Killer arguments against LVT, not (25)

RefuseToBuy over at HPC came up with this: "LVT replacing business rates? All the virtual internet companies would be run tax free. Music industry too. There is more to the economy than just land."

To which I responded:

Firstly, that is neither an argument for nor against taxing land values - labour and enterprise are the largest part of the economy and in a perfect world they would NOT be taxed. Conversely, fags, booze and petrol are a small part of the economy, but because demand is price-inelastic and because they have external costs, that's a good reason for taxing them.

Secondly, land values do not drive the economy, the economy drives land values (increase in land values are windfall gains)

Thirdly, you would be amazed at how important and hence valuable locations, and the permission to do what it is what you want are. If people can trade in non-physical goods over the internet, then good luck to them - that's what it's all about -efficient use of land! But CDs are still sold in High Street shops (and land values on the High Street are usually very high) so it's all linked together somehow.

PS, are you perhaps confusing "Business Rates" (a flat tax on rental values i.e. not a million miles from LVT) with "corporation tax"?.
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Fair play to him (or indeed her), he responded by saying "Ah yes. I am confusing Business Rates with Corporate tax. I'm not a tax expert" but then went on to say "LVT does share costs out according to how much of the land you take up. I wouldn't want it to replace all tax though. I don't see why labour and enterprise would not be taxed a perfect world. It also depends what the tax is going to be spent on. For example, the tax from enterprise could allow more money to be spend on universities, helping increasing enterprise. "

Hmm. I agree with the first sentence. The second and third sentences miss the point slightly - if you cut taxes on labour and enterprise by £1, then gross rental values will go up by £1 (rents always rise to soak up additional profits above a bare minimum) so in theory you could replace just about all taxes with LVT. But another theory says that LVT would never collect more than about a fifth of GDP as against half of GDP that is being collected in taxes now (which I see as a good argument for only having LVT, but hey).

And, on a purely pragmatic level (rather than on a moralising one), a flat income/corporation tax (and no VAT or National Insurance) of 30% or less (the lower the better, obviously) would probably be relatively harmless in terms of Laffer effects, and would still give the UK a big advantage to most other developed countries.

The last two sentences are fair enough, tax revenues can be spent on something sensible or wasted, but if they cut education spending and taxes simultaneously, there's no reason to assume that overall educational standards would go down. The main reason why I prefer education vouchers to no subsidies or state involvement whatsoever is purely the social mobility point, to level up the playing field a bit (sure, low income adults can choose not to have children, but children can't choose not to be born to low income adults, can they?)

Fakecharity, Blulabour miss the point

The BBC informs us that Childcare fees continue to rise. "Many parents in Britain are paying in excess of £8,000 a year for a full-time nursery place, a survey suggests", which is probably factually correct.

What strikes me is that £8,000 (which is on the high side, see comment from Beverley Hughes, below) is more than typical school fees at better-value private schools. So, if parents can afford to pay for nursery places, is it unreasonable to assume that most of them could also afford to pay for private schools?

As I have discussed before, there are loads of overlapping schemes to subsidise nursery care, which average out at about £70 per child per week (which is what makes nursery places affordable for most). To save all the admin and faff and distortions, I think they should be replaced with flat rate vouchers of £70 per child per week, but hey.

To summarise, the vouchers system 'works' for private nurseries (although with flat rate vouchers it would work much better). The obvious conclusion is that we could replace the whole State education system with vouchers as well - £3,500 per child per year seems a good place to start, which would halve the cost to the taxpayer - the education budget plus Teachers' Pensions is about £70 billion and there are ten million school age kids in the UK. That's a handsome £1,000 tax cut for each taxpayer, so a working couple would have £2,000 a year extra to pay towards the cost of nurseries or school places.

That's how we see things on Planet Wadsworth.
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But what does the BBC do? They turn straight to fakecharity number 327279 The Daycare Trust. Their spokeswoman spouts the inevitable:

"It is crucial that parents claim all the help they are entitled to, and that the government increase the free childcare entitlement to include all two-years-olds. The current review of tax credits should increase the maximum proportion of childcare costs the poorest parents can claim from 80% to 100%."

A quick glance at Note 3 to their accounts shows that they receive £600,000 a year from The Department for Children, Schools and Families for 'Policy, research and other projects'. They can get their policies for free from this 'blog. What do they do with the rest of it?
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Bizarrely, Nulabour Children's Minister Beverley Hughes seems to more up to speed than her Blulabour counterpart.

Beverly Hughes points out "the survey was based on parents requiring 50 hours of childcare all year round for under-fives, which was "more than most parents take up or want" [and] the survey did not acknowledge the tax credit system for working parents or childcare vouchers offered through employers. The early years grants, available for children in the term after their third birthday, was also ignored...".

You might expect Blulabour to favour vouchers, but no, they just want more complications and more means-testing ....

Shadow families minister Maria Miller said: "The government must do more to make sure more families who are eligible for childcare support through the tax credit system actually receive it. At the moment, the system is overly complicated and that means only one in four families who are eligible are actually claiming the credit."
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UPDATE. Re NC's comment that regulations are driving up prices. Nulab love regulations as it creates jobs for The Righteous. There's very little need for this of course - when you choose a school or a nursery, you talk mainly to other parents about experiences they've had - as long as your child sets off happily and comes back happily, the nursery is probably doing the right thing. Further, if a nursery were involved in some gross negligence, it would be all over the newspapers and people would take their children elsewhere, so simple information sharing makes most regulations unnecesary.

But the real force for increasing regulation is economics. The nursery cartel likes subsidies of course, because it enables them to put up prices. However, in the absence of barriers to entry/restrictions on supply, these super-profits would be competed away by new entrants. So for existing murseries to benefit disproportionately, they need subsidies AND barriers to entry, which they cunningly dress up as being "for the chi-i-ildren".

"UK mulling fuel poverty voucher"

Ooh! Big numbers! And where there's a big number, there's a f***witted idea not far behind, in this instance, a windfall tax to fund fuel vouchers for those in 'fuel poverty'.

Hmm. British Gas' domestic energy division has 10m gas customers and 6m electricity customers (see end of here). So those £571m post-tax profits (which are after paying corporation tax at 50% or 75% don't forget!!) are, er, £35 per household per annum (or £70 if you get gas and electricity from British Gas).

The spokesman for the oil industry points out (see first link) that the government is already getting £1,000 million from households in VAT on domestic fuel = £40 per household per annum, and politely doesn't mention "as much again in bloody corporation tax".

So how about this for a plan ... if 75% tax ain't high enough, levy a 100% windfall tax and give everybody a £35 'fuel voucher' ... oh ... that's no good ... the industry would shut down and we'd have to go without gas or electricity altogether. Hmmm.

Truly, f***wittery of the highest ordure!

Oh, and as is tradition on this 'blog, let me point out that National Energy Action, Charity No. 290511 (mentioned in the first link) is not a group "which helps people on low incomes", it's a f***ing quango. It gets a cool £2m in grants from various government departments (see note 6 to the accounts). Its subsidiary Warm Zones Limited, gets another £9m from the government. Heaven knows whether poor people ever see any of that money.