Thursday 17 January 2013

A. The Poor Widow Bogey

There are dozens of variations on this argument, the most common ones are as follows:

• LVT [or indeed Council Tax] doesn't take into account ability to pay (i)
• Just because somebody owns a valuable home doesn't mean they have much cash income (ii)
• What about the asset rich/cash poor
? (iii)
• Poor Widows In Mansions will be made homeless (iv)

Skip to article

These can all be resolved with a roll-up and defer option. Of course, the deferment/roll-up option is not without its critics:
• Elderly people won't be left with enough equity in their homes to pay for a nursing home (skip to article)
• Elderly people will allow their homes to go to ruin if they have no equity in it (skip to article)
• The deferment/roll-up option is just like Inheritance Tax (skip to article)

See also:
B. The diagonal comparison
S. People have no influence over land values
W. I want to have my cake and eat it

1. We can deal with objections (i) to (iv) in one fell swoop:

i) LVT [or indeed Council Tax] doesn't take into account ability to pay

The "ability to pay" argument highlights that Home-Owner-Ism is Blue Socialism. In a free market capitalist system, everybody has to pay the same for the same services; we can't have a system where the government decides that favoured groups get certain things for free and that others have to pay through the nose; or even worse; favoured groups are given certain rights for free which they can sell on to unfavoured groups for inflated prices and to pocket the difference, but let's focus on The Poor Widow.

ii) Just because somebody owns a valuable home doesn't mean they have much cash income

This is a statement of the obvious. We are aware of this, although it is also true that most people who own valuable homes also have a lot of other income or assets. And clearly all of them own at least one valuable asset.

iii) What about the asset rich/cash poor

There are far fewer 'asset rich/cash poor' than the Home-Owner-Ists always pretend (skip to article), but yes, there are some.

The short answer to the issue of the 'asset rich/cash poor' (and all similar objections) is that people over retirement age who really want to stay put and realistically cannot afford the LVT will be given the option to defer and roll up the LVT until they die and the house is sold. As explained below, if the tax is about 3% of what each house is currently worth (at 2017 prices), even if house prices were to halve, this still means that on average, a pensioner household will be good for 17 years' worth of deferred payments, collected in arrears.

iv) Poor Widows In Mansions will be made homeless

This claim is simply untrue, the situation simply does not arise.

v) Skip to article on the long and ignoble history of The Poor Widow Bogey.

2. "Elderly people won't be left with enough equity in their homes to pay for a nursing home"

a) This is rank hypocrisy from the Home-Owner-Ists, because they consider it to be a scandal that anybody should be "forced" to sell their home to pay for their own long term care anyway, which is rather bizarre - whoever pays for the care, what is the point in keeping a house vacant for years on end if the owner has no intention of re-occupying it? And to the extent that people pay for their own care, why should it make any difference how they raise the money?

b) For a given standard of care, somebody, somewhere has to pay it; a basic minimum standard of care for all who need it can be paid out of general taxation. The balance has to be paid either by the elderly person needing care or his heirs (whether in cash or by paying insurance premiums earlier in life) - and in fact the two are the same people. Every £1 spent on care means that the heirs inherit £1 less, why should all taxpayers be expected to pay for all nursing home costs to protect the inheritance of the few?

c) People reaching retirement all have to make a realistic assessment of what assets and savings they have and how they would like to spend it. If some choose to "spend" the value of their home on their LVT bills, then that is no different to doing mortgage equity withdrawal and going on holidays or buying new cars. If we have a political objection to people "spending" the value of some assets on LVT (just in case they need long term care later on) then we can apply the same logic to their other savings or pension funds. The government would transfer all such receipts, together with any other assets or savings people have when they retire into an earmarked account and only allow them to be spent on old age care. Which makes a mockery of saving up for a nice retirement and nobody would bother.

d) People can choose to trade down in to a cheaper home, which frees up some cash to put to one side towards care fees (or care fee insurance) if they think that they won't be happy with the taxpayer-funded basic levels of care.

e) The cost of being in a nursing home is very high - between £30,000 and £50,000 a year in the UK (2016 prices), and how much of that should be paid out of general taxation is a political decision. Further, most people will never need long term caret; some might spend the last few months of their life in a nursing home; and others might be there for years on end. In the USA, it is estimated that five per cent of us will end up in a nursing home at some stage, and that half of people over the age of 95 are in homes.

f) Assuming a worst case ten year stay costing £400,000 in all, how many pensioners have a home that is worth that much (or twice that for a couple)? A few per cent at most, so with or without LVT, the value of housing is a completely unrealistic source of funding.

g) The cost of long term care is a "catastrophic risk". It does not happen to many people, it happens at random and the costs for an individual are enormous. So the only sensible solution is a compulsory, low-cost mass insurance scheme i.e. for it to be paid out of general taxation.

3. "Elderly people will allow their homes to go to ruin if they have no equity in it

a) We do not know what will happen to house prices if more tax is collected from land values and less from output and earnings (LVT pushes prices down; higher net incomes pull rents up). Quite possibly they won't change much. But assuming an extreme case and house prices halve, an LVT of approx. 3% of selling prices (as at 2017) means that after seventeen years of deferring, the rolled-up LVT would exceed the value of the home.

b) There might be some people who respond by allowing their homes to go to ruin, but we often see this happen anyway. With or without LVT, it is exactly the Poor Widows In Mansions who allow those mansions to go to ruin because they don't have any current income to pay for repairs and they don't particularly care, as long as the rain is not actually pouring in. You only need to look at a few interior photographs on estate agents' websites and you can tell straight away who lived there.

c) Everybody has to make their own decision when they retire - stay in a big house which they can't afford to maintain, or trade down and free up some cash, part of which can be spent on keeping the new place habitable. Of course, with reduced taxes on output and earnings, the cost of repairs and maintenance will be lower, so more people will be able to afford to pay for maintenance.

d) A related argument is that once the rolled-up LVT bill is close to or more than the value of the home, there is no longer an incentive to downsize. That might be true, but you pay your money and you take your choice. Some people will end up regretting their decision to stay put and will be wishing they had traded down, that's life, it is full of good decisions and bad decisions. There are plenty of obvious work-arounds here, i.e. if people want to trade down, a proportion of the overhang of LVT liabilities can be written off or something.

4. "The deferment/roll-up option is just like Inheritance Tax

No it's not.

a) The deferment/roll-up option is suggested precisely because of the issue of Poor Widows In Mansions. In cash terms, clearly there are some pensioners (far fewer than you think) who would not be able to afford the LVT on the home they are currently living in. If their heirs complain that they will end up paying the tax, then at least that shows up why they object to LVT.

b) If the heirs want to inherit more in future, then they can take some of their current tax savings (no more National Insurance or VAT) and use that to pay their parents' LVT on a year-by-year basis. That would be vastly preferable all round but is not always a realistic option.

c) So in reality, the whole of the next generation will be "inheriting" extra amounts every year via their ongoing tax savings and their total savings will be more than the value of housing which a lucky few would have inherited in the absence of LVT.

5. There are far fewer 'asset rich/cash poor' than the Home-Owner-Ists always pretend

a) A study by The University of Birmingham concluded: "... there are actually very few people in this category. Indeed, only 4% of those who were retired in 2010 had both an income below the official poverty line and housing equity over £100,000." The overall position is unlikely to have changed since then.

b) Seven million pensioner households (about 4 million couples and 3 million widows/widowers) own about a quarter of UK homes, so the total LVT to be collected would be about £50 billion a year (only slightly more than pensioners spend on tourism - £37 billion). This means £7,000 per household against average gross income of retired households of £29,000 in 2016 (FT August 2017). There is of course a disparity between pensioner household incomes, but there is a similar disparity in the value of their homes and the two largely overlap.

c) Collectively, pensioner households can easily afford the £50 billion LVT (especially as other goods and services will be cheaper). Half can easily afford it; a third will break even and maybe one-sixth of pensioner households would would be "forced" to take some sort of evasive action, such as trading down; taking in a lodger (presumably a family member); asking their family or heirs to contribute; using up their savings; and most importantly, agreeing a deferment/roll-up with the council.

d) Quite who ends up better off and who has to take evasive action depends on how much a pensioner household's income is and how much their house is currently worth. By and large, most pensioner households in lower quartile housing and most pensioner households in the upper quartile of the pensioner income distribution would be better off. For every 'asset rich, cash poor' pensioner household there are three 'asset poor, income rich' pensioner households.

6. The roll-up option

It cannot be beyond the wit of mankind to have some relieving or transitional measures to phase in the tax and find some trade-off between good economics and good politics.

a) Evicting pensioners for non-payment is a political non-starter, so the next solution is to deduct any LVT due from state pensions or private pensions at source.

b) Politically and practically, the deduction at source would have to be restricted so that each pensioner household receives at least a bare minimum to live on.

c) Big picture-wise, a 100% LVT on current site premiums would mean that pensioner households have to pay £50 billion a year out of gross state, occupational and private pensions of £200 billion a year (£29,000 x 7 million), so the bulk could be collected and the rest rolled up and paid on death.

d) Clearly, some of the deferred LVT would never be collected if it ends up exceeding the value of the home, but this will be relatively small amounts.

e) Or we go for an economically nonsensical but politically acceptable solution and simply exempt pensioners' homes entirely and impose a higher rate on everybody else. The upside of this is that house prices would be pushed even lower, so first time buyers would not be hurt; it would be the Baby Boomers who end up paying because a) they own a disproportionate amount of housing and b) their inheritances will be all the smaller.

f) In the medium and long term of course, good economics and good politics are the same thing. It is estimated that 1% on VAT costs 100,000 jobs, so getting rid of that means another two million private sector jobs. National Insurance raises £120 billion a year and is probably not quite as damaging as VAT, but getting rid of that might mean another million private sector jobs. So that's three million people back in work and higher net wages for those who are already in work. Every £1 by which house prices fall means that the next generation of first time buyers saves £2 in interest and mortgage repayments.

Is it really good politics in anything but the shortest of short term to stick with a tax system which uses Poor Widows in Mansions (one or two per cent of the population!) as a human shield to justify poverty for untold millions of others?

g) Why would nudging Poor Widows out of their Mansions be good economics, you might ask. Look at London, which is where ninety per cent of the £1 million-plus homes are. Who's queuing up to buy those homes? It's rich foreigners, who'd be delighted to take advantage of our low income tax rates and who could easily pay the tax (house prices will adjust downwards in compensation). If half a million wealthy foreigners and their families came to the UK and each spent £200,000 of their foreign-earned income here each, that would increase our GDP by 5% and wipe out the balance of payments deficit. But who lives in those houses? Poor Widows, allegedly, so all the foreigners go elsewhere (like New York or Switzerland, where they have swingeing property taxes, as it happens).

7. The "Poor Widow" Bogey

a) She is a timeless classic of the genre, Winston Churchill (when he was a pro-LVT Liberal MP) got sick and tired of hearing about over a century ago. From here:

But when we seek to rectify this system, to break down this unnatural and vicious circle, to interrupt this sequence of unsatisfactory reactions, what happens? We are not confronted with any great argument on behalf of the owner. Something else is put forward, and it is always put forward in these cases to shield the actual landowner or the actual capitalist from the logic of the argument or from the force of a Parliamentary movement.

Sometimes it is the widow. But that personality has been used to exhaustion. It would be sweating in the cruellest sense of the word, overtime of the grossest description, to bring the widow out again so soon. She must have a rest for a bit; so instead of the widow we have the market-gardener...

For a lengthy account of how often the Poor Widow is invoked as an argument against land taxes in the USA, see here.

b) It is the height of cynicism that the Liberal's "People's Budget" of 1909 was vetoed by the landowners in the House of Lords (when 80% or 90% of the population were private tenants) who used The Poor Widow as a human shield for their own interests and then a few years later merrily sent off millions of men to the trenches in France, where 670,000 were killed and 1,640,000 were wounded, so while the Poor Widows were spared the ignominy of trading down, many of them will have sons or grandsons killed or injured in battle.

c) Today's Poor Widows In Mansions weren't even born when Churchill made that speech. For sure, any transition is going to be a bit messy, being a trade-off between good economics and good politics, but surely it is not insurmountable? If we had devoted half the lives and materials wasted in the 1914-18 war to dealing with the transition to LVT instead, then by now this would be a normal part of financial and retirement planning and there simply wouldn't be any Poor Widows In Mansions.

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 C├ęzannes 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.

C. Land doesn't generate income

These arguments are usually presented in conjunction with the Poor Widow Bogey, but let's treat them as a separate category:

• There's no cash to pay the tax; you can't pay tax in slices of land (skip to article)
• Taxes on land are "dry taxes"(skip to article)
• People will be forced to sell or rent out their land (skip to article)
• People will be forced to try and generate income from their land, even if that is a sub-optimal use (skip to article)
• It would be OK to make landlords to pay more but why should I pay tax on my own home? (skip to article)
• If they tax us on land, they might as well tax us on fresh air! (skip to article)

1. "There's no cash to pay the tax; you can't collect/pay tax in slices of land"

People only say this because they have become used to the socialist idea that taxes are primarily assessed on earned income. But there are two different types of "tax" (i.e. sources of revenue to fund government):
- taxes calculated as a percentage of cash or near-cash income (whether called income tax, corporation tax, National Insurance or VAT, a tax on turnover/gross profits), and
- user charges (Business Rates, council tax, fuel, tobacco and alcohol duty).

LVT is actually a user charge for the benefits (net of dis-benefits) accruing to each plot of land and collected or enjoyed by the owner (or the bank in the form of mortgage interest), it is conceptually no different to any other duty. You can't argue against fuel duty on the basis that "my petrol doesn't generate income for me, I can't pay petrol duty in pints of petrol", it is there because otherwise roads would be even more hopelessly over-crowded.

As to "slices of land", taxes (and rent or mortgage interest) are supposed to be paid in cash, but if a tax evader (or a rent or mortgage defaulter) runs up a large enough debt then his property (whether that is cash, physical assets or land and buildings) will be seized and sold off to pay the tax (or rent or mortgage arrears).

A 90% - 100% LVT on current site premium (definition see here) would be approximately 3% of the total selling price of each home (at 2017 prices). Even if house prices were to halve because of the LVT, that still means that any homeowner could run up 17 year's worth of arrears before there was a shortfall in collection.

Just because land itself does not spew out coins and notes, that does not mean that the tax can't be collected. Very briefly, on an administrative level, everybody will fall into one or more of the following categories, and all the collection methods would be administratively easy:

- Pensioners - tax can be deducted from state, occupational and private pensions (just like PAYE) with any deferred amounts being collected from proceeds of sale of house on death.
- Social tenants - tax can be collected as part of the rent (the rent includes LVT, by definition)
- Private tenants - tax would be collected from landlord (or withheld from Housing Benefit Payments)
- Households in lower-value homes - tax would fall below personal allowances/Citizen's Income entitlements.
- Households with mortgages - any tax exceeding personal allowances could be added to mortgage payments or collected via PAYE/Self Assessment returns.
- Public sector workers - as above, can be deducted directly from wages.
- Mortgage-free households - any tax exceeding personal allowances could be collected via PAYE/Self Assessment returns.
- Owner-occupier farmers and small holders - tax would probably fall below personal allowances, balance collected via Direct Debit/Self Assessment.
- Vacant premises and unregistered land. If the owner does not pay, a charge to cover arrears is taken over the land and if he does not come forward within twelve years, his title is void anyway under normal English land law (different in Scotland).
- Land owned by offshore trust etc. - if tenanted, then tax is collected from tenant. If vacant, see above.

2. The Taxpayers' Alliance, which is funded by large landowners and the financial services industry coined the term "dry taxes", which adds nothing new to the debate.

3. "People will be forced to sell or rent out their land".

This is nonsense of course and even if one alternative is correct then the other isn't. Nobody would be forced to sell anything, if you own land and buildings, then under LVT, even under 100% LVT, you will still be able to make a profit by renting it out, as the LVT only taxes the site premium and not the income which is derived from the buildings and improvements or other services provided.

The next question is, to whom would land and buildings be sold or rented, and where would they get the cash from? If a tenant can rustle up the cash to pay the rent on where he lives inclusive of the tax, then why not the current owner, who only has to pay the tax but nothing extra for use of the buildings and improvements?

4. "People will be forced to try and generate income from their land, even if that is a sub-optimal use"

The bulk of UK land and buildings by value is housing and by and large, people are paying for the enjoyment value, they do not derive cash income from their home any more than they derive cash income from any other goods they buy or the services they pay for.

So that's like arguing, "If supermarkets start charging me for the food I need, then I'd have to re-sell the food at a higher price to be able to pay for it." or "If we have a road fund licence, fuel duty and VAT on car use, then instead of using their cars to commute for work or for leisure activities, everybody will be forced to become a courier or mini-cab driver to generate the income to pay the taxes."

One of the main determinants of rental values is the level of local earnings. For example, although average earnings in London are £10,000 higher than in the rest of the UK, average annual rents are also £10,000 higher. Study after study (see e.g. Retail Week, August 2017) has shown that although there is a large wage differential between different regions of the UK, there is a similar difference in housing costs, so actual disposable household income after housing costs is quite similar across the UK (being almost exactly the same in London as in the North East).

The higher rents in higher wage regions are the entry fee which landlords charge, and which tenants are willing to pay, for the right to earn more money. Those tenants are already putting their homes to their optimal use by using them as a base from which to earn the higher wages.

These tenants go out to work, earn £20,000 net salary after tax and pay £10,000 in rent. From their point of view, this is just as good as living in a low wage area, earning £14,000 after tax and paying £4,000 in rent. Very few of them are going to move to a high wage/high rent area and then decide to start working from home on the basis that they have to generate income from the asset for which they are paying rent.

5. "It would be OK to make landlords to pay more but why should I pay tax on my own home?"

To which the rhetorical counter-question is: why should a tenant pay anything to have a roof over his head?

Answer: because he's getting something of value to him, or else he wouldn't pay it.

The total rent which any tenant pays can be split into two things: 'the rental value of the bricks and mortar' and 'the site premium'. With LVT, the landlord keeps the rent from the bricks and mortar and passes on the site premium to the government as tax. However the tax bill is split between them (the tax can only be paid out of the total rent collected), the landlord and tenant taken together are enjoying the benefit of exclusive occupation of that site. So far so good.

Good taxation involves taxing substance rather than legal form, because taxing legal form makes avoidance and evasion far too easy and erodes any underlying principles.

What if the landlord decides to get out of the rental business and sells a home to the sitting tenant? It would be the same person enjoying the same exclusive occupation; all that has happened is that they have swapped cash for bricks and mortar. The new owner continues to pay the site premium element to the government directly as tax and pays a smaller amount for the actual bricks and mortar.

To the outside world, nothing has changed. Why should the tax now fall to £nil merely because of a change in legal form?

6. "If they tax us on land, they might as well tax us on fresh air!"

This has been seriously advanced on several occasions, but that's the whole point isn't it?

i. Air is a natural resource, provided for free by nature (in which the Clean Air Acts help) and nobody has to pay for the act of actually breathing. Not even the most powerful government or landlord can make people pay for the act of breathing (although a Poll Tax comes close).

ii. Land (or location) is another natural resource provided for free by nature, but we have been conditioned to accept it as normal that landlords (or banks) charge us for the right to occupy it or acquire it, which includes the right to breathe the air from any particular site.

iii. Luckily, nobody can claim exclusive possession of the air: however much we breathe there will always be plenty left for everybody else, so while fresh air is of almost infinite value (without it we'd suffocate within minutes) nobody can privatise it and charge us for breathing it, so fresh air has no market value.

iv. Everybody needs exclusive possession of small patches of land to have their homes (or businesses) on, and there's a limited supply of good patches, which gives land its market value. Once all the land is registered as belonging to somebody, ever future individual in all eternity is forced to pay large amounts of money for the simple right to have a reasonable lifestyle (the only alternative is sleeping rough). What the Normans took by force in a few years is still paying their descendants handsome dividends.

v. Most households only own tiny patches of land, but in doing so, they are each placing a tiny burden on 'everybody else' who then has to use a less favourable plot. The sum total of all these tiny burdens is, mathematically and logically, equal to the rental value of any plot. And in turn, everybody (landowner or not) has a tiny burden placed on him by everybody who occupies a more favourable plot and so on.

vi. Imagine that there was a limited amount of air, and I'm a big fat bloke who burns through 6,000 calories a day, goes jogging and plays rugby; I drive a massive car and I love to have a roaring fire in the hearth. As a result of this, some other citizens are suffocating because I've used up more than my fair share of air. In that case, would it not be fair to levy a tax on fresh air to encourage me to use a bit less and use the fund to compensate people who are suffocating or whose cars won't start in the morning?

vii. So the only fair way of dealing with land rents is for all that land rental value (or site premiums) to be paid into a single pot and for the money in the pot to be dished out again to, or spent for the benefit of, everybody as equally as possible. So again, it's basic maths that the average household occupying the average plot would pay as much in LVT as it receives in cash or in kind, and would thus be effectively occupying land 'for free' in the same way as they can breathe air for free.

D. Local taxation and the only fair tax is...

Here are another two myths, some nonsensical statements, a meaningless question an one argument that has been superseded by events:

• MYTH: I pay for local services out of my Council Tax (skip to article)
• MYTH: The UK collects more tax from land than any other OECD country (skip to article)
• The only fair tax is Poll Tax, income tax or sales tax/VAT (skip to article).
• Will LVT be a national tax or a local tax? (skip to article)
• We have to have VAT because the EU says so (skip to article).

1. MYTH: "I pay for local services out of my Council Tax."

We can dismiss this one straight away, because whatever the logic of it (and it has no relevance to the merits or demerits of LVT), it is simply a downright lie.

We know for a fact that Council Tax currently raises £32 billion a year (before deducting Council Tax benefit), which is only about five per cent of all tax receipts. To be able to make such a statement, you would then have to say what you mean by "local services".

The last time I looked, apart from defence, paying debt interest and maintaining embassies and consulates abroad (and ignoring corporatist subsidies, theft and waste), everything the government does is "local". It spends about £150 billion a year on the NHS and the state school system alone. There's plenty of other stuff on top of that which is clearly "local" (road maintenance, police, law and order, refuse collection, street lighting, social workers etc) which brings the bill to £200 million.

Suffice to say, Council Tax covers barely one-seventh of the cost of such "local services".

And you could just as well argue that welfare and pensions spending are local services, because they are paid to people who all live somewhere, and wherever they live is "local", and every bit of land benefits from the fact that we have these non-local services (defence, paying debt interest), in which case Council Tax only covers a twentieth of the cost of "local services".

2. MYTH "The UK already collects more tax from property than any other OECD country"

The OECD's latest report (2015, overall very much in favour of taxes on land values) says :

The size of the property tax take varies strongly across countries, both in terms of percentage of total tax revenue and in per cent of GDP (Figure 1). Overall, its significance is modest. Across the OECD, taxation of immovable property makes up around 2½ per cent of the total tax take and a bit more than 1% of GDP. Countries with a high property tax-to-GDP ratio include the United Kingdom, Canada and the United States, while the ratio is almost nil in countries such as Luxemburg, Greece and Mexico. The property tax is more prevalent in Anglo-Saxon countries…

The OECD takes a very wide view of what constitutes a tax on immoveable property. It is true that the UK's Business Rates is very high by international standards, as is Stamp Duty Land Tax, but Council Tax is quite low.

If you add these together, the UK is at the top of the table (it wouldn't be if Hong Kong and Singapore were included), but out of the £80 billion-odd in such taxes collected in the UK, how much is actually an annual tax on the rental value of land?

- Business Rates (£30 billion), is quite similar to LVT (and high by international standards).
- Stamp Duty Land Tax (£14 billion) is a tax on certain transactions in land and buildings, it relates to land values and is highly progressive but is not proper LVT (it is a very crude LVT payable in advance).
- Inheritance Tax and Capital Gains Tax (£14 billion) are general taxes which apply to lots of other things than land. A fair chunk of estates and capital gains affected relate to land values, but these are not LVT (they are a very crude LVT payable in arrears).
- Council Tax (£32 billion before rebates) is closer to a Poll Tax than LVT (although administratively could easily be made much more like LVT). It varies depending on what a home was (or would have been, had it existed) worth in 1991. In 1991, house prices were much flatter around the UK and values were closer to the "bricks and mortar" value, so you could say that it's a tax of about £300 for each room in a home, if you have more than nine rooms, the rest are tax-free.
- The OECD ignores subsidies to land ownership, such as the £10 billion paid to private landlords as Housing Benefit or the £4 billion paid to owners of farmland (a kind of negative LVT).

So actual quasi-LVT (Business Rates) is less than 5% of UK taxes collected, not the 12.5% given by the OECD (tables).

The amount of quasi-LVT (ad valorem annual property taxes) collected in the USA and Canada is much higher in the UK; the bulk of their property taxes are annual taxes pro rata to the value of each home, with no upper limit in most states (some apartments on Manhattan cost over $100,000 a year); and their Stamp Duty Land Tax equivalents are much lower.

3. "The only fair tax is a Poll Tax, income tax or sales tax/VAT"

The distinction between 'local' and 'national' services is highly artificial, to all intents and purposes, the UK has one single national tax-raising system; even supposed 'local' taxes like Council Tax or Business Rates are dictated by UK-wide rules (these are diverging slightly for Scotland). Simply putting the word 'local' in front of a tax or earmarking it for 'local' spending adds nothing to the merits or demerits of the tax.

When arguing against LVT, people's stated preferences is usually based on whatever system they think will mean that they pay less than now (and everybody else will pay more. People with high incomes like the idea of a Poll Tax; people with low incomes like the idea of income tax; and people with a modest lifestyle like the idea of Sales Tax (such as Value Added Tax). The arguments for a Poll Tax are the opposite of the arguments for income tax, Land Value Tax sits comfortably between the two.

The actual economic or practical advantages or disadvantages of all these taxes can be summarised as follow. A Sales Tax is even worse than Income Tax, and starts to take on some of the disadvantages of a Poll Tax (but without the advantages).

Land Value Tax comes out the best when judged by objective criteria, with income tax in second place.

4. "Will LVT be a national tax or a local tax?"

The answer is "both". Ideally, it will be set at a national rate (as is Business Rates at present) and collected locally. To keep per capita spending the same, areas with high land values will receive less from central government out of general taxation and areas with low land values will receive more.

The whole topic of local government finance is currently nigh impenetrable. It is a mixture of a small amount of locally collected national taxes (Council Tax and from since 2013, a proportion of Business Rates) and hundreds of different adjustments to and fro to say how much money each council, local NHS, local education authority etc gets from central government out of national taxes. And of course there are different layers of local government: town and parish councils, local boroughs, county councils, unitary authorities and regions such as Scotland, Wales and Northern Ireland.

Officially, only about one-quarter of total government spending is "local", but you could easily classify two-thirds of UK government expenditure as "local", i.e. anything that can reasonably said to be spent in a particular area. So in the wider sense, this includes an NHS hospital, a state school or university, roads, the local police, refuse collection, Housing Associations and of course pension and welfare payments to people in an area. Truly "national" stuff is only defence, immigration control, foreign embassies and consulates, debt interest and so on.

If some councils decide, for political or ideological reasons, to collect less than what they are entitled to collect and cut back on "local" spending accordingly, well, that is their decision; their grants from central government would not be increased to make up the shortfall. Clearly, central government grants would have to be re-assessed regularly and tapered gently so that local councils are incentivised to improve their areas as best they can, because they can keep any increase in rates receipts in the medium term. No system is ever going to be perfect but you could hardly make it worse than it already is.

5. "We have to have VAT because the EU says so"

This was quite true, but now that the UK government appears to have accepted the narrow majority for "Leave" in the 2016 Referendum, we are free to reduce the headline rate and preferably scrap VAT altogether.

E. LVT is a tax on aspiration

All of the following claims can be debunked by applying logic and looking at hard facts:

• LVT is a tax on aspiration (skip to article)
• LVT is a tax on savings and thrift (skip to article)
• LVT will increase the cost of buying a home (skip to article)
• Tenants will end up paying nothing. They’ll always vote for increases.
(skip to article)

• Homeowners will end up paying all the tax (skip to article)

As regards the fourth bullet point, see also Landlords will pass on all the tax to their tenants. It's either one or the other but it can't be both, and in fact it's neither. The two arguments cancel out.

1. "LVT is a tax on aspiration"

No it's not. Income tax and PAYE are taxes on "aspiration". The point of earning money is to have a nice life. Having earned some money, people want a nice house, a nice car or two, nice holidays etc. All of these things cost money; shifting the tax burden from output and employment reduces taxes on aspiration, it does not add to the cost of buying a nice house, and it reduces the cost of cars and holidays.

The Home-Owner-Ist system is a pyramid scheme. So of course the people at the top get big payouts, that is what people really aspire to, winning the land price lottery. And they are trying to sucker people into paying their entry fee. By definition, only a small minority can be winners under the scheme and everybody else is paying for their trickle up winnings. Unfortunately, it is impossible to opt out of the scheme - if you don't own land then you are paying rent to somebody who does, so a lot of people are prepared to overpay in order to get onto the pyramid.

So who are the people who are doing the "aspiring" here? It is the people outside looking in. The people at the top aren't aspiring to anything at all, they are just sitting on their handsome source of unearned payouts and can sit back and relax.

And who is doing all the work? It is of course the people outside looking in or the people scrambling to get on or climb up the pyramid (it is impossible for everybody to be climbing up, if we were all landlords, there'd be nobody left to be a tenant, but it doesn't stop them trying).

And who is paying all the tax? It is the people doing all the work, who are the people also doing the aspiring.

So a more accurate statement is roughly as follows: "Taxes on output and employment are taxes on aspiration. LVT is a tax on those people who can't be bothered going out to work".

2. "LVT is a tax on savings and thrift"

a) There is a clear positive relationship between house price increases and mortgage equity withdrawal, and there is also a clear enough negative relationship between house price increases and the household savings (mortgage equity withdrawal is dis-saving).

LVT would keep house prices low and stable, which would in itself encourage real saving (there'd be no debt-fuelled land price speculation) and if people want to stay in the same house all their lives, they would have to put more money aside to tide them over during retirement.

Here are the charts showing the relationship in the period 1970 - 2011:

Data from Nationwide.

Chart from Duncan's Economics Blog

Data from the ONS.

b) From City AM:

Research by Robert J. Shiller, who made his name warning of irrational exuberance, and his colleagues Karl E. Case and John M. Quigley, published by the National Bureau of Economic Research, confirms how house prices drive consumer spending. Their numbers relate to America, but they would undoubtedly also apply here; the authors discovered that changes in house prices have a larger impact on spending than changes in share prices, and that increases in property prices boost consumption by more than crashes cut it.

They found that an increase in real, inflation-adjusted housing wealth, of the sort seen in the US between 2001 and 2005, pushes up household spending by 4.3 per cent in total. A housing crash of the sort seen in 2005-2009, slashes consumer spending by around 3.5 per cent. There are usually two ways in which house prices impact spending: home owners feel richer; and they are able to extract equity by remortgaging or downsizing their homes.

A household "saves" when it earns more money that it spends. If it starts spending more without earning more (i.e. on the back of a credit bubble) then that is quite simply the opposite of "saving".

c) The Home-Owner-Ists have another stealth tax on savings, which is inflation and negative real interests, which transfers wealth from cash savers to banks, borrowers and land owners. With LVT in place, there would simply be no incentive for the government to stoke inflation and depress interest rates.

And land itself is not "savings", how can it be, it is just there.

With LVT, land will be (from the point of view of the household) just another item of consumption. If people are really thrifty, they will consume less land, unlike under Home-Owner-Ism where trying to own as much land as possible is seen as "savings and thrift". All these people are doing is collecting rent and pushing up the price of land for everybody else, i.e. making it even more difficult for other people to build up savings. The net impact of Home-Owner-Ism on real savings (in the sense of households deferring consumption to a rainy day) is very negative indeed.

d) A lot of the Home-Owner-Ist wailing when the Mansion Tax was suggested was about Poor Widows In Mansions who had seen their homes rise in value for reasons beyond their control (thus contradicting the claim that Landowners create their own land values).

For sure, some people bought houses in west London for a few thousand quid in the 1950s which are now worth £ millions (fewer than 15% of such houses have been owned-occupied by the same people for more than twenty years, most of them cashed in and cleared off long ago); but there are plenty of Poor Widows elsewhere in the country who bought a house for a few thousand quid in the 1950s which are still only worth £100,000 or £200,000.

Both Poor Widows worked just as hard to pay off the same amount of mortgage. How can the ones in west London be said to have worked and saved harder? Given job opportunities and so on, the ones in west London probably had it easier, if anything.

3. "LVT will increase the cost of buying a home"

No it won't. It will be much easier to buy a house.

a) With VAT and NIC gone, potential FTB's (who will save more from the reduction in taxes on output and employment than anything they pay extra in higher rents) will have much higher disposable incomes to start with.

b) LVT would act exactly the same as higher interest rates in pushing down the purchase price of housing. Any tax on housing does not significantly change the overall cost of buying a house. In the UK, Council Tax is more or less a small Poll Tax and so it is difficult to calculate by how much it depresses the purchase price of housing.

c) In the USA, "property taxes" vary widely from state to state and from county to county within each state. Published figures on property taxes, house prices and earnings in New York State show that $1 extra on the property tax pushes down the purchase price of a home by $17.

d) With a twenty-five year mortgage, the total repayments are double the amount of the original loan. So over the mortgage term, the purchaser saves $34 in mortgage repayments (privately collected tax); saves $25 in income tax and pays $25 in property tax. So by the end of that period he is well ahead of the game. What the savings (or additional costs) are over the rest of his life depends on how many years he continues working after that, what his retirement income is and so on.

e) If a tax on home ownership increases the cost, then a direct subsidy to home ownership would reduce the cost, wouldn't it? The UK had such a subsidy ("MIRAS", tax relief for mortgage interest) which was phased out during the 1990s. So if the subsidy had reduced the cost of buying a home rather than just pushing up prices, then the cost of buying a home (as represented by mortgage interest as a proportion of salaries) would have gone up once MIRAS was phased out.

Only it didn't, did it? See chart 3 on page 5 of the recent CML report on 'Affordability and first-time buyers' (pdf):
4. "Tenants will end up paying nothing. They’ll always vote for increases."

Maybe, maybe not.

a) Private tenants (20% of households) are already paying LVT of course, it is just that their landlords are pocketing it rather than paying it over as tax (thus enabling other taxes payable by tenants to be reduced). So yes, tenants have nothing to lose and everything to gain by voting for LVT increases. This would also push down house prices, making it easier for them to become owner-occupiers.

b) For social tenants (17% of households) this is a bit of a two-edged sword. Logic would dictate that social rents and LVT are pretty much the same thing, so LVT increases would mean higher social rents.

c) This argument completely overlooks the fact that we live in a democracy and landowners are in a majority; 63% of households are owner-occupiers (half of them with, half of them without a mortgage) and a few per cent are also landlords.

d) We know that all the major political parties in the UK make a great show of promising that they will increase Council Tax by less than inflation, i.e. is being reduced in real terms. Even tenants go along with this because they don't realise that any Council Tax increase will always push down rents in equal and opposite measure.

e) But if tenants aren't paying the LVT (which they would be, directly or indirectly), then who is? Their landlords, of course! If landlords think that LVT takes too much of his rental income, then he is free to sell his rented homes and invest the proceeds more profitably elsewhere. And to whom will he sell them? To the sitting tenants, of course. So if tenants voted for increases, we'd end up with fewer tenants and more homeowners and it would all find its equilibrium within a couple of years.

5. "Homeowners will end up paying all the tax"

This is clearly complete nonsense; most homeowners will end up paying less tax.

a) If you try out the online app, you will see that most working owner-occupiers will end up paying a lot less in tax. The only ones who would pay more are those with particularly low earned income relative to the value of the house they own, i.e. Poor Widows In Mansions, which we have covered elsewhere.

Of the majority of UK adults who are owner-occupiers, a majority are still in work and they would nearly all benefit. Younger owner-occupiers will benefit most (because they will save most tax in the long run and are more likely to want to trade up in future) and those nearing in retirement will vote for the status quo (having already banked the tax and rent savings over their lifetime, they are unwilling to give any back), unless of course they are enlightened enough to take their children and grandchildren's interests into account. Unfortunately, most of them aren't.

b) Three-quarters of privately owned housing is owner-occupied and one-quarter is rented out.

Seeing as the LVT would be the same whether a home is owner-occupied or rented out, homeowners would be paying three-quarters of the LVT collected from privately owned residential land and landlords/tenants would be paying the other quarter. The LVT payable by social tenants would be included with their rent. You might as well argue against income tax or insurance premium tax or air passenger duty on the basis that these taxes are largely borne by homeowners. Well of course they are because homeowners are (still) a majority of the population.

F. LVT is an attack on families

• It's a tax on gardens
 (skip to article)
• It's an attack on families who need big homes and gardens

 (skip to article)
• It's wrong to assume that employers will pass on their NIC savings as higher wages (skip to article)
• It's an attack on single people who'd have to pay as much as a couple (skip to article)
• FOOTNOTE: The close correlation between build density and land values (skip to footnote)

1. "It's a tax on gardens"

The short answer to that is: "No it isn't. It's a tax on where the garden is. If you really want to live in an expensive area and have a big garden, then the tax will indeed be very high, but if it's the garden that is important to you then you will always be able to find something affordable. You just might have live in an area where gardens are the norm and where there is no particular premium attached to them (less scarcity value), which is in fact nearly all residential areas."

The long answer (see below) comes to exactly the same thing, but involves actually knowing about land values.

2. "It's an attack on families who need big homes and gardens


I have seen people advance The Poor Widow Bogey and this argument together, which just shows that the Homeys care little for logic or any sort of intellectual coherence. The interests of Poor Widows In Mansions and families with children who want to buy a house are diametrically opposed.

Even more irritating is that in the next breath, the Home-Owner-Ists say that 'local services' should be funded by a Poll Tax. That really would be a tax on families i.e. larger households, who would clearly pay more under a Poll Tax and less under LVT. While LVT would increase the tax payable by Poor Widows In Mansions, a Poll Tax is the equal and opposite and would increase the tax bill payable by Poor Widows in lower value housing, who probably deserve more sympathy.

A shift from taxing output and employment to taxing land values will increase the tax payable on the Poor Widow's Mansion (and thus will ultimately be 'paid' by heirs who will receive a smaller or no inheritance) but that same tax shift will enormously benefit working families with children, and especially young couples who would like to settle down, move out of their flat into a house and have kids. The heirs' loss is the family's gain.

The online tax app enables you to enter your own figures for earnings/household composition to see how much tax a working family would save. This assumes they've already bought a house and are stuck with the mortgage; in future, the savings to families ought to be a lot more because house prices will go down so their mortgage payments will be lower.

When challenged, the Homeys will then deny that there is any contradiction and then say that shifting to LVT, combined with a Citizen's Income/personal allowances will also "hit" single people hardest, because they get the least in Citizen's Income/personal allowances. The irony of all this is lost on them.

2b. "It's wrong to assume that employers will pass on their NIC savings as higher wages"

No it's not.

Common sense tells us that making employer's pay a payroll tax on wages out reduces headline wages; economic theory tells us that the supply of labour is less elastic than the demand for it, so employees end up bearing most of the Employer's NIC.

Be that as it may, and even if the assumption is wrong (which it isn't), there is an easy answer to that, assuming we want wages to be taxed at an overall flat rate (20%) the means that the worker should receive 80% of what the employer has to pay (in NIC or in gross wages). So we could leave Employer's NIC at 13.8% and tax the gross wage at 9%. So for £113.80 paid by the employer, the employee nets £91, which is 80% of the total paid.


3. "It's an attack on single people who'd have to pay as much as a couple or a family"

Hang about here, first the Homeys say that LVT an attack on families who tend to need larger homes, and then they say that LVT is an attack on single-adult households. Those are completely contradictory (and both are wrong, as it happens).

I even once saw the non-logic taken to its perfectly circular non-logical conclusion: the Poor Widow In A Mansion would be "forced" to pay more than the millionaire City banker living in a small flat; the Hard Working Family would be "forced" to pay more to live in the sort of home with a garden which the Poor Widow lives in; and... [drum roll] a single adult would be penalised because they would be "forced" to pay as much as a family.

If you mention Citizen's Income then the Homeys get even more rabid, because clearly this doubles-up the discrimination against single people (Poor Widows or not) and is simultaneously a subsidy for feckless single mothers. Actually, the people who will benefit most from this are larger households, i.e. families.

4. "FOOTNOTE: The close correlation between build density and land values"

For most towns and cities, the "centre" is literally in the centre, but in some places, such as seaside/tourist towns, the "centre" is the beach. What people pay for is the view over the beach and the sea and that value to the individual is largely unchanged whether you share the view with a hundred or a hundred thousand other tourists. So the value of the land along the beach front is very high.

The value of the land further back (with no sea view) is much lower. So we observe that in newer resorts, there is a solid row of ten storey hotels along the front and behind that are ordinary size homes/residences. Whether you have to walk two minutes or ten minutes to the beach scarcely matters so the land values in the hinterland are much lower and more or less flat, so the huild density is much lower and more or less evenly spread. Picture from here:

We can see that with our own eyes and understand it, but the key to all this is that the same general principle applies to normal towns and cities. Even though the physical land in the "centre" is the same as anywhere else, the same effect (massive disparity in values between the "centre" and surrounding areas) is observed. When discussing land value tax, it soon becomes apparent that people do not have a clue about land values (in terms of absolute rental values or relative or absolute selling prices).

a) So let's completely put tax reform to one side for the moment and look at actual figures:

- Rental value of farm and forestry land (per acre) = between £5 and £100 a year.

- Site premium of a residential plot with a semi-detached (around a tenth of an acre) = between £3,000 (bottom decile) and £11,000 (top decile) a year, with more or less no upper limit in the top decile.

- Rental value of city centre shops and offices = a huge range. They start roughly where residential leaves off. Rents for offices in Manchester are £30 per square foot per year. The upper reaches are pretty insane. Rent for the best retail space in London is £1,000 per square foot per year (allegedly)

b) So the ratio between the rental value of average residential land and average farmland is about one thousand; the ratio between land used for office space in Manchester (assuming a ten storey block etc) and average residential land is one hundred; and the ratio between central London and normal Manchester is another ten (or whatever) on top of that. Multiply all those up and there is a ratio of one million between the highest and lowest rental values on a per area basis.

c) Even if you are baffled by these numbers or the fact that the ratio between the highest and lowest rental values is something like one million (meaning that Central London has a higher rental value than the whole of Aberdeenshire), land values are made clearly visible by how densely built an area is.

For example and simplifying this a bit and looking at residential only in a typical large town and ignoring particularly posh or grotty areas:

City centres = skyscrapers with no gardens and just a few public parks. There can be hundreds of dwellings per acre, depending on how tall the skyscraper is and how big the flats are.

Inner suburbs = blocks of flats or terraced housing, between twenty and fifty dwellings per acre. Small gardens if any.

Outer suburbs = mainly semi-detached, between ten and fifteen dwellings per acre.

Commuter towns, market towns, rural areas = have the most detached houses, densities of less than ten homes per acre, could be less than one for scattered farmhouses. There is a premium attached to being in The Green Belt (the Faux Bucolic Rural Idyll) but this is offset by the negative premium attached to being far away from town centres (where the best paying jobs are).

d) The density is fairly proportionate to land values. We can plot this thusly:

e) "Hang about here," shouts the crowd, "If we divide the rental value by the density, the answer is always about £4,000. Do you mean to say that the site premium is about £4,000 wherever you live? That flats cost as much as semi-detached houses?"

Yes, that is exactly how things are. If you look in the estate agent's window, you will see that in most areas, a one- or two bedroom flat costs about 60% as much as a semi-detached house. But we also know that most homes in city centres (expensive land) are flats; and most homes further out (cheaper land) are houses. The two effects more or less cancel out.

HM LandRegistry's House Price Index for March 2017 shows the following average prices for the whole of England:

Detached - £349,524\
Semi-detached - £215,584
Terraced - £186,784
Flat/maisonette - £220,648

Yup. The average selling price of flats in England is slightly higher than the average selling price of semi-detached houses.

f) So the long answer to bullet point 1 is exactly the same as the short answer. The rental value of most dwellings is in a surprisingly narrow band, everybody makes a trade-off between convenience/less space (city centre flat) with longer commute times/more space (suburban semi) with terraced houses falling somewhere in the middle.

Which debunks the stupid argument "If we had LVT, some evil developer would come along and get planning to demolish my house and build flats in my garden instead".

This will be true where towns have grown up around old houses with big gardens, so what was on the outskirts of a small town (optimum use - house with big garden) but is now near the middle of a large town (optimum use - terraced houses or flats), but for most residential areas, certainly in the outer suburbs and in smaller towns, the optimum use of land is houses, detached or semi-detached.

There is no latent planning gains uplift to be gained by knocking down a house and building two or three flats, because there would be little demand for those flats. People are prepared to live in flats but only because they are in city centres or inner suburbs, where the convenience outweighs the fact they have no back garden and less privacy. Add to that the fact that our hypothetical builder has just knocked down a perfectly good house and has to pay the cost of building the flats, the optimum strategy for ninety-five per cent of houses is to leave them exactly as they are.

G. LVT would benefit the rich and hurt the poor

This is clearly untrue. This is what a proper "hurt the poor" programme looks like:

- replace Domestic Rates with a Poll Tax (or something pretty close, like Council Tax).
- reduce welfare payments
- savage means-tested withdrawal of welfare payments
- reduce or scrap the tax-free personal allowance
- increase regressive payroll taxes, such as National Insurance
- increase sales taxes (like VAT)
- have high prices for certain goods (alcohol, tobacco)
- push house prices as high as possible
- sell off social housing.

These clearly hurt low or non-earners the most, and more subtly, taxes on output and employment are the most economically damaging and ensure that there will always millions of people capable of working who are out of work. The tax and welfare system outlined here is pretty much the opposite of all that.
• Landlords will pass on all the tax to their tenants (skip to article)
• Lower earners will be forced out of nice areas and will be forced to live in ghettoes (skip to article)
• What if somebody loses his job? How will he pay the LVT? (skip to article)
• Lower earners will be forced to sell their homes to rich people who will end up owning all the land, so ultimately, it will benefit the wealthiest landowners (skip to article)
• Low and non-earners will all end up homeless (skip to article)
• Landowners will evade the tax by registering land with offshore companies (skip to article)

• Wealthy people will avoid the tax by moving into one-bed flats

 (skip to article)
• Multi-nationals will relocate abroad and end up not paying a penny
 (skip to article)

As regards the first bullet point, see also Tenants will end up paying nothing. They’ll always vote for increases.

 It's either one or the other, but it can't be both, and in fact it's neither as the two arguments cancel out. Similarly, the collapsing revenue theory says that "Everybody will cram into the smallest houses, so not much tax will be collected".

1. "Landlords will pass on all the tax to their tenants"

This argument is the most infuriating of all as it completely ignores (a) observed facts, (b) economic theory, (c) logic. And even if it were true (which it isn't), (d) so what? Tenants would still end up better off. It is also largely crocodile tears as three-quarters of privately owned homes are owner-occupied, so it's a bit of a red herring anyway.

What can add to the confusion is the fact that the basic economic theory only holds if LVT is an additional tax. If LVT is matched with corresponding tax cuts on output and employment, tenants' net incomes will increase, which will increase rental values and hence rents; so it looks as if landlords are 'passing on' the LVT when actually they are just increasing the rent in line with what tenants are willing and able to pay. But even if LVT is a replacement tax, it bring a flood of homes onto the market when people "right-size" (be that up- or down-sizing), which will tend to level rental values downwards.

The short answer is:

a) Observed facts

It is widely accepted that higher interest rates = lower house prices. It is difficult to show this with data because periods of higher interest rates tend to coincide with periods of high inflation, so real interest rates are lower than nominal ones and when people fear inflation, they tend to "invest in bricks and mortar" rather than cash. And the amount of easily available credit is just as important as the rate.

Nonetheless, the basic assumption is correct.

This is because potential first time buyers are tenants and their rent is fixed ("rents are the Maypole around which house prices dance"). They will only buy a home if the monthly mortgage payments are roughly in line with the rent they are paying. So the amount of monthly mortgage payments are also fixed and the amount of money they are willing to borrow to buy a home is simply the inverse of the interest rate.

We know that rents don't go up (or down) when interest rates go up (or down) because otherwise, the basic rule that house prices go up when interest rates go down would not hold!

And LVT will just act like a higher interest rate. So rents will stay the same and house prices will go down (unless LVT replaces taxes on income, which means that rent would go up a bit... see below).
To illustrate this effect...

MIRAS was a modest tax subsidy for mortgages, it was intended to make it cheaper to buy a home, and was phased out in the 1990s. In the context of land, a subsidy is the opposite of a tax; withdrawing a subsidy is exactly the same as imposing a tax.

But did the subsidy really benefit purchasers with a mortgage (most purchasers) or vendors? If it benefitted purchasers, then the share of income which purchasers were prepared to spend on mortgage repayments would have been higher after MIRAS was phased out. If it benefitted vendors, then the share of income would remain constant and the net amount of interest collected by banks/vendors would stay the same.

So which was it? The latter of course, as the Council of Mortgage Lenders confirms:

(More explanation here).

The longer answers are:

b) The Economic Theory

Quite simply: any tax is borne by whoever is less price sensitive, the quantity demanded by consumers or the quantity supplied by suppliers/producers. Applied to commodities, this logic leads to Ramsey's Rule.

So a tax on tobacco (demand is little changed by increases in the total price, but suppliers have a minimum price which they need to receive in order to stay in business) is borne by smokers.

And a tax on discretionary consumer spending generally (like VAT) is borne two-thirds by the supplier (being the whole chain from retailer back to manufacturer) and only one-third by the consumer (evidence and workings here).

Tenants are price-sensitive, they don't want to waste all their money on rent and will tend to choose the cheapest accommodation and will share if necessary. And the landlord? He cannot vary his output one jot, one home is one unit, either he rents it out at anything up to market rates (and we can safely assume that most of them do) or he demands more and receives nothing. If he is has fixed costs associated with that home (be it mortgage repayments or LVT) then he does not have the luxury of withdrawing the home from the market and leaving it empty, he has to rent it out for as much as he can (market rates).

This is often expressed with supply-demand curves, see e.g. Wiki.

c) Logic

We also know that rents are dictated local average wages (after deducting PAYE), minus the basic cost of living (rents take the surplus), adjusted for commuting distance from where those wages can be earned, plus a bit if it's a nice area minus a bit if it's a grotty area. That is the beginning, middle and end of the matter. The landlord's actual cash costs are more or less completely irrelevant. As long as the actual or potential landlord can collect more in rent that it costs to provide and maintain the building he will rent it out (if not, he will abandon it).

If the rent is more than the maintenance costs, the balance is the site premium (or the location rent or whatever you want to call it), so the tenant pays rent sufficient to cover the cash costs and the site premium on top. If the government now decides to tax away the site premium, that is between the government and the landlord, this does not change the rental value of the location; the amount of rent which the tenant will pay is the same and so the landlord bears the tax. His remaining rental income after tax is, by definition, still enough to cover the maintenance costs and so he stays in business.

Instead of the government taking half the gross rental income in LVT, what happens if there is a divorce situation and the government awards half of one spouses' rental income to the other spouse as maintenance? Does the newly divorced landlord go round to all of his tenants and tell them that there rent will be doubled to keep his net income constant? No of course not, he can't.

d) So what?

Even if the claim is correct (which it isn't) and landlords passed on every penny of the tax, tenants would still end up noticeably better off. If rents were capped at current levels, tenants' savings would be all the greater.

The online tax app shows that most home-owners (who have to bear the tax) will be better off, so even if every penny of the LVT is 'passed on' tenants will see the same tax reductions.

1a. "Low earners will be forced out of nice areas and will be forced to live in ghettoes"

This is rank hypocrisy of course. The whole Home-Owner-Ist system is designed to take away as much of people's earned income in tax and in rent as possible, clearly, somebody starting out today has to make do with being stuck on the bottom rung; low earners are already "forced" to live in cheaper areas.

a) The Homeys then take a hardship corner case (often plucked out of thin air), somebody who bought an average house when he was on an average wage ages ago; since then his earned income has fallen and his house has shot up in value because of Home-Owner-Ism in general and gentrification in particular, claim that this person would not be able to afford the LVT (which is only true in a tiny minority of cases and assumes that the person cannot take evasive measures, like earning a bit more, taking in a lodger etc).

b) With or without LVT, when that low earner's house is eventually sold, to whom does it get sold? To another low earner for a low price? I don't think so. Worst case, LVT speeds up the process of gentrification; and why shouldn't those people who are prepared to pay most into the common fund for everybody's benefit get to live in the nicest housing? Why is it preferable for the new arrival to hand over his hard earned money to the unproductive sector?

c) The Homeys then warm to their theme and merrily claim that all "poor" people will somehow end up worse off, which is clearly nonsense. Most low earners live in low value housing, or they rent, and they will be among the big winners from the tax shift (try the spreadsheets!).

c) The difference between "nice" and "grotty" areas has little to do with the physical architecture, it is mainly to do with the people who live there. You pay a bit extra to live among "nice" neighbours and get a discount if you are prepared to live near less desirable neighbours. LVT itself will put pressure on land owners to maximise the availability of good quality housing at an affordable price; it will give each council an incentive to concentrate on making their areas as desirable as possible, and with an end to means testing of benefits and lower taxes on productive activity there will be more jobs and hence fewer "poor" people anyway.

So to sum up, when half of tax revenues are collected via LVT; taxes on earnings significantly reduced and LVT receipts matched with Citizen's Income payments, there will be fewer "poor" people and better and more affordable housing. So by and large, those people who are currently "poor" and overpaying for housing will end up better off, in better quality housing among nicer neighbours. It seems insane to condemn one hundred people to this for ever more for the benefit of each individual human shield (the "asset rich, cash poor" who features so often in these discussions).

1b. "What if somebody loses his job? How will he pay the LVT?"

Let's gloss over the fact that the two-thirds of the population have exactly this problem with rent or mortgage payments (i.e. privately collected LVT) and that somehow or other as a society we cope with this (via mortgage holidays, housing benefit or mortgage subsidies, social housing etc), it's not a big problem if you look at the numbers on short term unemployment.

As at 2017, the unemployment rate in the UK is about 4%, and half of those are short-term unemployed (less than six months).

So one in fifty people are between jobs at any one time. A lot of that is probably 'voluntary' and many of those will have a partner who is still in work and who can pay the LVT.

As long as there are rules in place to distinguish between a) people whose employer has gone out of business/who have been made redundant through no fault of their own/are likely to find another job soon; and b) general shirkers/the long term unemployed, we would simply exempt the short term unemployed from from LVT. A crude way of doing this would be to give people a cumulative six-month exemption in any rolling five or ten year period, or whatever, which they can 'use' if they are made redundant. There is no perfect right or wrong formula.

So there would be a non-collection rate of 1 - 2%, which is no lower than for any other tax anyway, tuppence ha'penny in the grander scheme of things and a great reassurance to everybody in general.

And for the long term unemployed and sporadic earners, there's always social housing (which is like LVT and a Citizen's Income rolled into one).

2. "Low earners will be forced to sell their homes to rich people who will end up owning all the land, so ultimately, it will benefit the wealthiest landowners/lead to a greater concentration of land ownership"

This argument is so fatuous and obviously stupid that it is barely worth debunking, but here goes...

a) Back in 1909 when eighty or ninety per cent of people were private tenants and LVT was seriously on the Liberal government's agenda, the counter-campaign was mounted by the large hereditary landowners in the House of Lords of course, they wanted to keep all the rent for themselves (to the extent of triggering a constitutional crisis). The situation is no different today, it is the same vested interests (and the bankers) who are fighting against LVT (or Mansion Tax or Council Tax rebanding or Business Rates revaluations). If LVT would really enable them to re-acquire all the land cheaply and make even more money by renting it out again, why wouldn't these powerful people be subtly campaigning for it?

b) Owner-occupation rates in the UK rose fastest between 1950 and 1970, from 30% to over 50%. What were we doing differently? Rents were capped; rental income was taxed at higher rates than earned income; there was lots of new construction (social housing and for private purchase); mortgage lending was strictly rationed and we had Domestic Rates, which were much higher than Council Tax on all but the smallest homes and Schedule A tax, which between them were something approaching a modest LVT. There just wasn't much point being a landlord as you couldn't make much money from it. Rent controls are a crude way of preventing concentration of ownership of land, so the arguments for them overlap with arguments for LVT.

c) Since 1997, the period of extreme Home-Owner-Ism (fuelled mainly by easy credit and low interest rates; a reduction in new construction; modest real reductions in Council Tax; and savage tax hikes on the productive economy) owner-occupation rates have been falling. The number of private renters has doubled from 10% to 20% over the last decade, and is likely to rise further. After Council House sales petered out in about 2002, owner-occupation rates peaked at 72%. Since then, the percentage of owner-occupier households has fallen to 63%, its lowest level since 1985. So it's clear that Home-Owner-Ism leads to land ownership being concentrated in fewer hands and more rent being collected by fewer people (top bankers). What evidence is there to suggest that LVT, which is the opposite of Home-Owner-Ism, would accelerate rather than reverse this trend? None or negative?

d) On the facts, it will always be cheaper to be an owner-occupier than a tenant; you'll be (say) £4,000 a year better off once you've paid off the mortgage. So there is nothing to be gained by selling up and then renting a similar sized house. If low earners trade down, then by and large the purchasers will be owner-occupiers themselves, albeit slightly higher earning ones.

2b. "Low earners will all end up homeless"

This is another triumph of circular Home-Owner-Ist non-maths and non-logic and goes like this:
- wicked landlords will "pass on" the LVT in higher rents, which no low earning tenants will be able to afford
- poorer homeowner won't be able to afford the LVT and will be "forced" to sell their housing at a loss to landlords
- so millions of poor people will be made homeless

What they can't explain is why profit-hungry landlords would want to be paying the LVT for the millions of empty homes which they own.

3. "Landowners will evade the tax by registering land with offshore companies"

Again, nonsense. People who say things like this have just illustrated that they know nothing about the UK tax system.

a) In 2013-14, the UK introduced an annual tax on high-value residential land and buildings which only which initially applied to homes worth £2 million (since extended to apply to homes worth £500,000 or more) which are registered in the name of "non-natural persons", which means companies (whether UK or offshore), partnerships including a company, collective investment schemes and so on.

The tax is about 1% of the value of a home at the bottom of each band, so £3,500 a year for homes worth £500,000 to £1 million, up to £220,350 for homes worth more than £20 million or more.

The tax was implemented without too much of a hitch - doing the valuations, sending out bills etc - and in the first year of operation, the amount of tax collected was five times as much as originally forecast.

Do the Homeys who trot out the argument seriously imagine that the UK government has just invented a tax which would have had a 100% evasion rate?

b) There's no need to debate what-if scenarios as we already have a tax which is so close to LVT (administratively) as makes no difference, namely Business Rates (aka National Non-Domestic Rates) which are a flat tax on the total rental value of commercial land and buildings with no lower or upper limit. Officially, the rate is calculated at 46.6% - 47.9% of the rent net of Rates, which means the tax is about 32% of the total rental value (including rates).

We know that plenty of larger commercial sites are owned by foreign companies, or insurance companies who know a thing or three about tax havens. And plenty of commercial sites are in fact owned by non-UK companies (for other reasons, mainly to do with Stamp Duty Land Tax, a tax on transactions and thus relatively easy to avoid/evade).

c) And what are the collection rates for Business Rates..? From the DCLG:

By the end of March 2017, local authorities in England had collected £24.2 billion in non-domestic rates for 2016-17 which gave a national average in-year collection rate for non-domestic rates of 98.2% in 2016-17, the same as for 2015-16.

Those collection rates leave all the other taxes standing; the official 'tax gap" figure (total evasion, avoidance and non-collection) for income tax, VAT, corporation tax and NIC is about 6.5% of the tax that should be collected. Experts believe this figure to be an underestimate, and it does not include collection costs and the compliance burden on the private sector.

Why might this be? For the blindingly obvious reason that you can't hide land and buildings. As it happens, the Rates are collected from the occupant if there is one and from the owner if the building is vacant; if the owner runs up large enough arrears the council can simply take a charge over the land title and sell it. I don't think that this happens very often, it would appear that the simple threat is enough.

4. "Wealthy people will avoid the tax by moving into one-bed flats"

From here:

I might be missing the point here, but I think someone is suggesting that we abolish taxes and just levy tax on land?!? If Richard Branson rented a one bedroom apartment he would thus pay zero tax, is that seriously what is being suggested?

a) My initial reply to that was as follows:

"If he rented a small flat in a cheap area, then yes, he would pay next to no LVT (or tax in general). But it is highly unlikely that very wealthy people who need to show off would do so – they can already save themselves a fortune in rent or mortgage interest (or free up cash for more profitable investments) by trading down into a one-bed flat in Newcastle, but they don’t.

"That’s like saying “If we have VAT on new cars, then Richard Branson would start using the bus or walking to work” or “If private schools started charging £10,000 or £20,000 a year, then people like Richard Branson would send their children to state school instead” or “If we have tax on tobacco, then people like Branson would stop smoking and not pay any”.

"As it happens, Mr Branson derives a lot of his income from rents [Heathrow landing/take-off slots) in the first place, and so he would end up paying tax on all this at source. What he does with his net income is entirely up to him. And as it happens, I assume that he doesn’t smoke and hence pays no tobacco duty, and good luck to him."

b) The more fundamental point is this...

i. For future subsequent owners of land, the LVT is quite simply not a cost at all, because the upfront price they are willing to pay will be reduced by the future LVT liabilities on that site (rental values will be pushed up when taxes on output and earnings are reduced - quite what the net effect will be is unknown and largely down to psychology).

ii. This is the same as the basic observation that higher interest rates increase the future cash outflows for people who buy with a mortgage (or increase the opportunity cost to somebody with cash in the bank) and so depress the price of land. So somebody looking to buy a home with a mortgage in the near future is actually indifferent to interest rates, low mortgage rates are only good news for people with existing mortgages and net sellers.

iii. So whoever is the next purchaser after LVT has been introduced is indifferent, assuming that people with similar housing budgets are bidding for the same home, whatever extra he has to pay in LVT reduces the amount he is able to pay in mortgage interest but it reduces the amount that other bidders are able to pay in mortgage interest as well, so the LVT reduces the amount which the winning bidder has to pay in mortgage interest, and hence pushes down the price of the home accordingly. And when he sells again in a few years' time, the same applies.

iv. Another way of looking at this is to say that actually LVT is not a recurring tax, it is a one-off levy on today's landowners which will be paid in instalments out of what the future sales proceeds of that land would have been in the absence of the tax.

v. So really, we don't need to speculate on the likelihood of Richard Branson "renting a one bedroom apartment" and it doesn't actually matter. We can safely assume that as at today's date he owns a very nice home or three in the UK, all of which will be subject to that one-off levy (but payable in instalments). The chances are, he will continue living in the UK in one or more of these homes (because the future income tax saving he can make by living in the UK rather than anywhere else will make it worthwhile and easily cover the LVT).

vi. Maybe Richard Branson will sell one or more of his UK homes and superficially, the next owner will be paying the LVT. So what? The LVT doesn't really cost the next owner anything (as explained), the whole cost is shuffled backwards onto Richard Branson.

5. "Multi-nationals will relocate abroad and end up not paying a penny

If we replace the worst taxes on output and employment (VAT and NIC) and most existing taxes on land and buildings (Council Tax, Business Rates, SDLT, inheritance tax, capital gains tax etc) with LVT, then most productive businesses - including multi-nationals - would be paying far, far less tax then they are now.

So if anything, multi-nationals and their higher-paid executives will be falling over themselves to relocate to the UK, not the other way round.

NB, all the much touted "relocations" like WPP were merely them shifting their head office abroad so that income earned outside the UK would not be taxed when it was brought back to the head office, they did not actually shut down all their UK operations. Like most countries, the UK now has a more or less complete tax exemption for profits earned abroad and brought back onshore, so that's not really an issue any more.