Liberal economic philosophy has its roots in land reform and economic justice. John Locke said that “God gave the world in common to all mankind….” Thomas Paine stated that “men did not make the earth… It is the value of the improvements only, and not the earth itself, that is individual property.”
John Stuart Mill wrote: “When the ‘sacredness’ of property is talked of, it should be remembered that any such sacredness does not belong in the same degree to landed property.” Mill also wrote: “The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title.”
In a free market capitalist economy markets allocate resources through the price mechanism. An increase in demand raises price and businesses produce more goods or services, but they cannot produce more land. The quantity of products consumed by people depends on their income, but rising income translates to increased land rents when supply is static.
John Maynard Keynes challenged the idea that free markets would automatically provide full employment. He instead argued that aggregate demand determined the overall level of economic activity and that inadequate aggregate demand could lead to prolonged periods of high unemployment. Keynes advocated the use of fiscal and monetary policies to mitigate the adverse effects of economic recessions and depressions.
William Beveridge set out the framework for the modern welfare state to tackle poverty, health, housing, education and unemployment. Following the principles of Keynes, the post-war government took control of key industries. Under this managed economy tax money could be used to keep an industry afloat, even if it faced economic difficulties and maintain full-employment.
In an address to the American Institute for Economic research, after the fall of the Iron Curtain, Robert Andelson set-out the alternative economic approach of Henry George http://schalkenbach.org/on-line-library/works-by-robert-v-andelson/henry-george-and-the-reconstruction-of-capitalism/
It is an approach based on competition in the free market; the unrestricted operation of the laws of supply and demand; equal freedom of opportunity; an insistence that all persons come into the world with an equal right of access to the goods of nature; and that the community has a right to take that which the community produces.
Andelson cites the Hutchinson Report, a survey comparing the various Australian states in terms of the degree to which they use the Henry George approach. It found that wages, purchasing power, growth of industry, volume of retail sales, land under cultivation, value of improvements, and population gain through immigration from other states were in every case greater in direct ratio to the proportion of revenues derived from the public collection of ground rent.
The address closes with a quote that depicts the philosophy of Henry George “What I produce is mine. All mine! What you produce is yours. All yours! But that which none of us produced, but which we all lend value to together, belongs by right to all of us in common.”
* Joe Bourke is an accountant and university lecturer, Chair of ALTER, and Chair of Hounslow Liberal Democrats.
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74 Comments
So we should all be living in leasehold properties owned collectively, ie by the State?
Or maybe housing associations, run by people on huge salaries?
That should be a great vote winner!
All you have to do is have a decent inheritance tax law that takes most of the value of the property back into the State coffers, it is simple and fair. But again not a vote winner.
BTW you can reclaim land by building out over the sea and civilizing deserts.
There is also plenty of land in the UK to go round, as soon as you get out of the city it is apparent that there are huge swathes of countryside with little built on it.
As an individual, owning your own property without a mortgage is one of the great liberating things you can achieve, and Liberals should be encouraging it by getting rid of unfair taxes like Council Tax not gibbering on about imposing Land Taxes etc
Henry George, like John Maynard Keynes, was writing at a time when there were no planning constraints on building. The Green Belt around London was first proposed in 1935 and the principle of Green Belts came into general acceptance with the Town and Country Planning Act of 1947. So while ALTER want to tax Londoners on their land values, they need to recognise that these land values are increased by the existence of the Green Belt and Metropolitan Open Land. A fairer approach would be to reduce the rating of all London land values by half to take account of the green spaces (47% of London’s area). With the honourable exception of Joe, most of the ALTER proponents seem to come from country areas where they benefit at no cost from the green spaces that are agricultural land. Unless they can convince city dwellers that their proposals are fair between city and country, LVT is unlikely to make much progress.
Bill Fowler: I think you misunderstand the meaning of the word “property”, especially when applied to “landed property”. Nobody “owns” land: they have certain rights relating to a defined piece of land, that’s what property in land is: a “bundle of rights”.
In the Henry George philosophy (for a century shared by Liberals in this country), freehold property meant absolute right to enjoy the possession (use) of land indefinitely – and (crucially) to dispose of that right, i.e. sell it on. But in return for that right, an owner should reimburse the community (through the State) by a payment of the annual rental value of that land.
You mention leasehold and “ground rent”. In the case of leasehold property, the leaseholder and the freeholder share the right of unfettered use and hence also would share the duty to pay annual land rent to the State, in proportion to the market value of the leasehold and freehold to each other. As the period of lease nears its end, so the value diminishes with a corresponding increase in the freehold value – so the proportions of tax paid by leaseholder and freeholder fall and rise respectively.
A leaseholder with 75 years to run on the lease would pay far more for a parcel f land of equal value than a leaseholder with only 5 years to run.
In Hong Kong, all land is leasehold (owned by the Government). There is a free market on property, which has a very high value. But the Government there earns about 40% of its revenue from taxes on land.
Hong Kong knows a lot about land reclamation too! Most of the reclamation is paid for out of its huge land reveneues, as its entire infrastructure (roads, public housing, MTR etc).
And it is not the amount of the land that gives its value but the location. The entire area of UK agricultural and moorland is around 80% by area but 5% by value of the total.
Bill,
The Conservative Mayor of Cambridge and Peterborough has recently argued for Land Value Cap to develop more affordable infrastructure https://www.conservativehome.com/platform/2017/07/james-palmer-the-land-value-cap-offers-the-chance-of-more-affordable-infrastructure.html.
He states his “determination to find solutions to tackle the significant disparities in wealth and opportunities that exist across the Combined Authority area.” He notes that “Greater Cambridge will be one of the country’s great engines for job creation over the next decade, with the potential to create over 40,000 new jobs. However, one of the threats to the concept of Greater Cambridge that may prevent it from achieving its true potential is its overheated property market.”
He says “due to underinvestment in transport infrastructure over many decades, commuting into Greater Cambridge from the north, particularly Fenland, is rarely an option. It also means that relocating from Cambridge to the north of the Combined Authority area is impossible for those currently struggling with the cost of living in Cambridge.”
His proposed soluton is an extension of the M11 near Cambridge to the Peterborough area in order to join the A47 utilising a Land Value Cap fund this project.
“Currently, developers and landowners are the biggest winners from state-funded infrastructure improvements. The Government is very unlikely to recoup the initial cost of the project, though it will of course benefit from increased tax revenues in the long-run. Land Value Capture is a mechanism that has the potential, if designed in the right way, to unlock major infrastructure schemes of significant public benefit that otherwise would have a prohibitively high price tag.”
He concludes “Connecting Cambridgeshire and Peterborough from North to South is not just about sustaining the Cambridge phenomenon and meeting potential labour shortages. At its heart is a moral mission to combat inequalities relating to the significant disparity in socio-economic opportunities across the area that I represent. Such disparities in wealth and opportunities will only be achieved through bold and imaginative thinking in order to bring about a dramatic improvement in our transport infrastructure.”
Not bad thinking for a Conservative Mayor.
Laurence,
these are important points. Land Values in London and other major towns and cities are indeed increased by scarcity of development land produced by the Green belt and Metropolitan Open Land.
ALTER does advocate a shift towards tax on land values but also a corresponding decrease in taxes on income and enterprise.
In aggregate, London currently pays a proportionally greater share of the UK tax burden than regions like the North East in both direct taxes of incomes and indirect taxes on consumption. At the same time, London has some of the greatest areas of deprivation. There are hundreds of estates like Grenfell Tower across the Greater London area. Home ownership in London has fallen to around 50% and is on a downward path – predicted to fall to 40% by 2025 http://www.telegraph.co.uk/finance/property/property-market/12157946/Generation-Rent-London-to-become-a-city-of-renters-by-2025.html
Alter’s proposals include a ‘homestead allowance’ based on the Local Authoriity Housing Allowance. For Londoners this will exempt land values in the bottom third of the market and provide for modest levies in the bottom half of the market only increasing significantly for the most expensive properties.
The article above notes “Locked out by high prices and unattainable deposits and mortgages, young people will be the hardest hit: just 26pc of those currently aged 20-39 will own their own home by 2025. This compares with 64pc of households born in 1960 and 1970 who owned a house by the time they were 35.”
While not alone, London faces the biggest housing problem of all areas in the UK.
Following on from Tony Vicker’s comments on Hong Kong;s experience with Land Value Capture this link gives examples where the approach as been successfully employed at different times around the world https://blog.p2pfoundation.net/successfull-examples-of-land-value-tax-reforms/2011/02/05 including Hong Kong, Singapore, Taiwan and South Korea as well as Denmark and Estonia.
Laurence rightly draws attention to the enhancement of land values resulting from proximity to Green Belt and Metropolitan Open Land. Adoption of LVT could potentially promote more benign planning outcomes as it would be easier for planning authorities to resist over-development and achieve an appropriate proportion of urban open space.
Regarding the history of planning, it would be interesting to know how effective the “Restriction of Ribbon Development Act, 1935” was.
I am reminded of this …
Sound the call for freedom boys, and sound it far and wide,
March along to victory for God is on our side,
While the voice of nature thunders o’er the rising tide,
“God gave the land to the people!”
Chorus: The land, the land, ‘twas God who made the land,
The land, the land, the ground on which we stand,
Why should we be beggars with the ballot in our hand?
God made the land for the people.
Hark the sound is spreading from the East and from the West,
Why should we work hard and let the landlords take the best?
Make them pay their taxes on the land just like the rest,
The land was meant for the people.
Clear the way for liberty, the land must all be free,
Liberals will not falter from the fight, tho’ stern it be,
‘Til the flag we love so well will fly from sea to sea
O’er the land that is free for the people.
The army now is marching on, the battle to begin,
The standard now is raised on high to face the battle din,
We’ll never cease from fighting ‘til victory we win,
And the land is free for the people.
@ Bill Fowler
Please can you explain why a Land Value Tax is more unfair than a Capital Gains Tax?
@ Joe Bourke
It does not appear that ALTER is winning the argument in the party. I think this is because it has failed to present a LVT clearly. Who in the party has heard of “a ‘homestead allowance’ based on the Local Authority Housing Allowance”? Why would Liberals want anything to do with the Local Authority Housing Allowance? I know I don’t.
I think ALTER needs to think again. It should ditch the idea that anyone will have to pay LVT on their home when they die. They need to accept that those on low incomes should receive benefits much like those which applied in the past to Council Tax. They need to work out what the Land Value is of all the land in the UK (not the total selling value of land). It will then be much easier to talk of the rates. How much would a national 0.5% rate raise? If it was applied to first homes who would be the winners and losers?
But will the revenue from LVT be large enough to reduce income tax and business tax while still increasing the total national tax revenue?
For the history of The Land Song see
http://www.historyworkshop.org.uk/the-land-song/
Isn’t a tax on the capital gain when the property is sold the least painful way to capture any increase in site value? Even so, unless the tax were introduced gradually over many decades I expect the pips would squeak mighty loud! But what if instead of a capital gain there were a capital loss?
Liberals have sung loudly in praise of Henry George since my grandfather’s time and now that land values have gone crazy, something has to be done!
Michael BG,
there has never been as much interest in Land Value Capture, as there is today, since the days of the People’s budget in 1909. The number of press commentators writing on the subject has risen exponentially as the housing crisis has developed. The OECD has recommended LVT as a part of the tax base to its member countries as did the Mirrlees review of the UK taxation system.
In the recent election the Libdem manifesto included consideration of LVT. as did the Labour and Conservative
Vince Cable has advocated reform of business rates to a site value rating and extension of council tax bands to make the existing system more progressive.
Libdem housing policy for building more and better homes included:
(a) Set up a new government-backed British Housing and Infrastructure Development Bank with a remit including providing long-term capital for major new settlements and helping attract finance for major house building projects. This can easily be adjusted to a remit including providing long-term capital for the acquisition of land and the development of shared ownership housing based on public retention of land and the ground rents thereon.
(b) Buying and renting – Help people who cannot afford a deposit by introducing a new Rent to Own model where rent payments give tenants an increasing stake in the property, owning it outright after 30 years. This too can be amended to – Help people who cannot afford a deposit by introducing a new Rent to Own model where tenants rent the land and get help with a mortgage on buildings.
ALTER’s mission is to provide information in the form of pamphlets, stands and fringe meetings at national and local conferences, articles for Libdem publications and websites, development of or input to policy motions fand collaboration with other groups on Land Value Tax issues.
Next month ALTER will be running a stand in Bournemouth and holding a cross-party fringe on the subject of “Progressive Alliance for Land Value Tax as solution to housing crisis.”
LVT should be a unique selling point for Liberal Democrats. We are in danger of letting other parties take the lead on this policy. That would be rather ironic for the party of J S Mill and Lloyd George.
Thomas,
this IEA report https://iea.org.uk/blog/the-case-for-a-land-value-tax-0 sets out the case on the grounds of economic efficiency and growth writing:
“As the UK government grapples to tackle low productivity and attempts to increase house building, …they should seriously consider one of the most widely endorsed taxes by economists. .. they should at minimum consider scrapping business rates and replacing them with LVT. Business rates have long been criticised by many businesses because of their complexity and discouragement of investment and growth. The government could potentially take a step further from business rates and completely/partially replace both council taxes and stamp duty with LVT. Like business rates, both of these taxes also dissuade investment and/or warp free market movements; the result is economic activity is displaced and depressed. There seems to be a perception among politicians that LVT would have little public support, but it need not be so difficult if the tax is slowly phased in and, above all, if it could be matched by cuts in other taxes (i.e. the new tax must be revenue-neutral). Another principal problem attributed to LVT is one of valuation and implementation. These problems exist, but they are exaggerated. There have been many practical proposals for accounting and administration of the tax (more than 30 countries already have some form of LVT put into practice e.g. Australia, Hong Kong and Singapore). The government should therefore now make a serious consideration in introducing LVT.
Although in theory LVT should be universally applied to all land, for reasons of practicality politicians should at minimum start with LVT for non-residential purposes. The problem with business rates and other similar taxes is how they affect decisions-making in an economy. At least at the margin, they discourage business investment. Furthermore there are several exemptions for business rates ranging from vacant land to agriculture. Thus the overall effect of business rates is that economic activity in the UK is unnaturally skewed away from property development and property-intensive production activities. This tax is therefore not fit for purpose.”
Thank you for a very interesting article and conversation on a very important topic!
The taxation of land based wealth has a lot to offer. It cannot be off-shored etc. It reduces the level of/need for taxes on transactions and remuneration which lessens the need for pay rises whilst providing more for infra-structure development. This makes us more competitive internationally. A “capital gains” land based tax would reduce the price of housing which also makes us more competitive and would reduce the unproductive, usually borrowed, money going into house speculation in reality and fantasy.
It might also make the banks less inclined to lend as carelessly and harmfully as they have/do and we might then invest more in technical innovation etc.
Here is an interesting and potentially useful article by Michael Hudson:
https://www.counterpunch.org/2017/08/16/putting-an-end-to-the-rent-economy/
Extract: “A subway line, like the Jubilee tube line, increases real estate prices all along the line. The resulting rise in rents increases prices for housing. This rental value could be taxed back by the community to pay for this infrastructure.”
“The Industrial System: An Inquiry into Earned and Unearned Income” by that great Liberal economist J.A. Hobson is a worthwhile relevant read as are his other books on economics.
Bill,
“As an individual, owning your own property without a mortgage is one of the great liberating things you can achieve.” This is exactly what we are talking about. The Cambridge Mayor has made the same point in a recent public meeting http://www.cambridgeindependent.co.uk/news/south-cambridgeshire/land-cap-will-help-young-people-in-cambridge-get-homes-says-mayor-james-palmer-1-5143951
He said young people are facing a situation that is “patently unfair”, regarding the struggle they face to get on the housing ladder or even rent a property of their own.
He said many young people paying extortionate rates to live on the edge of Cambridge would jump at the chance to live in garden villages 10 miles away from Cambridge, but connected to the city by light rail.
“I bought my home after the housing crash of the late 80s. That was the luck of the draw. If I’d needed a home five years before, I would have had to pay double.
“People my age were all able to buy property, but we’ve done nothing in the meantime to make those houses go up in value ten-fold.
“We’ve got very high employment, although across a large portion of that there are fairly low wages. If a young couple had the opportunity to buy a house for £100,000 then a mortgage isn’t out of reach. At the moment they don’t have that chance. We’ve got to do something about this
“Post-Grenfell there is a realisation that the housing crisis in the UK is tangible, it’s real, and we do nothing at our peril. I am not prepared to do nothing.”
Steve,
that’s an interesting article by Michael Hudson that you link to. He makes a very important point about how most of the economic rent that is sucked out of the economy today takes the form of interest on debt secured on land.
If you are buying a house on a 25 or 30 year mortgage today you will pay many times the purchase price over the term of the mortgage and a very large % of your pre-retirement earnings for the privilege.
Many small landlords payout most if not all of the net rents they earn in interest and only make any significant profit, if and when there is a capital gain. This is why dis-allowing tax deductions for interest paid by small landlords that rely on borrowing is going to be a problem for many.
To be equitable, a tax on economic rents has to include higher taxes on interest earned on loans for the acquisition of land i.e. banks and financial institutions would bear the land value tax.
Much of the very large salaries, bonuses, dividends and stock gains in the banking industry come from this source – interest, fees and profits on trading and repackaging of mortgage backed securities.
@ Joe Bouke
I thought ALTER’s mission was to increase the understanding of LVT generally and especially within the party and to secure it as a policy in our general election manifestos. It is this failure that I am talking about. I am a lukewarm supporter of LVT. I note you didn’t answer my points about the issues which need addressing so we can convince people LVT is a good tax.
I am not sure you really addressed Bill Fowler’s point – “As an individual, owning your own property without a mortgage is one of the great liberating things you can achieve.” If everyone owned their own home when they retired there would be a reduction in the amount of housing benefit the government would need to pay. I think it would be possible to make a case that having a LVT on non-residential land would increase the supply of new homes. Perhaps we should focus on this.
Michael ,
ALTER maintains a website with information on LVT and links to other sites https://libdemsalter.org.uk/en/article/2012/0621386/what-is-land-value-tax .
What is Land Value Tax?
Land Value Tax would be payable each year depending on the location and size of a plot. We advocate that it should replace some existing taxes. It should not add to the overall tax burden, its purpose is to shift tax away from income taxes . Land means the site alone. A vacant plot in a row of houses would be taxed the same as a similar built-on plot. It taxes the size and location of he plot. It does not tax buildings or other works.
There are three strong arguments for the tax. It is socially just. It is the best way of financing infrastructure. And it is economically efficient.
First social justice. Property taxes are fairer than income taxes. In the UK the wealthiest 1% own almost 25% of all property. Today we base the tax system almost entirely on income rather than assets. This means the very rich avoid paying their fair share of taxes. This entrenches inequality.
Second, infrastructure. The benefits of infrastructure are uneven. A fast rail line from London to Birmingham will provide a windfall for property owners in those locations. It won’t benefit other locations nearly as much. At present every taxpayer, everywhere, pays. Land value tax corrects this. It recoups costs from those who benefit the most.
Third, economic efficiency. Land value tax is payable whether or not the owner actually uses the plot productively. It penalizes owners of empty houses; owners of run-down sites. Unlike now, they would be taxed at the same rate as a site in productive use. This would promote inner city regeneration. There is a myth that Land Value Tax would destroy green spaces. In fact, the City of New York made a profit when it created Central Park. It greened over existing built-up areas. The increased property tax from surrounding neighbourhoods paid for this.
For more information see Why people fail to understand Land Value? Taxation https://libdemsalter.org.uk/en/article/2012/0611160/why-people-fail-to-understand-land-value-taxation that concludes:
“To fully accept LVT, people have to abandon many current beliefs about economics, which is especially hard for the experts. However the present crisis has been a wake-up call for many, and those in academia or in power are perhaps more ready to listen.”
Taxpayers against poverty is a movement headed by the Reverend Paul Nicholson.
http://taxpayersagainstpoverty.org.uk/news/uk-housing-market-a-disaster-wed-do-better-economically-socially-and-morall
There are ten blogs on affordable housing by Stephen Hill MRICS Churchill Fellow, Prof Danny Dorling University of Oxford, Fred Harrison Land Research Trust, Alison Gelder Housing Justice. on the TAP website that ought to be read by HM government.
http://taxpayersagainstpoverty.org.uk/news/TAP-has-published
@ Joe Bourke
“First social justice. Property taxes are fairer than income taxes. In the UK the wealthiest 1% own almost 25% of all property.”
I am not convinced that LVT should be collected on the homes that are lived in. To make this easy we shouldn’t be advocating LVT on residential homes. Maybe once LVT has been introduced and been working for a few years we can suggest introducing it to residential homes but only if ability to pay is included and the tax is not rolled up for collection when a person dies.
I assume that ALTER does not have the answers I had hoped it would have – What is the total value of the Land Value of all the land in the UK (not the total selling value of land)? How much would a national 0.5% rate raise? If it was applied to first homes who would be the winners and losers?
Michael,
I think most people would agree with a phased approach to introduction of LVT beginning with business rates as well as income and capital gains tax on let property and undeveloped sites with planning permission. With respect to replacing council tax with LVT, an alternative approach is to extend council tax bands to make the present system a little more progressive.
Gains on owner-occupied residential housing are currently taxed at death (over the inheritance tax threshold). If inheritance tax on land is replaced with LVT then it would make sense to defer the LVT, where appropriate, so that it is collected from the estate in the same way as inheritance tax is collected now.
The value of real estate (land and property on it) in the UK is currently valued at around £7 trilion. Properties in London and the SE typically have a land value component of 75% and an average of 30% elsewhere in the UK.
A conservative estimate of Land values would be in a range of £3 trillion to £3.5 trillion and imputed land rents (based on an average yield of 5%) in a range of £150 billion to £175 billion.
If LVT replaces stamp duty tax, then first home buyers will not face a large capital outlay on top of a mortgage deposit when buying a home. Similarly, retirees wishing to downsize will not have to bear the stamp duty tax costs when moving to a new home.
@Joe
While I understand where you are coming from on LVT, if you allow pensioners to defer it to be collected from their estates you need to take account that current 65 year-olds will live for an average 18.8 years (men) or 21.2 years (women). If you set the LVT rate at 5%, this will roughly eliminate the value of the property over the average lifetime of the pensioner (effectively a 100% inheritance tax on the value of your home even if no interest is charged). I don’t think that this is really sellable to the voters. Also, over this period you will have to borrow an additional £3trn to offset the delayed payment of the LVT.
I would prefer to see owner-occupied residential property brought within the Capital Gains Tax System, which would put it on the same basis as other property.
@ Joe Bourke “If inheritance tax on land is replaced with LVT then it would make sense to defer the LVT, where appropriate, so that it is collected from the estate in the same way as inheritance tax is collected now.”
There is a seven year gift element with Inheritance Tax whereby a person can pass on wealth to the next generation without IHT providing they survive the seven year period. Would this apply to LVT ?
Laurence,
at present council tax payers could be eligible for relief if their on a low income or claim benefits. Your bill could be reduced by up to 100%.
What you get depends on where you live (each council runs its own scheme), your circumstances (eg income, number of children, benefits, residency status), your household income – this includes savings, pensions and your partner’s income,
if your children live with you, if other adults live with you.
With LVT, we envisage there would be an allowance (the homestead allowance) that would exempt owner occupied property based on the bottom third by value of properties in a local area. There would also be a cap for deferred LVT based on the total land value less the homestead allowance.
if an individual qualified for full deferral of LVT (based on existing council tax relief qualifications) then the maximum that any estate would have to pay would be the excess of land value over the allowance. The minimum estate that would be passed on is the value of the homestead allowance plus the value of the buildings on the land.
The majority of homeowners would pay LVT as they do council tax now. Those in low cost housing would pay nothing (or perhaps a rubbish collection charge only), those in average band D properties would likely pay a little less and those in higher value property (based on local area land prices) would pay considerably more. A not dissimilar approach to an uplift and extension of council tax bands.
There is an argument for CGT on owner-occupied property, but one of the main difficulties is when moving house in the same or similar area you will need the proceeds of disposal to buy a comparable residence. If you introduce indexing based on house price inflation to resolve this problem there are no gains left to tax.
David,
the 7 year rule applies to potentially exempt transfers i.e a a lifetime transfer made to an individual, or a trust for the benefit of a disabled person or a bereaved minor.
Other non-exempt transfers are chargeable lifetime transfers and are charged to IHT @20% when cumulative lifetime gifts exceed the nil-rate band (currently £325,000).
Generally, a family home cannot be transferred out of an estate while the family still occupy it (this is called a gift with reservation). The home can only become a potentially exempt transfer, if the occupants move out or pay full market rent to the transferee’s as tenants.
There would be no 7 year rule for LVT. However, if Inheritance tax remained (with exemptions for non-land transfers and owner-occupied residential buildings) then these rules could continue for commercial and let buildings, financial assets and other forms of non-land wealth.
Laurence Cox makes an excellent point if LVT is 5% then 20 years of rolling up the tax will mean that the value of the land has been lost to the heirs. Therefore to set the tax at 5% is just silly. Also as Laurence points out there would be a large increase in government borrowing while waiting for people to die.
The answer to my question assuming a land value of £3,000bn is £15bn (@ 0.5% tax rate), but I wouldn’t want it to be applied to residential property so it might be as low as £5bn. To talk of having a new national tax on non-residential land values which could raise £5bn would be something good to add to a future manifesto; something concrete; something people can understand.
Joe,
You ruin this simple idea, with your “Homestead Allowance” which seems to apply to the value of the whole property and not the land and which abolishes the 100% Council Tax Benefit which we should still be supporting.
If at some distant future date we were to advocate introducing a LVT on first homes to replace Council Tax then we need to be clear that it is not replacing Inheritance Tax and that it is based on the ability to pay and it will not be rolled up into debt to be paid on one’s death. We have seen how unpopular this sort of thing is with the “dementia tax” idea in the last general election.
Michael,
The Homestead Allowance ic covered in more detail in the ALTER position paper linked here https://libdemsalter.org.uk/en/article/2016/1152887/the-real-hope-for-home-ownership
The paper concludes:
“The losers in our policy will be those living in – or due to inherit – the most
expensive homes and those who are commercial landlords. Among the
winners will be all who currently occupy homes in Bands A-D, especially those
in rented accommodation those trying to get a foot on the housing ladder. We
believes this justifies our claim of economic justice.
By greatly reducing the proportion of national wealth tied up in mortgage debt
on under-occupied or over-priced and privately rented housing, and by
incentivising better use of land for desperately needed housing, ALTER
believes that LVT with the features described here would result in a much
more efficient land and housing market. This must make the whole national
economy more efficient and remove one of the greatest risks to social
cohesion.
ALTER believes that LVT could be made quite acceptable to a majority of
voters. There is little point in having a policy that has so many benefits and
then not campaigning for it. The sensitivity with which LVT for residential land
has long been treated is understandable but I hope this paper has shown that
it need not be so.
I have not covered the actual implementation process, only its main features.
Any implementation should be carried out gradually. There is no reason for
existing property taxes to be abandoned on ‘day one’: council tax could be
frozen at current levels and then reduced progressively as LVT is brought in
to replace it. This would have the benefit of allowing the details of almost
every aspect of its implementation plan to be adjusted with experience, not
least the land value assessments themselves which could even begin through
self-assessment.”
@ Joe Bourke
I couldn’t find any details about the Homestead Allowance in Tony Vickers paper.
There is no way we as liberals should be supporting a policy which is against the ownership of one’s own home. As I have already stated if every retired person owned their own home there would be a reduction in the need to pay out housing benefit to pay the rents for retired people. Tony Vickers writes:
“By tying up such a high proportion of national wealth in home-ownership, the economy is denied the ability to invest that wealth for the good of the wider economy”;
“Property ownership … is anti-enterprise and creates an illusion of wealth”.
Tony Vickers states that children should not expect to inherit the wealth saved by their parents.
I think ALTER are wrong that it can make LVT acceptable to a majority of voters. It could do so, but only if it stopped pushing it for residential property, rejected the idea that home owners have to roll-up the tax into a debt payable on their death and see it as a panacea tax.
Michael,
the relevant detail is on page 4 and 5 of the paper, beginning as follows:
1. Homestead Allowance
HA is a part of property tax policy in several cities in the US and also in
Taiwan. If there can be a tax-free allowance for earned income, there is no
reason why the principle could not be applied to property taxes too. Indeed
one could argue that there is a greater moral case for HA, because everyone
needs shelter and it shows self-reliance to have built or bought one’s own
home.
…The Conservative Government’s solution of ‘Help-to-Buy’, in which first-time
buyers have their mortgage partly underwritten by the taxpayer, is really a
subsidy to lenders and puts at risk the future financial security of both the
nation and the borrower. LVT with HA would avoid this and be a better route
onto the housing ladder for all concerned – except the banks.
This ‘pro-ownership’ feature is an important political selling point for LVT with
HA, because it is seemingly ingrained in the British psyche that homeownership
is a ‘good thing’, despite the fact that in most other developed
societies renting is regarded as a perfectly acceptable alternative to owning. It
is no accident – indeed it is an ‘accident’ waiting to happen! – that Britain also
has the highest level of household debt and lowest level of public investment
of any major developed economy. By tying up such a high proportion of
national wealth in home-ownership, the economy is denied the ability to invest
that wealth for the good of the wider economy – either through public
investment or through private enterprise.
LVT or Land Value Capture is not a panacea of itself, but an important element of the economic and monetary reforms required to address the return of the extremes of wealth and housing inequality we have seen not seen since the Edwardian era.
Michael,
“Laurence Cox makes an excellent point if LVT is 5% then 20 years of rolling up the tax will mean that the value of the land has been lost to the heirs. Therefore to set the tax at 5% is just silly. Also as Laurence points out there would be a large increase in government borrowing while waiting for people to die.”
The assumption in Laurence’s point is that an LVT rate of 100% of land rents or 5% of land values is applied. Alter’s proposals are based on the Swedish System that includes imputed rents in taxable income i.e. for a basic rate taxpayer 1% of land values, a higher rate taxpayer 2% of land values and an additional rate taxpayer 2.25% of land values.
By way of example, a home in London/SE valued at £400k with a Land Value of £300K would be taxed as follows:
Annual Imputed land rents at 5% = £15,000, less: Homestead allowance of £10,000 (based on LHA), leaves taxable imputed rents of £5,000.
A basic rate taxpayer would pay 20% of the taxable amount i.e. £1,000. A higher rate tax payer £2,000 and a taxpayer in the 45% bracket £2250. This system does not increase taxes, it replaces council tax. This is a redistribution of the burden of the current council tax to higher income taxpayers and provision of relief to lower income tax payers in lower cost housing.
Only low income (basic rate) taxpayers could qualify for deferment of LVT. Based on Laurence’s averages of circa 20 years in retirement, those (few) taxpayers that were unable to meet their LVT liability from current income would have a liability of circa £20k on a £400k home at death. Most council tax relief goes to renters not homeowners. There would be no onerous debts or unfunded increase in government borrowing.
@ Joe Bourke
Your quoting of pages 4 and 5 of Tony Vickers paper provides the evidence that there is no detail at all about Homestead Allowance accept what you already told us, in fact you have told us more than the papers does.
Your wrote, “A conservative estimate of Land values would be in a range of £3 trillion to £3.5 trillion and imputed land rents (based on an average yield of 5%) in a range of £150 billion to £175 billion.”
So of course readers would assume a tax rate of 5%.
The LHA for my borough is £883.21 a month for a 3 bedroom property, but no one would be able to find a 3 bedroom property to rent in the private sector for this amount (the cheapest I found on Zoopla were for £950 per month). This is why I have stated that we should have nothing to do with the LHA.
Looking at your example, it is not very clear what is going on.
Land Value £300,000
Take 5% for reasons unknown = £15,000
Minus LHA £10,000 (which can’t be right as a 3 bedroom property in North-West London is £15,756 https://www.hillingdon.gov.uk/article/13304/Local-housing-allowance-LHA)
Amount to be taxed £5,000 at Income Rate amounts
20% – £1,000, 40% – £2,000, 45% – £2250
Which the person would still have to pay even if they were receiving Jobseekers Allowance of £73.10 a week. At £1,000 this is £19.23 a week. Now perhaps you can understand why I dislike this idea.
Therefore to explain this you have to explain what land values are, then talk about imputed land rents (which I assume are arbitrary) then talk about LHA and then only after this that you talk about the rates of the tax. As it is so complicated I can’t imagine the public wanting to pay taxes in this way. It is even more complicated that Council Tax.
You have not addressed the idea that pensioners would not like the idea that instead of leaving their homes as a free to use asset it has a debt attached. This was the problem with the “dementia tax”. This is why we should only be advocating it for non-residential property unless we apply a scheme of benefits like the national Council Tax Benefit scheme.
What evidence do you have that most Council Tax Benefit goes to renters not owners? If we assume that 50% of home owners are retired then up to 50% of what the Council gets from LVT would have to be borrowed, while the Council waits for these people to die.
Michael BG,
the position paper published by Tony Vickers states “… Some people say that applying LVT to housing is just far too difficult politically, so we should focus our efforts on reform of business rates because businesses don’t vote. To them I say that to do so would embed new and fundamental flaws in the property market and tax systems. These could make replacement of council tax, inheritance tax and stamp duty land tax, which are all totally dysfunctional, much more problematic, both politically and
technically in the long run.”
The paper goes on to note “Owner-occupation should be treated like ‘notional’ or unearned income, assessed for tax purposes on the basis of what the owner could have earned in rent. (As was the case with ‘Schedule A’ income tax until 1963).
The paper discusses the principle of a homestead allowance and on page 7 discusses the system as it is applied in Sweden…” every adult completes an income tax form every year. However, the form arrives in the post largely pre-completed, based on the previous year’s return.”
The local authority assesses the rental value or rateable value of each site in its location, apportioning the amounts between land and buildings. A local area homestead allowance is calculated based on the rental information already gathered for Local Housing Allowance. Housing benefit levels are set at, or below, the cost of renting a home in the bottom third of the private rental market.
Homeowners in council tax bands A, B would generally pay no LVT, homeowners in bands C & D less than current council tax, Band E about the same and higher banded properties would generally pay more.
Relief for those homeowners on benefits is available for mortgage interest (Support for mortgage interest after 9 months of unemployment) by way of a loan from the government. The SMI loan has to be repaid with interest when you sell or transfer ownership of your home.Deferred LVT follows the same principle.
Michael BG,
using your figures, the LVT calculation would be as follows:
Rent (3 B/R property) £950/Month. Assume 50% attributable to land rent i.e. £475 per month.
Homeowner Allowance £883.21. Amount attributable to land (50%) = £442
Taxable imputed rent £475-£442 = £33/month.
Monthly LVT for basic rate taxpayer @ 20% = £6.60 or £79.20 per year.
Pensioners pay the LVT the same as everyone else unless their circumstances are such that their income and savings qualify them for relief, as at present, in which case, they may defer payment until they sell or bequeath their property.
Sere Guardian article for data on council tax benefit Poorer households face postcode lottery as council tax benefit cuts bite https://www.theguardian.com/money/2013/jan/14/poorer-households-postcode-lottery-council-tax. Age concern reports that the great majority of low income pensioners receiving council tax benefit are in rented accommodation, mostly social housing.
Joe
The Guardian link does not state anything about the number of pensioners receiving Council Tax Benefit. I was aware of the 2012/13 Council Tax Benefit changes and am now more aware because of a comment I made in response to Bill Fowler in another thread – https://www.libdemvoice.org/liberal-democrats-would-end-the-benefits-freeze-but-labour-arent-sure-55121.html#comments.
Please can you post a link to the old Age Concern report?
When you write about winners and losers is this you or are you quoting something?
Mortgage interest payments for the unemployed was never a loan. It seems mortgage interest payments are limited to only 2 years now unless your claim started before 5 January 2009. It also seems your loan scheme starts in April 2018 or from 7 July 2017 for new claimants. As these all seems to be Conservative changes and we should not be supporting them.
Now you have made the scheme even more complicated. Perhaps you should be using the old Labour LHA and not the current ones which has not been increased in line with market rents for years. However these properties I expect are band C and their Council Tax bill is £1310.07. Using a more realistic land value (value of property £233,000, cost of rebuilding 163,000, value of land £70,000 [call it 30%]. Calculate rent 30% of £950, calculate land share of relief 30% of £883.21, we get £285 – 264.96 = 20.04 a month £240.48 a year.
At Basic Tax Rate 20% of £240.48 = £48.10.
In this example assuming the person is in work they will be better off; of course if they are receiving Jobseekers Allowance or Pension Credit Guarantee they will be worse off if their Council is still running the old national Council Tax Benefit scheme. You have a tax which benefits those in work and increases the tax liability on those not in work!
Michael,
see the family-resources survey https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/437481/family-resources-survey-2013-14.pdf. Figure 3.3 shows the percentage of all renters in receipt of housing benefit by age United Kingdom, 2003/04 to 2013/14 . 65% of over 65’s in the rented sector are reliant on housing benefit and council tax reductions.
The winners and losers is a quote from the linked report.
Rates was in use in this country for centuries. It is still in use for business rates and for residential properties in Northern Ireland. There is nothing particularly complicated about rates based on site value. As noted earlier, such schemes are in use in several jurisdictions around the world and some of the most successful economies. Countries like Sweden and Denmark would generally be considered more egalitarian than the UK. The UK council tax is among the most regressive of taxes and the means tested benefit schemes among the most complex of social security systems anywhere in the world.
A homeowner, employed or not, has significant wealth invested in land. The value of that land is continually maintained and increased by the taxes and economic activity of the local community. In the most valuable properties, the increases in value in recent decades will far outstrip the amount of taxes paid by individuals. The unemployed homeowner is accruing gains all the time that working age tenants are paying taxes and accruing no wealth. It is the homeowner who gains most and is given the benefit of deferring taxes until he sells or otherwise disposes of his home.
Joe,
Figure 3.3 is entitled “percentage of all renters in receipt of housing benefit by age”, therefore in 2013/14 about 65% of renter heads of households aged 65 and over (about 942 people) were receiving Housing Benefit. It tell us nothing about the number of people receiving Council Tax Benefit. What it does show is that 65% of these people aged 65 or over who pay rent do not get enough pension to pay all of their rent. Showing that if these people owned their own home there would be a reduction in the amount of housing benefit paid out to landlords.
Table 3a shows that 75% of people aged 65 or over either own outright their home or still have a mortgage on their own home, leaving only 24% (sic) in the rented sector. It would seem reasonable to conclude that about 65% of retired home owners also receive Council Tax Benefit. This would mean that about 75% of the pensioners receiving Council Tax Benefit are home owners and only about 25% are renters (which was my point).
I don’t think you will ever convince me or the 75% of people over 55, or the 70% aged between 45-54 or the 60% aged between 35-44 that a LVT on their homes is a good idea which takes no account of their income, but rolls up the tax for payment as a death tax when they die. As a liberal I think everyone should own their own home because once paid for it gives them some financial security and greater choice about what work they do. Also as a liberal I believe that everyone who owns assets should not pay inheritance tax on the value of their assets below £650,000. Someone who owns a semi-detached house in London should not be considered wealthy enough to pay inheritance tax. I don’t recall Liberals ever being anti-property, they were anti-landed-gentry who could live entirely from rental income (i.e. the landowning class, not (historically) the middle class who owned the home they live in or now the majority of people [64%]). Of course as the older generation dies out those who inherit their homes may well turn into owners of homes for rent and these homes for rent could be treated as commercial land and not residential and pay a LVT.
Michael,
statistics were published annually for housing benefit and CTB to 2013. The great majority claiming CTB benefits were also claiming council tax benefit. https://www.gov.uk/government/statistics/housing-benefit-and-council-tax-benefit-caseload-statistics-published-from-november-2008-to-present i.e. CTB is principally a benefit to renters and a much smaller number of homeowners.
LVT is based on the rates scheme that was originally brought in under the poor laws, so that local communities with land would contribute to the maintenance of the landless poor. The biggest areas of expenditure in most council budgets today are adult social care and children services.
The system of tax and investment in the UK is such that the benefit of much of the public investment that is made finds its way into land values. Those without homes(and their numbers are increasing rapidly) do not benefit from these increases in housing wealth and yet are asked to subsidise the very services that push land values ever further beyond their reach.
Liberals have understood this down the ages and see LVT as a means by which Libdems can live up to the commitment in the constitution ,that no one shall be enslaved by poverty.
LVT does not penalise work or savings. It simply collects from those who claim ownership of land and/or other natural resources, the accumulated value which accrues to a site through the efforts of citizens and the public investment that generates demand for a location
Joe,
I wonder if home owners are reluctant to claim Council Tax Benefit because they like you think it is principally a benefit for renters.
In February 2013 there were about 2,176,310 aged 65+ households receiving Council Tax Benefit 36.86%, but there were 1,289,950 aged 65+ households only receiving Housing Benefit, so about 40.7% of households aged 65+ are not receiving Housing Benefit and the majority are likely to be homeowners.
You seem to be happy that about 1,440,210 households including about 886,360 pensioners ones should have a debt attached to their home for payment on their death. I am not, one is one household too many.
Councils provide services for people not land, therefore while some infrastructure does increase land values lots of Council expenditure is the provision of services for those who live in rented accommodation and those who live in the home they own (or part own).
I don’t think the old rate system (revised in 1925) was popular. I think that like Council Tax today it was paid by the resident in the home and not the landlord.
Liberals should not be seen as against the owning of one’s own home and the right to leave it to whoever they want without the state forcing them to sell it to pay the dead person’s land tax.
Michael,
this paper from Birmingham university http://www.birmingham.ac.uk/Documents/college-social-sciences/social-policy/CHASM/briefing-papers/2012/briefing-paper-temp-wealth-tax-sept2012.pdf makes the following points around taxation of wealth:
… only 4% of those who were retired in 2010 had both an income below the official poverty line (below 60% of median income, equivalised for different household types) and housing equity over £100,000… Moreover, the Liberal Democrats have suggested that where there are any widows or widowers who might struggle with the tax they can roll it up and pay it when they die.
… the Mirrlees review of taxation … argued that the government should consider replacing council tax and stamp duty with a more progressive tax proportional to the current value of housing.
The paper concludes “Whatever the challenges, the size of our current economic problems and the extent of wealth inequality in the UK suggest action is needed. The top 10 per cent own one hundred times more than the bottom 10 per cent, and the top 1 per cent own over a fifth of all wealth.
The number of retired homeowners with insufficient income to meet an LVT liability from current income is a tiny minority. There is a high degree of correlation between income and housing wealth. Of the 4% of those who were retired in 2010 and had both an income below the official poverty line and housing equity over £100,000 many would qualify for LVT exemption, as their homes would be in the bottom third of the market by land value. For those living in high value homes, the beneficiaries of the estate may choose to pay the annual LVT if they prefer to inherit the property without an accummulated debt. It is likely in these cases, however, that inheritance tax is much more of an issue for the beneficiaries than the relatively small annual LVT charges.
Joe,
The Birmingham paper talks of a tax on those with assets of over 1.3 million Euros, nothing wrong with that in principle. It also talks of the “top 10 per cent own one hundred times more than the bottom 10 per cent, and the top 1 per cent own over a fifth of all wealth”. Again nothing wrong with taxes those in the top 10%. Not a tax for the majority of the population.
Median Income was £26,300 in the year ending in 2016. 60% is £15,780. A couple’s guaranteed pension is £12,649 (only 48.1%) and according to London poverty profile just over 13.3% of UK pensioners (and 20% of London pensioners) receive the Pension Credit Guarantee this is of course much higher than using the figure for only one year – 2010. Therefore instead of talking about a small minority you should be talking of about 20% of pensioners in London and over 13% in the rest of the UK.
I don’t understand why any liberal would support a tax that means the poorest who can’t afford to pay it, have to pay it after they die. I don’t understand why any liberal would want to support a tax that affects adversely those who lack income more than those who have more income when they both own an identical averagely priced home.
There are some changes which could be made to your ideal LVT to make it acceptable to the majority of the population. I note you didn’t respond to my list of percentages of who are unlikely to support your ideal version. I don’t understand why you can’t accept that your ideal LVT needs to be modified to make it acceptable and increase the likelihood that it will be implemented. It seems it would be wrong for me to be a member of ALTER because I am not a purest. However I thank you for taking the time to explain what purest LVT supporters want.
Michael,
there are significant numbers of pensioners receiving pension credit guarantee. What the paper reflects is that of these poorer pensioners only 4% have housing equity of £100k or more. As the LVT proposals allow for a homestead allowance equivalent to the bottom third by value in any local authority area, very few such pensioners will have property that will incur any LVT liability, only those in higher value homes.
ALTER has been engaged with this subject over many years and what has come to be referred to as ‘the poor widow argument’ was rolled out by Tories against Lloyd George’s peoples budget of 1909 (It was also used an argument against the abolition of slavery) and Vince Cable’s mansion tax.
Deferment of LVT for asset rich, income poor homeowners is not the only option (there could be exemption as the numbers affected are quite small), but deferment is clearly justifiable on the basis of equity.
Thank you for your engagement with the discussion.
Joe,
The paper does not state that only 4% of pensioners have homes worth more than £100,000. It states that of those retiring in 2010 only 4% of those new pensioners had housing equity of £100,000 or more. I have stated that if your scheme had been brought in 2013 more than 1,440,210 people including more than 886,360 pensioners would have a debt attached to their home for payment on their death.
Looking at the comparison between Council Tax for a band C property in my area £1310.07 and the LVT using your system £48.10 we discover a problem. The Council has £1261.97 less income. I think a majority of properties in my borough are in this band.
If we look at a 3 bed-room semi-detached house in a new residential area band D £1473.82 (excluding parish Council Tax) the rent is £1150, house value £325,000, rebuilding costs £187,000, Land Value percentage 42.46%, 42.46% of rent £488.29, 42.46% of LHA £375.01,
We get £488.29 – 375.01 = £113.28 a month £1359.36 a year
At Basic Tax Rate 20% of £1359.36 = £271.87 which is a huge decrease from the Council Tax, the Council will have £1201.95 less income from this band D house.
It does not appear that your scheme would generate enough income. I wonder if you have actually applied your scheme to real world values?
However your scheme could easily be modified to both raise more money and ensure that no one has to pay a death tax on their averagely priced home. Firstly no one earning less than the Income Tax Personal Allowance has to pay the tax. Secondly you don’t use the LHA or rents. You work out the land value – e.g. my second example £138,000 and a Basic Income Tax payer then pays 1% = £1380, 40% payer 2% = £2760, 45% payer either 2.25 or my preferred rate of 2.5 = £3450. Also those on the Basic Income Tax rate only have to pay £1 of the tax for every £5 of earnings above the Income Tax Personal Allowance with no state Welfare Benefits counting as income. Therefore instead of my council losing £1201.95 of income on this band D house they would only lose £93.82, but make some gains on those higher Income Tax rate payers.
Michael,
from the University of Birmingham paper “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 £100,00.”
There are as the paper notes, very few people with higher value properties that have an income below the poverty line. One simple explanation for this is that those that have higher value property can draw on equity release to supplement their pension income, if they so choose. Most homeowners currently receiving a council tax reduction will be in lower value housing and will also be exempt from LVT.
The purpose of the homestead allowance is to exempt those in lower value properties, typically band A and B properties and significantly reduce the current burden of council tax on band C and D properties, shifting the tax towards higher value properties from band E and above i.e. a more progressive local tax system.
Council tax currently raises 30 billion for the exchequer. This is equivalent to 1% of estimated residential land values or 20% of imputed rents based on a rental yield of 5% of land values.
To exempt the bottom third by value of homes requires a higher charge on more expensive properties. This is achieved by applying the higher rates of income tax (40% and 45%) for the LVT charge to higher rate taxpayers who generally are the individuals occupying higher value properties. In essence, the LVT will be paid by owners of sites in the top two thirds by value in any given local authority area.
ALTER is a members organisation within the Liberal Democrats and adopts peer-reviewed position papers/pamphlets after scrutiny in committee meetings and adoption by members at its AGM. As an affiiliated organisation, motions will be submitted from time to time for consideration by Libdem members at conference.
With the housing crisis worsening year by year and other parties developing LVT proposals, I think it likely that the issues developed in the ALTER position paper https://libdemsalter.org.uk/en/article/2016/1152887/the-real-hope-for-home-ownership will form the basis of a motion next year.
If you are interested in submitting a paper based on information from your local area, it will be most welcome and add to the database of information that ALTER collects for this purpose.
Joe,
According to ALTER Lloyd George’s land tax was muddled (Geoffrey Lee). There was a 20% tax on the increase of land value when it was sold (I suppose a bit like Capital Gains Tax), a 0.208% annual tax on undeveloped land, except agricultural land and parkland. Note this tax was not levied on people’s homes so you must be mistaken that any widows would have been affected. These taxes were a failure and abolished in July 1920 and any tax paid refunded (Roy Douglas in Journal of Liberal History 73, winter 2011-12).
I have pointed out that in 2013 more than 1,440,210 people including more than 886,360 pensioners would have a debt attached to their home for payment on their death under your scheme. You state this is very few people, but I don’t agree that over 1 million is very few people. You believe that poor people will sell part of their home for an income. I don’t. I believe poor people would not want to run the risks involved. As I have pointed out your scheme works against those with low incomes, my improved scheme ensures that incomes are taken into account so those who have saved all their lives to buy their home do not have to sell it when they die to pay your LVT but just like those with a higher incomes they can leave it to whoever they want.
I have pointed out a major problem with your scheme, but you have ignored this problem. You have stated that an LVT at 1% on “estimated residential land values” will raise the same amount as Council Tax. This might be true if you forget about rents and your “homestead allowance” as my two examples show.
It appears you do not have any real world examples with real house values and rebuilding costs to provide your land values and the differences between the revenue raised from LVT and Council Tax. Now I understand why LVT was only for businesses in our 2010 and 2015 manifestos and further watered down in our 2017 manifesto to only a consideration. I would be interested in seeing examples of how your scheme works for all Council Tax bands in every region of the UK.
I am very disappointed that you couldn’t engage with my points and recognise that modifying your scheme as I pointed would make it more likely it would be implemented within the next ten years, without taking account of income and ensuring that LVT is a not death tax I expect it will be over 20 years before a majority would support your scheme, assuming that by then less than 50% of people own their own home.
Lloyd George’s land taxes were introduced by – Lloyd George. They were abolished by – Lloyd George.
Really sorry, Joe, but it’s time to start tackling inequality rather than making work for the lawyers with a complicated new tax. Not cutting Corporation Tax as the Tories would do is a better option to raise revenue.
Michael,
I have explained on a couple of occasions why I do not agree with your assumptions and pointed you to the research undertaken by the University of Birmingham that refutes it.
LVT is in operation in various jurisdictions around the world as noted in this paper http://www.andywightman.com/docs/LVT_england_final.pdf,
there is no shortage of experience and expertise from a number of countries in both the technical and administrative aspects of implementing LVT. The Mirrlees Review noted that: “We are encouraged by the considerable international experience of land valuation – in Denmark and in various US and Australian states, for example. A recent review of US evidence suggests that successfully implementing and administering a land value tax is feasible. ”
There has been extensive research undertaken on a cross-party basis and it is this body of work that informs the proposals put forward by ALTER.
David Raw,
Alter’s proposals are not based on increasing taxes on either labour or enterprise. They are based on a theory of value and the Law of rents that directly address poverty and inequality. This can only be achieved by a shift of taxes from income and production to wealth and capital, as Piketty clearly demonstrated in his well received thesis.
Corporations would need to pay additional tax on economic and monopoly rents derived from land and natural resources including the radio spectrum, patent royalties and rights such as landing slots at airports i.e. taxes that do not increase prices or inhibit investment.
Joe,
Perhaps you are frustrated in your failure to produce real world examples of the differences between Council Tax and your LVT on residential homes. The Mirrlees Review (https://www.ifs.org.uk/uploads/mirrleesreview/design/ch16.pdf ) states that a 0.6% property tax (Housing Services Tax) would be better, but accept it abolishes the 25% single person discount, so not so good there then. Another problem is the use of England averages. Band D is the crossover £1,439 average Council Tax rate at about the £284,000 house price. When working out winners and losers Mirrless assumes that the national Council Tax Benefit scheme still applies. This means there is still a link to income and no death tax (p 388).
The Mirrless Report has looked at property ownership and in the bottom 20% of pensioners income distribution there are 254,000 households in the E to H bands and in the bottom 20% of working age households there are 291,000 households in the E to H bands. Therefore in your scheme where these bands are the losers there are over half a million losers using your figures, some of whom need to be added to the more than 1,440,210 people I identified from your link to government figures. I don’t understand your rejection of figures you linked to. The Birmingham paper does not refute them, it just makes an assertion without any evidence behind it. It seems you are in denial about the problems and the number of losers.
The Mirrless Report also advocates a tax at income tax rates on “imputed rental income” from owner-occupied homes. It concludes that this tax is politically unpalatable and building a consensus would be a challenge not to be underestimated (p 401). It does not produce any examples of winners or losers. It appears every home-owner loses. It does not state if people have to pay it even if they earn less than the Income Tax Personal Allowance level.
It is good to see that Andy Wightman in the paper you link too states using rebuilding costs to determine land values would be simple (p 9). From Wightman’s report it seems Denmark does not use your scheme but taxes the value of land not rents (1%, 0.6-2.4% and 3.9%). It is the only country where Wightman gives rates. Wightman also points out it would take six years before it could be implemented and 10 years for full roll-out. He has the comparison rate of 1.83% on the land value, again not your scheme including rents and LHA, unfortunately he does not include any ability to pay, and he wants a death tax.
10 days ago I was neutral on LVT on residential land and have in the past asked for examples. Now that you have explained what I assume is the preferred ALTER scheme I know I can’t support it. I have explained what would be needed to make LVT on residential land acceptable to me and the majority of the population who could be persuaded. I am saddened that your position is like a fundamentalist position which cannot cope with compromises and amendments because you have to stay true to “cross-party basis research” rather than something which we could get a majority of people to support.
@Michael BG
I think that Joe, by introducing the homestead allowance, is trying to make a silk purse out of a sow’s ear. At least, he lives in London and understands that there are special circumstances that give rise to higher land costs throughout London (not just in its expensive heart near the Thames). Unfortunately, ALTER-Ultras like Tony Vickers, who live in the countryside, do not seem to care about Londoners as this quote reveals:
“As a national tax, LVT would level the economic playing field as between rich and poor regions: it would fall much more heavily on London and the South East than the North”
(https://libdemsalter.org.uk/en/article/2012/0566443/baby-steps-to-wealth-tax-by-dr-tony-vickers-hon-sec-professional-land-reform-group)
ALTER needs to remember that London is represented by over 70 MPs in the Commons and they will not blindly vote to make their electors much poorer. London already raises far more in taxes than is spent on London; loading yet more taxes on to the capital will simply kill the goose that has been laying the golden eggs for the rest of the country. There is a good case for taxes on wealth, but these should not be restricted merely to the value of the land that one’s house stands on, just because it is easy to collect and difficult to evade.
Sadly, policy-makers in the Lib Dems and its pressure groups do not seek out “critical friends” who ask awkward questions like “How would you respond to another Party slamming this as a ‘widow’s tax'”. We need to remember that, in the last election, the Tory proposals for limiting the amount of a person’s assets that could be spent on care were described by our own Party as a “dementia tax” and “May & Co, selling your home to pay for your care”. We shouldn’t expect other Parties to hold back if we introduced any contentious policies in our manifesto, which makes it essential to have a good defence to such accusations before they are tested in the public arena. It is too late to wait until an election campaign is underway before thinking up new responses when another Party skewers one of your manifesto policies.
Michael,
The Joseph Rowntree Foundation commissioned a detailed study specific to Council Tax https://www.jrf.org.uk/report/after-council-tax-impacts-property-tax-reform-people-places-and-house-prices
The report concludes:
“Ability to pay the tax from current income is often seen as a key test of fairness. Taking this as our starting point implies a shift away from property taxation and towards local income tax. There are, however, good social and economic reasons for ensuring that the tax base is diverse. In particular, property value taxes create desirable incentives when housing is scarce. They also tax a resource (housing wealth) that is often unearned. However, it is practically, politically and ultimately ethically important that a property tax must also have regard to current income.
The answer may lie in the design of a property tax, shifting its emphasis away from the value of the capital asset towards the ‘imputed’ income that it may yield. Such a system existed in principle in the form of the old ‘Schedule A’ tax that taxed the rental value of property. It was abolished in the early 1960s after it had been allowed to wither in much the same way as the current Council Tax system. Some form of hybrid property and incometax might be developed from this idea. For example, the weight attached to
measured property-related income might depend on current income. The attraction of such a hybrid tax would be that the income element would be inherent to it, rather than a separate corrective mechanism, as has been the case with the rebate schemes operated alongside the rates and Council Tax. However, such a hybrid income and property tax would itself need to be carefully designed and tested. It is to the practicalities of design and implementation that efforts should now focus.”
This is precisely the direction that ALTER’s position paper prepared by Tony Vickers takes.
Laurence,
there are circa 27m households in the UK split between rented housing (about 37%) and owned 63%. Of the owned property, DCLG data on council tax indicates that approximately 2/3rd are in bands A-C. London has the highest proportion of renters vs owned property and large numbers of owned properties in the A-C band. Shifting taxes to landowners takes renters out of council tax assessment and the Homestead.
Allowance tales most properties in the A-C bands out of assessment. By basing the homestead allowance on the Local Housing Allowance the relative average values in each local authority are taken into account.
London in particular has both the highest number of voters that will benefit from reform of property taxes and the highest number of high value properties that will pay greater levels of tax on imputed rents. This is particularly the case with high value properties owned by overseas investors and large scale buy-to-let investors.
Tax policy needs to balance equity with efficiency and desired incentives. There is a small proportion of Asset Rich, Income Poor landowners that Tories will always focus on, but these are less than 1% of households.
The inequality issues that need to be dealt with are the burden of a regressive council tax system on low income groups in the rented sector and low value housing and the lack of affordable housing . Reforming council tax to an LVT base addresses both of these issues in placing the charge on owners of higher value housing. The small numbers sitting on valuable property with low current incomes are incentivised to either downsize or rent out much needed unoccupied rooms. If they choose not to reduce their expenses or increase their income then they have the option to defer taxes until the property is sold or bequeathed or look to their heirs who will benefit from the estate to meet the LVT annually. It is the case, however. that inheritance tax is likely to be a more significant element in these cases rather than any rolled-up LVT.
Labour has also proposed an LVT – ludicrously denounced by Tories as a garden tax. Tories have proposed funding social care from property, so are hardly in a position to criticise modest measures aimed at tackling regressive taxes and housing inequality.
Michael,
The standard Council Tax Charge is based on 2 adults living at the property. There is a 50% property element, and a 50% personal element. (25% for each of 2 countable adults). Discounts are available dependent on the number of countable resident adults in the property. If you live in a property on your own, you are entitled to a 25% single person discount on the amount of Council Tax that you pay.
The single person discount is a major element of council tax discount. This accounts for the great majority of council tax benefit claimants not also claiming housing benefit. It does not mean they are lower income households. Th single person discount is no longer required with the abolition of Council tax and is replaced with a homestead allowance.
Alter’s development of proposals for a ‘homestead allowance’, includes the ability to transfer unused personal allowance e.g. a widow who’s sole income was a state pension of £8,300 and a personal allowance of £11, 500 would have an used allowance of £3,200 to use against notional rents, in addition to the homestead allowance. As a consequence it is only those lower income groups in the higher bands from F upwards that are likely to have any LVT liability at all i.e. less than 1% of UK households.
As noted in my reply to Laurence, the small numbers sitting on valuable property with lower incomes that are not already exempted from LVT, are incentivised to either downsize or rent out much needed unoccupied rooms. If they choose not to reduce their expenses or increase their income then they have the option to defer taxes until the property is sold or bequeathed or look to their heirs who will benefit from the estate to meet the LVT annually. It is the case, however. that inheritance tax is likely to be a more significant element in these cases rather than any rolled-up LVT.
Joe,
The Joseph Rowntree Foundation study you quote ends with “However, it is practically, politically and ultimately ethically important that a property tax must also have regard to current income.” This is my point. There must be no death tax on the poorest of home-owners, in the same way as we don’t advocate inheritance tax on the poorest of home-owners now.
Why is fair for someone with an income of say £7,800 not to be allowed to leave their home to whoever they wish tax free, while someone with an income of say £18,000 can, when the home is worth the same amount of money?
The number of homes inherited has increased because the number of owner-occupiers increased. This should not be seen in itself as a bad thing. The idea that people should not be able to leave their averagely priced home to their children seems illiberal to me. The attack on property ownership seems like Communism and is a movement towards all the land being held by the state. Liberals have always been concerned with power. If one’s grand-child inherits one’s home when one dies, it doesn’t give them any power, especially if the grand-child can move out of rented accommodation into the ex-home. It does mean there is not a level playing field but again liberals accept that some people rent, some are owner-occupiers and some are renters. A mixture.
You still have not addressed the problem that when you give an allowance equal in proportion to the LHA the tax fails to raise the same amount of money as Council Tax. Also you are giving benefits to people not based on their incomes, which I believe is unfair.
You don’t need to replace Council Tax with LVT to tax properties owned by overseas investors and large scale buy-to-let investors, you could just treat such property as businesses and apply the business LVT to them.
Joe,
You are wrong the single person discount is not counted as part of Council Tax Benefit because it is not related to ability to pay. Also it is still set at the national and not the local level. My council writes to me at different times of the year for me to claim each one with a separate process. Do you have any evidence that Councils count people in these separate groups as one group?
You have stated there are about 27 million households in the UK. I have pointed out that in 2013 there were about 1,440,210 owner-occupied households claiming Council Tax Benefit (not just the single person’s discount) which is 5.33% of households. The Mirrlees report states that there are 545,000 households in bands E to H in the bottom 20% income distribution which is double your 1% estimate. You have referred to where the figures are but you seem to be in denial about the number of people who will be adversely affected.
There is a case to be made that Council Tax should be reformed into a percentage of the value of the home to address the fact that the lower the value of the home the higher a percentage of it which is taken in tax, however I expect the single person discount would have to continue along with the local Council Tax Benefit schemes.
The bedroom tax shows how unpopular taxing empty rooms is. I am not a believer in taxing people to change their behaviour, it is too much like using a stick; I prefer a carrot. It also seems illiberal to me, because it affect the poorest more than the richest.
If ALTER accepts that some people who have earnings less than £11,500 pa do not have to pay LVT it seems unfair to those in larger properties for these people to have to pay your death tax.
Michael BG,
Inheritance tax is paid on the value of the estate. If you bequeath a property valued in excess of the nil rate band, the estate will be subject to inheritance tax. Few people would consider the owner of a £1 million pound + property as the poorest of home-owners.
It is not for the state to decide what an individual wishes to do with their assets. All that is asked is that an individual contribute part of the land value that has been created by the community collectively in taxes.
People will be able to leave their average priced home to their children. As will those in high value properties (it is the aim Alter to see inheritance tax on residential properties abolished).
The LVT will likely raise more than the current level of council tax. While renters and lower value homes occupied by homeowners are exempted, all land held by landlords (rented or held for development) will be brought into assessment regardless of the value.
I agree that buy-to-let investors can be treated as businesses. We can do this by applying business rates on a site-value rating basis to let property. This will address the issue that such businesses do not currently pay national insurance on their self-employed earnings in the way that earned income does. Small Landlords would be eligible for small business rate relief in the same way that other small businesses are.
Michael,
I am not much interested in jibes like ‘Death Taxes’ put out by the Daily Mail or the Tory Press. LVT is about social and economic reform. Precisely what Liberals and Social Democrats have stood for over the ages. The Poll tax was a unholy disaster and its bastard offspring – the Council tax – is not much better. It is Poll tax on the poor made eminently worse when even the landless poor relying on food banks and benefits for support are having the pay the tax from the meagre incomes.
These reforms will take all tenants out of council tax and greatly reduce the tax on homeowners in the lowest value properties in their local area . It places the burden of taxes where it should be, on the owners of land.
In my area of London the taxes would be as follows:
1BR 2BR 3BR 4BR
House Value 400,000 657,000 807,000 1,100,000
Land only rental value 9100 12854 14885 25775
LHA (land rent element)6323 9571 11420 14785
Taxable Imputed rents 2778 3282 3465 10990
Council taxBand B C D E
Council Tax 1091 1247 1403 1715
LVT (Basic rate taxpayer) 556 656 693 2198
LVT for Landlords (46.6) 1294 1530 1615 5121
All homeowners through to Band D would see a reduction in rates with a relatively modest increase for Band E and above. Landlords with more than 1 modest property would pay significantly more than the current level of council tax on the property.
Homeowners on low incomes with unused personal allowances could offset this amount against their LVT. In the example of the pensioner with £3.200 of unused allowances she would pay no tax on a 1 or 2B/R home, £265 per year on a 3B/R home valued at £807,000 and £1558 on a large 4B/R home valued at £1,100,000. She could choose to defer this tax until sold or bequeathed if she wishes, in which case she may have an accumulated debt after 20 years of £5,300 on an £807,000 home or £31,160 on a £1,100,000 home.
We don’t have to be bound by the ravings of the Tories, Michael. There is no reason why these kind of reforms would not be electorally popular with so many of the under-privileged relieved of the burden of this regressive tax; and the ability for those few in very high value homes and low incomes to defer what is already a modest tax until sale of transfer.
Joe,
I am glad we can agree that we could treat property that is rented as business property and apply a business LVT to it.
I note you have failed to give all the relevant numbers for your examples, which makes them meaningless as evidence. They don’t agree with my examples below. Note 4 bedroom LHA is £21,685.04 (https://www.hounslow.gov.uk/info/20072/housing_benefit/1255/local_housing_allowance/2
) therefore your part figure of 25775 must be wrong.
There are two issues, firstly is your version of LVT liberal, which I have concluded it is not, and secondly would your version of LVT raise as much money as Council Tax, which based on my Hampshire examples I do not believe it will. After all we should not consider a tax because it only works in your part of London. My examples below question if it would work in London.
My version of LVT is liberal because it treats people with the same income the same and there is no advantage for those who have a greater income and as the Joseph Rowntree Foundation recommends we should have regard to current income.
I note you didn’t answer my question:
Why is fair for someone with an income of say £7,800 not to be allowed to leave their home to whoever they wish tax free, while someone with an income of say £18,000 can, when the home is worth the same amount of money?
A one-bedroom flat in Chiswick Village costs £400,000 (https://www.zoopla.co.uk/for-sale/details/44854123?weekly_featured=1&utm_content=featured_listing#vjMi1oH9zVXwUck9.97) Council Tax is £1247 (band B), rebuilding costs £103,000, LHA £243.18 a week £12645.36 a year, rent £1325 a month, £15900 a year (https://www.zoopla.co.uk/to-rent/property/london/chiswick-village/). Percentage which is land 74.25%
74.25% of rent £11805.75, 74.25% of LHA 2166.73
£11,805.75 – 9,389.18 = 2416.57
20% of £2416.57 = £483.31
A three-bedroom semi-detached house in Munster Avenue costs £545,000 Council Tax £1715 (band E), rebuilding costs £180,000 LHA £354.46 per week, £18431.92 per year, rent £1,700 a month, £20400 a year. Percentage which is land 67%.
67% of rent £13,668, 67% of LHA £12,349.39
£13,668 – 12,349.39 = 1318.61
20% of £1318.61 = £263.72
A band E property has a gain of £1451.28.
A four-bedroom detached house in Balfour Road costs £900,000 Council Tax £2338 (band G), rebuilding costs £233,000, LHA £417.02 a week, £21,685.04 a year, rent £2200 a month, £26,400 a year. Percentage which is land 74.11%
74.11% of rent £19,565.04 74.11% of LHA £16,070.78
£19,565.04 – 16,070.78 = 3494.26
20% of £3494.26 = £698.85
A band G property has a gain of £1639.15
I couldn’t find a band G property for sale.
I couldn’t get an examples of losers under your scheme, which is a huge problem for your scheme. The higher the band the more they gained in my examples.
Michael BG,
you are not reading the rows correctly. The 4 b/r average rental per local estate agents is £37,804. The land % in this case is 68.18%. Applying this % to annual rents gives the land only rental of £25,775. The 4 B/R LHA is 21,685. Applying the land % of 68.18% gives an LHA land rent of £14,785.
The process is rather simple. The Land rental value across the UK is approx. £150 to 175 billion. A minimum two thirds of this value will be assessed on Landlords and homeowners to recoup 30 billion+. Landlords (who account for about 37% of the housing stock) will be assessed at the business rate (46.6 to 47.9%). Homeowners will be assessed on the taxable imputed] rents at their marginal rates of income tax i.e. 20%, 45% or 45%.
Liberalism has its roots in moral philosophers such as John Stuart Mill. “The tax upon Land Values is, therefore, the most just and equal of all taxes. It is the taking by the community, for the use of the community, of that value which is the creation of the community.” Mill, Political Economy (1848).
Paradoxically, I find the arguments for LVT put forward by the Labour Mayor of Manchester far more persuasive then the kind of arguments you have put forward here https://www.theguardian.com/commentisfree/2010/aug/26/land-value-tax-labour-party. I also find myself in agreement with the Conservative Mayor of Cambridge when he lambasts the condescending attitude of those in his party and elsewhere to the difficulties the younger generation are experiencing in the housing market. I also condem such complacency whether is labelled as Liberal or not.
Regarding deferral this is the system used in Denmark for those over 67. Both the homeowners have equal capital gains income in addition to their cash income. The homeowner with sufficient cash income to meet the LVT on an annual basis can pay as you go. The low income homeowner can defer until the gain is realised.
Michael,
taxes assessed on lower rental value properties will of course be lower unless they are rented in which case the Landlord will be paying business rates on the rentals.
You need to look at average rentals, not simply the lowest you can find which are at the lower end of the market e.g. https://www.foxtons.co.uk/living-in/kew/rentals/
The average rental for a 3B/R in Kew is £807 per week. Around 50% are owned by landlords and will be subject to business rates, the homeowner demographic is principally higher rate taxpayers i.e. 40% taxpayers.
In London there is a wide variation in property values. This is one of the key reasons why rents and not property values are the basis for assessment. Increases in rents are more closely correlated with incomes than property values.
Michael,
as regards the historical record of the 1909 Peoples budget and the debate on LVT there is record here of Winston Churchill’s Speech in the House of Commons, 4 May 1909, in response to Mr AJ Balfour, Leader of the Opposition, that may be of interest: http://web.archive.org/web/20010728120002/http://home.vicnet.net.au/~earthshr/winston.html
“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…”
Joe,
You are correct I did read your table incorrectly.
You seem to think that I picked my examples to present a case. I did not. I just looked up different house types for sale and then looked them up for rent. I don’t know Hounslow and which parts are the expensive parts. I am surprised that you are just ignoring my evidence.
Kew is not in Hounslow, so why would I look at house prices and rents there when you provided Council Tax rates for Hounslow?
No 48 Stephens Road (https://www.foxtons.co.uk/rental-property-in-hounslow/chpk0142039) 5 bedroom semi-detached, Rent £2500 per month Council Tax £2338 band G, Assumed value £900,000 (No 50 £888,000 https://www.zoopla.co.uk/house-prices/hounslow/st-stephens-road/?st=EORST&pn=2) Rebuilding costs £255,000 Percentage which is land 71.67%
No LHA for 5 bedrooms using 4 bedroom 21,685.04 a year
71.67% of rent £21,501, 71.67% of LHA £15,670.67
£21,501 – 15,060.67 = 5830.33
20% of £5830.33 = £1166.07
A gain of £1171.93.
Can you provide any real examples where at 20% there is not a gain (please provide links as I have with the roads)?
Can you provide a band H example?
You could just concede that your scheme at 20% Income Tax rate for owner-occupiers results in everyone paying less that the 100% Council Tax.
I do not object to the principle of LVT for residential properties, I object to what you state is the ALTER scheme. I have pointed out how LVT could be liberal by including the ability to pay and not collecting it on someone’s death.
Andy Burnham talks about “protecting people’s savings and homes”, and then talks of taking 10% of everyone’s home and savings in tax when they die. I did concede that if you don’t believe in people owning the land you could argue for the state to own all the land, but I am not aware of liberalism being against the ownership of one’s home; it was always concerned about controlling power.
I still note you haven’t answered my question.
The 1909 land tax was on undeveloped land and not all owner-occupiers. As I said widows being taxed on their homes was not included in the 1909 version.
Michael,
I already gave examples above. The 4 B/R in Brentford, Hounslow in band E has a council tax of £1715, Homeowner LVT @ 20% of 2198, Homeowner LVT @ 40% of £4396, or Landlord rate bill of £5,121.
In nearby Kew, the average rental for a 3B/R is £807 per week, the LHA is £337 per week – a difference of £470. At a 70% land value, taxable rents are £329 week. At 20% LVT i.e. £65.80 per week or £3,421 per year compared with Band D council tax for the area of £1638.
Liberalism is not against the ownership of one’s home, it is against landowners excluding the right to affordable housing to the less privileged. You cant grant everyone a equal piece of land,but you can ensure the tax system treats those who do not own homes fairly and captures part of the benefit of increases in land values for the benefit of the community that creates the value.
Why do you think Churchill was making the point to Balfour in Parliament, Michael?
Michael,
If you are looking at different regions across the UK you need to take into account the demographics.
Students can clam exemption, so too can many tenants on benefits claim reductions. These tenancies will be brought into assessment on landlords. Homeowners with second homes will be brought into assessment – these are not currently recorded as part of the rented sector and will not have a homestead allowance. As the model is developed and refined, further decisions will have to be made. For example :
– whether to assess Landlord business rates on land rents net of an HA on the property or without any HA allowance
– whether to have a property service charge for rubbish collection in the same way as there is for commercial properties.
– whether to base the homestead allowance on 1/3rd land rents or the LHA land rent element of the local authority.
Joe,
I have pointed out that Churchill’s speech is not relevant to our discussion regarding owner-occupiers and only owner-occupiers. Was I not clear enough?
Please can you give the road and a link to this 4 bedroom house in Brentford in band E, which is worth £1,100,000 and is for rent at a much higher rent than £2,148 a month (I couldn’t find one)?
Please give Hounslow examples with the road and links to the asking price and rents.
It still seems you do not have evidence you can provide the links to.
As I have stated I have identified a “fair way” to tax land values.
Please can you focus your points to owner-occupiers only?
To give a standard third discount might make your scheme raise the same amount as Council Tax. We would need to look at real world examples. It would adversely affect those people with low incomes and high rental valued homes even more, making it even less liberal.
Michael,
Churchill was berating Balfour about the poor widow argument for a reason., Michael. The 1909 budget was a precursor to the proposed introduction of a wider Land Value Tax regime encompassing residential landlords and homeowners, following the completion of Land Surveys and Valuation. The delays in completing the work and the interruption of the great war followed by the Tory dominated coalition government saw its eventual withdrawal.
Average rents for Brentford are here https://www.foxtons.co.uk/living-in/brentford/rentals/.
The focus of ALTER’s proposals are on moving the tax burden from tenants to the owners of lands and from lower value land to higher value land.. This is the objecvtive and the criteria by which it will be judged.
Michael,
average house price links https://www.foxtons.co.uk/living-in/brentford/house-prices/
Alter is a collaborative effort Michael. We are fortunate in having members with significant experience and expertise in Surveying and property valuations as well as a number of members that have written extensively on the topic over the years.
We also have the benefit of collaboration with other party groups and researchers in the UK and Internationally.
As I have mentioned before, if you are interested in submitting proposals, please do, and we will take a look at your arguments and evidence base.
One word of caution, claiming to have some kind of monopoly on what is within the liberal tradition and what is not, is not going to be a substantive argument.
Joe,
You will convince me of nothing by quoting Churchill.
Averages produced by a company is not evidence, because who knows if the averages are even true or made up, how can I check the Council Tax bands, the housing costs and rents to the same property, and the building costs? As Council Tax has a link to house prices what evidence do you have that your 4 bedroom house worth more than £1,100,00 would have a Council Tax of £1715, when a four-bedroom detached house in Balfour Road costs £900,000 and has a greater Council Tax band (G – £2338)? To assert that Foxtons is sufficient evidence looks like you conceding you can’t provide any meaningful evidence to out-weigh the real life evidence I have provided. I am surprised and disappointed because I never expected your belief to be so great you would not provide checkable evidence.
As I have repeatedly stated ALTER could include the ability to pay and no rolling up of the debt for payment after death instead of the illiberal scheme you are suggesting. Instead of providing evidence that at any Council Tax band in Hounslow your scheme would raise more money at 20% than the Council Tax you just want to change the conversation. I would be interested in your providing named roads with links to asking price and rents to back up your case. Please can you let me know why you can’t provide them, as I have provided four?
Michael,
it is not my intention to convince of you anything in particular, merely to make libdem members aware of the work of ALTER to promote LVT and the broader arguments for Economic reform. This article, the links therein and the response to comments are in furtherance of that aim.
ALTER has published a position paper https://libdemsalter.org.uk/en/article/2016/1152887/the-real-hope-for-home-ownership focused on the housing crisis which will be the subject of ALTER’s cross-party fringe presentation at the Bournemouth conference this month.
The paper outlines the broad parameters of an implementation program based on prior research. Specifically relating to housing and taxes that householders pay, the following features are seen as essential if we are to make LVT politically acceptable to a “home-owning democracy”.
1. A tax-free element or Homestead Allowance (HA) should apply to owner-occupiers, in recognition of the basic human right to shelter.
2. There must be no exemption for social housing but any form of non-profit rented housing should attract lower tax rates than market for-profit renting, since affordable housing is a valid charitable purpose.
3. Owner-occupation should be treated like ‘notional’ or unearned income, assessed for tax purposes on the basis of what the owner could have earned in rent. Thus LVT could be merged with income tax.
4. There should be an option for home-owners to defer payment of the tax
until death, sale or re-mortgage, i.e. when there are funds to pay it.
These are the broad parameters from which we will develop a model and costings for replacement of council tax (and potentially stamp duty and inheritance tax on owner-occupied property). Details of how much the HA allowance will be; whether to assess Landlord business rates on land rents net of an HA on the property or without any HA allowance; and whether to have a property service charge for rubbish collection in the same way as there is for commercial properties; will be consulted on as we move forward with development. The essential elements, however, of the basic framework are in place and deliverable.
Joe,
“Alter is a collaborative effort Michael. We are fortunate in having members with significant experience and expertise in Surveying and property valuations as well as a number of members that have written extensively on the topic over the years.”
Does this mean you have faith in the experts of ALTER and therefore believe there is no reason to present evidence that can be assessed by ordinary people?
I do not claim a monopoly on what is liberal I have a view. I have set out my view and asked you to respond to a question. I will repeat it in case you have missed it the two previous times I have asked it:
Why is fair for someone with an income of say £7,800 not to be allowed to leave their home to whoever they wish tax free, while someone with an income of say £18,000 can, when the home is worth the same amount of money?
I hadn’t realised that you were posting as Chair of ALTER who can just present the ALTER scheme and declare your faith in it, rather than being your normal self who wants to engage with the evidence. If you are just “preaching” the ALTER line, then you are unlikely to persuade many people.
If you are not willing to provide checkable evidence of examples from Hounslow that include roads and internet links to the asking price and the rent of the property then perhaps you can present to ALTER that using LHA, real rents and assuming a 20% tax rate means everyone will be gainers if they are 100% Council Tax payers with no CT benefits but it will not raise the same income level as Council Tax. There seems little point in pointing out that not ensuring that the old national Council Tax Benefits will apply (or some similar see above) means that some people on low incomes will have their liberty to leave their home tax free restricted compared to those with more income under the ALTER scheme because it seems clear that ALTER by supporting rolling up payments until someone dies they are not interested in this illiberal effect.
Michael,
property expertise is relevant. Actual rental yields will vary quite significantly by region and by type of property from the national average of 4% – typically from around 2% on high value residential properties to 10% or so in HMO’s and and multi-apartment conversions.
I have previously indicated to you that everyone will be able to leave their home to whoever they wish, and if there is any tax debt it will be a small fraction of the estate value. Recent research indicates there are less than 41,000 homes available under £250,000 in the UK and less than 2,,000 such properties on the market in London https://www.landlordtoday.co.uk/breaking-news/2017/2/britains-highest-yields-the-best-areas-for-buy-to-let
There are various implementation models under consideration. In Scotland, Land reformers are pursuing a slightly different approach that would be presented as the value of your property in land and the buildings which are built on it. The argument is that for the vast majority of people the land value of their house really means the value of their house. You’d then start valuing land in the same way as a house and taxing it on the same basis. They believe that this can enable a virtually automatic revaluation using algorithms, Zoopla style. They are working with an academic on the algorithm part of it.
Joe,
Your quoting landlordtoday is meaningless as it doesn’t state what percentage of the few homes for sale the 41,000 is. It could be 50%.
Again you haven’t answered my question. Just because it affects say about 20% of the population does not make it any less unfair. It still wouldn’t be fair even if the number affected was less than 1%. Even if the unfairness was only one pound it still would be unfair.
Relevant experience is not the issue, the issue is your failure to give an example of a real house in a road in Hounslow that would pay more LVT under your scheme than under the Council Tax and to include the links to the selling price and what it can be rented for so the information can be verified by me. There is now another question that you have failed to answer, “Please can you let me know why you can’t provide them, as I have provided four?” As I have said without the ability to verify the information you are asking it to be accepted on trust or faith. I am not aware of any other new policy idea where those advocating it want us to accept what they say without providing the evidence.