Saturday 11 December 2010

Killer Arguments Against LVT, not (84)

The ever reliable Sobers, still on top form:

Well now you're introducing an entirely different valuation system that involves fiddling with the size of each individual house/plot of land, meaning excessive bureaucracy again, appeals, tribunals etc etc.

If you're going down that route you might as well value every house individually and be done with it. Then everyone pays exactly in proportion to the value of their property, not the size of their garden.


Before we argue about vaguely defined principles and hypotheticals, let's look at the nice simple robust system I have explained time and again that would get us three-quarters of the way there. For sure, there are infinite tweaks we can introduce*, but let's look at the practicalities:

1. HM Revenue & Customs collect most taxes, administer Tax Credits and employ 200,000 people (71,000 civil servants directly plus probably twice as many again in back up stuff, outsourced functions to 'consultancies' etc). From personal experience, I would guess that the private sector employs five times as many people to prepare the income tax returns, the monthly and annual PAYE, the corporation tax returns, the VAT returns.

2. That's a million people doing something of no social value, or about three per cent of the working population - which of its own must reduce our GDP by about three per cent. And that's not including the dead weight costs - GDP would be about a third higher without VAT, National Insurance, income tax, corporation tax etc - that's £300 - £400 billion a year we are flushing down the toilet.

3. The whole problem repeats itself with the welfare system, so replacing the whole welfare state with a Citizen's Income (the flip side of Land Value Tax) would reduce running costs and fraud/error by about £10 billion and reduce the dead weight costs (i.e. those people who prefer to stay on the dole rather than go out to work) by another £100 billion.

4. As regards taxes and subsidies related to land and buildings, there are a whole load more civil servants working for e.g. Council Tax and Business rates administration and collection, Council Tax Benefits office, Capital Taxes Office (Inheritance tax), HM Land Registry, Valuation Office Agency (for Business Rates), Land Valuation and Housing Tribunals, TV licence fee collection, DEFRA to administration CAP subsidies, Local authority planning departments etc etc, and no doubt five times as many again in the private sector doing battle with them.

5. As I have explained, the ideal basic geographic unit for doing valuations is a postcode sector, there are 10,000 sectors with about 3,000 addresses in each. Even if it took one civil servant a whole year to arrive at some half way decent compromise for each sector, that's a one-off cost of ten thousand civil servants for one year only - in future years, a few thousand would be enough. Reality check: there are about 4,000 civil servants at the VOA alone, who regularly revalue each individual commercial building (or each office within a larger building) for Business Rates (about ten per cent of all addresses in the UK), which is far, far, too complicated, they could make do with a tenth as many

6. There is an irreducible minimum of 6,000 working for HM Land Registry, and it would be very easy to expand their duties slightly, so that they can update values as they go along (it all boils down to address, plot size and selling prices of land and buildings in that postcode sector), i.e. on an ongoing basis, ten thousand people could run the entire tax system, with half as many again to run the Citizen's Income scheme (which overlaps with people updating the electoral roll and the Registrar of births, marriages and deaths).
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* Here's another tweak - there are exemptions that relate to the plot itself and exemptions that relate to the individual who currently 'owns' the plot. If in the first year the valuer concedes that some houses are to be treated as having a plot size of 300 sq yards and not 400 sq yards because the houses on that street tend to sell for less than others in the sector, this could be treated as a 'personal' exemption rather than a site-specific one, and the exemption is only valid as long as the current owner(s) remain in it as their only and main residence.

The exemption will simply not apply to future purchasers, so when the house is next sold (or the current owners die), the next owner has to pay on the full 400 sq yards. This of course depresses the selling price accordingly, so the next owner is no worse off, and the previous owner has in effect merely deferred the tax he has to pay, and in future, valuations are even easier. And the people who stepped up to the oche and paid on the full 400 sq yards like gentlemen heave a sigh of relief, because mathematically, their tax bill goes down slightly each time an old exemption expires.

To remind you how this works in real life, I bought a 3-bed terrace which was in Band D for council tax, but I did a loft conversion to make it a 5-bed, and the council noted that after the next sale, it would be treated as Band E. So I got no tax increase as a result of the loft conversion, but the amount I eventually sold the house for was slightly lower than it would have been had it remained in Band D.

Other exemptions are high-level politically motivated ones, like giving exemptions, discounts or a deferment option to pensioners, Righteous organisations and so on. These can also be time-limited, i.e. a council can extend the exemptions for pensioners only to pensioners who have lived in the area for a minimum number of years. It's a beggar-thy-neighbour game, as any rational council will want to attract as many people as possible prepared to pay full whack, i.e. businesses and young people with a job.

If a local council is dominated by Muslim councillors and it exempts mosques, well that exemption only holds until and unless it is replaced by a new council with a majority of atheist or Christian councillors, who promptly exempt libraries and churches instead.

18 comments:

Lola said...

Why would you pay the telly tax from LVT receipts? Why not just privatise the BBC/turn it into a subscription service? That is why do we need a nationalised braodcaster at all?

Mark Wadsworth said...

L, wherever did I say that I would continue paying the receipts to the BBC or that we need a government-controlled broadcaster? The BBC can take adverts just like anybody else.

If there's a better use for the money, it gets spent on something else. Ah, right. Let's spend it on something else.

Lola said...

Fair enough I was confused by your post....

Mark Wadsworth said...

L, the TV licence fee is just a tax like anything else, which raises about £3 billion, coincidentally as much as Inheritance Tax.

We might as well say "In future, the BBC will be funded out of IHT, and because BBC viewers care about the third world and climate change, the TV licence fee will be sent to Africans to help them insulate their homes."

This is clearly political gibberish, but in accounting terms makes just as much sense as the present arrangements. How taxes are raised and how taxes are spend are two separate issues, and are best dealt with separately.

Scott Wright said...

I don't like the idea of councils having the power to create exemptions such as the mosque example you give. If anything the tax on religious buildings (plots) should be more in order to discourage it....tax the things we want less of and all that.

Mark Wadsworth said...

SW, there is free market liberal economics that says "tax every land use at the same rate" and then there is politics that says "Ah, but what about Poor Widows In Mansions; school playing fields; stately houses; churches and mosques; and All Things Righteous And Beautiful?"

I'm firmly in the former camp, but I'm prepared to make concessions to the All Things Righteous brigade to keep them onside.

DBC Reed said...

Getting back to Sobers' point:they did in the Northern Ireland Rates reform issue individualised tax valuations for all houses by, as I understand it,bumping along in cars at 10mph and peering at the houses.There were amazingly few appeals and the collection rate was very high.
All you have to do is the same (or use Google street scenes) then get the owners to self-assess houses (the authorities checking against Google)then the owner or the taxer deducts the ABI insurance rebuild value from the current selling price of the house leaving uou with the land value by the residual method.Saves a lot of bovver.(Some clever geezers will in the course of their usual unsuccessful criminal behaviour undervalue their property.If they get away with it at first they will get caught out at the point of sale because during conveyancing agreed sale prices will be passed from solicitors to the tax authorities [as part of the local tax reciprocating mechanism which will vary as land prices go up].Alternatively there is no reason why the householder should not "take the option" and pay no monthly LVT but opt for paying a lump sum from the proceeds of a sale at the end of occupation.The same goes for the total nuisance poor widows who could be exempted LVT and pay when they snuff it.)

formertory said...

....just to point out that, if using the ABI rebuild value in that way, in some areas of the country it'll be higher than the market value of the bricks and mortar (where I live, for example) and in others, much lower (where MW lives, I suspect). It'll also vary by method of construction and materials used.

Mark Wadsworth said...

DBC, the Northern Irish experience shows how quickly and easily this can be done if we put our minds to it.

But I've decided that to get the ball rolling, the LVT per sq yard will be proportional to averaged out total selling prices, with none of this fancy 'deducting bricks and mortar' business - people then get their bricks and mortar rebate via the Citizen's Income system, so it nets off to the same thing.

i.e. under my flattish tax system, your tax bill minus CI = LVT under your system, which would be hyper-progressive.

FT, there are a few such areas, who under the purist approach (as suggested by DBC) would pay nothing. This negative land value probably applied to three-quarters of the country in the early 1990s (which would have been the best time to bring in LVT).

The problem with the purist approach is that London would pay about 75% of all national LVT, rather than about 25% of all LVT under my scheme.

Bayard said...

"The problem with the purist approach is that London would pay about 75% of all national LVT, rather than about 25% of all LVT under my scheme."

Presumably that's a political, rather than a practical problem, since most MPs seem to think that the UK = London + their constituency. Anyway, wouldn't LVT under that system encourage people to decentralise and so the problem would eventually go away.

"Alternatively there is no reason why the householder should not "take the option" and pay no monthly LVT but opt for paying a lump sum from the proceeds of a sale at the end of occupation"

Or, for the unemployed, pay it back in "easy monthly installments" once they are employed again. I suppose, politically, the lump sum would need to be capped at the total value of the land for the perennially unemployed.

Mark Wadsworth said...

B: "that's a political, rather than a practical problem"

No it's a maths thing.

I have settled on having a "total value tax" which is "flat" compared to purist LVT which is 'progressive'. But as both can be expressed as rates/sq yard of land, their effect is much the same.

A Citizen's Income is by definition 'progressive'. So a flat tax system and a progressive CI ticks the boxes for me - the net amount anybody pays = approx. what LVT would be under a purist LVT system.

Because of the maths, most people would be little better or worse off than they are now - I'm not trying to take anything from anybody or redistribute in any particular direction.

If you have purist LVT which is "progressive" AND a Citizen's Income on top "progressive" you end up with something that is hyper progressive.

DBC Reed said...

@FT & MW
Yeah you can get readings of nil land value for the residual method.This would most likely represent the local economic reality.BTW ABI self-assessment forms ask you to specify what materials your house is built out of.
Rather than being a "fancy" method of doing the valuation,I think self-assessment will make homeowners aware of how much the potential selling price for their property is down to land value.The sooner they realise bricks and mortar are a depreciating asset not a store of value the better.
Also, as MW knows, I am not keen on the CI as presently constituted: it has none of the monetary reform aspect of the old Douglasite National Dividend which proposed dishing out unearned incomes for all to fill the demand gap between actual and potential levels of production ( aka spare economic capacity).MW has a blind spot in his usual ruthless gaze and denies that the Guv has any right to issue credit itself (as for instance with QE); I would propose that QE by which the Guv signs unsecured cheques to banks be replaced with a whole lot of little cheques for people to spend in shops.

Mark Wadsworth said...

DBC, the calculations are all circular, so there's no point approaching it too gradually. i.e. land values are a function of local incomes, but the CI adds to local incomes, so to some extent the CI increases land values, which increases tax revenues which is dished out as CI (and so on).

The simple test is, under my scheme, would land and buildings in any part of the country sell for appreciably less than rebuild cost/value (however measured)? If some do, then the rate gets reduced in those parts; but selling prices will still be above rebuild costs in most parts and the tax rate in those parts can be hiked if necessary.

Self-assessment is yet another useful tool in our armoury, but we can use that whether we have a tax rate that is based on total value or on site only value.

DBC Reed said...

There is a baby and bath-water aspect to this: the important( baby)part of self assessment is to get people to realise that land values are such an enormous part of the value of their property.From this realisation LVT can proceed with less confusion.
Similarly if National Dividend paymentsd were issued via time-limited bank cards for all,the Guv-issued credit would n't get diverted into house/land prices as too often now.

Mark Wadsworth said...

DBC: "get people to realise that land values are such an enormous part of the value of their property. From this realisation LVT can proceed with less confusion."

But this doesn't really help counter the people who just shout "Oi've paid for it and it's moi laarnd!" and then stick their fingers in their ears. If anything it encourages people to speculate in land.

DBC Reed said...

There might be some hope in the proles/students to paraphrase Winston S.If they are going nuts about 27k of tuition fees when they see the alternative as redistributive taxation,they are going to go ballistic when they realise that they are going to get indebted for a totally unnecessary 100k for land under any future domicile.There are also a few ,very few,objectively non-greedy parents.These may form a critical mass of support:don't forget the SVT in Ireland stemmed from a minority group (Smart Taxes Network really FEASTA)in a minority party in a coalition.

Mark Wadsworth said...

DBC, but how do we get the message through to students en masse?

DBC Reed said...

MW Mass support is n't necessary: the point of the Eton wall-game playing Blair/Orwell's book (he was also the son of a British government opium dealer) is that there is n't any hope in the proles.It is a matter of slipping things through the gaps in coalitions which Feasta seems to have done.However a few riots about London house prices and rents would n't come amiss : you could also use your undoubted graphic skills to run up some Fees Down /House prices (&rents down)/we will not live in your debt! posters and hand them out like Fagan at the commencement of the next riot.Watch you don't get kettled.