I agree with George Monbiot…
For the first time in my life I resent paying my taxes. Until now I have seen this annual amputation as a civic duty – like giving blood – necessary to sustain the life of a fair society. Suddenly I see it as an imposition. Its purpose has reverted to that of the middle ages: subsidising the excesses of a parasitic class. A high proportion of the taxes I pay will be used to bail out companies which, as the Guardian’s current investigation shows, have used every imaginable ruse to avoid paying any themselves.
Last week, I forked out a four figure sum to the HMRC and resented every penny, for those very reasons.
We are trapped in a spiral of political alienation. Politics isn’t working for us, so we leave it to the politicians. The political vacuum is then filled with heartless, soulless, gutless technocrats: under what other circumstances could political ghosts like Jack Straw, Geoff Hoon, Alistair Darling, Hazel Blears, Peter Mandelson or John Hutton remain in office? Unmolested by the public, corporate lobbyists collaborate with this empty political class to turn parliament into a conspiracy against the public. Revolted by these phantoms, seeing nowhere to turn, we withdraw altogether, granting them even richer opportunities to exploit us.
Yup. Indeed so. I realised this some years ago. That is why I left the Labour Party. Anyone who continues to support these people is both morally and intellectually bankrupt.
I can’t say that I agree with some of George’s solutions. I did, once, but no longer. Reform of the Lords has been a fudged disaster, so leaving it to Labour to fulfil its manifesto promise of 1997 would be chucking kerosene on a conflagration and I don’t have a problem with the idea of MPs moonlighting. Indeed, I would go one further and have them employed as MPs on a part time basis, in which case, they would have no option but to support themselves in the real world. This might make them more responsible when it comes to legislation – and too busy to mess about with unnecessary legislation.
Today Nick O’Donovan, a British academic working in the US, launches a movement in the United Kingdom built overtly on the MoveOn model. Dosomethingaboutit.org.uk is a rolling petition which seeks to ensure that the people who sign up don’t lose touch with each other. When there’s an important vote in parliament or when the government is threatening to shut down a useful public service or to waste our money on subsidising the rich, it will set up a petition and mobilise its members.
I watch with interest…
“subsidising the excesses of a parasitic class”
Exactly. But it depends whom you define as parasitic. I agree with him on corporatism and bail outs, but I bet he doesn’t agree with me that there are three million odd quangocrats leeching off the taxpayer.
And while you, LR, would probably agree with me that incomes and production are far too heavily taxed, you certainly wouldn’t agree with my viewpoint that land-ownership is probably too lightly taxed, seeing as that is the only thing which should be taxed at all – (nearly) all other taxes being deadweight costs.
Actually, I don’t have a problem with the concept of taxing land per se. I have a problem with the unfairness that inevitable results – on one of your recent discussions it was again raised that people will suffer as a consequence of increasing property values forcing them to either stump up what they cannot afford or to move. This is iniquitous. Rolling it over so that the descendants pick up the tab is equally iniquitous.
Also, what about those who do not own land and do not rent? We had all this with rates…
Any fair taxation system must include everyone paying their share.
That said, I agree on your other points.
“what about those who do not own land and do not rent?”
I struggle to think who falls into neither category. Children who live with their parents? Their parents’ LVT bill would include the element that their children occupy.
“Rolling it over so that the descendants pick up the tab is equally iniquitous.”
OK, let’s assume your aged uncle drops dead half way through an income tax investigation, it turns out he hadn’t paid income tax for years. HMRC ask the executors to pay it. Does that seem reasonable? It does to me. Why should it be iniquitous for heirs to pay off any other unpaid taxes?
“Any fair taxation system must include everyone paying their share.”
Tenants pay for the value of land they occupy (and always have done) as it’s included in the rent they pay (one element relates to buildings, which would of course be exempt; the other elements relates to the location). The rent for a house in outer London would be considerably higher than that for a physically identical property in e.g. South Wales.
Under LVT, the landlord would then merely hand over a proportion of the location rent element to the council (or whomever collects it). If you want to ignore the concept of economic incidence of a tax, by all means, make tenants pay LVT; as a result, the rent paid to the landlord will adjust downwards.
For example, I am a tenant and pay £10,000 in rent and £1,000 council tax every year. Let’s imagine they put up council tax to £2,000. Occupying that house is worth £11,000 to me, so the market rent will adjust down to £9,000.
Monbiot wrote that? Holy smoke!
Children – particularly the adult variety were the ones who spring to mind. This was always the issue with rates – LVT carries the same problem – they benefit but don’t pay.
No, it doesn’t, frankly. I pay my tax. I don’t expect to pay someone else’s. The unspoken assumption here is that any tax due will be covered by the estate. What happens if there is a shortfall? Will the heirs be expected to pay that? Iniquitous doesn’t even start to describe it. Bear in mind that we have something of a precedent here with the recent problems following the price collapse, heirs have been expected to pay IHT on the HMRC estimate of the property price as it was before the drop in price and are being expected to pay even though they cannot sell, so I would worry very much about this.
This I go along with.
Children – particularly the adult variety were the ones who spring to mind. This was always the issue with rates – LVT carries the same problem – they benefit but don’t pay.
If adult children decide that property prices have gone mad and/or rents are too high, and thus decide to stay at home for the time being, then they are responding to ‘market signals’, i.e. that prices and/or rents are too high. By withdrawing from the market, they reduce competition for houses to buy or rent and as a result, the free market solution (i.e. people responding to financial incentives) is to put a cap on house prices or rents. That’s a feature and not a bug.
The converse, the Big Lie that UK governments have got away with for too long is that house price rises are good for you; and that you should ‘jump on the ladder’, however that irrational may turn out to be in hindsight. The whole recession/depression that we now have gives us that hindsight.
I don’t expect to pay someone else’s [tax]. The unspoken assumption here is that any tax due will be covered by the estate. What happens if there is a shortfall?
I did say “the exeutors”. If there is a shortfall, you just waive the inheritance and the problem goes away, t’was always thus. As they say, die in debt!
we have something of a precedent here with the recent problems following the price collapse, heirs have been expected to pay IHT on the HMRC estimate of the property price as it was before the drop in price and are being expected to pay even though they cannot sell…
Well, as a tax advisor, let me advise that under current rules, you can claim an IHT rebate if the house falls in value, say no more.
As a tax reformer, let me remind you that I have always said that IHT is in isolation a spiteful tax, and ought to be scrapped and rolled into LVT. So if the house falls in value, at least your annual LVT bill is going down while you decide whether to sell.
IHT is indeed a spiteful tax. A rebate isn’t much good down the line when the revenue insists that you borrow the funds to pay now… Not that this is a problem with LVT – but LVT applied with the same spiteful, vindictive collection approach would be.
My issue with the unfairness of adult children is the same as occurred with the rating system. You can have two identical properties; one with half a dozen occupants and one sole occupancy – both pay the same tax irrespective of ability to pay. In effect, the multi occupants pay less each for the same services. That is why the Thatcher administration sought to change the system. That they fucked up royally is another story.
It is the ability to pay that remains the weakness in your argument. I seem to recall Pogo making the same point on your blog (I was too preoccupied to comment at the time) – that price rises cause significant hardship to someone who is on limited income and has no control over the price of their property.
The problem with rolling over is that eventually you have a defacto IHT… The other thought that occurs to me is that if it is rolled over, the householder is in a similar position to those who apply for equity release and no longer own their property as a consequence of rolled over interest. In this instance the state will own it and the property owner wouldn’t even have had the benefit of a windfall – a negative one doesn’t really count when you are on a limited income as, say, my mother in law is.
“A rebate isn’t much good down the line when the revenue insists that you borrow the funds to pay now…”
If you inherit land and property, you can ask to pay in ten annual instalments.
“You can have two identical properties; one with half a dozen occupants and one sole occupancy – both pay the same tax irrespective of ability to pay.”
That’s not true either. Assuming that all the people involved in this example go to work, the six-person household probably pays six times as much [income] tax as the single person household.
And assuming that the single-person is your mother in law, presumably on a state pension, then the six young people in the first house are also paying the income tax to pay for the £6,000 State Pension that she gets.
Yes, under the current arrangements – my point though, is that if you do away with all other taxes and replace with LVT, they won’t… Or am I missing something?
So does she.
To my mind, and politics, the only fair method of taxation is means-tested. To each according to his needs, from each according to his ability. There should be an assessment of a base amount of money that it is necessary to have to live and this should not be taxed at all, the unemployment benefit should be that figure. After that it should be scaled according to income but also taking into consideration things like children for which a fixed rebate should be available. The funding of public utilities, healthcare, pension provision, childcare and education and public transportation should come out of these taxes thus people are paying the state for the services they need. If someone chooses to buy a car with his remaining money then fair enough but the state should not be prioritising services for these people above the public services. If someone has no children they should see the education system as providing for a better society and one in which they can live in their old age without worrying about disenfranchised kids robbing their pension.
Modern society is way too materialistic and seeks to avariciously cling to what it has disregarding the fact that others have nothing and that you can’t take it with you anyway.
As regards the banks and corporations that have for years raped resources and counted dividends and bonuses bordering on the profane to my mind throw them to the fecking lions. If they have failed to understand the system then it is clear they do not deserve to be propped up. The banks have for years profited by extortion and now we are expected to pay for their profligacy when they still charge £30 to bounce a direct debit, this is lunacy. For every patient untreated and every child uneducated as a result of this the banks would rot in hell, were hell to exist!
“my point though, is that if you do away with all other taxes and replace with LVT, they won’t… Or am I missing something?
I have only ever said that we should roll up existing property and wealth related taxes (the big ones Council Tax and Business Rates, £20 bn each, plus bits and pieces like IHT, TV licence, Capital Gains Tax, Stamp Duty, minus CAP payments, total £60 bn, about 12% of total tax receipts) and have a flat rate LVT of about 1.5% of property values (the exact rate depends on how low prices fall).
There’d be winners and losers, but most people would be neither better nor worse off in the short run, and those that lose in the short run still break even in the long run.
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As a completely separate issue, I think we could easily scrap The Worst Taxes VAT and Employer’s NI (subject to sacking a million or three quangista and busybodies) and have a flat income tax of 30% or so with a £10k personal allowance. That is a different topic.
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Ah, I see. So my mother in law on that analysis will be much worse off – given that she doesn’t pay most of those taxes. 1.5% of property value would see her council tax increase by 500% Holy shit!
LR, thanks for your patience.
I can now stop boring you with this, as you have got down to the very essence of the problem – that people resolutely refuse to acknowledge housing as a part of the economy, as valuable assets and a source of income and capital gains (notional or actual).
For example, housing wealth is ignored when benefits are means-tested. I’m actually against means-testing, because it acts like a much higher rate of income tax, but if we’re going to have it, let’s have it for all wealth.
Finally, if (in your example) said mother in law had cashed in at the top of the market, bought a smaller place and put a quarter of a million quid into cash or shares, her total tax bill* would probably be more than the extra £4,000 or whatever that LVT would cost her compared to income.
* Including underlying taxes like corporation tax and VAT that the company pays in which she owns shares, and Stamp Duty or CGT when she buys and sells. Including inflationary losses if she has cash at the bank, a sneaky form of taxation, i.e. wealth transfer.
Now, finally, I fully understand what you are driving at.
The problem, though is that people do not want to move and cash in – they want to live in their home. The value of that home is immaterial to them, therefore is is not disposable wealth and to tax them on such is inherently unfair. Home owners who bought decades ago and lived in those homes should not be punished for it; the price bubble was not their fault and to tax someone on something over which they have absolutely no control and do not realise is the very definition of a punitive tax. Capital gains is at least a tax on realised wealth – i.e. the person has the wherewithal to pay.
Bottom line here – that tax bill would be unaffordable for my mother in law (she already pays income tax on her small earnings and pension inherited from her husband). That is wrong. Period. What you have explained here is definitely unfair and punitive towards the less well off. I simply cannot support such a proposal.
LR, you have highlighted the political objections to the tax, for which I am grateful.
So … how about, LVT only applies to subsequent purchasers? If somebody wants to stay under the old system with Council Tax, Stamp Duty Land Tax, Inheritance Tax and Capital Gains Tax, then good luck to them?
Seeing as prices are ultimately dictated by first time buyers, and they have similar budget constraints, a tax on land values merely acts like a higher interest rate, so it automatically depresses the land value element (that’s half the whole point) and so their total outlay is the same. And if FTBs can afford it, then so can most other people.
Of course, there would be a grace period of one year where home-owners could ‘opt in’ to the new system, e.g. if they are way over the inheritance tax threshold and quite elderly; or if they like the LVT ‘roll up option’; or if they live in a small home on which the LVT would be less than their Council Tax (that’s nearly half of all people if the rate were set correctly).
The new system would apply in full to landlords (yes, that includes you), to companies, trusts, non-domiciles, second-home owners etc, it would only be existing home owners (in particular the elderly who can afford to pay Council Tax, but not LVT, like your mother in law, who probably represents a few million people, i.e. a minority but a significant one) you can stay under the old system.
Sure there will be avoidance, so what, you can’t make an omelette without breaking eggs.
I would suggest that for the vast majority, the council tax is the only one that they will pay. Capital gains and stamp duty will only apply when buying and selling – and the big losers here are those who simply want to live out their lives in the homes they bought decades previously. For many, capital gains isn’t an issue because they invest in a new house upon the sale of the old one. Even stamp duty isn’t such a big deal compared with your suggested LVT. IHT for most people isn’t an issue either as most ordinary people fall below the threshold. I really can’t see it appealing to many as they simply don’t fall under most of those taxes.
While this may be a viable option for business (I don’t know enough to say one way or the other), for individuals, it offers little in the way of appeal – please pay more tax isn’t a strapline I can see taking off too well.
My UK property would see an increase of around 50% compared with my old council tax – that the tenant now pays in its entirety. So I would be a loser too. Don’t think I’ll be signing up in a hurry either…
“the big losers here are those who simply want to live out their lives in the homes they bought decades previously.”
Sure, which is why I have decided the only way to make this work is to allow people to remain under the old system if they so wish. On that point I have now officially caved in and it will be duly adopted into the MW manifesto.
“please pay more tax isn’t a strapline I can see taking off too well.”
But for a first time buyer it is a straight trade off – their budget of say £10,000 can either go £1,000 for council tax and £9,000 mortgage repayments on a higher price house (and £500 other taxes) or £1,500 for LVT and £8,500 mortgage repayments on exactly the same house but at a lower price (and £500 less other taxes). So the tax does not cost the FTB a penny – in fact it probably saves him £500.
I have done the numbers – about half of houses will be paying more than 1.5% of the property value if the average house price falls to its long run average or overshoots. Back in 2006 or 2007 when I looked at it more closely, council tax was over 2% of the value of Band A to C homes in cheaper areas. So they would win out straight away. And then under sensible LVT there would be the roll-up option.
“My UK property would see an increase of around 50% compared with my old council tax – that the tenant now pays in its entirety”
LR, a quick lesson in the difference between the legal and economic incidence of a tax – imagine that Bill Gates came along and decided to pay all the council tax bills of all residents of Bristol. Rents would adjust upwards, because rents are a deduction from the tenant’s fixed housing budget. You, the landlord, bear the council tax in economic terms.
Plus, I accept that there is special pleading for the little old ladies – but landlords won’t get very far with special pleading, not in my book, not in the general public opinion. And I bear no grudge against landlords, I used to be one myself.
Like a number of people in my situation, I am a landlord though circumstance, not choice. I did not enter into the arrangement to make a profit – although, the interest rates have created a small one for the moment. As long as I break even, that’s all I’m concerned about. The rent is merely a means to pay the mortgage. Economically, the property costs me nothing except for any maintenance costs that arise, so the whole arrangement is cost neutral for me. If Bill Gates paid off my tenant’s council tax, that would be very nice for her, but the rent would remain exactly the same.
If I was a commercial landlord seeking to make a profit, you would have a point, but I’m not in it for the money – well, not beyond the break even point.
Mark’s now-modified proposals are good.
I came into exactly the same problems with LVT as this conversation has just had.
My response to these exact same problems was slightly different however – that LVT should be a drastic lowering, and then reform of Council Tax -we lowered it to such an extent (0.26% of the value of the average house selling price in the area – e.g. still on land, not on the buildings) that only those with property worth over £960,000 would see an increase in their CT bill (about 1% of owner-occupier houses)
The point is, however, that it means a transition from taxing occupiers to taxing owners is made possible, and although small, it would still have some of the positive effects of LVT.
The loss in revenue would then be funded by Local Development Auctions, where councils buy up land from people who want to see it developed (gets round the Not In My Back Yard problem), grant the land more or less automatic planning permission and then sell it on for a much higher price (value increases when planning permission granted) to developers. This would raise about £20bn a year (at lower estimates), 80% of it then being redistributed nationally to make up for the fall in CT.
Re Longrider’s last point (19), policy-makers have to assume that everyone’s in it for themselves and will be trying to maximise their profit – planning for the worst but hoping for the best.