Would-be Prime Minister Liz Truss agrees with the Homes & Planning Working Group (HPWG) about scrapping the top-down national housing target! “Cakeism”? Could a Sunak Government spend more while cutting taxes?
It depends what taxes are cut – and how. Perhaps there is a way, which today’s politicians and their advisors have ignored. From John McDonald to Milton Friedman (with David Ricardo, Adam Smith and Vince Cable as classical Liberals) some have supported: the “Tax Shifting” way.
Our traditional taxes are almost all “welfare negative”: causing a huge “deadweight loss” of real growth. Taxes on earnings, dividends, profits and most transactions such as house sales (“Stamp Duty Land Tax”), fall on those parts of the economy that create wealth and prosperity.
However, it is those who simply hold title to the passive element in human activity – what economists used to call “Land”, i.e. everything not made – who are the main beneficiaries. Land exists in finite quantity and without it Labour and Capital cannot operate. The growth in national wealth since the 2008 financial crash has, according to ONS figures, gone almost entirely into inflating land values.
It is this deadweight loss that keeps the poor in poverty and causes inequality to grow unless governments act: corrective action including ‘progressive’ taxation which is unproductive. This is unintelligent and wholly unfair.
We Lib Dems have traditionally understood this. Hence our policy of Land Value Taxation (LVT).
For Liberal Democrats in particular to expect HPWG to produce a sound comprehensive answer to the quandary set by Conference last year while excluding reform of tax policy from its remit was disingenuous at best. Every single expert witness mentioned “the land question” as a key to the housing crisis. So, ALTER blames the Federal Policy Committee (FPC) for the situation it now faces – a working group paper it commissioned us to produce which FPC has refused to allow Conference to debate.
All the property taxes we have make the land and housing markets dysfunctional. To ignore this is like allowing a bull to remain in a china shop! By setting a national housing target that is not based on a series of analyses of local housing market factors endorsed through independently assessed Local Plans, we just “feed the beast” which is land speculation. A worthy aspiration without tax policies that allow it to be fulfilled just makes our councillors scapegoats.
ALTER has published one answer to the dilemma: how to reform Council Tax without losing the votes of the asset-rich but income poor older voters who swing elections under FPTP. We call it the Homestead Allowance (HA).
Put simply, HA is like the income tax allowance used in PAYE: a ‘bottom slice’ of earnings wholly retained, above which earnings are taxed. Our HA and income tax allowance would be transferable, because LVT could be collected through PAYE, as happens with Sweden’s property tax. Thus income-poor homeowners would benefit (compared to Council Tax or LVT without HA) in proportion to the local housing rental cost where they live, i.e. HA would be far higher in Westminster and Workington.
HA could also work with the Proportional Property Tax (PPT) promoted by the FairerShare campaign. With both PPT and LVT, the tax is paid by owners not occupiers. Owners of multiple homes reduce could their tax liability by offering a share the equity in their homes to tenants: a route onto the housing ladder!
The All Party Parliamentary Group (APPG) on Land Value Capture (LVC) has commissioned a study into how LVC could help tackle the current cost of living crisis. This will compare the effect on poorer income groups of replacing Council Tax with PPT, or LVT, or what the Institute of Fiscal Studies’ Mirrlees Report in 2010 recommended, splitting it into two components
- A land value element which would convert to a tax paid by the owner to the Treasury for use to redistribute wealth between local authorities;
- and a building value element treated like a transaction tax paid by occupier direct to the local council for carrying out services.
Conference was promised in 2013 a “full-scale review early in the next parliament” to look at “how [LVT] might best be implemented”. This never happened. We need it now, possibly as part of an updated remit to the HPWG, so that we have a credible policy on housing and local government finance at the next General Election.
LVT is “welfare neutral”. It can have no drag on the real economy. Of itself it incentivises construction and home building where the Local Plan policy wants it to happen. It penalises land speculation and cannot be evaded because land cannot be moved offshore.
We cannot go on like ostriches burying our heads in the sand any longer. Most voters understand that tax must act fairly and efficiently. Without making LVT a major plank in our manifesto, our housing target is simply not credible.
* Cllr Dr Tony Vickers is Vice Chair of ALTER and has been West Berks Council Lib Dem Spokesperson on Planning & Housing for most of the last 20 years. He is also co-author of several research papers for Government on aspects of planning policy.
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6 Comments
One of the local Housing Associations is still letting homes to some in a very run down condition. Not everyone is lucky enough to have a decent home.
As a Power Wheelchair user, I have learnt that there are not many suitable units being built that can house those in this category.
Ive waited 7 years, many are waiting 10 years or more.
I think it is time for some honesty, this is the reason I am a member of several steering groups.
I think it will bring some very difficult choices as Local Authorities struggle with the long lists and constant top up of further needs.
Ostriches don’t bury their heads . They sometimes hold them low to avoid detection, which makes sense.
Council tax on an average Band D property is running at over £2,000 per year across mosts parts of England. Reported rent increases in the private housing sector are running at18.% across the UK and annualised rental growth in Greater London is said to be 27.6%
Eye-watering rent rises as increasing inflation grips the UKAs Tony Vickers writes in his article “Every single expert witness {to the HPWG] mentioned “the land question” as a key to the housing crisis. The Land question and thus poverty can only be addressed by collecting excess rents from land and natural resources for the public benefit. This applies equally to excess rents from residential and commercial property, oil and gas deposits and interest earnings from loans secured on land.
The experience of rent controls is that they only serve to restrict supply of new rental property. The housing market is a rigged game in which the main beneficiaries are land speculators, private equity landlords and the financial institutions generating excess returns on inflated mortgage loans.
The
The Case for Shifting Taxes onto Land was examined in a recent discussion by four US based economists Post-Corona Balanced-Budget Super-Stimulus. The expected benefits for public welfare are highly significant.
Thanks Tony. I had always been a bit of an agnostic on the need for a LVT but that is as good an explanation of the need for land tax reform as I have read. I am converted !
The wealth gap is already too large, and it’s growing. That mattered less when most people were getting richer, but it could be very dangerous now that a lot of people, especially those on the lower rungs, are getting poorer. It’s crystal clear that a wealth tax is needed, and most Lib Dems would agree, especially while we are not in power at Westminster and can signal our virtue without it costing us anything.
The idea of a Homestead Allowance does make a tax on wealth more palatable, but the painful truth is that Lib Dems tend to be wealthier than average and when it comes to reforms would echo St Augustine – please God, make me virtuous, but not yet. I think a particular problem area is inheritance. We might believe in equality of opportunity, but most of us want to give our own kids advantages if we can.
The ideas in your article are good, but my questions, Tony, are how do you sell these wealth tax ideas to Lib Dems? And then how do we sell them to voters?
Andy Daer. You say “most of us want to give our own kids advantages if we can.” Sure – but what “advantages”? We are ruining our economy, our society and our environment by relying on taxes that are “welfare negative” and reduce the ability of people to keep what they earn. Every £ taken off earnings or profits (of a true entrepreneur) is a £ that can’t be invested or spent in the real economy! It just goes to make the wealthy more wealthy – and many of them ‘earn’ their living “in their sleep” (as Winston Churchill put it)! Instead we should pay for essential services by severely reducing opportunities extract rent, as Joe Bourke says. I don’t blame those who treat Buy to Rent as a Pension Fund – it makes perfect rational sense for the individual but poisons society. Being a landlord is a service (as the Germans, for example, treat it) but for Brits it is too easy to get away with a lousy service – as Helen Dudden says.
The best “advantage” we can give our kids is a sustainable and liberal, democratic world to live in. Don’t think of LVT as an EXTRA tax but as a means of reducing other taxes. Wouldn’t your kids like to take home more of their hard-earned wages, pay less rent to a landlord, less interest on their mortgage, see public services – from leisure centres to care homes – adequately funded and accessible to all, not just the rich?
We are living in the last English colony – I mean “English” – where the plebs don’t matter and everything is fixed by the Establishment for their own convenience. I didn’t join this Party to see us allow that to continue.
I don’t see any problem in persuading the under 50s (certainly the under 40s) of the moral and economic sense of Tax Shifting. The ‘powers that be’ will fight all the way and we have to be canny in campaigning for it. But there is no point in this Party existing if it isn’t prepared to stand up for what is an essential (but not of itself sufficient) part of creating a Liberal Democrat world.
ALTER’s Homestead Allowance deserves a chance. To work HA properly, Income Tax should absorb Income Tax and LVT would be treated like the old “Schedule A” (notional income from land rent/yr). Maybe Scotland or Jersey or IoM could try it? Sweden does something similar, which is why Ed Davey (when a SPAD in around 2002 I think) thought they didn’t have a property tax. Their system is incredible simple to administer too.