Compass should be congratulated for raising this issue of an annual Land Value Tax.

When the Government spent £3.5bn of taxpayers money to build the Jubilee Line Extension underground railway in London, land values, just around the stations, rose by £13bn.

Those who oppose LVT should come clean and explain why it is OK for landowners to collect higher land rents for sites that benefit from public expenditure in this way and not the taxpayer who has funded the new infrastructure.

Land rent represents the locational value of a site.

This value is determined by a number of factors including the permitted use of the site, the size of population in the locality, the relative incomes of that population, the ease of access to the site (roads, airports, docks, railways, buses, trains, cycling priorities etc.), the provision of local services (health, education, policing, etc.) and local amenities such as views or access to the country-side, parks, rivers, canals, the sea, leisure facilities, etc.) plus other factors which may have a positive or negative effect on the desirabilty of that location.

None of these factors are determined by the owner of any one site. So why do we pay the landowner the site rental value and then tax wages and charge vat to fund public services?

Surely, it is far better to fund the services that give rise to land values - from the land values themselves?

This is what an annual Land Value Tax (or Location Benefit Charge) would achieve.

I agree with others in this discussion that LVT should be introduced incrementally, but my preference would be at a sufficient level to raise income tax personal allowance high enough to exclude anyone earning less than £30k from paying income tax altogether.

Compass should be congratulated for raising this issue of an annual Land Value Tax.

When the Government spent £3.5bn of taxpayers money to build the Jubilee Line Extension underground railway in London, land values, just around the stations, rose by £13bn.

Those who oppose LVT should come clean and explain why it is OK for landowners to collect higher land rents for sites that benefit from public expenditure in this way and not the taxpayer who has funded the new infrastructure.

Land rent represents the locational value of a site.

This value is determined by a number of factors including the permitted use of the site, the size of population in the locality, the relative incomes of that population, the ease of access to the site (roads, airports, docks, railways, buses, trains, cycling priorities etc.), the provision of local services (health, education, policing, etc.) and local amenities such as views or access to the country-side, parks, rivers, canals, the sea, leisure facilities, etc.) plus other factors which may have a positive or negative effect on the desirabilty of that location.

None of these factors are determined by the owner of any one site. So why do we pay the landowner the site rental value and then tax wages and charge vat to fund public services?

Surely, it is far better to fund the services that give rise to land values - from the land values themselves?

This is what an annual Land Value Tax (or Location Benefit Charge) would achieve.

I agree with others in this discussion that LVT should be introduced incrementally, but my preference would be at a sufficient level to raise income tax personal allowance high enough to exclude anyone earning less than £30k from paying income tax altogether.

Response to Henry Law on 17 August 2009 at 9:40:23 AM

(i) "Classic LVT is an ad valorem charge on the annual rental value of land. It is not a charge based on the selling price. This immediately cuts out the uncertainties relating to planning regulations, zoning, etc, because annual value is the present value ie existing use value or a value based on an actual granted planning consent. So there no argument about value and there is not going to be a flood of appeals."
WRONG! The value of of an object is only known if it can be traded on an exchange alongside many other identical objects. As land is rarely traded separate from the buildings that are on it, and each piece of land is unique in terms of its location, amenities and capital investment, any valuation will always contain a subjective component. Therefore its valuation will always be subject to legal challenge, particularly if the tax levied is directly proportional to that arbitrary value and represents the major item of expenditure in each person's budget or outgoings. Moreover, if the value of the land is based on what it is used for, rather than all potential uses, you cannot divorce the value of that land from the value of what is built on it. So why not just use property values as we do now?

(ii) "At the present time the increased revenue is necessary to repay the government's huge debt, though in better circumstances it should be used to allow tax thresholds to be raised, thereby reducing the cost of labour and encouraging employment."
WRONG AGAIN! All this does is switch tax on business from a flexible one based on profit (or turnover) and the ability to pay, to one that is a fixed overhead and therefore totally inflexible, particularly in a recession. The same argument applies to individuals.

(iii) "There are three points to notice at this stage. First, the presence of the tax will tend initially to drive down land rents and land prices due to the pressure on landowners to keep their property in use. Second, and conversely, there will be a tendency in the opposite direction as tax reductions tend to promote economic activity and drive up land values. Third, the reduction in taxes on labour will have most effect in areas of locational disadvantage (marginal areas) with the lowest land values, thereby providing, in effect, tax havens in those areas where they are most needed."
NO, NO and NO! 1) LVT will be passed on to tenants in place of Council Tax. 2) There is no overall tax reduction, just redistribution, and if there were any reduction, all you are doing is creating a consumer bubble. 3) We already have areas of locational disadvantage with low labour costs and low taxes and business shows no interest in them, even with large government grants available. Even in Germany, twenty years after the fall of the Berlin Wall, there is still a large disparity in wealth and unemployment between west and east. Businesses are more interested in moving to areas with high levels of skilled labour than areas of disadvantage.

(iv) "LVT requires frequent, preferably annual, revaluations based on market evidence, though this can be done by statistical analysis since there is no necessity to survey buildings. As existing taxes are reduced, land values will rise, providing a growing tax base and promoting a virtuous circle, assisted by falling unemployment and falling welfare costs."
This is pure fantasy. Most of our long-term welfare costs are due to an under-educated underclass, or the old or those too ill to work. How is LVT going to address that?

(v) "In this connection it is worth noting that according to an IEA study, existing taxes reduce the UK's GNP by about 12%. LVT has no effect on economic activity because it does not bear on the active factors of production."
NO! Anyone who needs the right-wing IEA to ride to their rescue has already lost the plot. LVT WILL affect production because it places massive fixed overhead costs on industry that cannot be lowered by reducing the workforce. As a result it will force more manufacturing to relocate overseas.

(vi) "LVT will not cause the rental market to collapse. People will still want to rent and there would still be a livelihood to be made from renting even if LVT was levied at 100%, just as there are business which provide rental services for capital equipment like cars, machinery and plant. But property owners will not be able to enjoy the benefits of rising land values since these will be collected through the LVT system."
No, the rental market won't collapse because landlords have a captive market. But I'm interested to know how you think a livelihood could be made from renting even if LVT was levied at 100% of the rental value?

(vii) "LVT cannot be passed on in the form of higher rents. To suggest otherwise implies that existing rents are below market levels."
No it doesn't. It implies tenants can't afford any more. You assume the tenant holds the whip hand because supply exceeds demand. Not true. In property, demand exceeds supply.
"Landlords normally aim to charge the highest rents they can get. The introduction of LVT does not make it possible for landlords to charge any more."
Yes it does. If tenants don't have to pay Council Tax, they will be able to spend more on rent.


There are clearly two fundamental assumptions at the heart of LVT. One is that the rental value of a piece of land is independent of the property that is built on it. The second is that the total amount of land available does not change. Both these assertions are deeply flawed.

You cannot determine LVT for a single plot of land because there is no limit to the number of homes that can be built on it. A block of flats can be two storeys high, or twenty, or a hundred and twenty. The maximum potential rent is therefore infinite. You cannot divorce the value of a piece of land from what is built on it.
Secondly, by building upwards you in effect increase the supply of land by exploiting the third dimension. Twenty flats on top of each other sharing the same 1/4 acre plot is equivalent to twenty single storey flats on a 5 acre plot. You have therefore effectively created 4.75 acres of new land. So much for land supply being fixed.

Response to Henry Law on 17 August 2009 at 9:53:39 AM

Your obsession with hard working families and branding everyone else as lazy makes you sound like the Editor of the Daily Mail. That is scary enough. But what about those who are unemployed? They will still be forced to pay the same LVT as they did when they were working. So they will be worse off. Wherever I look in your LVT universe I find millions of people who will be worse off, and most of these will be worse off in times of hardship: unemployment, retirement, illness etc. What is so fair about that?

You say: "Of course population growth drives up land values and so does economic growth. But if that value is collected, then it can pay for decent public services and there will be something over to provide for a basic income for people to use when they are no longer economically active."
This all presumes we have a government with a wealth agenda that is redistributive. It is not an inevitability.

"WRONG! The value of of an object is only known if it can be traded on an exchange alongside many other identical objects."

I think you are talking about a very narrow view of price and price-setting rather than value per se.

"WRONG AGAIN! All this does is switch tax on business from a flexible one based on profit (or turnover) and the ability to pay, to one that is a fixed overhead and therefore totally inflexible, particularly in a recession."

So your view is that failed and failing but certainly unprofitable, businesses with poor forecasting records should be supported by other taxpayers; not to mention those fims with a good account and plausible reasons to use transfer pricing to locate profits in low tax regimes and losses in high tax regimes. Perhaps it's a little too flexible for some tastes.

"NO, NO and NO! 1) LVT will be passed on to tenants in place of Council Tax. 2) There is no overall tax reduction, just redistribution, and if there were any reduction, all you are doing is creating a consumer bubble. 3) We already have areas of locational disadvantage with low labour costs and low taxes and business shows no interest in them, even with large government grants available."

I really think you need to offer some kind of formal economic analysis to support your assertions. Even the seemingly intuitive 3) is demonstrably false once you apply a few real-world assumptions.

The other four points you make are simpy rants, so I'll ignore them.

"There are clearly two fundamental assumptions at the heart of LVT. One is that the rental value of a piece of land is independent of the property that is built on it. The second is that the total amount of land available does not change. Both these assertions are deeply flawed."

Neither assumption is true, nor will it make a significant difference to the argument if they were. First, it's still location, location, location, which is heavily interested by the property built on surrounding land and, as eny fule no, it is one of the primary arguments favouring LVT; second, as the North Sea coasts demonstrate land can be lost and it can be re-claimed, and land given over for one use can be given over to another use, thereby reducing the supply of one kind of land and increasing the supply of the other kind of land, which I'm sure you'll admit is a formidable argument in support of LVT - partlicularly if it can be used as a frictionless alternative to 99% of our existing formal planning processes and, hence, contribute to a notable reduction in corruption in both local and national government.

Response to Salfordgal (London) on 18 August 2009 at 1:37:05 PM

"I think you are talking about a very narrow view of price and price-setting rather than value per se."
No, my point is that my definition of price setting is the only way a true price is set. All other prices are merely estimations, the accuracy of which decreases as the number of potential buyers and seller decreases. For a case study, consider the value of a Picasso, Monet or Turner painting. These can sell at auction for millions, but how many millions depends on the number of rich bidders and the relative passion of each. If one or two die, the effect on the art market could be considerable. So prices can fluctuate wildly. There is an analogy to this in physics (there always is) in the way temperature is defined in a thermodynamic system. Ultimate both models rely on the statistics of probability distributions.

"So your view is that failed and failing but certainly unprofitable, businesses with poor forecasting records should be supported by other taxpayers"
Most recessions can never be forecast so why should companies be expected to do so. The alternative is to require companies to sit on huge cash reserves, but that will limit future investment and employment.

"The other four points you make are simpy rants, so I'll ignore them."
If they are just rants you should be able to counter their arguments.

SG, we are clearly never going to agree on LVT. There is one issue you have brought up recently though, where we may have some common ground. Intellectual property rights. I see these as more pernicious than the ownership of land because they clearly promote huge disparities in wealth, are inherently monopolistic, but unlike land and other assets require no capital outlay from which to enjoy massive returns in income. This is an issue that Compass clearly needs to address in its High Pay Commission, if not elsewhere.

"No, my point is that my definition of price setting is the only way a true price is set. All other prices are merely estimations, the accuracy of which decreases as the number of potential buyers and seller decreases."

Wrong again. It's called market failure and LVT might well be the cure.

"SG, we are clearly never going to agree on LVT. There is one issue you have brought up recently though, where we may have some common ground. Intellectual property rights. I see these as more pernicious than the ownership of land because they clearly promote huge disparities in wealth, are inherently monopolistic, but unlike land and other assets require no capital outlay from which to enjoy massive returns in income."

I agree with some of this, sort of. But you seem to be referring to the property rights created by, for want of a better word, "talented" individuals, eg , Britney Spears, Sir Paul McCartney, the paedophile drug addict Michael Jackson, &c, &c. But the bulk of the income returned to property rights owners arises from a corporate capital investment in R&D, a brand, or in a talented individual. I don't see it as a simple moral issue where capital is good and money generated from no capital base is bad: probably quite the reverse in fact. I see it as a matter of simple economics, social cohesion and equity - the values of Adam Smith and Karl Marx both. And Keynes as well - otherwise what is the point of being a LibDem?

Adrian, please make the effort to go through the basic economics as they relate to land. Much of what you say simply goes against the well-established and uncontested Ricardo's Law of Rent. This is not the place to argue fundamental principles.

LVT cannot be passed on. That is uncontested by economists. Council Tax is itself a tax on land value but it is collected in a haphazard way. If it is abolished then it indeed enables tenants to pay more. But LVT in itself does not enable tenants to pay more and as you say, they cannot afford more. If LVT is in place, a landlord will not run the risk of having to pay the tax with no income from the property.

As far as companies are concerned it is total occupation costs that count. If there is no LVT than the companies will pay rent to a landlord. Or they will have a mortgage for land purchase. The fixed overhead will always be there.

There is no difficulty in establishing land values. Professional valuers do it all the time. It is what they are trained to do. The UBR values are compiled by adding together site value and building value. There is nothing unusual being suggested here. LVT is widespread and does not suffer from the problems you have imagined.

The "hard working families" was a riposte to the Sunday Express when they attacked the Compass proposal a fortnight ago. Seemingly there are many on the Left who don't like LVT either, though why this should be so is a mystery, since it sets the Left and the Duke of Westminster on the same side in the debate, which is curious to say the least.

Perhaps you might like to explain why the left are so opposed to LVT?

"Perhaps you might like to explain why the left are so opposed to LVT?"

And why they continue to tolerate New Labour..? But that's the answer, isn't it?

Response to Henry Law (Göteborg) on 18 August 2009 at 9:07:05 PM

(i) "Much of what you say simply goes against the well-established and uncontested Ricardo's Law of Rent... LVT cannot be passed on. That is uncontested by economists."
Nothing in economics is completely uncontested (given that no two economists can ever agree about everything). No law in economics is entirely universal either. All are based on a set of fundamental axioms, postulates or assumptions that restrict the circumstances in which they are applicable. Ricardo's Law of Rent is no different. It assumes that there is NO monopoly of ownership and that each tenant has unlimited rent-free common land available to him if he so chooses. These assumptions are often false ones.

To understand the failings of Ricardo's Law of Rent you need to remember that it was formulated in 1809 before most of the Enclosures Acts became law. Unfortunately, large amounts of rent-free common land no longer exist in this country. That in itself is not necessarily a fatal flaw in the Law of Rent. Low rent land will serve the same purpose in the limit that the rent on that land becomes diminishingly small. The more important factor is that there must be a significant surplus or excess of such land, otherwise the system behaves like a quasi-monopoly. That is the point that many appear to fail to grasp.

David Ricardo probably didn't grasp it either, but Henry George did. He clearly states in his book Progress and Poverty:
"If one person owned all the land in a community, he or she could demand any price desired for its use. As long as that ownership was acknowledged, the others would have no alternative (except death or emigration). This, indeed, has been the case many times in the past."
It is strange then that so many of George's disciples ignore this part of his work. And to see a clear example of the disastrous failure of Ricardo's Law of Rent you need look no further than Ireland in the midst of the potato famine of 1845-1852.

Even before the famine, rents for most peasants were so high that they lived on the margin (i.e. a subsistence existence bordering on starvation). As Benjamin Disraeli put it in 1844, "a starving population, an absentee aristocracy, and an alien Church, and in addition the weakest executive in the world."
You would have thought living in such extreme poverty would have forced most peasants to move to free common land. That is what Ricardo's Law of Rent said should happen. But it couldn't happen because there was no free common land.

When the potato blight struck, crop yields fell even further. According to Ricardo's Law of Rent, that should have meant that rents should have fallen accordingly. They didn't. The taxes imposed on the landowners were still passed on the the tenants in rent instead of being absorbed by the landowner as Ricardo's Law of Rent said they should. Instead tenants were forced to pay rent rather than feed their families. As Henry George noted, millions either starved or emigrated as a consequence.

The lesson of the Irish example is that it shows that a monopoly of property can exist even when there are many individual landlords. In Ireland there were many land-owners, and even more intermediaries, yet there was still no effective competition because there was a shortage of arable land in total. As a result Ricardo's Law of Rent completely failed because it does not apply when land is held in a monopoly. In those circumstances rents can be set unilaterally by the landowner(s), and they were.

It therefore follows that any tax, including LVT, CAN be passed on to tenants if the conditions are right. I contend that the current system of land ownership, the disappearance of virtually all common land, and the severe planning restrictions that have been put in place, together act like a quasi-monopoly that give the landowners the power to set prices and rents. While competition between landowners should reduce those prices, the excess demand means that in reality it is tenants who compete against each other for somewhere to live. Homelessness is not an option, so rents are bid up, not down. The only thing that will then stop LVT being passed on to tenants is if it is so high that it takes them over the margin of what they can afford. Simply replacing Council Tax with LVT at the same monetary value will not do that. Nor will replacing all taxes with a single LVT.

Moreover, it is fairly straight-forward to show that in single-tax LVT economy, the LVT has to be passed on to the tenant otherwise most of the landlord's income is lost in tax and there is no incentive for anyone to become a landlord. If tenants then pay no tax there is no incentive for anyone to own their own home either. Without landlords and home-owners, all property would revert to the owner of last resort, the State. LVT revenue would collapse (there is no point in the Government taxing itself) and the Government would go bankrupt.

In short, my argument that supply and demand dictates price still stands. If demand exceeds supply (as I say it usually does in this country), rent is determined by affordability. Only if supply exceeds demand does Ricardo's Law of Rent apply.

Response to Henry Law (Göteborg) on 18 August 2009 at 9:07:05 PM

(ii) Henry Law asks: "Perhaps you might like to explain why the left are so opposed to LVT?"
I can't speak for everyone on the Left, but I do not support LVT because it is fundamentally a right-wing free-market Thatcherite tax that favours the nouveaux riches - people with massive disposable incomes but relatively few assets. Yes it hammers the old landed gentry, but Thatcherites revile the Old Establishment Tories almost as much as the Left does. If you want to understand why LVT is such a bad tax, just look at who would win and who would lose out if it were introduced.

Yes, the old land-owning aristocracy would lose, and so would those wealthy people and companies that own and control access to the natural resources. It would also hit manufacturers that owned large industrial premises.

But Hedge Funds with their low capital overheads and large profits would pay virtually no tax, neither would investment banks nor bankers nor City traders. A trader earning £5m a year could buy a £2m house with loose change. The ratio of asset value (house) to his income is only 0.4 compared to over 4 for someone on an average income (£25k, house value £100k - £150k). So a City trader will proportionately pay ten times less tax under LVT than the average person. Very redistributive! Not even New Labour would support that. So perhaps SG can explain why it is so appealing to her and her new Orange Book Lib-Dem friends?

The only positive aspect of LVT is that it reduces the accumulated wealth of Old Money, but does so by transfering it to the nouveaux riches. Hardly progressive, and not very Socialist. Moreover, it also extracts wealth from those who are unproductive with savings in the bank: the retired, the sick and chronically ill, the unemployed. Even the working poor living in subsidised (social) housing, and therefore technically living beyond their means, could be hit. Moreover, it will drive another nail into manufacturing in this country by raising taxes in this sector compared to companies in the virtual service and finance sectors with smaller properties.

Fundamentally it is a tax that makes no allowance for a person's ability to pay.

More worryingly, the underlying philosophy behind LVT is, if you are not productive you are worth less (or worthless). Perhaps that should be its epitaph?

'A trader earning £5m a year could buy a £2m house with loose change. The ratio of asset value (house) to his income is only 0.4 compared to over 4 for someone on an average income (£25k, house value £100k - £150k). So a City trader will proportionately pay ten times less tax under LVT than the average person."

But his firm will own land, the restaurants he does business with will own land, as wikk their syppliers And with an introductory rate of anyway before 0.2 and 3.0% on domestic land and, one assumes, a range of higher rate on business land, and it is the one tax which does allow for people's ability to pay, by definition. Otherwise, why own land?

My own view is that the introduction of a LVT will bring land back into both small scale and large scale industrial use as you will discover if you wipe the cobwebs off your view of LTV and realise that it can only be introduced initially as one item in a total portfolio of taxation so its success can be measured and comared against other taxes as it is trialed.

I am completely lost by your Irish example/red herring in which would there would appear to be many more than one possible market structure which fits your specifications, few, if any, of which will survice any empirical evidence gathering in the Irish republic's real world agriculture, domestic or business property market.

Following on from the penultimate paragraph from one of my previous posts (#59 on 20 August 2009 at 5:30:59 PM)

"Moreover, it is fairly straight-forward to show that in single-tax LVT economy, the LVT has to be passed on to the tenant otherwise most of the landlord's income is lost in tax and there is no incentive for anyone to become a landlord. If tenants then pay no tax there is no incentive for anyone to own their own home either. Without landlords and home-owners, all property would revert to the owner of last resort, the State. LVT revenue would collapse (there is no point in the Government taxing itself) and the Government would go bankrupt."

In fact the last sentence of the fictitious scenario I outlined in the above paragraph is not quite correct (actually it is totally wrong!). It should be pointed out that, while LVT revenues would collapse, they would be replaced by rent paid by the tenant to the new landlord - the Government. So the Government would not go bankrupt. Instead, all land will effectively become nationalised sooner or later, and the Government will be a monopolistic landlord able to set rent at whatever level it likes, much as it does now with tax. The downside of this is that as a monopolistic owner it would have no incentive to maintain the property in the best condition possible. In short, our housing stock would deteriorate (any comparisons with East Germany folks?).

However, all this is irrelevant, because as I showed earlier in that post, LVT can and will be passed on to the tenant, so the scenario outlined above is still entirely fictitious and not really worth worrying about.

All this does, though, help explain why the LVT evangelicals appear to come from such a wide range of political backgrounds. The communists presumably (and wrongly) see it as a route to the nationalisation of all property. The Thatcherite free-marketeers (correctly) see it as bringing an end to all taxation of income and benefiting the super-rich. The soft-left and greens (wrongly) believe it will end all property speculation and lead to a fairer more sharing society. Talk about being all things to all people!

"Instead, all land will effectively become nationalised sooner or later'

As one of its feudal legacies, doesn't the Crown already enjoy paramount superiority over all real property, and not just over land, and doesn't this make any form of nationalisation merely a matter of housekeeping and pretty small beer, as Boris might say the next time he brushes off a few cliches? Perhaps this might be the only real justification for exercising the Crowm Prerogative in the real world.

Adrian, you sort-of get it but not quite.

Ricardo's Law of Rent is formulated on the assumption of free land. When all free commons are taken, then wages fall to the least that people will accept, which in practice in western countries is set by benefit levels. But the same general principle applies. Landlords already charge as much as they can possibly get - they squeeze the most they can out of the market. Don't they?

LVT in itself does not make it possible to squeeze any more out of the market. And landlords dare not risk having vacant land and the bill to pay with no tenants to get the money from. In effect, this destroys the landlords' monopoly. Doesn't it?

Under a 100% LVT regime, all land rent (but not the rent paid for the use of buildings) goes is collected by a public authority. So there is, as you say, no reason to own land. Which is actually the situation in England today in any case. "Owners" are landholders, free of charge and perpetual, which is an anomalous situation that developed over a long period. All that LVT does is to restore the obligation of a land holder to pay a rent to the Crown, who holds all the land on behalf of the people.

Everyone needs to use land. So the value will not collapse. It will continue to have a rental value. If a government attempted to collect more than 100% or rental value then the land will go vacant. Income is optimised when land is correctly valued and taxed at close to 100%. One might envisage a stupid and tyrannical government trying to collect more but it would not optimise its revenue and it would certainly generate social unrest.

Also, please remember that property ownership remains as now. And no tax is levied on the value of buildings. So landlords will continue to own buildings. In fact they will have to make them as attractive as possible so as to make sure there are tenants to pay the LVT, and the landlords will enjoy the full return on the value of their investment in buildings, which is no different from being a landlord with a lease.

I still don't understand why so many on the left regard a policy which would do away with landowners' privilege are opposed to that policy.

LVT does not benefit the super-rich. People only become super rich by getting their hands on land value one way or another. And people with massive disposable incomes have assets, mostly landed assets.

It would not hit manufacturers who owned large industrial premises since the land value element is generally low - they probably pay more in UBR which taxes the value of machinery, buildings and plant.

The poor, the retired and the chronically sick tend to have little in the way of landed assets, and incidentally around 40% of what they spend ends up in tax, because the incidence of taxes such as income tax is not where the burden ultimately falls. To imagine otherwise is to fall for the illusion the employees pay income tax. Income Tax and NI are both additions to labour costs and are a major reason why in most Western European countries, there are high labour costs, low pay and growing levels of unemployment. Ultimately, income-related taxes must come from employers who must get the money from their customers. Which is why Scottish prawns get sent to Thailand to be peeled.

Reply to Henry Law (Göteborg) on 21 August 2009, at 4:29:36 PM and at 6:40:21 PM

QUOTE: "Landlords already charge as much as they can possibly get - they squeeze the most they can out of the market. Don't they?"
REPLY: No-one is arguing otherwise. The issue under dispute is what sets the limits of what they can charge. You appear to argue that if the rent is too high the tenant will look for and find something cheaper. My argument is he can't because there are no excess vacant properties. The landlord then charges as much as the tenant can afford.

QUOTE: "LVT in itself does not make it possible to squeeze any more out of the market."
REPLY: Yes it does. If LVT merely replaces Council Tax nothing changes. In fact Council Tax is just a form of LVT but set at less than 100% of the rentable value. So here is the BIG question. If you are going to introduce LVT, at what rate will it be set, and what will be the value of the land that will be taxed. To give you a well defined case study so that you can't dodge the issue again, consider this.
A man rents a house currently worth £120k for £500 pcm (£6k pa). He earns £25k pa, pays £6k tax per year and Council Tax of £1000. How much will the typical land value of this property be, do you think? What fraction of the £120k? How much are you then going to levy in LVT? How much are you going to reduce his income tax by? Remember, if LVT exceeds the current Council Tax, you will have to reduce his income tax, because an identical man with a similar income will own an identical house somewhere else (probably with a mortgage), and he will be worse off otherwise.
If you can't answer this simple scenario then you have no idea how LVT will work in practice, and what economic effect it will have!!! The economic impact of LVT is entirely determined by its relative magnitude.

If LVT is set at the same level as Council Tax, how will that change anything?

In a similar vein:
QUOTE: "It would not hit manufacturers who owned large industrial premises since the land value element is generally low - they probably pay more in UBR which taxes the value of machinery, buildings and plant."
REPLY: I'm afraid this is typical of your desperate thinking. You don't know what current UBR is, yet you assume it will be greater than the replacement LVT. Why? On what evidence? Will you abolish all corporation tax, employers' NI contributions as well? Is so how will the Government make up the shortfall in revenue?

QUOTE: "The poor, the retired and the chronically sick tend to have little in the way of landed assets."
REPLY: Totally not true. 70% of people in this country own their own home. That means that 70% of the retired do as well. If LVT completely replaces income tax, it means that when people have a reduced income, their tax bill remains unchanged. This will apply equally to all those who are temporarily unemployed. The issue is not the absolute value of a person's landed assets. It is a question of the ratio of that landed value to the person's income. That defines their ability to service the LVT on those landed assets. This ratio is much higher for ordinary people than for the super-rich.

Finally, to claim that all UK wealth is derived only from UK land is naive in the extreme. In a global economy much of this wealth will be derived from land overseas. What then is the point of the UK having LVT when no-one else does? How does it affect international competitiveness?

QUOTE: "Landlords already charge as much as they can possibly get - they squeeze the most they can out of the market. Don't they?"
REPLY: No-one is arguing otherwise. The issue under dispute is what sets the limits of what they can charge. You appear to argue that if the rent is too high the tenant will look for and find something cheaper. My argument is he can't because there are no excess vacant properties. The landlord then charges as much as the tenant can afford.

You have only to look at rents inside and outside the Enterprise Zones in the 1980s, or on opposite sides of the road across the Lambeth/Wandsworth border to see the truth of the point. Total occupation costs are as much as people can afford.


QUOTE: "LVT in itself does not make it possible to squeeze any more out of the market."
REPLY: Yes it does. If LVT merely replaces Council Tax nothing changes. In fact Council Tax is just a form of LVT but set at less than 100% of the rentable value. So here is the BIG question. If you are going to introduce LVT, at what rate will it be set, and what will be the value of the land that will be taxed.

I would suggest that LVT is set at initially at a rate in which there are as many "winners" as "losers". More revenue is thereby raised which would permit the government to pay off more of its huge debt than will otherwise be the case.

Q To give you a well defined case study so that you can't dodge the issue again, consider this.
Q A man rents a house currently worth £120k for £500 pcm (£6k pa). He earns £25k pa, pays £6k tax per year and Council Tax of £1000. How much will the typical land value of this property be, do you think? What fraction of the £120k?
Very little, it sounds like a house well outside the hotspots of London and the South East. And land value as assessed for LVT is a fraction of the rental value not of the selling price. At present his total occupation cost is £7k. Building value is going to be about £70k, which works out at about £3500k. Add another £2k for repairs and management, so his non-land occupation costs are about £5500. Which leaves about £1500 pa land value. So if LVT was set initially at 66% things would stay much as they are. But LVT is pointless as a purely local tax, as resources very from one place to another and one of the aims of LVT is to even-out geographical advantages.

Q How much are you then going to levy in LVT? How much are you going to reduce his income tax by?
Probably no less income tax initially, the UK government is broke and needs everything it can lay its hands on.

Q Remember, if LVT exceeds the current Council Tax, you will have to reduce his income tax, because an identical man with a similar income will own an identical house somewhere else (probably with a mortgage), and he will be worse off otherwise.

Of course there are going to be winners and losers. The winners will be tenants everywhere, provided they are paying current market values, plus owner-occupiers on low land value properties ie people in terrace houses in run-down or dense area, people in flats and people outside the overheated areas of London and the South East. The losers will be people with high land value properties, who got away with a huge bargain when Rates were replaced by Poll Tax and then Council Tax. Unless you are an extreme right-wing Conservative, I would have thought that would be the kind of scenario that would appeal to anyone with a sense of natural justice.

Q The economic impact of LVT is entirely determined by its relative magnitude. If LVT is set at the same level as Council Tax, how will that change anything?
That is not the suggestion. In any case, vacant and agricultural land is subject to the tax. Why don't you study what is proposed, as you clearly have not.

In a similar vein:
QUOTE: "It would not hit manufacturers who owned large industrial premises since the land value element is generally low - they probably pay more in UBR which taxes the value of machinery, buildings and plant."

REPLY: I'm afraid this is typical of your desperate thinking. You don't know what current UBR is, yet you assume it will be greater than the replacement LVT.

LVT can raise more than UBR because vacant and agricultural land presently not subject to tax, is included in the tax base.

Why? On what evidence? Will you abolish all corporation tax, employers' NI contributions as well? Is so how will the Government make up the shortfall in revenue?
It would be a good idea to abolish these disastrous taxes, though over a period so as to allow the LVT to bed in. As existing taxes come off, land values rise. And replacing existing taxes by LVT has a differentially beneficial effect at marginal locations.

QUOTE: "The poor, the retired and the chronically sick tend to have little in the way of landed assets."
REPLY: Totally not true. 70% of people in this country own their own home. That means that 70% of the retired do as well. That does not follow.

Q If LVT completely replaces income tax, it means that when people have a reduced income, their tax bill remains unchanged. This will apply equally to all those who are temporarily unemployed. The issue is not the absolute value of a person's landed assets. It is a question of the ratio of that landed value to the person's income. That defines their ability to service the LVT on those landed assets.

You are merely putting the case for an increase in pensions and benefits. If they had kept up with general wages there would not be a problem. In any case people have to cut down their liabilities when they retire, apart from anything else they don't have the energy to look after a lot of property.

Q This ratio is much higher for ordinary people than for the super-rich.
The super-rich get that way from sucking out land value. Anyone with a bit of a good start and a lack of scruples can do it.

Q Finally, to claim that all UK wealth is derived only from UK land is naive in the extreme.
Who claimed that? Land value in the UK is created and sustained by the actions and presence of the community and the infrastructure UK taxpayers pay for.

Q In a global economy much of this wealth will be derived from land overseas.
It is up to other countries to collect their own land value.

Q What then is the point of the UK having LVT when no-one else does? How does it affect international competitiveness?

It enables taxes on corporations and wages to be reduced or abolished, thereby giving any country to adopt the policy a great competitive advantage.