Thursday 17 January 2013

B. The diagonal comparison

Another favourite gambit is the following bald claim:

• "The Poor Widow In A Mansion would end up paying tax more than the millionaire in the flat next door"

For a classic of the genre, I refer you to Boris Johnson's article in The Telegraph:

What about someone who owns several houses, all of them worth £1.9 million: why should he or she pay nothing, while someone who owns just one pricey home gets totally clobbered?

What about someone who lives in a home worth a million, but happens to have a load of Van Goghs and Cézannes on his kitchen wall, or gold bars under his bed? Why should he get away with paying nothing, while the taxman pulverises the little old lady still living in the former family home next door?

1. The scientific approach to experiments is to keep all variables constant apart from one, which you change, and that gives you a meaningful comparison and hopefully a meaningful result.

So for example, it is reasonable to ask "Is it fair that a single-earner couple with a modest income and two kids pays the same for their house as a two-earner couple on high salaries with two kids in an identical house next door?"

All variables are kept constant apart from their earnings. And the answer is "Yes of course; each household is using the same amount and value of land so they'd have the same mortgage repayments and pay the same in LVT." By the standards of their peers, two-earner couple has a modest house and the single earner couple has a nice house.

So it's the same as asking "Is it fair that a single earner couple with a modest income and two kids pays the same for a two-week holiday in Chalet XYZ as a two-earner couple on high salaries with two kids who book the identical Chalet next door?", to which the answer is also "Yes."

2. Or we could reasonably ask: "Is it fair that a widow on a modest state pension who lives in a large house pays three times as much as another widow on the same modest pension who lives in a small flat a few streets away?". All variables are kept constant apart from their choice of home, and the answer is also "Yes of course. If the widow in the large house wants to knock two-thirds off her LVT bill, she can move into a flat in the same block as the other widow. The latter can manage, so why not the former?"

And so on.

3. But that is not how the Home-Owner-Ists play the game.

What they like to do is to change every single variable and make diagonal comparisons, for example: "Is it fair that a widow who has worked hard as a low-paid nurse all her life and whose pension was stolen by Gordon Brown but lives in a large house full of treasured family memories should pay three times as much tax as a drug dealer/footballer/merchant banker/Saudi-funded radical Islamist preacher/[insert wealthy hate figure du jour] who lives in a small flat a few streets away and has no links to the local community?"

You might as well ask: "Is it fair that the widow in the large house who likes her sherry/smokes pays infinity per cent more alcohol duty/tobacco that the Saudi-funded radical Islamist preacher who doesn't drink/the footballer who doesn't smoke?" Well yes, she drinks/smokes, the others don't.

So the answer is "Yes, it is fair", but of course that allows them to paint you as a shill for footballers/drug dealers/merchant bankers/radical Islamist preachers etc.

4. The Poor Widow still wouldn't pay three times as much tax as the merchant banker of course; under current rules, he is paying £100,000 income tax and NIC each year and £800 Council Tax; she might be paying £0 income tax and £2,400 Council Tax. Under the tax system proposed here, the merchant banker would still be paying more tax overall than the widow.

5. So when people come up with these diagonal comparisons, remind them that they are meaningless and ask them to change just one variable. And if they are wailing about Council Tax, remind them that working households pay ten or twenty times as much income tax, NIC, VAT and so on as they pay in Council Tax.


  1. Excellent, keep banging on the door!

  2. Here's a good one. Homey calls LVT 'punishment taxation':
    We don't do punishment taxation. We try to tax people in such a way as to have them pay their fair share. Imagine two people inherit two pieces of land side-by-side. One of them has a block of flats on it and the other one is empty because the council will not grant planning permission for any further development in this area. Obviously the land under the block of flats is a lot more valuable than the vacant land, and the owner did nothing to improve it. He should pay more tax.

    Biased diagonal comparison trying to justify tax on improvements with some bollocks on planning permission. Also use inheritance as a red herring, who can 'deserve' inheritance.
    Although partially right, he would know LVT is based on 'optimal value.' Like your a church taxed like a church example.

    1. R, play them at their own game.

      If LVT is 'punishment' for owning land, then income tax, NIC, VAT and corporation tax are 'punishment' for going out to work, investing, creating wealth etc.

  3. And I would like to add more to the analysis with the observation that it is not just the mansion category but the total value of the benefit of the site that the elderly widow so deservingly/undeservingly clings to with little consideration for wider society. If the mansion is on the Thames in Berkshire then the rent to society for such a prime seat with all its status and environment, paid by the oligarch for his deserved retirement, comes in to HMRC with no sob story. Why then does he not make provision for his widow so that she can pay her tax and remain there to also enjoy it. Why then does any husband not make such provision. Why did they not think about their finances before moving to this financial millstone? Who is this widow who wants to sponge off society due to poor financial planning? With LVT as now, she just has to sell up. She does it all the time at the present not because tax or upkeep are costly but because they were either not planned for or some part of the equation or circumstance changed. And on the whole she accepts that's life. It is her children with minds on the inheritance whom Mr Johnson is more concerned about?