argue the new ones should be in Band D, same as the semi's. The council knows that getting planning is worth £££ to you (or else you wouldn't be bothering with the whole exercise) and wants them to go up to F. Maybe you settle in Band E.
The rule is "assuming optimum (maximum) permitted use". Builders aren't stupid, they build as much as they can within guidelines existing at the time.
Say I live in an old semi, built when footprint couldn't exceed 10% of total plot with an overly large back garden that is beyond the size where it adds any real value. I am perfectly happy with this, as are most of my neighbours. None of us have ever applied to planning for anything bigger (barring the odd conservatory, lean-to or loft conversion) and as far as we are concerned, that is optimum permitted use.
The new development further down the road is allowed to build up to 20% under today's guidelines. Even if the new homes are on same sized plots as mine, they would be in a higher band, because those aren't normal semi's like mine, they are twice as big (with less wasted for back garden) or are three storeys or whatever. Optimum permitted use is worth more, so the LVT is more.
It would be a bit churlish of the council to retrospectively give me and my neighbours retrospective planning permission to knock down are old houses, build something twice as big and shift us up a Band or two, even if we have no intention of ever doing so.
If listed buildings are worth less than similar sized but unlisted buildings in same area because of the silly restrictions, they go in a lower Band. Or the council sees sense and just de-lists them.
As I've been namechecked I suppose I ought to make an effort :)
Surely the whole point is its a land tax and not a house tax? Therefore what building is on the land should be irrelevant. Two plots of the same size in the same location but with different houses on should be the same LVT. And your calculation system should end up with that result.
I've never quite understood to what granularity you are trying to determine the locational value. Is it by street? Or by estate/ward level? Or by town level, or regional, or nationally? I mean I could point you to houses perhaps 100 yards apart that are identical physically, same size plots etc, but one will be worth more than the other, entirely due to one being on the edge of a certain housing estate, and the other being just outside of that. Should those houses have the same LVT? And could your calculation system give that result?
Whatever granularity you chose to create average values you are going to create anomalies. The larger the area you average over the more the tax is shifted from high value areas to low ones (which will obviously be seen as unfair) and the lower the area you average over the more you will create obvious anomalies like my 2 houses above. Smaller averaging areas means more boundaries where anomalies can occur.
Either way you are going to run into the problem of acceptability with the voters/tax payers - they have to consider that the new system is 'fair'. If it throws up all manner of anomalies, which maybe in the big scheme of things are really irrelevant, but are seen by the public as 'not fair' then the system will fail. Rather as the poll tax did. It wasn't just that the people who were being taxed extra under the poll tax opposed it, even those who were better off didn't think the new system was fair, and also opposed it. Its the Caesars Wife principle - the new tax system must not only be fair, it must be seen to be fair by the masses too. Getting both elements right is crucial, miss one and you're toast.
S, "Two plots of the same size in the same location but with different houses on should be the same LVT"
You are in the business (I thought), you know that amount of planning is more important than the size. For most cases, size of home (the physical manifestation of planning) is roughly proportional to size of plot, so doesn't matter which way you look at it.
"I've never quite understood to what granularity you are trying to determine the locational value. Is it by street? Or by estate/ward level?"
I've always said postcode sectors or local council wards, something with 'about' three thousand homes in it. That gives us a good sample of actual sales or rentals in the past two or three years to use for calculations. Seems about right to me. You have pointed out the pitfalls of making these areas too large or too small.
"you are going to create anomalies"
Sure, so what? All tax systems create weird corner cases, like the 60% effective income tax rate on earnings between £100k and £125k. The massive VAT whack if you go over the registration threshold. Or council tax - if my house were five hundred yards south, the council tax would be about a third less than I'm paying where I am. So what? Houses where I live are correspondingly a bit cheaper to compensate.
All this debate about 'accuracy' of taxation. Personally a knock on and enormous benefit of moving to a primary LVT system is simplicity. Think of all the stuff that would go..IT, CGT, IHT, CT, VAT, VAT on Fule Duty (FD being a sort of LVT would stay), all the complexities of the tax code - down from 12500 pages to maybe 250. The knock on from cancelling all those taxes is that all the allowances would go. The pension tax system would be massively simplified. You can scrap ISA's. JISAs. EIS, VCT SEIS etc etc. No more scam hidden subsidies. And you'd release 80% of HMRC bureaucrats to find more rewarding genuine wealth creating employment in private business.
All of which is why LVT will be fought tooth and nail by all the vested interests.
L, yes, with LVT valuations, plus minus 20% is good enough. Not perfect, but there will always be the whiners and moaners. Any downsides are but chaff compared to all the other shite taxes you list.
As to fuel duty, that's actually quite a good tax (speaking as an economist/environmentalist). Speaking as a motorist, superficially not so good as I have to pay it, but it clears away some of the Sunday drivers, so more road space for me! Six of one...
MW It seems to me that fuel duty is the most 'free' way you can 'user charge' without tracking all travel, which has huge civil liberties issues. Big gas guzzlers and trucks (trucks being the most road damaging) pay in proportion / usage etc. Low use users pay low costs. As to electric cars they pay a higher RFL to compensate for difficulty of taxing leccie.
L, Oh God, don't let's start with ANPR-based pricing. Or bridge tolls. Agreed on electric cars. That'll go down well with the Alarmists.
"I've always said postcode sectors or local council wards, something with 'about' three thousand homes in it. That gives us a good sample of actual sales or rentals in the past two or three years to use for calculations. Seems about right to me. You have pointed out the pitfalls of making these areas too large or too small."
3000 houses is quite a lot. Enough for a significant transfer of taxable value from the higher value houses in the area to the lower ones. For example a smallish market town close to me is about 3000 houses (I'm guessing, the population is 8k, so at UK average of about 2.36 people per household thats 3400-ish houses). Within that town there's the 'posh' bits, where houses are relatively expensive, and the more scuzzy bits (council estates basically) and all the usual bits in between. So if you're going to average all values out, then say that houses of a similar type and plot size pay the same LVT, then the posh houses will pay less that they should, based on selling price, and the scuzzy houses are going to pay more, relatively speaking. And people will notice this. Why does that 3 bed semi that sells for £400k plus have the same LVT as this one that sells for £300k?
Hence my point. People will understand a 'You pay X% of the selling price of the house' system, because that seems 'fair'. If the valuation/calculation system throws up anomalies like the above that people can see (and they will, all the LVT's will have to be public knowledge) then the entire system will be discredited. The issue arises because you are trying to calculate something (the site only location value of a property) that means nothing to most people. They can understand selling prices, and will assume that higher price = higher tax. If you tell them that within their town, or general area of a larger conurbation that similar houses will pay the same tax regardless of their selling price, they'll think that highly unfair.
S, that sounds like a reasonable margin of error to me. At an initial rate of 'about' 0.7% of total selling price, they are all paying £2,400 a year, instead of a range between £2,000 and £2,800.
OK, so I'm representing the valuers at an angry meeting in the town hall...
"The tax is based on the average rental value of homes in your area, grouped by size and type. We use rental value because public services are what creates rental values, so this seems the fairest way to finance them. You pay for what you get.
Whether your semi is on the cheaper or fancier side of town, they will house the same number of people, and those people have more or less equal access to the same public services. That means the same school(s), GP surgeries, bus services, shops, road network, parks, surrounding network etc. So, the tax payable for all semi's has been set at £2,400 a year, wherever in town they are."
Sits down, looks venomously at audience.
"Whether your semi is on the cheaper or fancier side of town, they will house the same number of people, and those people have more or less equal access to the same public services. That means the same school(s), GP surgeries, bus services, shops, road network, parks, surrounding network etc. So, the tax payable for all semi's has been set at £2,400 a year, wherever in town they are."
Thats the same argument that the poll tax proponents had, and look where that got them. If you think the UK public will buy into a system that allows the better off to pay the same as the lower middle, just because they use the same amount of services, I think you're barking up the wrong tree. Remember we are talking about people who think that if you have a flat rate of tax the rich pay 'the same amount of tax' as the poor do. Its why we have such a progressive tax system because a lot of people don't understand percentages and think that a 20%/40% lower/high rate of tax means the better off pay double the amount of tax of the poor. Thats the mentality that have got to see the system as 'fair'. Its a massive hurdle for any tax reformers to get over - you've got to convince loads of people the new system is fair, when their measuring stick for fairness is utterly different to yours.
"Ah, the gentleman at the front has made the rather ridiculous statement that a tax based on approx. property values is a Poll Tax.
"I'll explain exactly why it isn't, but first, let me warn you that most of the articles you read criticising this tax or calling it a Poll Tax are by the people who know it isn't. All those articles are by the property lobby, people who live in mansions, landlords, property developers and large landowners and the like.
"They dislike this tax precisely because it ISN'T a Poll Tax and they have to pay considerably more than most people at this meeting. They didn't oppose the Poll Tax 30 years ago, and they wouldn't oppose it now.
"The Poll Tax was opposed mainly by students and tenants who saw the burden of Domestic Rates being shifted to them, even though they owned nothing at all. Council Tax is far more like a Poll Tax than anybody realises, because Band D tax is pretty much the same in most of the country, so is much better for people who live in expensive areas at the expense of those in cheaper areas.
"By basically going back to the old Domestic Rates system, we are moving further away from the Poll Tax. Students and tenants own nothing and won't have to pay anything, their landlords will have to pay it.
"I happen to know the gentleman in the front row, and let me tell you, he lives in a very large farmhouse that's in Band H and makes a handsome living by getting planning permission for bits of his farmland, which he then sells to developers for a £50,000 profit for each home he gets planning for.
"That's part of the reason why new homes have such small gardens. He's going to have to work harder for this money now, just like everybody else, that's all, that's why he doesn't like it."
[Sits down again, gives friendly smile to Mr S in the front row who is now puce with rage.]
Well if name calling is all you have , I'm out. I tried engaging positively, but you obviously don't want to discuss things courteously.
"Yes and no. It's not just plot size, it's the amount of stuff you are allowed to build that really matters. That's just something to haggle over when you apply for planning."
There is no need for the resulting detached house to be any larger than the end-of-terrace or semi it replaces. If the original building is in poor enough condition to warrant partial or total demolition in the first place, it is still going to be a way of adding value.
S, I am baffled.
You knew from my previous comment that this was a public meeting at the Town Hall.
You were playing to the gallery and came up with the 'poll tax' nonsense. I'd be wasting my time debunking it to you, because we both know it's nonsense.
Maybe later on you were planning to play the 'attack on wealth' card, which isn't true either, and in any event wealth taxes and poll taxes are complete opposites.
But a lie can get round the world before the truth has got its shoes on, so I did the dirty on you and made up some stuff about your circumstances (I don't know the exact details, do I?) just to shut down the poll tax bit.
B, like I said, this is something that you'd have to agree when going for planning. If council is too greedy, you shelve it. If it's reasonable, you go ahead.
I'm not 'playing' at 'Town Halls' or anything such like. I'm pointing out that public opinion on taxes in the UK is quite leftist. Higher taxes on 'the rich' always play well. And that higher tax sentiment is compounded by the fact many people are mathematically inept, and don't understand how percentages work, and thus think its 'fair' that the rich pay higher rates of tax, because they think that means they have to pay more than people on lower incomes. The idea that people who live in expensive houses should pay more than people who live in cheap ones would be pretty deeply engrained in the public's mind.
So I repeat my point - for your LVT system to be seen as 'fair' by such people (who are all voters remember) it must not create anomalies that allow opponents to point at them and say 'Look this house is worth X and pays Y, but this house is worth 1.5X and still only pays Y'. This will allow people to paint LVT as helping the rich at the expense of the poor. Which to some extent it is, certainly in the way you are suggesting implementing it - the pooling of values at ward level would reduce LVT rates on the more expensive houses within the ward and increase them on the cheaper ones. You are arguing that as everyone in the area has the same access to the local services/amenities etc, and thus its 'fair' that the tax rates should be similar for similar types of dwelling, regardless of price. I'm saying this will not be seen as 'fair' by the people you have to convince to get it implemented. That is your problem, and you should address it, not make up insults about people about whom you know nothing.
And I was NOT calling LVT a poll tax, I was saying that your argument is similar to the poll tax proponents argument - they argued that everyone in a council area had the same level of services and thus should pay the same, regardless of whether they lived in a mansion or a council flat. You are arguing that everyone in an area has the same access to amenities etc (which thus creates the locational value of their property) and thus people in similar size houses should pay the same, regardless of the value of the house, or the person's income. Its a one step up from poll tax concept. Everyone doesn't pay the same, everyone in similar sized houses does, regardless of their income.
S, if you had pointed out that in some smaller towns/larger villages, there can be a noticeable difference between two estates for similar sized homes/plots, in your example 33% between top and bottom, we could have a sensible discussion.
Hopefully the valuers would pick this up and have a split rate between east and west, or north and south, or whatever (but without descending into gerrymandering). There must be a certain range which is broadly acceptable, like 15% or 20%, or a certain minimum number of homes required to give a large enough and hence reliable sample size (1,000?).
But you drift off into things we both know aren't true:
"this house is worth 1.5X and still only pays Y"
How did 33% stretch to 50%?
"This will allow people to paint LVT as helping the rich at the expense of the poor. Which to some extent it is, certainly in the way you are suggesting implementing it"
Well, seeing as I have always said that Inheritance Tax would be rolled into LVT (or that really would be double-taxation), that is where people really will be squealing. 'Why should I pay more council tax just so that the super wealthy can save IHT?'.
"the pooling of values at ward level would reduce LVT rates on the more expensive houses within the ward and increase them on the cheaper ones"
That's more expensive homes and cheaper homes in the same BAND (not in the same AREA), in this case Band D.
A couple sharing a Band H very large detached (in that small area) would pay four times as much as a couple crammed into a Band A* bedsit (in that small area). And a tenant couple renting a Band A* bedsit is (superficially) not paying anything.
A single person in a semi pays twice as much (per person) as a couple sharing a semi (in that area).
So clearly not a per person Poll Tax! In any event, one KLN is "A Poll Tax is much fairer because..." so even if your argument were correct, at least they can shut up.
As to leftist, well, you have a point but more importantly, it is Home-Owner-Ist. That's where the real opposition is.
S, I mean, there are always going to be micro differences. I used to live on a road where terraced houses on one side sold for 10% more than on the other (railway line at back of one side, plus various tedious reasons). Otherwise, they were absolutely identical. Do you think that would be acceptable to the masses?
"B, like I said, this is something that you'd have to agree when going for planning."
But would you need planning if you are not increasing the size of the dwelling?
B, LVT works with or without planning laws. There is no magic formula for planning laws that will keep everybody happy - people who want to move into the new homes; existing residents and builders, so I'd rather remain neutral on such matters for now.
I think Sobers might have a point. Might it be smarter politically to introduce the tax as a Proportional Property Tax (as put forward by Fairer Share) and then gradually morph it into something more like what you're proposing Mark?
GK, sure, that would be fine by me. But then we bump into the valuations problem.
I assume that in unusual cases like Sober's, the valuers would split the town into 'old town' and 'new town' or north and south or whatever, and have two separate areas for banding.
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