Fairer Share and local government finance

It was very disappointing that a motion calling for a Proportional Property Tax (PPT) to replace Council Tax, Stamp Duty Land Tax and “Bedroom Tax” was rejected for debate a second time at this Spring Conference 2021. It represents a big step towards Land Value Taxation (LVT), which ALTER helped Sir Vince Cable retain within the last three Tax Commission policy papers – all passed overwhelmingly. It has a much greater chance of gaining cross-party support than LVT. Under this Government, it might even see the Statute Book, since most support seems to come from “Red Wall” Tory MPs in hard-up northern regions.

It has been suggested to me by those close to PPT’s architects that it lacked support in FCC because our London MPs could lose their seats. Yet it is the same team behind PPT that promoted reform of business rates in 2018 so that land owners pay the tax based on land value (not occupier’s business value).

There are several functions that taxation performs for an economy. Raising revenue is just one. Others are to do with economic and social policy, or with correcting market failures. Economies are there to serve societies, not the other way round.

Tax can be used to help achieve a fair and free society and much else we espouse in the Preamble to our Constitution. Those of us whose homes rise in value through no effort on our part cannot sit back and feel ‘free’ while renters are denied a substantial slice of earned income through a grossly unfair tax system – and simultaneously lose hope of ever owning their own home. That’s why we resolved 10 years ago to shift the tax burden off earnings and onto wealth accumulation.

The value of land is entirely the result of that ‘real’ economy and not the efforts of those who own land. It also represents the overwhelming part of the personal wealth of those who own their own home. The tax on land value is morally, socially and economically justified. That’s why ALTER belongs to the Coalition for Economic Justice.

Liberal Democrats also believe that decisions about what society needs should be taken as close to the individual as possible, ensuring that people have maximum control over their lives through a truly democratic process. We should treat local government and the way it is financed as more important than the other parties do.

All land is local. All human activity has a physical location: even the internet relies on tangible infrastructure. Finance for local Government should not be left out of tax policy debate, which has happened in our party for the 20 years that I have spent on ALTER’s Executive. Our tax policy has been framed by working groups with hardly anyone having experience of local Government or land economics.

As we live through the most economically divisive period in modern history, the wealthy become wealthier even faster under Covid19 at the cost of the poor becoming poorer. Surely it is obvious that our entire tax system needs a reset urgently – as well as our benefits system.

PPT is not LVT and may disappoint some purists among ALTER’s membership but often in life the best is enemy of the good. It achieves much of what LVT would and brings our local property tax into closer alignment with many other countries: at present, we are almost alone in making occupiers, not owners, pay it. It results in far more winners than losers and removes much unfairness between regions and generations. The 15% of losers would be entitled to transitional relief.

We Liberal Democrats should all be at the forefront of the Fairer Share tax reform Campaign. So please study the detail and support future attempts to debate the subject of local government finance.

* Tony Vickers is Executive Member for Planning & Community Engagement, West Berkshire Council, a councillor for 20 years and a researcher on property taxes for 25 years.

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40 Comments

  • Matt Wardman 21st Feb '21 - 3:30pm

    I’m glad to see a piece on this.

    According to my numbers, as well as levelling S/N up this is also likely to be a benefit to a large majority of people except in the most expensive parts of London.

    It would be good to see a cost / benefit for some constituences. I tried a normal 3 bed semi in LD SW London territory (half million pound value ish), and there was not much difference either way – until it sold and then there was no Stamp Duty.

  • Tony Vickers Sun 21st February 2021 – 1:05 pm:
    The value of land is entirely the result of that ‘real’ economy and not the efforts of those who own land.

    Actually, it’s primarily the result of the granting of planning permission – a state monopoly.

    Liberal Democrats also believe that decisions about what society needs should be taken as close to the individual as possible, ensuring that people have maximum control over their lives through a truly democratic process.

    It’s a good job we left the EU.

  • Peter Martin 21st Feb '21 - 5:30pm

    How does a PPT address the problem of regional inequalities? It might produce a good revenue for a local authority in Kingston-on-Thames but probably not for one in Kingston-upon-Hull?

    The question of fiscal transfers to ensure the correct workings of a common currency area is often overlooked by those advocating significant tax changes. We see that big-time in the EU/eurozone. That will never work properly until it is generally accepted by all that it does need to become a fiscal transfer union.

    It’s the same in the UK too. Money will always gravitate towards other money. So this obviously means the SE of England will accumulate most of the wealth. One important function of government is to engage in fiscal equalisation and push back the money into the regions. There is a need to look at a range of parameters such as wages, unemployment, house and land prices to ensure that a relative balance is being kept.

    At present, it isn’t. There is a net migration into the SE of England because that is where the money and the better paying jobs are. The downside is that there isn’t enough housing, schools or other infrastructure.

  • John Marriott 21st Feb '21 - 6:46pm

    Whatever system of local taxation you adopt, and it’s clear the present system is no longer fit for purpose, make sure that it takes into account an individual’s ability to pay. Those who have taken the trouble to study it, like Joe Bourke, for example, will continue to sing the praises of Land Value Tax (LVD) and now we have a new kid on the block in Proportional Property Tax (PPT). The subject of reforming the current system even featured in this weekend’s Sunday Times. Putting off this problem any longer will make it virtually impossible to resolve in an equitable manner.

    As always, it’s property that is viewed as the milch cow and our addiction to its ownership that is offered as a catch all. Now, what about Income Tax, both local and national? I admit that incomes vary depending on where you live, so relatively low income areas like Lincolnshire, where I live, will still probably require a ‘top up’ from national funds, but surely a form of progressive taxation is the fairest way forward. A Local Income Tax (LIT) was the conclusion of the Layfield Commission in its 1976 Report on Local Government Finance. I frankly see no reason why this means of raising revenue is still not relevant today.

  • Matt Wardman 21st Feb '21 - 7:24pm

    @PeterM

    It involves an element of redistribution, among other things.

    https://fairershare.org.uk/

  • >“All human activity has a physical location: even the internet relies on tangible infrastructure.”
    Not seen anything n the LVT debate about how you value internet land assets.
    For the LVT champions: what is the LVT for say Amazon’s Milton Keynes warehouse and my local street cabinet and duct infrastructure.

  • Tony Vickers writes “There are several functions that taxation can perform for an economy – and economies are there to serve societies not the other way round. Tax is not only for governments to raise money for needed expenditure.”
    The tax system in large part determines the kind of society we have. Tax can be transparent or covert in the form of an inflation tax of the kind we have seen in the housing market that has put property ownership beyond the means of most average wage earners in the UK.
    In the post-war period, one of the most successful economies was that of Hong Kong. With per capita GDP 1/5th of that of the UK in 1950, it had overtaken and surpassed the UK by the time of the 1997 handover. The Hong Kong model, based on Land Value Tax and low rates of tax on labour and enterprise was emulated by other Asian tigers like Singapore, Taiwan and South Korea. China too learned the lessons of Hong Kong with Land sales being an important element of its tax base https://asia.nikkei.com/Economy/Real-estate-is-king-for-China-s-cities-as-tax-revenues-stumble

    A tax system that heavily taxes labour and enterprise impedes social mobility just as the incipient inflation tax inexorably creates ever greater wealth inequality.
    An economy that is there to serve society embodies a moral code in its system of taxation. It taxes wealth, primarily economic rents derived from land and natural resource and it takes a proportional tithe – historically 10% of income and/or 10% of spending.
    In rebalancing our tax system to a greater focus on accumulated wealth and less reliance on taxes on Labour and individual enterprise we may begin to reverse some of the hollowing out of industry and outsourcing of manufacturing jobs that have seen productivity stall and wages stagnate in recent years.
    Ultimately, tax is a collective redistribution of real assets and labour within society. Getting that balance right with a general consensus across society is the task of politics.
    George Bernard Shaw quipped “A government which robs Peter to pay Paul can always count on the support of Paul”. As Liberal Democrats, we have to be better than that. Support for the Proportional Property Tax is a good place to start.
    The French philosopher Jean-Jacques Rousseau wrote: “The first man who, having enclosed a piece of ground, bethought himself of saying ‘This is mine’, and found people simple enough to believe him, was the real founder of civil society. From how many crimes, wars, and murders, from how many horrors and misfortunes might not any one have saved mankind, by pulling up the stakes, or filling up the ditch, and crying to his fellows: Beware of listening to this impostor; you are undone if you once forget that the fruits of the earth belong to us all, and the earth itself to nobody.

  • Joseph Bourke 21st Feb '21 - 10:43pm

    Roland,

    While the technical infrastructure that supports mobile phone and internet traffic is less visible, it is comparable with the roads network that supports travel and transport. WiFi networks are a shared set of radio frequencies auctioned by governments. Mobile networks require cell towers that are licensed.
    Intangible assets like landing slots for aircraft can form part of an land value tax base as can telecommunications infrastructure based on demand and competition for licenses.

  • Joseph Bourke 21st Feb '21 - 10:52pm

    Peter Martin,

    how do regional transfers address deprivation in London which has a far higher rate of poverty than the UK average https://www.onlondon.co.uk/new-london-poverty-profile-shows-rise-in-in-work-and-temporary-housing-hardship/
    “Housing costs, which have long been a defining component of London’s poverty issue, devour an average of 56 per cent of poor Londoners’ household net incomes, compared with 37 per cent for poor households in the rest of England. The effects of the capital’s high housing costs can be seen in a rise in the number of London households in temporary accommodation compared with five years ago – an increase of 30 percent to 56,000. Average social and “affordable” rents are roughly 50 per cent higher in London than in England as a whole, while lower quartile market rents were more than double.”

  • Peter Martin 22nd Feb '21 - 4:13am

    @ Joe Bourke

    We already have regional transfers. There is a centralised system of spending and taxation which does impose a measure of fiscal equalization throughout the UK.

    The question is whether or not it is sufficient. The centre of economic gravity is still moving in the direction of London and the SE, so I would argue that it is not. It doesn’t make any sense for us all to crowd into one corner of our island.

    As you suggest this brings disadvantages,such in the form of unaffordable housing costs, to many residents in a supposedly advantageous area. So the current situation doesn’t benefit the SE either.

    This is not to say that the application of a greater degree of fiscal equalisation would solve all housing problems. They’d just be equally as bad in Leeds as in London. We would need other housing policies too.

  • John Marriott 22nd Feb '21 - 7:42am

    What did I tell you? When finance experts like Messrs Bourke and Martin get started it can end up like a ping pong rally. I’m not for one moment doubting their sincerity or knowledge. They’ve probably forgotten more about finance and economics than I shall ever know. I’m wondering whether ‘Michael1’ is getting his statistics in order and preparing to join the fray! However, while the debate rages, we have got to find a better and fairer way to make local government deliver in the eyes of most people. It clearly isn’t, or rather can’t at the moment. In fact, to be honest, it hasn’t for years. Whatever system of local finance you come up with, some people, possibly most people, have got to be prepared to pay a little or, in some cases, a lot more, to my way of thinking!

  • I prefer a proportional property tax to a land value tax, because it is easy to understand. A flat rate of 0.48% is understandable. The part I dislike is scraping tax relief for those who don’t have enough income to pay it. Without this tax relief it will be unpopular and I expect newspapers to publish negative stories about people who currently pay no council tax having to pay this tax once they are dead.

    In report on the motion selection meeting of Federal Conference Committee of 16th January (https://www.libdemvoice.org/federal-committee-report-spring-conference-2021-motion-selection-66777.html) a “Proportional property tax” motion is not listed as being considered and then not selected for debate. A wonder if that was because those proposing it called it, “Fairer Share – Reform of Council Tax and Abolition of Stamp Duty Land Tax”. A title which I think hides the nature of the new tax.

  • Matt Wardman 22nd Feb '21 - 8:55am

    @Joe Bourke

    Have you read the proposals I linked? I suggest you take a look, and run a few properties through the proposals.

    I wasn’t convinced until I had seen the impact on various types of area. According to me, a significant majority will benefit.

    There are a number of things that would those. One thing is that liability for paying will be transferred from tenant to LL. Another is that second homes are targetted with (iirc) a double charge (which seems sensible).

    Given that the change takes much regressiveness out of CT by removing the 1:3 bottom-top ratio, that is to be expected.

    In the context of London, it is all up in the air at present anyway – eg rents for normal properties are quite significantly down afaics. And there is an already-started and expected exodus, which should help supply-demand balance.

    Have a look and see what you think. I think it is the only proposal I have seen that plays across all parties, and so may have a chance.

    https://fairershare.org.uk/wp-content/uploads/2020/05/FairerShare-Manifesto.pdf

    I’m leaning on my (red wall Tory) MP to support it.

  • Joseph Bourke 22nd Feb '21 - 9:28am

    Matt Wardman,

    I have read and am fully supportive of the proposals for PPT. This has been developed by the same researchers that undertook the work for the Commercial Land Levy to replace business rates that was adopted as party policy in 2019.

  • @Joseph Bourke – Thanks for the waffle no a real tangible answer, please.

  • Nonconformistradical 22nd Feb '21 - 9:45am

    “However, while the debate rages, we have got to find a better and fairer way to make local government deliver in the eyes of most people. It clearly isn’t, or rather can’t at the moment. In fact, to be honest, it hasn’t for years. Whatever system of local finance you come up with, some people, possibly most people, have got to be prepared to pay a little or, in some cases, a lot more, to my way of thinking!”
    Quite. And also to express it in plain English.

  • Peter Martin 22nd Feb '21 - 9:48am

    @ Matt Wardman,

    Thanks for the link but it is to a general page on PPT, so doesn’t really explain how your “element of redistribution” actually works. It might help if you could do that in your own words.

    @ John Marriott,

    I don’t know why pointing out that it doesn’t make any sense to allow the UK to become increasingly more economically centred on London and the SE, with a corresponding movement of population in this direction, is a particularly difficult argument to follow even if you don’t agree with it!

    Wiki says that “the population centre of Great Britain at Appleby Parva, Leicestershire, 20 miles south of Derby. Since then, the population centre will have moved slightly south and east” and gives a couple to references to support their assertion.

    From a MMT viewpoint (sorry if this bit is too difficult for you), it makes sense to spend more government money in the regions where it is unlikely to cause inflation and less in London and the SE where it is much more likely to do just that. Especially as we all know with the price of housing.

    https://en.wikipedia.org/wiki/Centre_points_of_the_United_Kingdom

  • David Garlick 22nd Feb '21 - 11:12am

    We should work to see ever more ‘land’ in the hands of the local people. (I do not mean in the hands of local govenment as they cannot be relied upon to put local people first.)
    My preference is for Community Land Trusts owned by local people, used for the benefit of local people and where any excess income is used to acquire more ‘land’ to extend its influence for local people.

  • Matt Wardman 22nd Feb '21 - 2:21pm

    @Joe Bourke

    Good stuff.

    @Peter Martin.

    Sure. I’ll have quick go to list a few items. First though, here are the summary document for the proposal:

    https://fairershare.org.uk/wp-content/uploads/2020/05/FairerShare-Manifesto.pdf

    Elements of this that support redistribution are:

    1 – It is proportional to property value, so higher value properties are not unfairly subsidised.
    2 – The suggested % is .48% per annum. AIUI 2/3 of that will be used locally, and 1/3 will be in a national pot to be redistributed.
    3 – Foreign owned, second and empty properties will be subject to double the tax.
    4 – In areas of the country with generally higher Council Tax bills relative to property value will do better, and even in generally wealthier areas the least wealthy majority will benefit. eg in my area (Mansfield ish) people in small trad terraces will have their tax change from approx 1-1.5% of house value per annum to 0.48% per annum. That is worth £500-£1000 per annum (ish), or 1.5-3% of income, in this area. Only a very small minority (house values north of £400k ish) will be paying more.
    5 – Responsibility will transfer to Landlords from Tenants.
    6 – Anyone unable to afford it can roll up the charge until they sell the property.

    Two further features I like:

    7 – It removes the “granny barrier” – single people staying in large houses because of high Stamp Duty will no longer be penalised by Stamp Duty if they move. Even if they stay put, the increase is capped and can be rolled until they sell as per 6. Better all round. Improves use of housing stock.

    8 – I expect over time that house prices will be somewhat less polarised. If houses round here are costing 1% less of value to live in per annum, that will free up money for improvement. It will also modestly increase house values (by the cost to purchase such an annuity perhaps?) which will some small plots viable for new build, where currently the plot has a -ve value (ie build cost > potential sale cost).

    And the converse in some expensive areas.

    9 – I expect some London rental returns to come under some pressure, which should make them modestly more affordable. Not a total fix, but a move in the right direction.

  • Tony Vickers 22nd Feb '21 - 5:53pm

    @Jeff
    You are nearly right about planning permission being the source of all land value. PP releases a value that is already there, thanks to economic activity in the surrounding area leading to pent-up demand or “hope value”. In jurisdictions which do not have a spatial planning system – i.e a ‘pure’ unregulated land market (e.g. some parts of Pennsylvania, where adopting spatial planning is a power but not a duty of local government) there is still such a thing as “land value” of course. But it is much harder for a tax assessing body to do its job transparently.
    So LVT needs to be seen as going ‘hand in glove’ with a spatial planning system, with land values (and hence tax levels) being “Plan Led”. It is unjust to raise a tax on the basis of a valuation than cannot legally be realised.
    Which is where Community Land Auctions come in: they capture the hope value one-off.
    https://libdemsalter.org.uk/en/document/alter-conference-flyers/alter-flyer-community-land-auctions-2018-a4-folded.pdf
    But leaving the EU is not incompatible with taking decisions as close as possible to the people. There are many decisions that cannot be made at national level – such as fishing policy, climate change policy. Problems that don’t recognise national borders and don’t understand “sovereignty” require international action. We’re already seeing that. EU funding from land values would be far more equitable for poorer EU member states than VAT. The very name of that tax tells you how daft it is.

  • @John Marriott

    “I’m wondering whether ‘Michael1’ is getting his statistics in order and preparing to join the fray”

    Lol! Since you prompted me… actually I don’t understand LVT and I have yet to get my head round PPT. As you say I am sure there will be a ping-pong discussion among the usual suspects.

    Personally like you I favour a Local Income Tax (LIT). Agreement – again!!!!!

    There is a particular issue with the current council tax and that is if you are unemployed you get all your council tax paid (bar 20% now thanks to the coalition). If you move to a minimum wage job you have to fork out for all your council tax – probably some £1000. Moving to LIT with a personal allowance set at the same point as for national income tax would significantly improve the take home pay of low earners.

    The Institute for Fiscal Studies really likes LVT type taxes – they produced a big report on different types of taxation and from memory, LVT comes out as one of the “best” taxes.

    From memory even the IFS say that you may need “a council services contribution tax” and not just a LVT.

    There are two, for me, contradictory issues. The first is that we tax property very lightly in this country. Essentially you pay no property tax at any point if you have one property – not inheritance tax (mostly), not on-going taxes (mostly the council bands only vary slightly in that most are in the middle bands).

    But there is an issue that people on low incomes can potentially pay quite high tax with property taxes – even if their landlord pays it. And we accept that income tax is the fairest way to pay for the majority of national government expenditure – the same should go for taxes paid by the individual for local government.

    Council tax is properly the worst possible tax – except for one – the poll tax!

    —-

    Note that council tax benefit is complicated. And depends on your band and if you are single, a couple, have children etc. but broadly someone on minimum wage will be paying around £1000+ in council tax but of course nothing in national income tax.

  • Joseph Bourke 22nd Feb '21 - 9:17pm

    Michael as a stats man you should be alert to the human errors that arise from heuristics and cognitive bias when you write “we accept that income tax is the fairest way to pay for the majority of national government expenditure”. This little online quiz illustrates the point in a simple and accessible way.
    https://www.sanlamgis.com/behaviouralfinance/Pages/quiz.aspx
    While income tax has an important role to play in the UK tax system, it is far from being either the most equitable or economically efficient way to pay for the majority of national government expenditure.
    As you note, The IFS support for Land Value Tax is based on rigorous economic analysis overseen by the late Sir James Mirrlees in his wide-ranging review of the UK tax system https://www.ifs.org.uk/publications/mirrleesreview
    Council tax is indeed among the most regressive of taxes being a hybrid of the poll tax and old rates system based on occupancy rather than land ownership.
    The proposals for a Proportional Property Tax, like the Mirrlees review, are underpinned by solid research and analysis. Importantly, as Matt Wardman comments above “it is the only proposal I have seen that plays across all parties, and so may have a chance.”

  • John Marriott 23rd Feb '21 - 8:24am

    What a “vigorous” debate so far. I wonder how much more new stuff will, or can, emerge in the next few days? While the late Sam Cooke confessed not to know much about anything, my lack of knowledge consists of anything mathematical so that’s why I tend to avoid bandying figures about. That “Wonderful World” Sam sang about concerned the emotions and it’s emotions I’m tapping into as I read the learned observations.

    My main emotion is frustration. Will somebody recognise the problem of how you pay for services and do something about in NOW before it really IS too late? There’s another popular song from the same era that gave us Mr Cooke and it comes from Elvis Presley. It’s “A little less conversation a little more action”.

    The real reason why successive governments have been unwilling to address the problem of local government finance, certainly in England, where most of the local government inevitably is, is because it will mean that most of us will need to pay more and some of us a lot more. This present government in particular is desperate to be liked. However, there are times when you have to tell it like it is and field the flak.

  • Matt Wardman 23rd Feb '21 - 9:02am

    I’ll make this my last on this thread. And I am hoping (perhaps forlornly) that the Chancellor may do something, or lay out a roadmap, in this budget. This Govt have yet to produce policies capable of demonstrating specific benefit to their new Red Wall voters; I am hoping that may be persuasive politically to get this done. Also that housing and rental markets are up in the air.

    I was interested to see the very broad list of groups supporting the proposal.

    https://fairershare.org.uk/faq/#who-has-influenced-this-work

  • Matt Wardman,

    Thank you for pointing out that for those with a low income a proportional property tax is rolled up until the property is sold. This is terrible. It might mean that people find it difficult to move home because once they have paid what they owe on the proportional property tax they can’t afford to buy the new property and pay the costs of moving. I would be much happier if this rolling up would only apply to those who had assets over £276,000 (based on the average cost of houses in the UK currently £249,633 plus £26,000 other assets increased annually to the current average house price with the other assets amount increased by inflation with the total rounded up to a number which can be divided by 10,000 without any remainder).

    Joseph Bourke,

    The Mirrlees Review talks of a proportional property tax and “a council services contribution tax” as Michael1 points out other reports do. Therefore we could have a proportional property tax and bring back our policy of having a local income tax for services contribution.

  • Matt Wardman 23rd Feb '21 - 12:15pm

    @Michael BG

    As far as I can see hardly anyone with house values that low will be worse off. I think if you go looking for instances, you will not find very many at all.

    At say £200k value 0.48% is £960 a year -ish. Can you find me any houses with that value that pay significantly less Council tax than that?

    I think you are limited to a few London Boroughs.

    I think this issue is very small in the scheme of things. And allowing it to be rolled up in particular cases if desired is one way to help.

    One thing I am not totally sure about is eg single person discounts and places where the Council Tax is paid from benefits (I think there are some). But those are fine tuning and benefit system things.

    And of course when they come to sell there is no SDLT.

  • @Matt Wardman

    “As far as I can see hardly anyone with house values that low will be worse off. I think if you go looking for instances, you will not find very many at all.
    At say £200k value 0.48% is £960 a year -ish. Can you find me any houses with that value that pay significantly less Council tax than that?”

    You forget to include the “council services contribution tax”.

    “And of course when they come to sell there is no SDLT.”
    But for properties valued less than £500k there is no SLDT, however, there may be rolled up PPT…

  • Michael BG,

    these are the conclusions of the Mirrlees Review on taxation of property https://www.ifs.org.uk/mirrleesreview/design/ch16.pdf

    “The taxation of property in the UK is currently something of a mess. As we have seen when considering the practicalities involved in implementing an ideal system, up to a point this is understandable. But it remains both desirable and feasible to clear up much of the mess. Our conclusions can be summarized thus:
    • There is a strong case for introducing a land value tax. In the foreseeable future, this is likely to mean focusing on finding ways to replace the economically damaging business rates system with a land value tax.
    • Council tax should be reformed to relate it more closely to actual property values—levied as a proportion of up-to-date values with no cap and no discount for unoccupied or single-occupancy properties. We have called this a housing services tax to reflect its underlying economic rationale as a tax on housing consumption to substitute for VAT.
    • Taxation of rented housing should be reformed by offering landlords an allowance against the normal return to their investment (and by aligning capital gains tax rates with income tax rates, as discussed in Chapter 14).
    In principle, it would also make sense to move towards a rate-of-return allowance basis for the taxation of owner-occupied housing, but this may prove extremely difficult in practice.”

  • Joe Bourke

    Thanks for your points – very useful.

    I should factcheck myself – only 25% of (local & national) tax is raised through income tax – although a further 19% is raised through NI which is income tax by another name – 44% in total. (2017/18 – https://www.ifs.org.uk/publications/9178)

    Mirrlees does say: “The taxation of earned income accounts for more revenue than any other form of taxation across most OECD countries. Alongside the benefit and tax credit system, it also does most of the heavy lifting in redistributing resources from richer to poorer households.”

    Of course council tax skewers that. Someone on minimum wage will pay around £1,000 in council tax – that’s some 7% of their income and they’re already facing effectively very high marginal rates of tax – in that they may be £1-£2 an hour better off compared to unemployment.

    We already have a local income tax – in that Welsh & Scottish Governments can vary the UK rates.

    Of course council tax is normally put up by more inflation and is currently bearing the burden of increasing funding for social care so is going up by 5% – some 5 times more than inflation.

    Now it should be pointed out that taxes go up by more than inflation generally – income tax goes up by the growth in the economy. But is *only* paid by those who are benefitting from that growth.

    Income tax may not be the perfect tax – no tax is! But it is widely accepted & does *by design* fall on those who can afford it.

    The problem with property taxes is that they do fall & often regressively on those on lower incomes. And Mirrlees, as you point out, despite liking LVT, does propose a “housing services tax” (HST) in that he points out that you pay VAT on a fridge but not on your consumption of housing and he proposes an HST of 0.6% a year as raising the equivalent of 17.5% (as it then was) VAT. Although we exempt essentials from VAT & on-going property taxes have the problems outlined – in that they fall on people on low incomes.

    Personally to fund the Dilnot proposals on insurance for social care – I’d have the whole value of a house subject to inheritance tax (minus the first £100k).

    When it was party policy we estimated that local income tax would save the average household £400 a year, it is fair, would be quick & easy to implement and would particularly helps those on low earnings. For a tax, it’s “popular” whereas LVT tends to be portrayed as a “tax on gardens” by the Daily Mail!

  • @Matt Wardman

    There do seem to be some problems with PPT:

    “Only a very small minority (house values north of £400k ish) will be paying more.”

    …um the *average* property price in London is above £500,000 and above £400,000 across the South East.

    The second issue is that even if responsibility is passed from tenants to landlords, it means those on low incomes paying more as presumably landlords will just pass on the increased costs to tenants in the form of higher rents. Indeed it is worse with landlords paying it as there is no way of compensating those on low incomes who are tenants – and if you do compensate those on low incomes – why not have a local income tax? – other than through housing benefit for higher rents – but that is lining the pockets of private landlords. And we have the problem that those on minimum wage get virtually all of their housing benefit taken away.

  • Matt Wardman,

    My point was not about the basic rates being less, but it is about what people actually pay. There are still some areas where the old Council Tax Benefits rates still apply for working-age people. It still applies for all pensioners everywhere. So there are lots of people who pay no Council Tax. For these people having to pay 0.48% a year payable when the property is sold is a huge increase from zero.

    On a property valued at £250,000 I think £6,250 has to be paid in stamp duty. 0.48% is £1200, so six years equals £7200.

    Joe Bourke,

    The Mirrlees Review calls for a proportional property tax, which it calls “a housing services tax which would, eventually, be charged in full proportion to the value of the property” (page 392) at “a simple flat percentage … of around 0.6% of property value”(page 385). It also states that “we assume” there “would be … a corresponding HST rebate” to the pre-2012 Council Tax Benefit scheme. No rolling up in this report.

    I note that the Mirrlees Review suggests a rate of 0.6% and points out that it would need to be higher if Stamp Duty was abolished. Therefore it seems that 0.48% is too low for the rate of this proposed proportional property tax.

  • Joseph Bourke 23rd Feb '21 - 10:09pm

    Michael 1,

    the Daily Mail portrayal of LVT as a “tax on gardens” is light banter in comparison to its review of the so called ‘Dementia Tax’ https://www.dailymail.co.uk/news/article-4598772/Dementia-Tax-set-SCRAPPED-Tories.html which is not dissimilar to your preference for funding the Dilnot proposals on insurance for social care by having the whole value of a house subject to inheritance tax (minus the first £100k.
    i have penned thoughts on funding adult social care previously https://www.libdemvoice.org/a-residential-land-value-tax-approach-to-funding-adult-social-care-59639.html somewhat similar to the PPT proposals for local government finance.
    The Mirrlees review set out a comprehensive set of proposals for tax reform that need to be considered in the round. The key principles that underlie the proposals are that the tax system should:

    – be designed as a whole, in conjunction with the benefits system. The system as a whole needs to be green and to be progressive. But not every tax needs to be green or progressive. Indeed, not all should be. The way taxes (and the benefit system) fit together matters very much.
    – seek neutrality. Tax systems that distort people’s behaviour by treating similar activities differently without very good reason – as the UK system currently does – create inefficiency, complexity and opportunities for avoidance. Exceptions, to deal with the costs of smoking or pollution for example, should be limited and carefully designed.
    – achieve progressivity as efficiently as possible. That means relying on the rate schedule of personal taxes and benefits ‘ rather than inefficiently distorting the tax base ‘ to achieve redistribution. It also means designing that rate schedule carefully to minimise the extent to which the tax system reduces employment and earnings.

  • J George SMID 24th Feb '21 - 12:32pm

    This morning (24/2/21) apart from Tiger Woods accident everything else was connected to property (house) ownership. Covid – disadvantaged communities; Schools – poor house-holds, London – more millionaires than New York (mainly in property ownership), the most deprived areas of Europe, leaseholders cost for cladding … vaccination, debt, unemployment …. All these have an underlying basis in property prices and property ownership. Even the council tax was mentioned: £1,500 in London on property values in excess of 31,5 million and £1,500 in Tyneside on property values of £85 thousands.
    Quote Tony Vickers: It was very disappointing that a motion calling for a Proportional Property Tax (PPT) to replace Council Tax, Stamp Duty Land Tax and “Bedroom Tax” was rejected for debate a second time at this Spring Conference 2021.

    If the LibDems do not argue for a more comprehensive tax system, who will?

  • Michael BG,

    the 0.48% is a revenue neutral figure calculated by the Fairer Share researchers on updated property values (property values have increased significantly since the Mirrlees review).
    The Sun has as article today https://www.thesun.co.uk/news/14144418/northern-red-wall-seats-hit-by-council-tax-rates-up-to-24-times-higher-than-london/ highlighting the issue as does the Daily Express https://www.express.co.uk/news/uk/1401801/council-tax-latest-cost-north-property-value-tax-cost-vs-south

  • Joe Bourke,

    I have looked at Council Tax rates recently and I was surprised how close the amounts were for a band C property in Basingstoke and Workington. If they were the same amount then the percentage of the value of the property would be higher in Workington than in Basingstoke because property prices are higher in Basingstoke than in Workington. What follows on from this is that there can be no standard percentage rate for a proportional property tax if councils are going to raise the same amount of money as they do now. It will vary depending on the value of the properties in the area. The higher the value of the property the lower the percentage needed to raise the same amount of money.

    It is wrong to claim that people will be paying 0.48% of the value of their property because it will vary. However, a proportional property tax is still better than the Council Tax because the proportion set for the lower valued properties in an area are likely to be lower than the current Council tax rates, while for the higher value properties the new amount are likely to be a higher the proportion of the value of their property than their current Council Tax.

  • John Marriott 24th Feb '21 - 5:06pm

    Wow, what a deluge of facts and figures – and mainly from the usual suspect, augmented, it would seem, by our new ‘expert’, Mr Wardman (whose logo I have as yet failed to work out – although the use of blue does worry me). Try using them on the doorstep or in your leaflets if you dare.

    These are the facts, in my opinion:
    Fact One: Local Government, or what’s left of it, is in a mess.
    Fact Two: The Council Tax in its present form, is not fit for purpose – if it ever was.
    Fact Three: If you want accountable local government it needs to be paid for properly.
    Fact Four: You need a tax, which takes account of our ability to pay.
    Fact Five: Very few people want to pay taxes. Even fewer want to pay more.
    Fact Six: If you keep reducing the centrally calculated block grant, a regressive implement like the Council Tax cannot possibly pick up the slack.

    These are my ‘facts’. Everything else is fiction unless someone, somewhere, acts sooner rather than later to redress the balance. The clock is ticking……

  • John Marriott 24th Feb '21 - 5:10pm

    PS The ‘suspect’ in my first sentence should have been in the plural – just in case ‘Michael 1’ thought I was having a go at him again!😇

  • @John Marriott – Fact Six: If you keep reducing the centrally calculated block grant, a regressive implement like the Council Tax cannot possibly pick up the slack.

    I suspect many have missed the recent changes in local government funding and specifically the redistribution of business rates. A concern has to be the effects of the lockdown (and changing working practises this has accelerated) on business rates paid and thus the monies available for redistribution.

    Not close enough to fully understand the implications of the changes, but suspect in the next few years there will be insufficient monies in the new pot for local government, given the scale of changes we are seeing.

  • Joseph Bourke 25th Feb '21 - 2:00pm

    Roland is right to point out ” a concern has to be the effects of the lockdown (and changing working practises this has accelerated) on business rates paid and thus the monies available for redistribution.” This economist article gives some background https://www.economist.com/britain/2020/05/02/councils-outgoings-are-rocketing-and-revenues-collapsing
    For those that want the detail this is a draft of the Local Government Finance Report for 2021-2022 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/945409/Draft_Local_Government_Finance_Report_2021-22.pdf
    The devolved administrations in Scotland (vis the Scottish Land Commission) and Wales https://gov.wales/sites/default/files/statistics-and-research/2020-03/technical-assessment-of-the-potential-for-a-local-land-value-tax-in-wales.pdf have undertaken serious work on a local land value tax to replace to replace the existing local taxes – council tax (CT) and non-domestic rates (NDR).
    As Tony Vickers writes in his piece “Liberal Democrats …believe that decisions about what society needs should be taken as close to the individual as possible, ensuring that people have maximum control over their lives through a truly democratic process. We should treat local government and the way it is financed as more important than the other parties do.

    All land is local. All human activity has a physical location: even the internet relies on tangible infrastructure. Finance for local Government should not be left out of tax policy debate…”

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