Land Value Tax

[AliG]

When I was in the supermarket this morning I saw a headline about LVT and decided to start looking into it.

 

This seems to be an increasingly popular suggestion from some people and is particularly gaining traction in Scotland.

 

There are positives, it might encourage development and would be hard to avoid, but reading between the lines the proponents to me seem to really be pushing for a wealth tax and an almost communist policy designed to make land worthless.

 

We do need encouragement for houses to be built and this would bring land values down gradually over time which is a much more sensible way of doing things than an overnight shock which would have all kinds of consequences, clearly billions of pounds have been loaned against current land values.

 

I am not convinced a LVT would help building. It seems to me that the main impediment against building is that local politicians are scared of voting in favour of building. Hence planning committee decisions are often over ridden by central government. Often they have no basis under planning rules. Changing the planning process would be the best way to improve housing supply. It should not be politically affected.

 

There is a notion that a LVT helps to stop tax avoiding. To be honest I don't know how much tax avoidance goes on. Certainly as far as I see I earn money, it gets reported and I pay tax. In general tax avoidance seems to be more involved with self employment rather than high earnings. I have a friend who is a self employed IT contractor who paid himself via employee benefit trusts and paid no income tax at all for a few years until it was cracked down on.

 

I am also a believer that incomes should be taxed less and assets more to encourage work which adds value. But I don't see the proponents of the LVT suggesting a flat income tax at the same time. CGT is much less than Income tax which I believe is odd. A LVT in conjunction with lower income tax might make sense as it would improve tax compliance.

 

Considering that this tax seems to just be proposed in isolation it appears to me at least that it is politically motivated.

 

 

 

 

Edited October 1, 2017 by AliG

[ProDave]

It's a typical socialist "tax the rich" knee jerk.

 

You can debate it all you like, but if ever implemented, the devil will be in the detail, and that will determine if it's fair, or punative. Sice we won't know the detail until it is (if ever) actually implemented we won't know.

 

I am afraid of "tax changes" because they always seem to leave me worse off.

 

When I bought my first house I paid "rates" there was no single occupancy discounts, you got a bill and paid it.  So when the poll tax was being introduced, it seemed a good principle that everyone would pay so the amount I should pay would be less.  WRONG my poll tax cost me more than the rates did, if there had been multiple people in my house at the time they would ave been raking it in.

 

Then when the poll tax was abolished and replaced with council tax, I thought my bill might go back down.  WRONG again. My council tax, even with single occupancy discount was more than I paid for my poll tax.

 

So forgive me for being nervous of ANY tax change relating to property as I pretty well know it will cost me more.

[MikeSharp01]

With some simple rules it could perhaps be made to work. Here are my not exhaustive thoughts. If LVT only applied to larger plots in one ownership - say more than 1 acre. Large areas being farmed would be exempt but land used for agriculture that was later developed would attract high stamp duty / one off LVT payment to prevent developers buying land and then turning it into a farm. If you are a large developer you get a discount on the LVT you pay on undeveloped land you own based upon the number of homes you complete with social and afford able homes attracting a bigger discount. The LVT would, for large plots, be based on the amout of council tax couple occupied plots on a high density basis on the land would generate. On smaller plots it would only apply if there was no council tax being paid IE no inhabitants and no building was being undertaken. So people sitting on small vacant plots would have to pay it or council tax! Land given outline planning would attract an increased LVT until the development was given full planning and the normal rate until building was complete. An accounting law would also accompany the LVT to ensure that land bank values could not be written down or up to massage profits / dividends.

 

Just some thoughts.

 

[AliG]

@MikeSharp01 yes those adjustments would make some sense.

 

But these start to become a planning value uplift tax, something I would be in favour of as it would encourage land to be released for building as the council would get more money.

 

Your amendments would also discourage land banking.

 

The problem is that all these points are brought up by the proponents of LVT, but the reality is that when they run the numbers, people in council tax bands F, G amd H end up paying massively more.

 

It should be remembered that these people already pay massively more towards council services via the central government grant which makes up most of local government revenues.

 

I do worry that under these systems where a few people more and more disproportionately pay for government services then the incentive to run them efficiently all but disappears as most people who vote don't actually contribute towards what they are voting to be spent.

 

Industry has become massively more efficient over recent years and adept with doing ever more for less. The one industry that seems to be immune from this is government. They  seems to require ever more money and people to provide ever less service.

[Stones]

This is what it's all about, hammering the 432 or so individuals that own over 50% of Scotland's land.

 

http://www.gov.scot/Publications/2014/05/2852/298170 

 

Plays well to the electorate, and to the politicans would only effect a limited (and inconsequential in terms of votes) number of people.  

 

As @ProDave suggests, I suspect that the introduction of such a tax, would impact on a lot more than the 432 or so identified, as it would also be seen as a means to extract more from the rich (however that is defined).  A lot will depend how and what they tax.  

 

 

 

[MikeSharp01]

1 hour ago, AliG said:

 

Industry has become massively more efficient over recent years and adept with doing ever more for less. The one industry that seems to be immune from this is government. They  seems to require ever more money and people to provide ever less service.

I find it hard to agree with your points here. Industry has not become more efficient over recent years - productivity is way down and nowhere near where our main competitors are at. There is also little evidence that the sold off state monopolies have improved things although I agree that at the outset they did. If you look at the railways you can see the effect very clearly. It takes approximately the same time today to get to Bournemouth on the very latest train as it did in the 1930s steam era and there are fewer trains and permile travel cost in relative terms much higher. The railways were private then almost as they are now. The government do require more money that is just growth - the efficient service problem may arise from two possibly three sources. Firstly a lot of services have been privatised and so some of the cream has to go to shareholders this means that the privatised efficiency gain has to be more for less and some for the shareholders. Teresa May is correct capitalism is the best system we have but it won't do everything because not every thing has a profit in. This brings me to the second source. Where there is no profit available to a direct capitalist the state has to subsidise the cost of a service - back to the railways we are! As the profit motive drives this along again the cream is given to the shareholders and the service is just commercially acceptable but no more. In some instances where the service is not acceptable the goverenment can take the contract back. However as there are very few companies of similar ilk it goes to one of the others where the cycle repeats and so the service is worse, the cost to the taxpayer higher and the companies concerned just think of it as churn and hence the cost of doing business. We also know that privatise services delivered to the public can have very high costs such as the American health care system which is insurance based. It does more tests and keeps people in longer because the procedures equal profit. This also leads to inefficiency and, as was the case in the USA before Obama care, affordability issues for the poorest in society. Which brings me to point 3. The poorest in society need our care and attention because if neglected they will find a voice somewhere and destabilise our society quite apart from the fact that we need them to be productive in society and able to access their share, through toil and enterprise, of the spoils hence Obama care. Without  it the growing under class of people with no health care insurance was damaging productivity through sickness and increasing unrest and despite the right making headway even they have so far shyed away from closing it down and going back to how it was before Obama care came in. Finally and not a further point but a more general one is about regulation. Capitalism only works effectively if it's excesses are curbed by effective regulations  (laws) which enures it does not do perverse things in the name of profit - complex financial instruments cone to mind. Hence perhaps the need for an albeit modified LVT in the house building sector at least. QED - well almost.

[AliG]

Productivity growth is down, not actual productivity, and it true that some countries have better productivity than us.

 

Trying to do some DIY, so don't have time to address all points.

 

I totally agree that some services have to be paid for by the government. There American attitude to healthcare is nonsense. When you consider what doctors get paid then people on low wages simply cannot afford to pay healthcare out of their own pocket. Further I don't feel that people should be penalised for being unlucky and getting sick. For example if you get cancer the government pays your healthcare, but if you get dementia they don't, this doesn't make a lot of sense. However, when you consider for example the efficiencies that have been gained in dealing with many service companies such as insurance where everything is done over the internet, I am sure there is a lot of opportunity to modernise the provision of government services and do more with less money. Patient records should be digital for example. Part of the problem is of course ever increasing demand along with ever changing priorities which make it difficult to make long term plans for improvement.

 

Regulation is definitely necessary for naturally monopolistic industries such as utilities and railways as it would be economically crazy to build competing systems, this does not however, mean that they should be run by the government. This seems to have worked well with many utilities such as telecom. It seems that no one can run the railways well, although usage has massively increased so something must be working.

 

 

Edited October 1, 2017 by AliG

[Crofter]

Large chunks of our rail network are run by the state- just not our own state.

[AliG]

According to data from the ONS government productivity is flat over the last 20 years whilst private is higher, although less good recently. However private must have been doing even better if you were to subtract public from the numbers.

 

To be fair productivity is a very hard thing to measure, it is really just the remainder in nominal GDP calculations. If you take away population growth and adjust for imports and exports then what is left is productivity.

 

A few things have hurt productivity recently. The recession in 08/09 as well as the recent drop in North Sea oil output which has quite a disproportionate effect on GDP. I think the other recent effect is the creation of large numbers of minimum wage jobs such as cleaners and sandwich shops. IF people made their own sandwiches and did their own cleaning it would not be captured in GDP and productivity would appear to go up.

 

[jamiehamy]

"Changing the planning process would be the best way to improve housing supply. It should not be politically affected."

 

My view in a nutshell.