The real freeloaders in our society are the landlords


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11:10 am - January 11th 2013

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by David Cooper

Everyone hates freeloaders. The evolution of human morality was driven partly as a response to the damage they did to social groups- in a primitive social group it was a matter of life and death that everyone must pull their weight. So when politicians start using words like strivers and skivers, they can rely on a strong response based on visceral loathing.

The UK’s benefit expenditure is huge: £159bn in 2011. Most of this is spent on pensioners, the elderly and those on low incomes, who are hardly skivers.

But one group freeloads on a gigantic scale, managing to rake in much money than skivers ever could with no effort of contribution to society: landowners, including homeowners. The average homeowner might well be shocked and indignant at being described as a freeloader. But the tax system makes them so.

Winston Churchill explained this during his speech in 1909:-

Roads are made, streets are made, railway services are improved, electric light turns night into day, …and all the while the landlord sits still… To not one of these improvements does the land monopolist as a land monopolist contribute, and yet by every one of them the value of his land is sensibly enhanced.

There is little a property owner can do to change the value of his plot of land. The value per square foot – convenient access to transport or services- is determined by the actions of society. A homeowner can increase the value of their property itself, e.g. by extending the house. But any increase in the value of his plot is a pure free ride, towards which he/she has done nothing to contribute.

Over the last twenty years total value of the private housing stock in the UK has risen from about £1.3tn to about £4.2tn today. This increase is largely due to inflation and growth in land value; there was little increase in housing stock. Inflation would account for a value of £2.3tn. The additional £2tn reflects the increase in the value of the land. So landowners have gained £100bn yearly from freeloading rising land values.

An example of landowners getting a free ride was the construction of the Jubilee line extension in London in the 1990’s. This cost £3.5bn and led to an increase of £13bn in the value of nearby land. The cost of building the line was mostly borne by the general taxpayer, but the £13bn benefit was pocketed by local land owners.

Freeloading diverts the rewards for productive work to those that did not contribute. Most people do not work so that others can spend. In the UK money for public infrastructure projects comes from the general taxpayer; but the beneficiaries are property owners in particular locations. The dilapidated state of UK infrastructure and the weakness of the UK economy is a direct result.

The solution is a Land Value Tax, an annual tax based on the value of the plot of land. This is impossible to avoid paying and ensures those who benefit from expenditure shoulder their share. It would lower taxes on productive work.

A Land Value Tax would have the effect of making some infrastructure projects self-financing. When the city of New York decided to create Central Park, it purchased buildings at market prices and demolished them. The increased property taxes resulting from increased land values around the park paid for these up-front costs.

If the government wants to attack the “something for nothing” culture, it must face up to freeloaders who are rich and powerful, and find the courage to tax property. This would truly allow it to reduce the tax burden on the strivers.


David Cooper is secretary of Liberal Democrat Alter (Action on Land ­Taxation and Economic Reform), a Liberal Democrat campaign group.

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Reader comments


It’s an interesting and persuasive argument, but it does apply rather differently to different groups of land/property owners. If you’re a landlord and a rise in the value of the properties you own leads to a rise in the rents you’re able to charge, an annual tax on your increased profits makes sense. Ditto if you own a factory or farm or shop that becomes more profitable as a result of improvements in local infrastructure. But if you’re a private homeowner making no income from your home, or the owner of (say) a farm that becomes more valuable but no more profitable as a result of improvements in local infrastructure, there would appear to be no logic behind an annual charge (assuming we want to base tax liability on ability to pay).

In fact there seems to be a risk of perverse outcomes. E.g. if property/land ownership became affordable only for people who use the land/property they own to generate a profit (or who have high incomes from another source, I suppose), would we not see more and more owner-occupied homes – especially those owned by lower-income people – being transferred into the hands of profiteering landlords (or high earners)? That looks suspiciously like a transfer of wealth from ordinary people to an elite capitalist class. Similarly, what about valuable but economically unproductive land that is just laying around looking pretty? If the idea is incentivise the productive use of that land, fine, an LVT does that; but what if we want to do the opposite and preserve it in an unspoiled state for the public to enjoy for free?

I’m not saying these problems are insoluble, but the devil would be in the detail.

“and find the courage to tax property”

Stamp duty, Capital gains tax, council tax.

What you are really trying to say is that the government should tax anyone who has the cheek to be rich enough to own a property.

No mention of all the massive problems surrounding an LVT either – notably the (common) case where homeowners have a valuable property but no cash to pay taxes, forcing them to sell, or the fact that it will be the government acting as judge of the value of land.

3. Albert Spangler

The logical conclusion from this is socially owned housing. Money would only be used to covere repair bills, and if someone was unemployed, they would simply not pay rent, rather than costing the taxpayer £250+ a month. When rent is payed, it could be used to purchase more houses, increasing housing stock availablity. Potentially, houses could be bought peicemeal in different areas, preventing the sink estates where deprivation is concentrated.

I’d suggest this be coupled with a tax on empty homes, coupled with strict regulation of, say, buying land and demolishing the houses to avoid the tax. Encourage the landlord to believe that it’s not worth paying the extra tax, so they sell them to increase the social housing stock.

I really can’t think of a less productive expense for a person than paying rent to landlords, except as some bizzare form of economic stimulus to homeowners.

Of course, I’m a deluded lefty radical, so this will never happen.

@Tyler

Stamp duty and Capital gains tax are very bad taxes. They target transactions and punish those who move houses, for example to get a new job. ALTER argues that LVT should replace these.

Council tax is a regressive mess and needs to be replaced urgently. It is actually consists of a fixed “poll tax” element with a property value component. For example, Band H homes are worth roughly 10 times as much as Band A homes (on average) but pay 3 times the amount of council tax.

If you think that is a good tax regime then I beg to differ.

But if you’re a private homeowner making no income from your home, or the owner of (say) a farm that becomes more valuable but no more profitable as a result of improvements in local infrastructure, there would appear to be no logic behind an annual charge (assuming we want to base tax liability on ability to pay). .

That is straightforwardly handled by transferring a share of the ownership instead of cash.

Might make more sense to reframe it as not a tax, just a natural fact that ownership of land (connected to the outside word, so perhaps not islands or anywhere with no roads, grid electricity etc.) inherently reverts to the state at a rate of say 1% a year. Then, as occupier, just like for council houses, you have the right to buy the share you don’t own at any time. Perhaps at a discount if the government of the day feels the economy needs nudging in that direction.

Once you realise that the _abscence_ of some system like that represents an ongoing wealth transfer, the popularity of the whole story of lazy scroungers makes much more sense; plantation owners in the US South were always going on about how lazy their slaves were. Becuase they were _their_ slaves; when you are taking the fruits of someone’s labour, then any lack of initiative and diligence on their part becomes your problem.

In the unlikely event that things got sufficently bad, they might even have to stop sipping mint juleps on the porch and get their hands dirty in the fields…

Tyler, for most home-owners (mostly mortgage payers as well) I don’t even think it’s a case of those who are ‘rich enough’. Most people I know who have bought their own property have done so after making certain sacrifices compared to their peers who opted for lifestyle over a secure roof over their heads.

I for one worked two jobs, went without holidays, or a car and many other things in order to afford a mortgage. Some of my friends, who worked one job, spent all their money on holidays, cars, and consumer goods are now stuck renting. I’m certainly not asking for sympathy, these were all my decisions. However, it hardly seems fair to tax those who have simply put their efforts into standing on their own two feet.

What’s more, property ownership is hardly a ‘free’ option. There are numerous costs associated with the maintenance, insurance, and upkeep of properties that any home-owner has to shoulder: mortgage interest, insurance, ground rent & maintenance (for leasehold properties), building & interior maintenance, the list goes on. Renters and social tenants do not have any of these costs to worry about. For landlords there are even more costs in terms of safety checks, insurance, and for many there is always at some point the cost of coping with rent arrears and damage to the property. I know that some will respond to that particular argument by saying that landlords should not be profiteering from people’s homes. To that I would draw your attention to the fact that a substantial proportion of landlords are accidental landlords, forced to rent out their properties due to financial circumstances.

I’ve no doubt that David’s language in this article is intended to be deliberately provocative in order to stoke debate and draw attention to his cause. However, to suggest that those who have taken the path of purchasing their own home are freeloaders is a risky strategy. Is that really where the Lib Dems want to draw the political line? Between renters and anyone who dares to wish for a small sense of stability from owning their own home? Because that’s exactly the sort of rhetoric that makes the Lib Dems or any other party for that matter, look deluded and out of touch.

Land owners do pay towards improvments. There are numerous taxes. An LVT will not have the intended effect as it punishes those who are asset rich, income poor, a factor we simply can’t ignore as it just so happens most of this catagory is the elderly.

It will also cause an endless mirade of administration problems valuing property and challenges to that value that it will cost more to enforce than it will raise. If only this issue was that simple.

Distinction needed here between Good and Bad landlords. Good landords will maintain their property, some even specialising in restoring empty properties. Bad landlords won’t, or just use letting agents to take care of everything (which means it doesn’t happen and both they and tennants get screwed).

Real issue behind rising rents is house price inflation generally, combined with lack of social housing. LVT would certainly help, but more needs to be done on top.

@ soru

“That is straightforwardly handled by transferring a share of the ownership instead of cash.

Might make more sense to reframe it as not a tax, just a natural fact that ownership of land (connected to the outside word, so perhaps not islands or anywhere with no roads, grid electricity etc.) inherently reverts to the state at a rate of say 1% a year. Then, as occupier, just like for council houses, you have the right to buy the share you don’t own at any time.”

Interesting. Thanks.

Tyler: “What you are really trying to say is that the government should tax anyone who has the cheek to be rich enough to own a property.”

If you endorse VAT, I suppose by the same token you’re “trying to say the government should tax anyone who has the cheek to be rich enough to buy anything.” An LVT would be a good deal fairer than many taxes which already exist today, starting with council tax which isn’t even levied on landowners but on occupiers.

Louise: “However, it hardly seems fair to tax those who have simply put their efforts into standing on their own two feet.”

But lots of people work hard and save up when they can, but don’t get houses. And there are plenty of people who inherit vast estates and never need do anything except collect rent in order to be awarded an enormous income. I agree it’s a bit unwise to suggest even small landowners are freeloaders, but it’s probably even more silly to pretend all landowners attained that status through virtuous moral rectitude, rewarded by a fair economy.

Taxation via property ownership is no more a punishment for success than taxation via income.

An LVT will not have the intended effect as it punishes those who are asset rich, income poor, a factor we simply can’t ignore as it just so happens most of this catagory is the elderly.

poor widows
http://markwadsworth.blogspot.co.uk/2013/01/killer-arguments-against-lvt-not-296.html

12. Mark Wadsworth

Brilliant! The first two comments include the usual Home-Owner-Ist tactic of making two claims which are not only incorrect (taken individually) but also cancel each other out.

“GO: That looks suspiciously like a transfer of wealth from ordinary people to an elite capitalist class”

“Tyler: What you are really trying to say is that the government should tax anyone who has the cheek to be rich enough to own a property”

I really wish you Home-Owner-Ists would decide between yourselves whether LVT is a subsidy to rich people or a tax on them, then we can debate sensibly.

In truth, both claims are completely wrong, and LVT is neither. It is a tax on the rental value of land, just like booze duty is a tax on booze, or fuel duty is a tax on fuel.

@ 4 DC

Was just pointing out property is taxed at the moment, not necessarily if it was the best way to do it.

That said, you don’t give any solutions to the problems I point out with an LVT. I could also add that an LVT would turn housing into a liability rather than an asset, likely depressing house prices (and in turn tax revenues). In turn that would affect individuals access to secured credit.

Nor do you take into account the fact that an LVT could actually end up being quite a regressive tax, increasing inequality, as those unable to buy might end up paying higher rents as landlords pass the tax on to tennants.

By all means argue for it, but at least cover the fact that there are lots of problems with an LVT.

@ 6 Louise

I was agreeing with you – I fail to see why those who work hard paying tax on their income should then be taxed again simply because they choose to invest that income in the form of a fixed asset like a home.

14. Chaise Guevara

“Everyone hates freeloaders. The evolution of human morality was driven partly as a response to the damage they did to social groups”

[Citation needed]

Yes, I know I’m not responding to the most important thing in the article, but this sort of thing is annoying.

@ Mark Wadsworth

The reason that Tyler and I are making contradictory claims is that we are two different people: one a right-winger concerned about the tax burden on the wealthy, and one a left-winger concerned about the concentration of assets in the hands of a capitalist class. As should be clear from what I wrote above, I’m very sympathetic to the idea of a Land Value Tax, and I don’t claim that the Little Old Lady problem is insoluble. Collecting the tax upon the sale of the house or the death of its owner is one option; soru suggests another, which is to have ownership of the house revert gradually to the state, in lieu of a tax being levied. Maybe there are other options. Maybe some will work better than others. Maybe there will be some downsides to an LVT and we’ll have to decide whether we’re prepared to live with them. Hence ‘the devil will be in the detail’.

16. Mark Wadsworth

Tyler: “you don’t give any solutions to the problems I point out with an LVT”

But you haven’t outlined any problems. You have outlined completely imaginary problems.

If Poor Widows trade down from their mansions that is A Good Thing but you claim it is a Bad Thing. And if we agree that it is a bad thing, is it beyond the wit of mankind to allow them to roll up and defer the tax until death? Whom are you trying to protect here – The Poor Widow or her heirs?

“the government acting as judge of the value of land”

Nonsense. LVT is based on current site premiums based on fair comparison of actual market rents and market transactions. Same as Business Rates.

17. David Cooper

@Louise
You are repeating the “sturdy smallholder fallacy”, which normally goes:
“I’ve worked all my life and paid taxes and have now saved enough money to buy a small free-holding to live self-sufficiently. I now owe nothing to society. Why should I pay taxes?”
There are at least two problems with this position:-
(1) If you really have a low cost free-holding, you won’t in practice be paying land taxes.
(2) Current taxes pay for current government expenditure. The taxes you and I paid yesterday were blown on yesterday’s wars and assorted government follies. You still vote, and you are as responsible as anyone for the fact that the government wastes money on foreign wars/ overseas aid/ protecting abused children/ health/ education/ prosecuting drug dealers/ prosecuting squatters (delete according to preference).
(3) Your ownership of your land incurs a liability on society. If you don’t believe this, look at the billions that the HST2 railway line is going to have to pay out to compensate existing landowners for lost value and mitigate impact. Curiously there is no clamour from those landowners who benefit to pay some of this back to the taxpayer.
So pay your taxes.

@Chaise Guevara
[citation needed] See David Sloan Wilson New Scientist 3 Aug 2011. Space did not permit the inclusion of this citation.

@Tyler
“no cash to pay taxes”
Since I am discussing a tax to capture the increasing value of the underlying land, by definition the land owner has an asset which can finance this tax.
The cash itself can be obtained from equity release schemes, as already happens. The “poor widow” can finance her liabilities fully this way (her heirs may not be pleased, but that is their problem).

18. Mark Wadsworth

Tyler comment 13 is on the Homey logic switchback today!

“I could also add that an LVT would turn housing into a liability rather than an asset”

Lie. Land and buildings will always be a net asset. The tax is only on the site premium, not the bricks and mortar rent or the bricks and mortar value.

“likely depressing house prices (and in turn tax revenues).”

Yes the selling prices of houses will fall, that’s an argument FOR LVT, not against. And taxes on the rental value of land do not affect the rental value of land one iota; if LVT receipts are used to replaces taxes on earnings, then rental values and the LVT tax base will go UP.

“In turn that would affect individuals access to secured credit.”

Yes, but we just agreed that house prices would go down, so there is less need for “secured credit”, what’s the problem?

“Nor do you take into account the fact that an LVT could actually end up being quite a regressive tax, increasing inequality, as those unable to buy might end up paying higher rents as landlords pass the tax on to tenants.”

Woo hoo! Having first claimed that LVT is a tax on rich people who own land, he now reverts to GO’s position that LVT is a tax on poor people who don’t own land. And in the real LVT-free world, this is exactly what we are seeing – an ever greater concentration of land in fewer and fewer hands (baby boomers) and younger people being frozen off the ladder. LVT would sharply reverse this process!

A bit of intellectual coherence, please?

@ UK Liberty, thanks for the link :-)

19. Mark Wadsworth

Tyler comment 13 is on the Homey logic switchback today!

“I could also add that an LVT would turn housing into a liability rather than an asset”

Lie. Land and buildings will always be a net asset. The tax is only on the site premium, not the bricks and mortar rent or the bricks and mortar value.

“likely depressing house prices (and in turn tax revenues).”

Yes the selling prices of houses will fall, that’s an argument FOR LVT, not against. And taxes on the rental value of land do not affect the rental value of land one iota; if LVT receipts are used to replaces taxes on earnings, then rental values and the LVT tax base will go UP.

“In turn that would affect individuals access to secured credit.”

Yes, but we just agreed that house prices would go down, so there is less need for “secured credit”, what’s the problem?

“Nor do you take into account the fact that an LVT could actually end up being quite a regressive tax, increasing inequality, as those unable to buy might end up paying higher rents as landlords pass the tax on to tenants.”

Woo hoo! Having first claimed that LVT is a tax on rich people who own land, he now reverts to GO’s position that LVT is a tax on poor people who don’t own land. And in the real LVT-free world, this is exactly what we are seeing – an ever greater concentration of land in fewer and fewer hands (baby boomers) and younger people being frozen off the ladder. LVT would sharply reverse this process!

A bit of intellectual coherence, please?

Just to be clear here: I’m not just re-stating the Poor Widow problem. My line of thinking is this:

A Land Value Tax incentivises the use of property to generate profit, by making it less viable simply to sit on assets and wait for their value to rise. That seems like a very sensible incentive to have in place in some ways: e.g. it incentivises the owners of empty houses to sell them on or fix them up and rent them out to people who will actually use them. It gets money that has been sucked out of the economy and left in limbo back in circulation.

So far, so good. But the nature of that incentive means you’re also nudging owner-occupiers, especially those with limited incomes, towards selling their homes. Who to? Either owner-occupiers with higher incomes, or property investors/landlords. That’s fine if the object of the exercise is just to raise tax revenue, but in a way it seems like admitting defeat: accepting that land and property are going to become ever more concentrated in the hands of the rich and all we can do about it is tax them.

Again, I’m not suggesting there’s an insurmountable problem here. But there is room for discussion about the details of what a Land Value Tax should be trying to achieve and how, what its unintended consequences might be and how we can guard against them, etc.

21. Renie Anjeh

It would be very interesting to see if the Liberal Democrats could make a Land Value Tax, part of the next Budget (I doubt it very much). Personally, I like the idea of a land value tax and it is one of those good ideas that is so old Labour that it could be traced back to Thomas Paine. I hope that if Labour gets elected, they’d replace Council Tax with a Land Value Tax which would also incentivise housebuilding on brownfield sites and use the extra revenue that ALTER recommend should cut stamp duty and Capital Gains Tax (in other words tax cuts for the rich), to cut VAT back to 17.5% or reintroduce the 10p tax band. Ed Balls – I hope you’re reading!

22. David Cooper

@GO 20
“you’re also nudging owner-occupiers, especially those with limited incomes, towards selling their homes”

This is the opposite of the truth since at present property wealth is more highly concentrated than income. The top 1% wealthiest own almost 25% of all property, whereas the top 1% in income get about 8% of all income. So taxing income favours the already wealthy at the expense of the “strivers”.

By shifting the tax burden from work towards wealth and property, it is more likely that the wealthiest would be “nudged” to sell their property, thus reducing wealth concentration.

This is precisely is why I am personally so keen of LVT! There is a leaflet published by ALTER, “LVT- the social justice argument” that backs this up.
See:-
http://libdemsalter.org.uk/en/document/documents-on-lvt-produced-within-alter

Or, to quote John Stuart Mill:

‘They grow rich, as it were, in their sleep without working, risking, or economizing. What claim have they, on the general principles of social justice, to this accession of riches? In what would they have been wronged if society had from the beginning reserved the right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies?’

A land value tax is a good idea, and it is Pirate Party policy.

“But the nature of that incentive means you’re also nudging owner-occupiers, especially those with limited incomes, towards selling their homes. Who to?”

As the majority of LVT proposals aim to replace council tax (and a whole host of other taxes), then it is quite likely homeowners living in one home will simply pay it out of their wages like they do council tax at the moment. (as do some pensioners from their pensions)

There is only a potential issue when we consider what happens in the event of loss of income due to job loss. But this is a far bigger issue with council tax because council tax benefit typically won’t cover the average household on a temporary basis unless all adults lose their jobs and spend a period of time on benefits (it tends to be paid to workless households over the long run – it probably won’t be there to cover 2 months or so). So in the vast majority of homeowner cases (who typically aren’t at risk of long term unemployment) the biggest struggle is often council tax, where a missed payment can often lead to court action and a ruined credit record.

An LVT that simply rolls over unpaid tax into equity (and can be purchased back when the person gets another job – like an interest free loan) is a far better long term solution. Issue remains in the cases of those homeowners who become too disabled to work, in which case I’d say benefits system should cover this – but that is a whole other discussion.

@ 22 David Cooper

Thanks for the answer, and the link.

I read the article and I’m afraid I’m still struggling to join the dots.

I appreciate that, given the very uneven distribution of property wealth we have at present, the burden of a Land Value Tax will fall primarily on a wealthy elite. I appreciate that the majority of people in that elite group have high incomes as well as significant assets. I appreciate that a Land Value Tax is a way for the state to get its hands on hoarded wealth that income tax leaves untouched, thus making it possible to shift the tax burden towards the rich.

But I still don’t see why it’s ‘the opposite of the truth’ that “you’re also nudging owner-occupiers, especially those with limited incomes, towards selling their homes”.

As you point out in that article, taxes of the sort you propose ‘encourage efficient use’ of property – presumably by making it less financially viable to own property that generates no income. But some of the property in that category is owned not by property speculators or landlords, but by its occupiers. Hence it’s going to be less financially viable – all else being equal – for people to own their own homes.

There might be very good answers to that point along the lines of ‘yes, but all else is *not* equal because… income tax would be lower/owner-occupiers would have the option of paying the tax when their home is sold/whatever,’
but again, this is why I’m saying the detail is important.

Look at it this way:

Some people might think the British obsession with home ownership has been (on balance) a Bad Thing because of its role in driving up personal debt, concentrating wealth in the hands of people old enough to have paid off a mortgage (and their heirs), taking money out of circulation in the economy to sit around in the form of bricks and mortar doing nothing for growth, etc. They might favour a tax system that nudges people towards renting rather than buying their homes, increases the proportion of housing stock on the private rental market, and generally favours the use of property as an income-generating asset rather than a capital investment made by property speculators or owner-occupiers.

Others might think it’s a Bad Thing that so much property is owned not by the people who live in it, but by a wealthy, elite class of capitalist landlords to whom those people must pay rent. They might favour a tax system that makes it easier for ordinary people to own the homes they live in, and/or harder for wealthy people to make money by buying up and renting out property and land, so that over time the proportion of housing stock on the private rental market falls.

Which group is a Land Value Tax supposed to appeal to? Or is it supposed to be a “best of both worlds” option that takes the sting out of some of the worries expressed on both sides? Or does it depend on the details of the LVT proposal and the policy package of which it is part?

Of course, an instant end to railway improvements and road building, financed by taxpayers, should bring to an end the inequity of the transfers of the benefits to landlords from improved infrastructure.

Is that part of the policy? Could it be that a change in land values doesn’t reflect the value of added social benefits flowing from infrastructure improvements? What is this that I keep reading about investment in HS2 and a Third Runway at Heathrow blighting property values?

The prblems with introducing LVT are: (a) the practicality since property valuations are an uncertain science so there will be endless appeals; (b) the burden of LVT will disproportionately hit the London and South East regions, which are already the main net contributors to the national exchequer and through IHT.

Bob B, with a bit of application of common sense, the answers are as follows:

a) Simply not true.

http://markwadsworth.blogspot.co.uk/2012/12/the-army-of-surveyor-updated.html

b) Yes, a tax on land values raises most revenue from areas where land values are highest, duh. But income tax raises most revenue from areas where incomes are highest. By and large, land values are highest where incomes are highest. it’s the same areas. So if we replace income tax with LVT, there is no reason to assume that London/South East would end up paying significantly more.

Mark Wadsworth:

“a) Simply not true.”

That is simple rubbish, the sort of predictable rubbish to be expected from estate agents.

Property valuations are not an exact science – studies and personal experience have produced examples of divergent values for the same property.

In the early 1970s, I was a member of a local appeals panel for rateable values and there was an unending series of appeals due to changes of view/day light/nuisance etc. There are currently vociferous complaints that proposals for HS2 and a third runway at Heathrow have blighted property values. Would that be taken account of with a LVT? What of other highway projects – such as the Hastings bypass on which work as well as grannie protests have just started?

The suggestion that LVT, with all its pitfalls, would be a workable alternative to income tax is laughable.

30. David Cooper

@GO
LVT must fundamentally be seen in the context of a tax shift: moving the tax burden off productive work and enterprise onto the consumption of resources, especially land.
You are quite right when you say “There might be very good answers to that point along the lines of ‘yes, but all else is *not* equal because… income tax would be lower… this is why I’m saying the detail is important.” But this is not a “detail”. The shift from taxes based on income, and also transactions taxes such as stamp duty, is fundamental. Taxes on production and enterprise are economically harmful and where possible should be replaced by taxes on non-productive activity.
Taxing land is attractive, since its supply is almost inelastic [although not quite- consider the proposed Boris Island], and it cannot be moved offshore. You may have heard of the “Laffer curve” which reflects that fact that when a commodity with elastic supply (such as work) is taxed, the supply tends to decrease as the tax rate increase. This does not happen with land.
LVT appeals to a range of groups. Its attracts to free market capitalists because it reduces the tax burden on enterprise. It appeals to libertarians who believe that the state should not pry into the details of the business dealings and financial activities of individuals and companies, and who realize that a tax levied on a parcel of land is one of the least intrusive sort of tax that can be imagined (in principle the state would not even have to know the identity of the land owner, provided that the tax arrived regularly). It appeals to those such as myself who believe that inequality is damaging to society (as shown by Wilkinson & Pickett), since LVT levied on wealth rather than income, and the holding of wealth (including land) is more unequal than the receipt of income.
Regarding ownership of land, the LVT movement has no opinion I am aware of about who should own land. The point is that the land owners should not be capturing the “uplift” that is created by the activities of society generally.
The LVT movement is, however, split between so called “Georgists”, followers of the 19th century American economist Henry George, who believe that all taxes should be replaced by LVT, and pragmatists represented by organizations such as Libdem ALTER. My personal opinion is that the “poor widow problem” would be solved by allowing her to buy an annuity against the title of her property, which offsets the LVT liability; but this means that LVT cannot be set higher than such an annuity.
Hope this helps.

@ David

Thanks for that.

“But this is not a “detail”. The shift from taxes based on income, and also transactions taxes such as stamp duty, is fundamental.”

I understand that the principle itself is not a mere detail. But the details of how that principle is put into practice – e.g. the rates at which LVT and income tax are set, the range of other taxes abolished or reduced, the arrangements made to solve the “poor widow” problem, etc. – still have implications for the consequences of implementing the policy (e.g. its distributional impact).

“LVT appeals to a range of groups… free market capitalists… libertarians… those such as myself who believe that inequality is damaging to society (as shown by Wilkinson & Pickett), since LVT levied on wealth rather than income, and the holding of wealth (including land) is more unequal than the receipt of income.”

I think this is where I start to hear alarm bells. I’m in the ‘anti-inequality’ camp, so the suggestion that LVT appeals to defenders of an unequal social structure, in which property is owned by a wealthy elite paying wages and charging rent to everyone else, makes me wonder what they know that I don’t about the long-term consequences of implementing this tax.

Worth noting, too, that I think Wilkinson and Pickett are talking specifically about income inequality. And indeed, it’s only income inequality that LVT seems to be intended to tackle:

“Regarding ownership of land, the LVT movement has no opinion I am aware of about who should own land.”

- which means it doesn’t mind if the distribution of wealth is very unequal.

Alarm bells again. I’m not convinced that it doesn’t matter who owns land so long as they pay tax for the privilege of owning it. (Nor am I convinced that it *does* matter and that more land ought to be in the hands of owner occupiers, or private landlords, or the state, or housing associations; but I’d want to think about all this some more before I signed up to a policy that (presumably?) has long-term implications for who owns land, how it’s used, what rents are charged, etc. At one time I was happy enough with the New Labour model on which capitalists own the assets and take the profits and the state then swoops in to tax them and redistribute a share of those profits, but I’m less and less convinced that that’s good enough. So I’d be concerned if LVT worked on that model.)

32. David Cooper

@GO
“But the details of how that principle is put into practice”
For an example of a detailed LVT implementation plan, see:-
“A LAND VALUE TAX FOR SCOTLAND A report prepared by Andy Wightman for the Green MSPs in the Scottish Parliament”
I’m afraid there is no equivalent document for England.

“The suggestion that LVT appeals to defenders of an unequal social structure, …makes me wonder what they know that I don’t”
I cannot speak for the right wing supporters of LVT, but I imagine they know that the UK needs to shake off the dead hand of vested property interests. The richest British born individual is the Duke of Westminster, whose family owns of the central London Grosvenor estate. To keep such individuals in the state they are accustomed to, Britain has suffered a century of social stagnation and relative economic decline. The continuation of this decline worries some more sensible right-wingers, who possibly don’t want us to end up like Greece, i.e. socially highly unequal but globally irrelevant.

“[The LVT movement] doesn’t mind if the distribution of wealth is very unequal”
Some LVT supporters don’t. But the fact is that LVT is a highly effective means of addressing wealth inequality. Shifting tax to wealth addresses wealth inequality, especially when wealth is more concentrated than income. I don’t see how you think it impacts income rather than wealth inequality.

I would have thought that a wide spectrum of support would be a good sign, and should not ring alarm bells. Believing that no good ideas can come from the other side of the political spectrum is the height of narrow minded tribalism.

@ David

“I would have thought that a wide spectrum of support would be a good sign, and should not ring alarm bells. Believing that no good ideas can come from the other side of the political spectrum is the height of narrow minded tribalism.”

Let me explain myself here with reference to a policy idea that has come from the other side of the political spectrum and that enjoys a wide range of support: the raising of the Personal Allowance to £10,000.

Prima facie, the policy is very appealing. However, when I learn that it was touted for years by people on the Tory Right before being adopted by the Lib Dems, I start to hear alarm bells. What do they know that I don’t?

I look into it and discover that the impact of the policy is notoriously regressive. Some poor people are indeed ‘lifted out of tax’, at a cost of £1bn or so, but this is dwarfed by the £10bn of tax cuts going to households in the top half of the income distribution. I start to see the policy in the context of the right-wing dogmas that tax cuts can solve any problem better than public spending, and that the tax burden should be shifted from direct to indirect taxation. Sure enough, when the policy is implemented, it comes as part of a package that includes cuts to benefits and tax credits and a rise in VAT. The poor, even those ‘taken out of tax’, see their net tax burden increase and their net incomes fall.

So while I don’t dogmatically insist that every idea the Tories have must be wrong – I think the flat-rate pension looks like a good idea, for instance – I don’t apologise for being wary of policies that are endorsed by people whose values, convictions and priorites are quite different from mine.

“But the fact is that LVT is a highly effective means of addressing wealth inequality. Shifting tax to wealth addresses wealth inequality, especially when wealth is more concentrated than income. I don’t see how you think it impacts income rather than wealth inequality.”

Now I’m confused. To address wealth inequality would be to see that wealth was more evenly distributed – i.e. that assets such as property were less concentrated in the hands of an elite few. But you said previously that the LVT movement has no opinion on who should own property. I took that to mean: it doesn’t matter if property is owned mainly by a few people at the top or is more evenly distributed, so long as people pay tax on the value of the property they own. You haven’t (I think) proposed any mechanism by which the imposition of LVT would lead to property ownership being more evenly distributed. But obviously part of the point of LVT is to reduce the overall amount of tax paid by less well-off people while increasing the overall amount of tax paid by better-off people, hence boosting the net incomes of the former and reducing the net incomes of the latter. And that addresses *income* inequality.

If you shift the tax burden from John to his landlord Jack by abolishing income tax and introducing LVT, but Jack retains ownership of the house John lives in, they are as unequal as they ever were in terms of wealth/property. It’s their net incomes that have moved closer together.

34. David Cooper

@GO (33)

“If you shift the tax burden from John to his landlord Jack by abolishing income tax and introducing LVT, but Jack retains ownership of the house John lives in, they are as unequal as they ever were in terms of wealth/property… their net incomes that have moved closer together”

You are correct. However, since income (less outgoings) is the rate at which wealth increases (decreases), by reducing John’s outgoings and increasing Jack’s, over time their wealth inequality will tend to decrease (unless John goes on a spending binge).

Be aware that landlord Jack can’t shift the tax burden to tenant John, since Jack is already charging as much as the market will bear, assuming he is operating on a commercial basis.

for legal reasons,i am going to be very carefull what i say here,but there is evidence now that the tory strategy of turning the working poor against the non working poor can lead to violence betreen working class communitys,the fact that even big issue sellers who are the poorest of the poor can turn against each other over whos pitch it is can lead to murder is very worrrying.i am not saying that is the case here in what happened in birmingham yesterday,but there is evidence growing that this is what exactly happened when these 2 men got stabbed to death over whos pitch the big issue was being sold on.

Given the theme of this piece by David Cooper,rather than dream up schemes introducing LVT, a better reform would be restore the system of controlling rents which existed up until 1989. (Even Margaret Thatcher was able to live with rent control for 10 years).

Unfortunately, those who forget the mistakes of the past are condemned to repeat them. Historically, local taxation of land in Britain seems to get reformed in a 20-25 year cycle – 1925, 1948,1967 and last in 1988. History seems to be repeating itself and the Government are gearing up for another predictable disaster; the way we are going there will ultimately be another property crash and house prices will collapse. I predict this will partly be because rental returns will collapse as rents become unaffordable and the housing benefit system which props it up will finally collapse. Certainly from this year a deliberate non-payment of council tax campaign is likely to start and this could also be followed by rent strikes.

Shortly before the 2010 election I actually had the pleasure of speaking with Dr Therese Coffey MP about the situation. She rested under the illusion that the most costly welfare payment in Britain was incapacity benefit (having temporarily forgotten the existence of pensioners). But more serious was her lack of awareness that the second most expensive benefit in Britain is housing benefit at £21-22 billion per year.
Created in its present form in 1987 under the Housing Benefit (General Regulations) 1987 and consolidated in 2006, housing benefit has provided a welfare state for landlords since the abolition of rent control in 1989. Human nature being what it is, landlords have increased rents knowing British taxpayers are picking up the tab. Scenting easy money many foreign investors got wise and bought up former council properties in London. Free to choose whatever level of rent they wish, they now rent these back to British people on low incomes, pensioners and the disabled, with housing benefit paying the bulk or all of the bill. This money then flows out of the United Kingdom, permanently lost to the UK economy, enriching the already wealthy in Ireland, Italy, India, Nigeria, Morocco, Egypt, South Africa, Cyprus, Latvia, Bangladesh and the Lebanon, to give a few examples I have encountered during at repossession hearings in London. In fact I have met only a couple of British-based landlords in three years. Housing benefit also allows ample opportunities for fraud with the most successful ring-leaders again based overseas. In short, the abolition of rent control has been nothing short of disastrous in the UK for all but a small minority of people.
Just think of what else could have been done with the billions given to landlords in housing benefit. Much of the deficit could have been paid off, we would not have scrapped the Ark Royal and the money would have been available for numerous things for the public good. We might even have won the Afghan War if our soldiers had been properly supplied and equipped.

But no, although scientifically trained, Dr Coffey along with too many others in politics retains a semi-mystical belief in the free market and presumes that allowing landlords charge whatever they want will somehow benefit the rest of us. Perhaps someone can explain the morality of cutting benefits for the poor in the UK pay more whilst enriching wealthy landlords abroad?
Just how long will those in politics endorse a rental system that has clearly failed? Or is it South African chardonnays, Egyptian beers and Latvian vodkas all round in the bars at the Palace of Westminster these days, at the expense of the rest of us?

Still, I expect we will have a lot more talk about gay marriage and plenty of pictures of Samantha Cameron on her bicycle before these harsh questions are faced or answered.

@ David

“However, since income (less outgoings) is the rate at which wealth increases (decreases)”

That can’t be right, surely? Isn’t it part of the principled case for LVT that increases in certain forms of wealth (e.g. value of land owned) might be independent of increases in income – neither resulting from the accumulation of legitimately earned income, nor leading to increases in unearned income (e.g. if properties are left empty) – and that it’s therefore right in principle and necessary in practice to levy a tax directly on those forms of wealth rather than using income as a proxy?

“by reducing John’s outgoings and increasing Jack’s, over time their wealth inequality will tend to decrease (unless John goes on a spending binge).”

Lower income do have a higher marginal propensity to consume/’go on spending binges’ of course.

But bearing those two points in mind, yes, I can see that there’s a mechanism there which would tend to decrease the rate at which wealthy people are able to accumulate yet more wealth and increase the rate at which some low-income people are able to do so. So fair enough, maybe LVT *does* address wealth inequality to some degree.

“Be aware that landlord Jack can’t shift the tax burden to tenant John, since Jack is already charging as much as the market will bear, assuming he is operating on a commercial basis.”

Hmm. Jack is charging as much as the *current* market will bear, but surely if the implementation of LVT (plus income tax cuts) leads to a general increase in the net incomes of lower-income people looking for rented accommodation, surely the market is going to be able, all else being equal, to bear higher charges?

So whether (some of) that tax burden can be shifted to tenants is going to depend, I think, on what else happens. If a lot of currently empty houses come on to the rental market, that would help to hold rents down. If there were a fall in the number of people looking for rented accommodation (because more people had the means to buy their own homes), that would also help. Conversely, if people were put off buying a home by the prospect of paying LVT, that would tend to increase demand for rented property and so drive *up* rents.

Valuation is an art, not a science – and I’m very familiar with present value calculations.

We need only to look at the regular controversies over the value of M&A takeover bids and the differences between the sale and asking prices of houses to gain insight into how fragile valuations are. But I’m sure surveyors and estate agents will be looking forward to all the new valuation business that would be generated by introducing LVT and the ensuing endless appeals.

Btw what was all that about RBS and the price it paid for ABN Amro?

39. David Cooper

@Bob B
“…how fragile valuations are”
Curious, because our current Business rate system relies on valuation and does not excessively suffer from this problem. Also, areas with LVT (such as Taiwan, Singapore, parts of Australia and certain cities in the USA) seem to manage. I don’t believe your statement tallies with fact.

@GO (37)
“it’s therefore right in principle and necessary in practice to levy a tax directly on those forms of wealth rather than using income as a proxy”

True. That how LVT works.

“the market is going to be able, all else being equal, to bear higher charges?”

True. That is a welcome effect of an expanding economy.
In fact, something like this happens today in Hong Kong, where most government revenue is raised from property sales (HK govt. owns all land, and sells 50 year “usage rights”); income tax is low and many don’t pay any. As a result, the HK government is very keen on infrastructure spending, since this is quickly recouped by increased land value. That’s how the new HK airport was financed in the 90′s.

@ GO

“Hmm. Jack is charging as much as the *current* market will bear, but surely if the implementation of LVT (plus income tax cuts) leads to a general increase in the net incomes of lower-income people looking for rented accommodation, surely the market is going to be able, all else being equal, to bear higher charges?
So whether (some of) that tax burden can be shifted to tenants is going to depend, I think, on what else happens. If a lot of currently empty houses come on to the rental market, that would help to hold rents down.”

Why are you saying IF? Surely it’s a no brainer that if there was a large FIXED cost associated with a site whether it is empty or not, then there would be minimal economic incentive to keep it empty? Of course those empty properties would come onto the market; of course underused properties will come onto the market; of course valuable undeveloped real estate will be developed. So rents would be held down.

“If there were a fall in the number of people looking for rented accommodation (because more people had the means to buy their own homes), that would also help.

Conversely, if people were put off buying a home by the prospect of paying LVT, that would tend to increase demand for rented property and so drive *up* rents.”

How would it drive up rents? If people didn’t want to buy then the supply of houses for rent would increase. Remember that the charge is the same on a site whether it is rented or occupied by the owner. So people who can’t sell their property aren’t going to keep them empty.

@ Nutty

“Why are you saying IF?”

To leave room for the fact that some of those properties will be sold to owner-occupiers rather than rented out. But yes, I’m sure many of them would come on to the rental market.

“If people didn’t want to buy then the supply of houses for rent would increase. Remember that the charge is the same on a site whether it is rented or occupied by the owner. So people who can’t sell their property aren’t going to keep them empty.”

That’s a good point.

David Cooper

“I don’t believe your statement tallies with fact.”

Really? How come the regular contention over M&A takeover bid prices or the spread between the sales and asking prices for houses if valuations are so solid and uncontested? Why did RBS overpay for ABN Amro leading to the collapse of RBS and the bailout of the bank with taxpayers’ money?

In the early 1970s, I was a member of an appeals panel on ratable values when there was an endless succession of appeals arising from changes in view (if land on the other side of the road was developed), daylight being blocked out by approved new developments, or from increased nuisance (often because of pub traffic or a fish ‘n chip shop opening nearby).

The scope for appeals depends on the precise wording of relevant legislation. In the news currenly are complaints that properties affected by proposals for the HS2 and a third runway at Heathrow are being blighted. So much for the claims that property values inevitably improve with infrastructure investments. Londoners will take an awful lot of convincing that they won’t be disproportionately hit by LVT, especially as that was not a factor taken into account by the market when they bought their house.

In all, LVT looks like another estate agents’ scam and another attempt to add to the tax burdens of residents in London and the SE regions when they are already the main net revenue contributors to the national exchequer.

How come the regular contention over M&A takeover bid prices or the spread between the sales and asking prices for houses if valuations are so solid and uncontested?

The market already values houses. Why not read Mark Wadsworth’s link?

NSW, Hong Kong, Pennsylvania, Taiwan, Estonia – all using something that apparently is impossible.

“The market already values houses.”

I know that but there are often spreads between the asking and sale prices of houses so there must be differences in the valuations between owners and buyers. In most of Britain at present, there is a buyers’ market with falling prices but in buoyant markets gazumping goes on. As a fact, valuations are not as solid as claimed.

“NSW, Hong Kong, Pennsylvania, Taiwan, Estonia – all using something that apparently is impossible.”

You evidently have comprehension challenges. I didn’t say it was impossible to create LVT. What I’ve said it that there are many wrinkles with LVT, including the disproportionate effect on residents in London and the SE regions when LVT was not a factor taken account off when houses were bought by current residents.

I’ve also challenged the claim that infrastructure investment adds to land values by noting the many complaints over how proposals for HS2 and the third runway at Heathrow have blighted local property markets.

Would a LVT take into account cases where infrastructure development reduces land values? The scope for valuation appeals depends on the precise wording of the legislation and we’ve had nothing here about how LVT works in those other places or the extent to which it has replaced income tax or other property taxes. A regular complaint about the burden of domestic rates upon house owners is that the rates take no account of how many residents are living in a property – and nor would LVT.

I remain of the opinion that LVT is another estate agents’ scam to attract valuation commissions and that LVT would disproportionately add to the tax burdens of London residents. In the news tonight:

Eric Pickles: Influx of migrants will ’cause problems’ for the housing market

Ministers have refused to disclose how many Bulgarian and Romanian migrants could move to the UK next year despite admitting the “influx” could lead to housing shortages.
http://www.telegraph.co.uk/news/politics/9798634/Eric-Pickles-Influx-of-migrants-will-cause-problems-for-the-housing-market.html

That influx is highly likely to disproportionately affect the land values of London residents because immigrants are disproportionately drawn to settle in London – the 2011 census reported that 37pc of London residents were born abroad. There’s no where else in Britain like that.

“NSW, Hong Kong, Pennsylvania, Taiwan, Estonia – all using something that apparently is impossible.”

You evidently have comprehension challenges.I didn’t say it was impossible to create LVT.

It seems reasonable to infer from your comments that you think we shouldn’t do it.

Meanwhile, other entities seem to be getting along fine with it.

ukliberty: “It seems reasonable to infer from your comments that you think we shouldn’t do it.”

Only by thickos since the inference is invalid. I’ve repeatedly set out wrinkles with introducing LVT which you have conspicuously not responded to.

We have had no details on LVT in “NSW, Hong Kong, Pennsylvania, Taiwan, Estonia”, about appeals procedures on land valuations and whether LVT in those countries is a complete or partial substitute for other taxes, including business and domestic rates or income taxes. Valuations are not indisputable, short of actual market transactions, and LVT would disproportionately affect the London and SE regions.

More settlement of migrants from eastern Europe in London – three cheers for Tony Balir – will add pressure to London land values.

I’ve repeatedly [and repetitively] set out wrinkles with introducing LVT which you have conspicuously not responded to.

But others have, and better than I. But you have not responded to them.

You’re usually fond of learning lessons from other countries.

ukliberty: “But others have, and better than I.”

That’s nonsense.

As for learnings from other countries, we have no details on whether LVT in those other countries is a compalete or partial substitute for other property taxes and/or income tax or as to appeals procedures on valuations.

There are good reasons why residents in London and the SE region should resist LVT since they aleady bear a disproportionate tax burden. All that we have here is a set of half-baked proposals and no satisfactory responses to a load of important issues. This has all the apprearances of yet another estate agents’ scam in search of valuation commissions.

the burden of LVT will disproportionately hit the London and South East regions

Londoners will take an awful lot of convincing that they won’t be disproportionately hit by LVT

What I’ve said it that there are many wrinkles with LVT, including the disproportionate effect on residents in London and the SE regions

LVT would disproportionately add to the tax burdens of London residents [same post as the previous quote!]

the burden of LVT will disproportionately hit the London and South East regions

LVT would disproportionately affect the London and SE regions

There are good reasons why residents in London and the SE region should resist LVT since they aleady bear a disproportionate tax burden

I think Bob’s suggesting LVT would disproportionately affect London and SE, but I’m not sure.

it is not true that valuing land is problematic, as opponents or sceptics of land value taxation often assert – often the same people who quite happily accept the valuation of buildings, even though this is more difficult.Valuing land, especially in towns, which is where the most valuable land is located (because it is in high demand) is much simpler, because, as discussed, it depends essentially on location. Indeed, in the United States where split-rate tax systems operate, according to a valuer in one city, some 95 per cent of his valuation staff is employed valuing buildings, whilst only 5 per cent is involved in valuing land.Moreover, invariably, there are many more appeals against the valuation of buildings than of land, with authorities winning more appeals on land than on buildings. – Land Value for Public Benefit http://www.labourland.org/lvt/what_is_lvt.php

A comprehensive valuation of all land in Scotland would be required. This is technically straightforward even taking into account the relative unfamiliarity of valuing land separately from improvements.Valuers in Scotland have no difficulty in general in valuing land and property for a range of purposes. The only difference between current valuations carried out for capital gains tax, business rates or compensation appeals is that they are normally of the whole property (i.e. land and buildings together). All that needs done to value land alone is to adopt the familiar Residual method based upon the following process:valuation of the property (market price of land and buildings) less depreciated replacement costs of the buildings equals land value.

Land valuation is often claimed to be a dark art, but in fact it is already routinely done around the world in countries such as Denmark. All over the world, valuers routinely value land in order to collect land taxes.

Pilot studies in Oxfordshire and Glasgow have concluded that there
are no insurmountable barriers to the adoption of LVT in the UK.
– LVT in Scotland http://www.andywightman.com/docs/LVTREPORT.pdf

@Bob

“I know that but there are often spreads between the asking and sale prices of houses so there must be differences in the valuations between owners and buyers. In most of Britain at present, there is a buyers’ market with falling prices but in buoyant markets gazumping goes on. As a fact, valuations are not as solid as claimed.”

LVT is based upon the annual rental value not on the selling price.

“What I’ve said it that there are many wrinkles with LVT, including the disproportionate effect on residents in London and the SE regions when LVT was not a factor taken account off when houses were bought by current residents.”

The most expensive sites are commercial especially with many in central London. Much of this land is owned by a handful absurdly wealthy individuals (such as the Duke of Westminster) the burden will fall heavily on them. Especially compared to what they currently pay in tax. For the bog standard owner occupier South Easterner it would be a tax shift at worst (taking into account the reduction in other taxes). For any South Easterner that rents (a significant amount of people) it would act as a huge reduction in burden as LVT would be taken out of their rent and would fall on the their landlord, whilst they get to keep more of their income and pay less for goods and services.

“I’ve also challenged the claim that infrastructure investment adds to land values by noting the many complaints over how proposals for HS2 and the third runway at Heathrow have blighted local property markets.”

You’ve carefully selected your examples here. It’s quite clear that infrastructure can only add value to the areas it serves. HS2 is not designed to serve the countryside it will “blight”; it will just cut right through it, the areas that it will serve (Birmingham, Old Oak Common, Euston amongst many others served indirectly) will see an uplift in land value and by far more than any area it depresses. Railways serve areas with railway station and its that that adds value.

Heathrow Airport’s problem is the fact that its flight path is over London and unlike railway stations there doesn’t seem to be as much reason to live an airport’s immediate vicinity. Its impact on land value is encompasses a much wider area of West London and the M4 corridor.

“Would a LVT take into account cases where infrastructure development reduces land values?”

Of course it would. It would take into account any reduction in land value.

“ A regular complaint about the burden of domestic rates upon house owners is that the rates take no account of how many residents are living in a property – and nor would LVT.”

Why should it?

“Eric Pickles: Influx of migrants will ’cause problems’ for the housing market”

In its current guise, not with LVT.

“Ministers have refused to disclose how many Bulgarian and Romanian migrants could move to the UK next year despite admitting the “influx” could lead to housing shortages.
http://www.telegraph.co.uk/news/politics/9798634/Eric-Pickles-Influx-of-migrants-will-cause-problems-for-the-housing-market.html
That influx is highly likely to disproportionately affect the land values of London residents because immigrants are disproportionately drawn to settle in London – the 2011 census reported that 37pc of London residents were born abroad. There’s no where else in Britain like that.”

They are disproportionate drawn to settle in London because that’s where the jobs are and that’s where most of the investment is. LVT would pull investment into the regions, into the marginal areas and increase jobs and opportunity there relieving the burden on London and the South East. It would make it very cheap to live and do business in marginal areas such as the North East and would encourage migration to those places.

“Take now… some hard-headed business man, who has no theories, but knows how to make money. Say to him: “Here is a little village; in ten years it will be a great city-in ten years the railroad will have taken the place of the stage coach, the electric light of the candle; it will abound with all the machinery and improvements that so enormously multiply the effective power of labor. Will in ten years, interest be any higher?” He will tell you, “No!” Will the wages of the common labor be any higher…?” He will tell you, “No the wages of common labor will not be any higher…” “What, then, will be higher?” “Rent, the value of land. Go, get yourself a piece of ground, and hold possession.” And if, under such circumstances, you take his advice, you need do nothing more. You may sit down and smoke your pipe; you may lie around like the lazzaroni of Naples or the leperos of Mexico; you may go up in a balloon or down a hole in the ground; and without doing one stroke of work, without adding one iota of wealth to the community, in ten years you will be rich! In the new city you may have a luxurious mansion, but among its public buildings will be an almshouse.”

Who caused this uplift in land value:

The pipe smoker?
The tooth fairy?
The people who paid for the roads, the lights, the schools, the police, hospitals, sewage system, the legal system that enforces contracts?

Would this uplift in land value occur without a legal system saying who owns what?

If there was a town of houses built in isolated fields with no roads, lights, schools, police, hospitals, sewage system, legal system that enforces contracts. Would providing those things not cause an uplift in prices?

Who collects this uplift in land value?
Who pays them?
Does basic common sense not suggest that by the same amount the person collecting the uplift in land value is better off, the person who is paying them is worse off?
Did the person collecting the uplift cause the uplift?
Is that not an unearned increase in wealth?
Would such a system not lead to a scenario of land speculation to collect the uplift in price?

Since the supply of land is inelastic, if people are gaining from increases in land prices other people must be losing. Does that in any way increase the wealth of the community?

The key issue is not land prices per se. Who is gaining from them is what should be addressed.

Comparing RBS buying ABN Amro is an absurd comparison. There is only one RBS and one ABN Amro. RBS can only take over ABN Amro once. Therefore, the takeover price can only be compared with, er, itself. There are millions of land transactions. Equally, HS2 infrastructure passing through land and reducing property values is another absurd comparison. A train line infrastructure only provides utility where it, er, stops. An electricity pylon is infrastructure but it is not going to increase the value of the land in the field it passes through. However, where it provides electricity is where the uplift in land value would occur.

Nutty: “For any South Easterner that rents (a significant amount of people) it would act as a huge reduction in burden as LVT would be taken out of their rent and would fall on the their landlord, whilst they get to keep more of their income and pay less for goods and services.”

The obvious question is what will that do to the supply of rentable housing in London where demand exceeds supply – London’s population has grown by 12pc in 10 years. In south west London, it is difficult to find modest flats at less than £800 a month. For comparison, average national pay (including bonuses) was £467 per week in April 2012.
http://www.ons.gov.uk/ons/dcp171778_265818.pdf

In the borough where I live, over the last year or so many office blocks have been converted to flats for rent. Even so, by observation, a minority of the flats aren’t occupied, presumably because of the rents asked. An elementary lesson from basic economics is that the incidence of a tax doesn’t necessarily remain with the person – or the business – who pays the tax. Try Hugh Dalton on: Principles of Public Finance. Given that there is a sellers’ market in housing for rent, landlords are likely to add the tax to the asking rent.

Richard W

The purchase of ABN Amro by RBS bust the bank, which is why the bank had to be bailed out with taxpayers’ money to prevent its collapse – and btw RBS was among the largest top ten banks in the world prior to then.

If valuations are so exact, how come RBS paid so much for assets that turned out to be worth so little?

The figure I quoted @54 above of £800 a month for a modest flat in SW London is very low compared with the rents pcm quoted in this advert:
http://www.zoopla.co.uk/to-rent/property/london/clapham-high-street/sw4-7tg/#expired

57. David Cooper

@Bob B 55.
“If valuations are so exact, how come RBS paid so much for assets that turned out to be worth so little?”

Because valuing corporations and taxing them is very hard. Far harder than valuing land. Corporations conduct business across national boundaries, and engage in complicated international transactions, many of them necessary and legitimate.

The point you raise undermines your own position. It is absurd to suggest that a society which can tax the activities of corporations cannot value and tax land.

58. Chaise Guevara

@ David

“See David Sloan Wilson New Scientist 3 Aug 2011. Space did not permit the inclusion of this citation.”

Thanks – paywalled, but I really just wanted to check that a source existed.

“Because valuing corporations and taxing them is very hard. Far harder than valuing land.”

If so, come all the complaints about the proposals for HS2 and that third runway at Heathrow blighting property values? How about the regular differences between the sale and asking price for houses?

From personal experience, the reality in the 1970s is that there was an endless succession of appeals against the old rateable values. We still have no details here on whether LVT, in those countries with it, is a partial or complete substitute for income tax and/or other property taxes. London residents would be well-advised to resis LVT because it would disproportionately add to their tax burdens.

Bob,

In the borough where I live, over the last year or so many office blocks have been converted to flats for rent. Even so, by observation, a minority of the flats aren’t occupied, presumably because of the rents asked.

These ‘big’ landlords don’t seem too bothered about reducing rents to attract tenants. Near where I lived for a while there was a reasonable block built that remained largely empty for a long time, particularly the so-called penthouse apartments. I thought the prices were high considering it was effectively on a busy roundabout.

Could it have anything to do with empty property discounts? The owner doesn’t have to pay any council tax for the first six months. In subsequent months there is an empty property discount, if the property is largely unfurnished. IIUC after about a year of the property being empty he can apply to have his property removed from council tax altogether provided it remains empty. In the meanwhile his property increases in value.

oh, I forgot, if the property is undergoing refurbishment or works it can be totally exempt for up to 12 months. Following that a 50% discount.

On valuations, some figures from Denmark, where they have LVT, property tax, and service tax:

5m inhabitants
43k sq km
1.9m properties
valuation staff:
16 central office
150 across 8 regional offices
20 across 7 regional appeal boards
25 across 7 appeal secretariats
= 210 staff

appeals of 2002 valuation:
39k appeals or 2.05%
6k to regional board or 0.31%
310 to national board or 0.02%
10 to court system (can only do this on questions of law)
- Development of Danish Land Valuation PPT

see also Property Valuation and Taxation in Denmark
http://ida.dk/sites/ddl/Documents/08_valuation_and_taxation.pdf

“These ‘big’ landlords don’t seem too bothered about reducing rents to attract tenants.”

Trouble comes if some flats have been let at high rents and others at lower rents in the same block. The continuing high going rents for new flats in London suburbs, relative to figures for average earnings, have surprised me. As best I can judge, the lower monthly rents are about £1,200. Some developments rent-out or sell-out very quickly although others linger apparently unoccupied.

I’ve also been surprised at the extent of conversions of office accommodation into flats but then some office blocks have previously remained vacant for years either because of over-development or because computer-communications technologies have reduced demand for office space. With the extent of vacant shops on high streets, there was evidently a lot of bad investments made in the commercial property makets, which is yet another reason for mistrusting estate agents and surveyors.

All reports indicate a continuing sellers’ market for rentable housing in London – not least because of the continuing pressures from population growth – so landlords will be placed to pile LVT onto rents. It’s a myth that London tenants are going to win out from introducing LVT.

@Bob B

“The obvious question is what will that do to the supply of rentable housing in London where demand exceeds supply”

It would increase supply of course. Demand only exceeds supply now because there is a land monopoly. Owners of land can keep it idle or underutilised at relatively minimal cost (shown by other posters); LVT would place a fixed cost on doing so. London has tons of empty properties, another load of underutilised property and lots of undeveloped land with planning permission, that’s a fact YOU can’t ignore.

“– London’s population has grown by 12pc in 10 years. In south west London, it is difficult to find modest flats at less than £800 a month. For comparison, average national pay (including bonuses) was £467 per week in April 2012.
http://www.ons.gov.uk/ons/dcp171778_265818.pdf

What relevance is average NATIONAL pay per week? Average London pay per week will be higher and much more relevant. I suspect you knew that though. However like I said you ignore the fact that under LVT tenants would pay little or no income tax so rent would be a smaller percentage of take home pay.

“In the borough where I live, over the last year or so many office blocks have been converted to flats for rent. Even so, by observation, a minority of the flats aren’t occupied, presumably because of the rents asked.”

And what do you think would happen if it cost more to keep those flats unoccupied?

“An elementary lesson from basic economics is that the incidence of a tax doesn’t necessarily remain with the person – or the business – who pays the tax. Try Hugh Dalton on: Principles of Public Finance.”

An elementary lesson from basic economics is LVT cannot be passed on. http://en.wikipedia.org/wiki/Law_of_rent

“Given that there is a sellers’ market in housing for rent, landlords are likely to add the tax to the asking rent.”

No they aren’t likely to do that. It is a sellers market because property/land is held off of the market increasing the demand for the remaining property. LVT makes that expensive to do bringing more property onto the market and holding prices down as property/land owners won’t want it empty. LVT stops it from being a sellers market.

I notice that you’re still trumpeting your infrastructure argument, how about you reply to at least two posts which address that?

@ Bob b

“All reports indicate a continuing sellers’ market for rentable housing in London – not least because of the continuing pressures from population growth – so landlords will be placed to pile LVT onto rents.

These reports don’t take into account LVT, they are based upon the continuation of the current tax regime. LVT stops it from being a seller’s market making it impossible for landlords to do so.

“It’s a myth that London tenants are going to win out from introducing LVT.”

Instead of just repeating this lie why don’t you address the many rebuttals to it?

These reports don’t take into account LVT, they are based upon the continuation of the current tax regime

Quite. Surely the lesson from today’s empty properties is that incentives are such today that the owners would rather leave them empty than attract tenants; there is no lesson about LVT, which has to be paid, there is no ‘empty property discount’ for example.

67. Robin Levett

@Alan Murdie #33:

Created in its present form in 1987 under the Housing Benefit (General Regulations) 1987 and consolidated in 2006, housing benefit has provided a welfare state for landlords since the abolition of rent control in 1989. Human nature being what it is, landlords have increased rents knowing British taxpayers are picking up the tab. Scenting easy money many foreign investors got wise and bought up former council properties in London. Free to choose whatever level of rent they wish, they now rent these back to British people on low incomes, pensioners and the disabled, with housing benefit paying the bulk or all of the bill.

I think you’ve made this claim before on this site, and it’s no more true now than it was then.

The problem with your argument is twofold. Firstly, for years HB has only paid up to median rents (and now only to the 30th percentile), so it is not making the higher rents affordable.

Secondly, landlords go out of their way to refuse government money in the form of HB. Googling “residential property “no benefit claimants”” gets you a host of answers. The top result was this one:

http://www.stevenwoodley.co.uk/lettings

5 featured properties – three of which are marked “no benefit claimants”.

The reasons for this are identified in this piece:

http://www.guardian.co.uk/housing-network/2012/may/02/tenants-housing-benefit-private-landlords

68. Mark Wadsworth

@ UK Liberty.

Excellent stuff re Denmark, I have added it to my “Killer Arguments” series and also added the corresponding figures for the UK.

Why thank you.

The link to the powerpoint source for the Denmark figures is
http://www.eurocadastre.org/pdf/131006_am_denmark_development_en2.ppt

@ UK Liberty, my pleasure.

@ Bob B, comment 63: “landlords will be placed to pile LVT onto rents”

That is a big fat lie crocodile tears shed by Homeys down the ages. For actual hard facts and logic and so on, see for example:

http://markwadsworth.blogspot.co.uk/2012/01/killer-arguments-against-lvt-not-189.html

http://markwadsworth.blogspot.co.uk/2012/11/killer-arguments-against-lvt-not-248.html

http://markwadsworth.blogspot.co.uk/2012/04/enterprise-zones.html

http://markwadsworth.blogspot.co.uk/2010/08/hair-splittingwhat-cant-speak-cant-lie.html

Bob B

You say “From personal experience, the reality in the 1970s is that there was an endless succession of appeals against the old rateable values.”

Do you have any facts and figures to support this? My recollection is that this is simply not true. For example, today the courts do not seem to be jammed with appeals against business rates.

GO: “I can see that there’s a mechanism there which would tend to decrease the rate at which wealthy people are able to accumulate yet more wealth and increase the rate at which some low-income people are able to do so. So fair enough, maybe LVT *does* address wealth inequality to some degree.”

Exactly! Welcome aboard the LVT train!

“whether (some of) that tax burden can be shifted to tenants is going to depend, I think, on what else happens. If a lot of currently empty houses come on to the rental market, that would help to hold rents down. If there were a fall in the number of people looking for rented accommodation (because more people had the means to buy their own homes), that would also help. Conversely, if people were put off buying a home by the prospect of paying LVT, that would tend to increase demand for rented property and so drive *up* rents.”

A house is a house is a house, and the LVT bill is the same regardless of whether it is landlord/tenant or owner-occupied.

We know from all the logic and hard evidence that the rental value of land is paid 100% by the occupier and that taxes on land are borne 100% by the owner. So tenants are already paying the full site rental value, the landlord is collecting them.

We also know, by examining evidence on gross profit margins at supermarkets before and after changes in VAT rates, and by looking at price changes of VATable and zero-rated goods when VAT rates are changing, that 70% of VAT is borne by the supplier.

So worst case, a tenant bears (say) 20% of the LVT and the landlord bears 80%.

We also know that at least 80% of taxes on employment (income tax and NIC are borne by employees.

So what is the worst that can happen? If we reduce taxes on output and employment by £1 and increase taxes on land values by £1, a working tenant will keep 80p of the income tax cut and only pays 20p of the LVT.

He ends up net 60p better off, the employer ends up 20p better off and the landlord ends up 80p worse off. Either landlord and tenant are happy with this state of affairs, or the landlord sells off his flats at whatever price the tenants are prepared to pay, and that price will be such that tenants end at least as well off as when they were tenants.

What’s not to like?

68

“Do you have any facts and figures to support this?”

In the early 1970s, I was a nominated local authority member of an appeals panel, which heard a succession of appeals against rateable value assessments.

These typically went along the lines that the appellants’ values should be reduced because of lowered amenity due to loss of view (from development on the site opposite: this was struck down, as I recall, as there is no right to view) or because of additional nuisance from, say a nearby fish ‘n’ chip shop or additional pub traffic or revellers or because a comparable property in the neighbourhood had a lower rateable value.

In those times, the consideration against granting all appeals for sympathy reasons is that, other things equal, local rates would need to rise the following year to compensate for the fall in aggregate rateable values.

I’ve no links to document this going back into the 1970s. Presumably, there would need to be appeals procedures against assessments for LVT. I would expect residents affected by property blighting due to proposals for HS2 and the third runway at Heathrow would have much to say.

It is simply untrue to claim that all infrastructure investment leads to enhanced property values. OTOH population growth in a city like London is likely to lead to increases in the prices of properties and land so I would expect LVT would become an added factor in migration debates. The high growth rate of London’s population – 12pc in a decade – is an additional reason why London residents should resist LVT.

Bob B

if I can paraphrase, there were a few cases relating to commercial premises that could be decided upon within seconds by responsible adults. Your objection on this ground is therefore overruled.

Try harder, Bob…

Bob B…have you never wondered the rationale for tax? I suppose you could be like Ritchie and think that 100% of income is due to the State. Or maybe you could be like Mark Wadsworth and think that taxes should pay for social services. Why should Londoners fear a LVT? Maybe Londoners should pay for the services they enjoy? All those sexism-playgroup councillors, etc….What is your view?

thoughtful: “Try harder, Bob…”

Don’t be pathetic. You’ve not responded on the substantive points made about the obvious flaws with LVT. It is a half-baked scam scheme doubtless intended to boost valuation incomes for our hard-pressed estate agents.

One question is why haven’t big national states – like America, Japan, Germany, Canada, France etc – opted to introduce this tax scheme proposed back in the 19th century?

77. David Cooper

@Bob B

The landowning aristocracy won a historic and long term victory when they introduced income tax in the year 1799, thus shifting the tax burden away from their accumulated wealth and onto the productive activities of the emerging merchant class.

Wealthy families such as the Gosvenors have maintained their hold on power and wealth, and continue very successfully to fight against any suggestion that property wealth should be taxed. That is why the richest British born individual is a member of that family.

As we see, their hold on power is willingly assisted by what Lenin would have called “useful idiots”.

David Cooper

“The landowning aristocracy won a historic and long term victory when they introduced income tax in the year 1799, thus shifting the tax burden away from their accumulated wealth and onto the productive activities of the emerging merchant class.”

Pitt as PM introduced income tax to pay for the cost of Britain’s military and naval engagements in the Revolutionary and Napoleonic wars with France, which lasted through to the Battle of Waterloo in 1815, nine years after Pitt had died aged 46.

At least personal incomes were measurable for tax purposes while there would have been protracted wrangles over the valuation of land during an industrial revolution when the populations of many of the rapidly urbanising northern cities about doubled in the following 50 years – Britain’s total population trebled in the the course of the 19th century. The big victory for the aristocratic landowners came with the introduction of the corn laws in 1804 and then through the Importation Act 1815 through to its repeal in 1846.

In that context, the administration of LVT would have been a complete mess when the government needed tax revenues to pay for the war.

Bob, do leave the “endless appeals” point alone. There is no reason for it to happen in principle and it doesn’t happen in practice. It just makes you look silly.

No-one is denying there would be appeals. Just that there will not be “endless” appeals.

ukliberty: “Bob, do leave the ‘endless appeals’ point alone. There is no reason for it to happen in principle and it doesn’t happen in practice. It just makes you look silly.”

I recalled @73 the personal experiences that I had in the early 1970s as a member of a panel dealing with a succession of appeals against rateable value assessments

Presumably, there will be an appeals procedure for LVT to deal with situations such as the property blighting due to proposals for HS2 and the third runway at Heathrow.

I would also expect the consequences for land vales and LVT of the continuing relatively high population growth in London. LVT will add fuel to the topical debates about migration. No one is seriously disputing that LVT will disproportionately hit residents in London and the SE regions who are already disadvantaged by IHT and by making the major net revenue contributions to the national exchequer.

Bob,

Presumably, there will be an appeals procedure for LVT to deal with situations such as the property blighting due to proposals for HS2 and the third runway at Heathrow.

Again – no-one’s denying that there would be appeals. You claimed a few times that there would be “endless” appeals – there is nothing to support this view in principle or practice.

I would also expect the consequences for land vales and LVT of the continuing relatively high population growth in London. LVT will add fuel to the topical debates about migration. No one is seriously disputing that LVT will disproportionately hit residents in London and the SE regions who are already disadvantaged by IHT and by making the major net revenue contributions to the national exchequer.

No-one’s disputing that LVT will see more revenue from higher land values, no. That’s the point?

People and businesses will be inclined to relocate, improving other areas of the UK. That’s A Good Thing, isn’t it? Not having the UK so London and SE-centric, unlike today?

Bob

according to wikipedia:

Land value taxes have been implemented in Taiwan (Republic of China), Hong Kong, Singapore, Russia and Estonia, as well as in some localities in the American state of Pennsylvania, the Australian state of New South Wales and Mexicali, in Mexico. The government of the Republic of Ireland is currently considering the introduction of an LVT, among other options for taxing property.

It also says:
as Steven Spadijer has pointed out, the free market is already determining the taxable value of the land. For example, valuators in the home-and-contents insurance industry are already performing such a function on a daily basis when, in order to calculate an insurance premium, the valuator must separate the value of the home from the indestructible value of the land beneath the home itself. Thus, land value for LVT purposes is assessed using market evidence. Such evidence may comprise both selling prices and rentals. Where development already exists on a site, the value of the site can be discovered by various means, of which the most easily understood is the residual method: the value of the site is the total value of the property minus the depreciated value of buildings and other structures. This may explain why the system involves little fuss and relative ease in the places where it has been implemented.

It also says:
It was Adam Smith, in his book The Wealth of Nations, who first rigorously analyzed the effects of a land value tax, pointing out how it would not hurt economic activity, and how it would not raise land rents.

You might also read this extract with profit:
Meiji Restoration in Japan

After the 1868 Meiji Restoration in Japan, Land Tax Reform was undertaken. A land value tax was implemented beginning in 1873. By 1880 initial problems with valuation and rural opposition had been overcome and rapid industrialisation was underway.

Liberal and Labour Parties in the United Kingdom

In the United Kingdom, LVT was an important part of the platform of the Liberal Party during the early part of the twentieth century: David Lloyd George and H. H. Asquith proposed “to free the land that from this very hour is shackled with the chains of feudalism.”[37] It was also advocated by Winston Churchill early in his career.[38]

The 1931 Labour budget included a land value tax, but before it came into force it was repealed by the Conservative-dominated National Government that followed shortly after.[43]

An attempt at introducing site value taxation in the administrative County of London was made by the local authority under the leadership of Herbert Morrison in the 1938–9 Parliament, called the London Rating (Site Values) Bill. Although it failed, it sets out detailed legislation for the implementation of a system of land value taxation using annual value assessment.[44]

After 1945, the Labour Party adopted the policy, against the opposition of a substantial body of MPs, of attempting to collect “development value”: the increase in land price arising from planning consent. This was one of the provisions of the Town and Country Planning Act 1947 and it was repealed when the Labour government lost power in 1951.

Canada

Land value taxes were common in Western Canada at the turn of the twentieth century. In Vancouver LVT became the sole form of municipal taxation in 1910 under the leadership of mayor, Louis D. Taylor.[45] Gary B. Nixon (2000) states that the rate never exceeded 2% of land value, too low to prevent the speculation which led directly to the massive 1913 real estate crash.[46] All Canadian provinces now have moved back to taxing improvements.

ukliberty: “Again – no-one’s denying that there would be appeals. You claimed a few times that there would be ‘endless’ appeals – there is nothing to support this view in principle or practice.”

C’mon. The rationale advanced for LVT is that it would recoup for the community the value added to land by infrastructure investments. But that requires new valuations or reassessments to ascertain how much the value of land has risen – or fallen – following the investment. Without the new valuations, it will be impossible to revise LVT liability to recoup the additional value, if any. In other words, revaluations are crucial in order to justify the whole purpose of LVT. But revaluations will prompt appeals.

A little googling showed that there were numerous complaints about the pollution of the countryside inflicted by the rail link from the Channel Tunnel to the London terminus. It is predictable that any controversial significant infrastructure investment – the Newbury Bypass battle – will lead to appeals against LVT reassessments. The “endless” description is amply justified so long as LVT reassessments follow infrastructure investments.

Btw I note that the advocates of LVT are dodging the issues about LVT disproportionately hitting residents in the London and SE regions where land values are being pushed up by relatively fast population growth regardless of infrastructure investment.

thoughtful

My complaints about LVT are not that it is impossible but that it is impractical in Britain so long as there is a process for appeals against reassessments and because LVT would disproportionately hit residents in London and the SE regions who are already disadvanatged by the tax system because of IHT and because London and the SE already make the largest net revenue contributions to the national exchequer.

Bob,

Yes, regular revaluations will be required, of course they will be. Some say do it annually, others every two years, whatever, that’s something to work when we get past the silly arguments.

Btw I note that the advocates of LVT are dodging the issues about LVT disproportionately hitting residents in the London and SE regions where land values are being pushed up by relatively fast population growth regardless of infrastructure investment.

Me and thoughtful have addressed it, and Mark Wadsworth too if you read into what he’s said here. But you are too busy repeating yourself.

1. Londoners are already disproportionately affected today. We are already paying to be in London. If the tax (in its first year at least) is the same rate as council tax, what difference does it make?

2. London’s renters already pay the location premium as part of their rent. But it’s landlords (and the banks) capturing the whole of this value. With LVT, the community would get some of it. Again, no difference to what leaves renters pockets. Owner-occupiers pay themselves (and the banks) their location premium. So they might be worse off in that simple regard, but better off taking into account the commensurate reduction in other taxes. As would renters. If landlords are unhappy, they are free to sell their property.

3. You mentioned all those vacant properties in London. Someone told me there are many in Croydon. I’ve seen many in the areas I visit, too. Add to that the derelict properties and places where planning permission has been granted but not acted upon. Apparently there are 76,000 vacant homes in London; of those, 24,000 have been vacant for over six months. With LVT, because there are no exemptions or discounts for vacancy unlike council tax, there is an incentive to get these properties rented or sold. I think Londoners and people wishing to move to London will be quite pleased to see tens of thousands of properties on the market, don’t you?

4. If people think London’s LVT is a bit high, they can relocate. Do we want to keep piling people and businesses into London, or should the rest of the UK get a chance?

it is impractical in Britain so long as there is a process for appeals against reassessments

Yet, in real life, only a small minority appeal.

ukliberty: “Londoners are already disproportionately affected today”

And LVT would make the disproportionate tax burden of residents in London and the SE regions even worse. How much worse would depend on those missings details about whether LVT would replace income tax and/or other property taxes. The extent of the increase in the tax burden would likely motivate the number of appeals. Revaluations or reassessments every two years or so would create a lot of scope for appeals – as well as a lot of renumerative work for estate agents and surveyors.

“Estate agents and politicians among least trusted professions”
http://www.telegraph.co.uk/news/newstopics/howaboutthat/5085369/Estate-agents-and-politicians-among-least-trusted-professions.html

Bob B

You are verging on hysteria. If the tax burden on London gets excessive, maybe people willo mo0ve out and ease the pressure on over-crowded resources such as the sewers, the trains and the transprt system in general.

Your objection to a LVT seems to amount to a distrust of estate agents. As UKL, Mark W and I have shown, estate agents will not be involved in the tax calculation.

Try harder.

Bob

If you have a buildings insurance policy, does it not require you to split out the cost of reinstating the building?

the remainder is….ding…the value of the land.

next question for Bob.

thoughtful

Your switch to ad hominem abuse was to be expected.

I suspect London and SE region residents would have something to say about a new tax which would add to their already disproportionate tax burdens, especially a new tax relating to land values, which are being driven up – or down where properties are blighted – not only by infrastructure investments but by the continuing relatively high population growth rate in London – up 12pc in a decade. That should surely add fuel to public debates over migration.

With nearly 70pc of homes in owner-occupation and the majority freehold, owner-occupiers are land owners which means that they would become liable to pay LVT.

Early on, I remarked that this LVT proposal looked like another estate agents’ scam and that seems to have been absolutely spot on with the prospect of twice yearly reassessments of the change in land values.

As that poll linked @86 shows, I’m not the only one who distrusts estate agents. Independent commentary on property investments is making the point that with all the vacant shops and offices, too much pension fund money has been sunk into commercial property investments. Who should we look to blame for that?

90. David Cooper

@Bob B (84)
You conclude that the South East is already overtaxed on the basis that it contributes most money to the exchequer per head. In fact your reasoning is faulty.

The South Sast holds the seat of government and provides the high value services associated with this (central bank, central courts of justice etc.). For practical reasons these services have to be concentrated somewhere, and necessarily the region they reside in will have higher wages and pay more tax. It does not follow from this that the region is over-taxed, so your arguments are invalid.

Your arguments are also at variance with observed fact, since social deprivation and unemployment are far more concentrated outside the South East.

David Cooper:

Try this assessment from before the financial crisis:

“As in previous years, the analysis shows that it is only the wider South East (Greater London, the South
East and the Eastern Region) that made a positive net contribution to the UK public finances in 2006-07,
with the Northern regions, the Midlands and the South West joining Northern Ireland, Wales and Scotland
as a net drain on the Exchequer.”
http://www.isitfair.co.uk/reports/public/oe%20ukpublicfinance.pdf

LVT would add further to the disproportionate tax burdens of residents of London and the South East. Advocates of LVT haven’t justified this and it has only recently been admitted in posts here to be one of the consequences of LVT. Btw only 18pc of the civil service work in London and only 12pc in central London.

London includes some of the poorest neighbourhoods in the country as well as the most affluent. London was widely expected to be disproportionately badly hit by the recent financial crisis because of the concentration of financial services in London and the thousands of jobs being lost.

In the good times, of course, the buoyant tax revenues generated by the financial services industry in London were a widely welcomed means of funding the higher public spending on the NHS and schools across the country. In fact, London seems to have emerged from the crisis relatively well by several accounts.

This recent news report from the FT provides one credible explanation as to why:

London schoolchildren perform the best – London schools have improved so rapidly over the past 10 years that even children in the city’s poorest neighbourhoods can expect to do better than the average pupil living outside the capital.

Bob B

No response to all the regimes that have implemented LVT?

Try harder! Did Hong Kong get it wrong? Are those countries suffering from not being able to tax in the way that Bob B wants to tas?

What’s the Bob B answer?

where did I switch to ad hom abuse? merely pointing out the fact that you are incoherent is not ad hom abuse.

Bob B

has it ever occurred to you that your council tax might be high because you live in London?

no…you appear to be far too stupid to realise that.

and meanwhile, Bob B…I note that you have not contested any of the assertions from wikipedia that I have posted mon the benefits of LVT. Adam Smith thought it good. Herbert Morrison wanted it. Where does Bob B fit on the scale ofintellects?

@ 91. Bob B

Tax receipts share of GDP Net subsidy
North East 29.7% -22.2%
North West 37.5% -8.5%
Yorkshire and Humberside 35.0% -8.8%
East Midlands 34.1% -4.9%
West Midlands 35.4% -8.4%
East 36.7% 1.5%
London 45.2% 20.3%
South East 41.1% 10.7%
South West 35.7% -1.7%
Scotland 43.0% 0.0%
Wales 30.3% -26.0%
Northern Ireland 27.7% -29.4%
http://www.cebr.com/wp-content/uploads/Regional-surplus-and-deficits-Compatibility-Mode.pdf

What that really shows Bob is the centralisation in the UK. Tax receipts only reinforce the point about centralisation. The headquarters of UK companies congregate in the south and that is where they pay their tax bills. The company HQ also tends to be where most of their higher earners work and pay tax. Legal and business services who are also high earners agglomerate where the companies have their HQ. However, that does not mean that it is only in the company HQ that they added the value that generated the tax. That is just where it was paid. For example, Tesco operate throughout the UK, they do not just generate a profit in the company HQ. It is the value added throughout the UK that is paying for the higher HQ salaries and business services purchased. So where tax receipts are received does not tell the whole story.

London and the South East have more higher earners than the rest of the country, so no surprise land prices are higher. With a LVT would also come a reduction in taxes on labour and production. Guess where would get the biggest tax cut on labour?

@thoughtful et al.:

I appreciate what you’re saying, but don’t think for a second that us Londoners live where we live purely for economic reasons (both myself and my wife happen to have been born here). The unpalatable truth is that with the decimation of the UK’s industrial heartlands in the Midlands and the North, those areas have lost most of the reason for setting up home there once the existing employment opportunities have been met.

This is an utter travesty, but what can we do to help?

98. David Cooper

@97. bluepillnation

“with the decimation of the UK’s industrial heartlands in the Midlands and the North, those areas have lost most of the reason for setting up home there”

Land Value Tax helps this. When replaces taxes on income and enterprise, companies can operate in more marginal low value areas (where for example transport costs are higher) where previously they could not. The reason for this is that the costs of employing workers and doing business are reduced, thus enabling businesses that were previously unprofitable to operate profitably. The tax burden is picked up by landowners (not workers or enterprises) in high value areas. This is what so worries Bob B above.

Bob,

Early on, I remarked that this LVT proposal looked like another estate agents’ scam and that seems to have been absolutely spot on with the prospect of twice yearly reassessments of the change in land values.

AFAICT, no-one has suggested (1) estate agents will do the valuations or (2) that valuations will occur twice yearly.

And please do stop repeating the same points over and over. You have mentioned “estate agents” nine times now. It really is very boring. Try to invent some new argument that doesn’t hold water, will you?

Bob B (for the dozenth time) “I suspect London and SE region residents would have something to say about a new tax which would add to their already disproportionate tax burdens,”

As DC points out on the basis of actual figures rather than gut feeling, London/SE are actually heavily subsidised (and I live here so I should know), but hey.

Whether your contention is true entirely depends on which taxes we replace. You might as well argue that income tax disproportionately hits London/SE because wages are higher there.

And even your contention is true, then the 80% of the country that is not London/SE will be rejoicing? That looks like an electoral majority to me :-)

101. Robin Levett

@Mark Wadsworth #100:

As DC points out on the basis of actual figures rather than gut feeling, London/SE are actually heavily subsidised (and I live here so I should know), but hey.

DC has produced no figures. Richard W did, at #96; tracking back to the source, it shows that London and the Southeast were the only regions that weren’t subsidised; London’s net contribution to the Exchequer was 10.3%, and the Southeast 0.3%. The headline of the factsheet was “One pound in five earned in London subsidises the rest of the UK – Northern Ireland, Wales and North East receive more than a fifth of their income as subsidies from outside the region”.

You might as well argue that income tax disproportionately hits London/SE because wages are higher there

And hence house prices and rents, the largest individual outlay for most households, are also much higher here. The effect of that, of course, is to bear disproportionately upon the poor when LHA is limited and benefit caps are introduced with no regional variation. 49% of those hit by the measures live in London.

Oh – and London/SE is better than 25% (16.7/63.2m) of UK population, not 20%.

102. Mark Wadsworth

@ RL, OK, it was RW not DC who posted a slightly more nuanced view of the statistics. Fact is, London is subsidised by the rest of the country, these subsidies do no necessarily go via govt. books. And a large chunk of those tax receipts are income tax on higher paid civil servants (paid by govt) and the whole financial services sector (lightly taxed and heavily subsidised by government).

e.g. tax breaks for pensions saving (£40 billion or so a year) tend to get creamed off by the “City”. That does not show up in the govt. books as a subsidy to London, does it, but it is in practice.

And excuse me, but “London/SE” is not some tightly defined geographical area, and the UK definition is different to e.g. the EU constituency, so there is no point trying to score points about 20% or 25%.

In any event, what on earth does this have to do with LVT?

103. Max Smithson

The arguments seem quite simplistic here to me. I’ve seen the on paper value of my property go from the £45k we could barely afford 13 years ago to £155k now that we wouldn’t be able to afford.

In that time we’ve made a few cosmetic improvements, nothing to justify this increase in supposed value. There have been no infrastructure improvements in the area. I personally feel our house would be realistically valued at no more than £60k but we live in an area of high demand, it’s a nice part of the country, and so the market dictates value. To tax me for theoretical unrealised value seems unreasonable. But maybe I’m being selfish.

Would LVT help those priced out of their home towns and villages or simply ensure that situation continues and becomes enshrined in tax legislation as well?

With friends and family who have repeatedly had to move as landlords increase rent or sell up, I’d be far more interested in a discussion around the short term approach by many to the rental market in this country.

104. David Cooper

@Max Smithson

LVT would be based on a certain percentage of the rental value of the “unimproved” site, i.e. the plot. Currently annual rental on property is about 6% of property value. I don’t know what your land value is worth, but assuming (for example) your home is worth £155K and the plot comprises 1/2 of this value, you are talking about annual rent of £400 p/m, i.e. £4800 p/a. If land value tax was set at the current level used for business rates (0.45p in the £ of rental value) this equates to a liability of £2160 p/a).

How this affects you would depend on your income. A proposal is that a single allowance is used, which can be set against LVT or income tax. So if you are income poor, you may not need to pay any LVT. If you have a high income you will.

The other part of the equation is how much income tax would be reduced. The argument for LVT is that it allows income tax to be reduced (e.g. by increasing tax threshold).

Not wanting to pay more tax is not selfish. It is rational. LVT is promoted on the basis that most people would end up paying less income tax, and would be more willing to engage in productive work.

These figures are examples only. It is not possible to be more specific at this stage.


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