Opinion: The Economic Crisis is Now Political

Clacton-on-Sea is going nowhere… This is Britain on crutches. This is tracksuit-and-trainers Britain, tattoo-parlour Britain, all-our-yesterdays Britain- Matthew Parris, The Times

Matthew Parris’s dismissal of poor, coastal Essex adorned thousands of UKIP leaflets in Clacton. It served only to justify UKIP’s rout of the Tory party.

Inadvertently, Parris came close to the truth: Britain as a political entity almost ceased to exist in September. Despite the eventual result in Scotland, the strength of the yes vote saw victory in Glasgow, quadrupled the membership of the SNP and caused Scottish Labour to implode. The high turnout alone belied the modern complaint of political apathy.

From Clacton to Dundee, Britain is discontented. Instead of demurring from hard politics, it’s time to look at the facts and act.

A boy born in Scotland’s most deprived areas has a life expectancy of 68 – 8 years below the national average. But this is not a Scottish problem, it is a peripheral problem. In Clacton-on Sea the average male life expectancy is 8.8 years below average. In Blackpool it is lower still.

Short life expectancy is a symptom of a failed economy. This failure, which envelopes millions across the country, is most stark at the periphery. This struggle links Celtic fringes to the English coast. From Scotland to the most deprived village in England – which is in Clacton-on-Sea by the way – our society is failing.

To address this, we must be candidly liberal about the economic policies to which all three main parties hold true. We have built a society around the rentier. It is an economy in which owners – of land, patents and infrastructure for instance – can expect to get rich whilst they sleep. The worker may resolve to work harder, but all she will achieve is a rent hike.

This situation creates many economic perversities. From debt-fuelled ‘housing’ (land) busts to yawning inequality and even boarded up high streets.

One of these outcomes is that a country’s periphery cannot compete with its economic core. London has untold privileges in its infrastructure, population and pool of labour. Yet the owners of London do not pay for the privileges that society and government bestow it. Instead, workers, consumers and struggling businesses pay, even those that least benefit from it – and can least afford it.

We need only revisit Ricardo’s Law of Rent to understand that the economic margin will be hit the hardest. They cannot compete with London and they certainly can’t bear the same tax load.

To resolve this requires rigorous liberalism. It is odd that we tax jobs – it is an insanity that we do so at the struggling periphery. We must begin to remove taxes that are harmful to our economy, especially those that curtail employment and modest incomes. Instead, we must collect the rent of land and other privileges, the value of which is created by and belongs to the commonwealth.

In such a way, a struggling seaside town or Scottish city may face London on equal terms. They will not have the assets of London, but this would be reflected by the trivial land rent their citizens and businesses pay. A company may choose to trade in London, whereupon they would pay the market rate for that privilege. But they may also decide that these privileges are not worth paying for. They may decide instead to go somewhere cheaper – to the seaside perhaps.

Matthew Parris spent his career furthering the cause of illiberal Conservative economics. But the very economics he has championed has left places like Clacton literally, and figuratively, at the end of the line.

It is no wonder that Yorkshire and Cornwall, rightfully, now seek to join the Scots by distancing themselves from Westminster rule. But neither federalism nor UKIP will fix our broken society.

To reorient the country, we must reorient the economy. Rentier capitalism, so well sold by the Conservatives and so readily adopted by ourselves and Labour, must give way to liberal political economy.

* Toby Matthews sits on the executive committee of ALTER (Action for Land Taxation and Economic Reform), an affiliate group of the Liberal Democrats. The President of ALTER is Dr Vince Cable MP. If you would like to join or learn more about us visit http://libdemsalter.org.uk

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59 Comments

  • A company may choose to trade in London, whereupon they would pay the market rate for that privilege. But they may also decide that these privileges are not worth paying for. They may decide instead to go somewhere cheaper – to the seaside perhaps.

    Doesn’t this already happen? After all it is already much cheaper to set up a company in somewhere godforsaken like Hull that it is in London.

    However, even in today’s world of instant telecommunications, there is still a positive feedback loop to geographical proximity. That is, the greater the variety and concentration of businesses in a given area, the more the benefit to all of them.

    This is why hubs such as London exist and are successful: it’s not something special about the location of London, it could just as easily have happened in Glasgow or Manchester or Bristol, but it is inevitable that there will be a hub because you simply can’t get the same productivity form a more spread-out base than you can if everything is packed together.

    And that’s why businesses pay over the odds to set up in London and will continue to do so even if the rent is places like Hull drops from its already-low levels even lower: because the benefit from that positive-feedback loop of everything being in the same place easily outweighs the costs.

    Your plan, then, Toby Matthews , won’t work; or, if it did work and attract companies away form London, it would impoverish the whole UK, as the loss of the positive feedback effect of the London hub would reverberate throughout the economy of the nation to devastating effect.

    Without London, and the network effect of such a hub, Britain would lose its second-tier place in world economic standing and slip, not to the third tier, but down to alongside Ireland or Kazakhstan as an economic minnow, with a consequent loss of tax revenue, and the knock-on destruction of public services in all areas of the country that that would imply.

  • Matthew Huntbach 30th Oct '14 - 3:15pm

    Toby Matthews

    In such a way, a struggling seaside town or Scottish city may face London on equal terms. They will not have the assets of London, but this would be reflected by the trivial land rent their citizens and businesses pay.

    I agree, but it is a hard sell. We will always run up against the “little old lady in a big house” issue, the claim that as a land tax is not based on income, it is in effect forcing people out of their homes if they don’t have the income to pay it.The emotive case is when it’s someone who bought a house in what was a cheap part of London which has become very expensive since, the argument being it’s unfair to penalise them for something that was not under their control.

    There are answers to this, but we must have them ready rather than just assume everyone will agree with us. Part of the issue is that little old ladies in big houses are very likely to vote, the sort of person who would most benefit from this scheme is the sort of person least likely to vote. This is one of the reasons why I get so angry about empty protest, because policies like this ARE answers to what those people are protesting about. However, empty protest which gives no alternatives and just uses the line “politicians are all bad” means the people who ought to be out there putting the case for things like LVT aren’t doing so. As a consequence, all that gets heard is the argument against, and if any politician dare raise it, s/he gets shouted down as “dirty, rotten politician, proposing this horrible thing”.

    We have already seen how difficult it is, with the “mansion tax”, to get even the first step towards shifting tax from income to property to be accepted. We have also seen the howls that this is a “tax on London”, which ignore the fact that as Londoners who don’t own homes are the ones who suffer the most from high land values, a tax which would bring them down will be of particular benefit to those Londoners.

    What we have also seen is a call for the revenue from such a tax to be kept in London seeing as how it would mostly come from London. But doing that would completely destroy the argument you are making here. It is also an argument against some proposals for devolution and independence, where the consequences would be that the redistributive possibilities of what you suggest here are no longer possible.

  • Eddie Sammon 30th Oct '14 - 5:04pm

    Dear Toby, some parts of your article are very good, such as the data on life expectancy in some areas of the country and the criticism of the jobs tax. However, I am a major critic of Land Value Taxation. Broadly, the solution to rentier capitalism is either a net-asset tax or higher income taxes on the very rich.

    The problem with Land Value Taxation is that it can hit small businesses hard and let tech conglomerates largely off the hook. I don’t accept the argument that land is special – people can gain “rent” from simply owning lots of shares and voting to cut wages.

  • David Cooper 30th Oct '14 - 5:30pm

    Dear Eddie Sammon,

    You say that rentier capitalists can gain “rent” by owning shares and cutting wages. You are correct and for years rentier capitalists have used the power of capital to exploit labour.

    However even capitalists have to contribute something to the economy. Without creating a business they cannot make excessive returns- they actually have to create and finance a business to exploit labour, and vie with other business owners to stay in business. Owners of land contribute nothing at all to their excessive returns. They earn money in their sleep, simply by virtue of owing the land, and there is no way they can go out of business. They are entirely parasitical.

    Rentier capitalists aren’t nice but do contribute something to the economy. Rentier landowners contribute zilch. Economically, it’s a no-brainer to tax them.

  • Eddie Sammon 30th Oct '14 - 5:42pm

    David Cooper, thanks for your informed comment. However, the leasehold-freehold system gets around the problems of the unique characteristic of land. Leases are long-term agreements, landowners (the freeholders) can’t simply ramp it up once you have bought a property.

    There is a problem with monopolies of land, but for me the problem of the unique characteristics of land is solved through the freehold-leasehold system. Or commonhold – something I sometimes recommend to flat owners who have freeholders who aren’t carrying out their maintenance duties.

  • Tony Greaves 30th Oct '14 - 5:54pm

    (I surprise myself by saying that) it is not just a peripheral problem. There are plenty of people in poverty in central London. It is a more fundamentally question of social and financial inequality (what we used to call “class”).

    The spatial inequalities are a result of the geographical distribution of social and financial inequalities. They are complex – there are rich places in the North of England.

    We need to radically rethink (or perhaps start to remember) regional policies and link them to localities throughout the country.

    Tony

  • Scotland: we are talking Scotland in this thread:-
    Latest Mori poll out this afternoon:
    SNP 52%
    Labour 23
    Con 10
    LD 6
    Green 6

    Electoral Calculus gives seat distribution:
    SNP 54
    Lab 4
    Con 0
    LD 1
    Green 0

  • Bill le Breton 30th Oct '14 - 6:32pm

    Space and Place, dear Tony. Cut you in half and it still reads ‘Geography’.

  • Bill le Breton 30th Oct '14 - 6:35pm

    Scotland; my prediction last Spring was 2. It hasn’t changed. Why? Because nothing HAS changed. If the Parly Party in the Commons was terrified in May/June, what are they now?

  • Toby Matthews 30th Oct '14 - 6:50pm

    Matthew, thank you. I liked your piece very much. Of course, if the Left is all ’empty protest’, we can’t then also walk away from economic justice because of the howls of powerful vested interests. So, we must stand our ground for the sake of both liberty and justice. The “widow bogey” (as Churchill called it) is a transitional issue we can address (incidentally, one never hears Tories shedding a tear for the landless that can’t pay the rent). LVT would be a national policy.

    Dav- thanks for your comment. I would urge you to consider again Ricardo’s law here. I’m not sure the people of Clacton are too happy paying taxes to improve the Duke of Westminster’s London land, but I’m sure you could talk them around. Any business leaving London for Clacton cannot, by definition, hurt the economy. The land they vacate will – through LVT – find its best use. Political economy is a beautiful, balanced system.

    Eddie- Thanks for your feedback. Please do note that I also mentioned patents and other assets such as infrastructure. Corporations’ shares reflect the capitalisation of these privileges. They also tend to own land and resources too. It’s important to remember that liberal economics isn’t only LVT proper- it means freeing the economy from all unjust privilege. In perfect competition, there would be no unjust, excessive profit.

    Tony – I agree. My other article here (Miliband, Piketty and the Liberal Response) touched on that. I wanted to concentrate of the periphery and politics in this piece, but of course the injustice is present everywhere, particularly in the cities. The policies suggested here would be equally liberating for London’s poor, who at present simply live to pay rent to society’s owners.

  • Paul in Wokingham 30th Oct '14 - 6:57pm

    @Bill – in May I couldn’t work out if the parliamentary party was cowed, clueless or hopelessly romantic. I have now concluded that they were (and are) all three. The problem now becomes this: discipline has been extraordinarily tight through the last few years. But like any structure that lacks the ability to bend it will simply snap when the stresses become too great. I suspect that we are one opinion poll – the now seemingly inevitable outlier poll that puts us on 5% – from an over reaction. Andrew George’s extraordinary call for informal pacts with the Greens might be the start of it.

  • Paul in Wokingham 30th Oct '14 - 7:10pm

    Sorry I intended to say that I agree with almost everything the article says. In particular I note the life expectancy data. I come from Derry in Ireland and went home recently for the sad reason of a family funeral. As I walked through the cemetery I was struck by the number of new graves for people in their 50’s. I recall Nick Clegg rightly raising the subject of this appalling inequality during the last GE but as real wages stagnate and wealth inequality increases I struggle to see what progress has been made.

  • Well done Toby Matthews for one of the best pieces in LDV for some time. Thought-provoking and attracting some interesting comments in the threads that follow.

    I very much agree with Tony Greaves when he says that it is fundamentally a question of social and financial inequality — what we used to call “class”.

    The Matthew Parris put down of Clacton as all “tracksuit-and-trainers ” in “tattoo-parlour Britain” drips of the sort of language that makes me want to take to the barricades and set up a guillotine to sort out Parris’s class.
    Matthew Parris is well paid by the Murdoch Empire to pedal myths and demonise the poor.
    The coalition government has danced to this tune.
    And if a coalition with the continues after May it will dance even more enthusiastically.
    Yesterday’s revelation of an intention to cut sickness benefit, neatly floated in the media before a nicely timed statement saying that this is not government policy (NOT YET) , reveals the continuing intention to screw the poor and the sick, whilst the landowners and the privileged laugh all the way to the polling booth.

  • SIMON BANKS 31st Oct '14 - 9:16am

    Caractacus:

    I assume you went to Clacton and saw that the effort was zilch? I would agree that the level of outside help was disappointing, with places not far away that had been helped by our local party activists not reciprocating, but a lot was done by a small team including a full-time agent donated by the region. Much effort, in particular the phone bank, was directed not at the unwinnable parliamentary by-election but at the winnable simultaneous county council by-election (poor result, but that’s another story). All the party presidential candidates and the current president helped at some stage. The leader stayed well away, which was noted.

    Places like Clacton and Blackpool and even more the North East Wales coastal resorts, suffer from having relied on a seaside holiday trade that won’t revive and from being out on a limb. Clacton’s train service to London, for example, is almost all hourly and slow and road links are far less easy than Colchester’s or Ipswich’s. That said, the statistics quoted conceal a lot. Part of the problem in Clacton, and part of UKIP’s opportunity, is that while there is, for the south, great poverty, with Jaywick right at the bottom statistically and a good deal of BRITISH benefits migrants, there are also plenty of comfortably-off retired people who’ve retired to the seaside and want to protect their idyll against scroungers etc etc.

    The case is not hopeless, though. Not far the other side of Colchester, Maldon is even more isolated, with indifferent roads and no rail service at all, but is reasonably prosperous. Its yachting reputation helps. Things may change, as it faces one of the most rapid demographic changes (to a mainly old population) in the country. But in Maldon things have not failed and gone downhill. In Clacton the perception is of decline and that’s hard to reverse. Should there not be a Liberal, community-politics-based solution to local problems of this size?

  • I’m not sure the people of Clacton are too happy paying taxes to improve the Duke of Westminster’s London land, but I’m sure you could talk them around.

    How do you work that one out? Last I heard London was a net contributor to the treasury, while places like Clacton were net recipients.

    So it would be more true to say that the people (and companies) of London are paying taxes to improve the lot of Clacton’s residents, by paying for their benefits, public services, NHS, etc.

    Any business leaving London for Clacton cannot, by definition, hurt the economy..

    Of course it can if, because it’s no longer around a global hub, it misses opportunities for new business or doesn’t hear first about new developments in technologies, because it’s no longer so close to the grapevine. Those opportunities wil instead go to companies in other hubs around the world and Britain’s economy will be much worse off.

  • Great article Toby – we either sort out the growing inequalities and rise of the the super rich and super managers, or we get it anyway in violent political upheaval. Not to be dramatic but the last time we had this level of inequality was the early 20th century, it was the cause of revolution and war then and will be again.

    @ Eddie

    I’m surprised at your opposition to a land tax. Land taxation is one of the few taxes that is almost impossible to avoid. Who owns, it value it, tax it. Failure to pay results in appropriation of the tax. Anyone who cant afford to pay can defer the tax until sale of the asset or death – you could scrap inheritance tax at the same time. And it penalises hoarding land or not using it for its optimal function. Compare that to trying to impose tax on financial assets, income tax or almost anything else for that matter.

  • While LVT is great in theory, the reality of it is that it would mean London and the South East making an even more massive net contribution to the exchequer than they do already.

    There are already many, many taxes that are effectively “taxes on being a Londoner” ranging from inheritance tax to stamp duty and also in many ways income tax, given that it takes a higher salary to achieve a given standard of living in the capital compared with those living in other regions. The Mansion Tax, as currently proposed, would merely add to this list of injustices.

    “In such a way, a struggling seaside town or Scottish city may face London on equal terms. ”

    The only way in which they are going to face London on equal terms is if they too become equally good places in which to invest and employ people. This, because of basic geography, is never going to happen, but they can at least become *better* places in which to do business by improving educational standards, investing in transport connections and providing better training for management (a point that is usually missed out of any economic strategy).

    Just taxing the successful regions more is only going to level the UK economy down, not up.

  • Matthew Huntbach 31st Oct '14 - 10:44am

    RC

    There are already many, many taxes that are effectively “taxes on being a Londoner”

    I live and work in London, but I am very much opposed to this way of thinking. The wealth that is in London is not so much to do with Londoners being better and more worthy people than others, it is more an issue of scale and business and social development, which is resulting in wealth getting centralised and so sucked into London. The idea that people like me who live in London should close the doors and say “we’ve made it and you haven’t, we’re going to hang onto our wealth and so make it even harder for you to get a foothold” appalls me.

    If taxes fall more on London even though they are taxes in wealth and income with no written geographical element, to me that indicates how necessary they are, and that yes they most definitely SHOULD be used to make things more even across the whole country. If Londoners are paying more in inheritance tax because their properties sell for more I say, great, that demonstrates the case for such a tax. Why should people in other parts of the country be shut out of the opportunity of getting into London because they cannot afford the high prices of housing? Why should those who are the children of property-owning Londoners live an easy life and have a huge advantage over those who would like to compete with therm because they have that huge inheritance money to ease their way so they can stay in London?

  • RC

    I have spent all my tax-paying life living in London.
    Do I feel over-taxed for the privilege of living in London? No.
    Do I object to some of London’s vast wealth being used to help out people elsewhere who need help? No.
    Do I feel in danger of the sky falling in if Londoners have to pay more tax? No.
    Has the value of my house in London gone up at a ridiculous rate since I bought it! Yes
    Did I contribute in any way to this ridiculous increase in the value of my house? No, I just sat here and watched.
    Is your ” levelling down ” argument utter tosh? Quite possibly.

  • If taxes fall more on London even though they are taxes in wealth and income with no written geographical element, to me that indicates how necessary they are, and that yes they most definitely SHOULD be used to make things more even across the whole country

    Well, as long as you don’t thereby kill the goose that lays the golden tax-eggs.

  • Toby Matthews 31st Oct '14 - 11:06am

    In response to one or two comments about “taxing London”.

    Please bear in mind that the poor and the working London citizen already pay LVT. They pay it through rent to the private sector. It is privatised taxation. LVT would subvert this, by allowing the poor to effectively pay themselves (and allowing us to untax their earnings and purchases too).

    But of course the effects are much wider. Under-utilised land would be fully utilised, yielding sufficient housing and jobs. Land would be cheap to buy (yes- even in London), as unlike commodities Land falls in price when the rent is socialised (land price is speculation on capitalised rent).

    London (or at least her workers, rather than her owners) only contribute such a large proportion of national revenue precisely because of the effects I have outlined here. Rebalancing doesn’t diminish, it enhances. Hong Kong was able to flourish so quickly precisely because her land rent was taxed (and work less so). London will benefit just as much as the rest of the country. London’s poor have at least as much to gain as the poor in Blackpool.

    This is not a zero sum game. Rebalancing through LVT will unlock more wealth across the country. Real wealth is created by people, commerce and society. Land speculation and rent extraction don’t create wealth, they simply transfer the proceeds of a dying economy towards the top.

  • Caron Lindsay Caron Lindsay 31st Oct '14 - 11:10am

    Moderatorial cough in Mr Tilley’s direction….

    “Utter tosh” is not a particularly edifying way to talk about someone’s argument and could be seen as demeaning and unnecessarily aggressive.

  • Please bear in mind that the poor and the working London citizen already pay LVT. They pay it through rent to the private sector. It is privatised taxation. LVT would subvert this, by allowing the poor to effectively pay themselves

    Why would the landlords not just pass the LVT on to the tenants in the form of higher rents?

    London (or at least her workers, rather than her owners) only contribute such a large proportion of national revenue precisely because of the effects I have outlined here. Rebalancing doesn’t diminish, it enhances

    But spreading out does diminish, because you lose the positive-feedback of lots of businesses operating in close proximity. Of people bumping into others who might be able to provide business opportunities or connections, forming alliances, co-operating in ways that just wouldn’t happen if they were spread out from Clacton to Cheltenham instead of all living and working practically on top of each other within a few hundred square miles.

    Hong Kong was able to flourish because, like London, it is an enclosed geographical area with the positive-feedback effects for being a business hub that that implies.

  • RC said “Just taxing the successful regions more is only going to level the UK economy down, not up.”.

    It’s pretty frustrating that people kneejerk to this conclusion without really thinking it through.

    LVT is not a “tax” on value that the payer produces or sustains. So, not a “tax” on success.

    We already have LVT, privately collected by banks and landlords.

    LVT is merely saying we are all co-proprietors of land rent, ie equal share landlords.

    This is the “level playing field” Toby meant. And, because it’s morally fair that we share land rent, it’s economically efficient too. So, we get rid of two sets of deadweight losses, taxation and capitalised land rent. KIlling two birds with one stone. Oh, and it sorts of income/wealth and regional inequality too. So, call it three birds.

    Without first thinking about what gives land it’s value, compared to capital and income, you’ll never get it RC.

  • Toby Matthews 31st Oct '14 - 11:28am

    Dav- It is universally agreed in economics that LVT cannot be passed on to the tenant. The landowner always charges what the market will bear. Therefore he alone must bear the LVT. More can be found on this topic here: http://www.wealthandwant.com/themes/Not_Passed_On.html

    In addition to this, he will find himself (perhaps for the first time) in real competition. More housing and ‘free land’ will mean his rental property must be as good as it possibly can be- to attract tenants who are now liberated from exploitation.

    I’m afraid I can only reiterate that rebalancing doesn’t diminish. London will not disappear. She and her assets will still be there. Furthermore, her land will now be even more productive as the incentives have changed. LVT works in harmony with the positive feedback loop. People will pay to be in London as they do so now. The difference is that they will be paying society (creating world class services and infrastructure), rather than for the holidays, yachts and trinkets of London’s landowners.

    It is a fact that Hong Kong recycled her land rent. Her success only makes my point.

  • Without first thinking about what gives land it’s value, compared to capital and income, you’ll never get it RC.

    In the case of London, what gives land is value is its proximity to one of the world’s most successful business hubs.

    The land in London has no inherent worth. It’s not good farmland, it doesn’t have useful mineral deposits. It is valuable only because it is close to other land on which economically successful business happens.

    To tax that, then, is to (indirectly) tax the economic success which is what makes London land valuable.

    And to tax it enough that you force people and businesses away from that hub will be to destroy the conditions which have made London so economically successful, and impoverish us all as Britain crashes down the world economic rankings.

  • London is wealthy because it’s one of the world centres of Banking and government and has been for hundreds of years. There is no way for other regions to compete with that. It’s like saying your local church should be able to compete with the Vatican. And let’s be honest every time there is a collapse in whatever bubble is being inflated to keep the financial sector going the rest of the country and a good proportion of the rest of the world actually has to pay for it. So taxing London differently makes sense because the relationship to the rest of Britain is more symbiotic than is often implied. Why do you think it was so important to keep Scotland.

  • It is universally agreed in economics that LVT cannot be passed on to the tenant. The landowner always charges what the market will bear. Therefore he alone must bear the LVT.

    But those links seem to all deal with the situation where you have land which is interchangeable, so that if a landowner raises the rent a tenant can simply move to another equivalently-good bit of land elsewhere.

    It doesn’t matter, really, where a bit of land is located if what you’re interested in is how good it is at producing crops, or keeping cattle around, or whatnot. so in that situation I can see how it would be impossible for a landlord to simply up the rent to pay the land value tax.

    But this is not the case in London: there is a finite amount of land within the M25, and it is pretty much all in use, so a tenant can’t simply, if the landlord raises the rent, move somewhere else (or, if they do, the new landlord will also just have been hit by a land-tax bill and will have raised the rent on the other land too). They have to either pay up and pay the land tax, or move out of London.

    And the benefits of being in London are such that almost all of them will choose to pay up, because to move out of London is to freeze oneself out of the global market access which is given by London’s position as a business hub.

    So I can understand why in the case of agricultural land, where what is being taxed is some inherent property of the land and there is an abundant supply of land with a given inherent value, that land value tax couldn’t simply be passed on to the tenant.

    But where the value of land comes from its position (so supply is bounded, ie, effectively we’re talking about a kind of monopoly), and that value is almost infinite (ie, it’s the difference between a business surviving and flourishing because it has access to the benefits of being in a global business hub, or either failing or maybe just limping along servicing merely local demand), it seems to me those assumptions break down and it will be possible to landlords to pass on the tax in increased rent.

  • Toby Matthews 31st Oct '14 - 11:47am

    Dav- As mentioned much of the land is already taxed privately. Yet London exists. Your point doesn’t stack up.

    LVT taxes the rental value. That value is reached through the market. Therefore- it does not distort the market- it follows and creates the market.

    London’s land will become even more efficient under LVT. It completes the positive feedback loop, rather than allowing absent landlords to extract it (forcing the burden of society onto the worker). Our GDP is hurt by taxing ordinary work, but LVT works in harmony with the economy and society.

  • Dav said

    “Why would the landlords not just pass the LVT on to the tenants in the form of higher rents?”

    Because they are not a charity, and are already charging as much as the market will bear. If you mean will rents go up as taxes on incomes are shifted to LVT, then yes. But this only increases the LVT base. Ultimately the landlord pays

    One of the arguments against LVT is that it wouldn’t raise enough to replace others taxes. That would cancel out the other “landlords would just pass it on” argument. Can’t be both can it?

    “But spreading out does diminish, because you lose the positive-feedback of lots of businesses operating in close proximity.”

    Every time a city doubles in size, it’s GDP per capita and amenities per capita gets 15% bigger. Agglomeration.

    The trouble is, those excluded from this productive surplus have lower incomes yet pay the same level of taxes. This is a defacto State subsidy to London and the SE worth around £100bn per year.

    No wonder London acts like a black hole.

    Under LVT, we get a level playing field where all regions can compete equally, and get some agglomeration effects of their own, until we get to a point of equilibrium.

    At the moment, it’s all tilted in one direction.

  • Dav

    It’s not the act of owning land that gives it it’s value is it?

    In which case, LVT cannot penalise, work, enterprise or success, can it? It merely recoups the value we all create together(aggregate demand) to pay for the services we share.

    As soon as you go down the “it’s a tax, like any other tax” route, you are sunk and will never get your head around it.

    Who or what creates and sustains the the value of location that freeholders property occupies? Is it right, and therefore efficient if we all own an equal share of that value?

    Keep asking your self those two questions, and you’ll see why LVT is good for the UK, and good for London (except the banks, landlords and idle rich who overwhelmingly reside there).

  • Toby Matthews 31st Oct '14 - 11:58am

    Dav- Imagine a sprawling stately home in central London. Next to it, on the same size plot of land is gleaming modern skyscraper.

    Both pieces of land pay the same LVT. But one plot is far more efficient, housing a thousand people. You wouldn’t want to be the man paying for a sprawling estate in central London by himself.

    When thinking spatially, one must think in three dimensions. But also- the worker under LVT won’t be forced into London as she is now. There will be other lifestyles available through the rebalancing of effect. There would be good jobs elsewhere too.

  • I can’t even begin to say how much I disagree with some of these points.

    @ Matthew Huntbach

    I was born in London, grew up here and have always (apart from university) worked and lived here.

    “it is more an issue of scale and business and social development, which is resulting in wealth getting centralised and so sucked into London”

    Wealth is not being “sucked into” London. It is being generated there by people’s skill and hard work and much of it being then siphoned off in higher taxes. What we need to do is to give people in other regions and cities the capacity to generate similar wealth by their own efforts.

    I believe there should be solidarity between regions and it is right that London pays more, but to suggest it should then pay *even* more on top of that is wrong and will create great resentment.

    @ John Tilley
    No comment. I think Caron’s moderatorial cough is sufficient.

    @ Benj
    “Without first thinking about what gives land it’s value, compared to capital and income, you’ll never get it RC.”

    London’s greatly increased land value is generated by the influx of new people to London, the success of the businesses located there and the restrictions imposed on development by the green belt. It is a case of supply and demand. Very high demand and very restricted supply.

    No Benj, London does not act like a “black hole”, because it spews out vast amounts more in tax revenue than it receives in total government spending.

    Those who want to tax London even more than it is taxed at present need to answer why those with modest standards of living in the capital should have to pay out even more than they do now to support others with a better standard of living elsewhere.

  • Because they are not a charity, and are already charging as much as the market will bear

    No they’re not, they’re charging the market clearing price where supply matches demand.

    The fact that prices and rents in London are continuing to increase proves that there is still spare capacity on the consumer side, ie, there are still businesses and people who can afford to pay more than the current market clearing price for London property.

  • No Benj, London does not act like a “black hole”, because it spews out vast amounts more in tax revenue than it receives in total government spending.

    Indeed. London is not a black hole: it is a sun, and its light is what drives the UK economy.

    It is not the sun’s fault that Neptune is cold, and if the sun were to be extinguished it would not make Neptune any warmer. Quite the reverse.

  • RC
    Your claim that –“..Wealth is not being “sucked into” London. It is being generated there by people’s skill and hard work ..” is simply not so.

    See my earlier comment about house prices. A house that I was lucky enough to be able to buy 22 years ago for around £100,000 will now sell for six times that amount (possibly more). This was not due to my skill or my hard work.

    I could buy a similar house where my daughter lives in Lancaster for around the price I paid in London 22 years ago and pocket half a million pounds. Nothing to do with skill or hard work.

    Do you see my point?

  • A house that I was lucky enough to be able to buy 22 years ago for around £100,000 will now sell for six times that amount (possibly more). This was not due to my skill or my hard work.

    No; it was, however, due to the positive feedback effect of London becoming a global business hub, which has generated the wealth which supplies the taxes which keep the rest of the country supplied with the services they have come to expect.

    London generates the wealth which keeps the UK running.

  • Matthew Huntbach 31st Oct '14 - 1:59pm

    Dav

    But this is not the case in London: there is a finite amount of land within the M25, and it is pretty much all in use, so a tenant can’t simply, if the landlord raises the rent, move somewhere else

    If they can’t move elsewhere, the landlord would already have taken advantage of that and raised the rent to whatever it is just enough to stop them feeling forced to do so anyway. What yo are saying is that there are currently landlords charitable enough to demand rents well below what their tenants would be willing to pay. I don’t think this is the case.

  • The rental value of land in London and the SE is about £100bn per year more than these regions pay in taxes. This subsidy goes to banks, landlords and the idle rich(who own more land by value than the 99% of the rest put together), NOT Londons workers who pay income taxes and VAT.

    This is the burden these economic parasites put on the rest of the Country. Those who look narrowly at taxes paid per capita,are failing to see the bigger picture.

    The reason they are failing is quite simply they will not, or cannot bring themselves to ask some basic questions.

    Agglomeration makes London more productive. It is a productive surplus that has nothing to do with with the act of merely owning land. It is commonly created. Therefore should it not be commonly shared? Who currently enjoys the lions share. A very few people and certainly not 99% of most Londoners.

    The fact it is not, puts that £100bn burden of taxes on work and enterprise on the rest of the Country,( and ordinary Londoners too).

    It’s the bigger picture RC. You, and to be fair 99.999% of most people can’t see it.

    Keep asking basic questions though, and you will.

  • Matthew Huntbach 31st Oct '14 - 2:08pm

    RC

    Those who want to tax London even more than it is taxed at present need to answer why those with modest standards of living in the capital should have to pay out even more than they do now to support others with a better standard of living elsewhere.

    But that is the opposite of the original argument. There is no special “London tax” proposed. The idea is that wealthier people get taxed more. If it happens that falls on people living in London, it’s because those people are wealthier, not because they are Londoners.

    More in the way of property tax would make holding onto property you don’t actually need a less worthwhile “investment” and so would bring prices down. This would be of great advantage to those many people who don’t already have housing in London due to inherited wealth. It would greatly help people on modest incomes, particularly if it could be balanced by bringing down income tax. Wouldn’t that be a great reward for enterprise? Isn’t the way earnt wealth is sucked up for the benefit of those who do nothing but sit on property they own or stand inherit a great attack on entrepreneurialism? Making it easy for those who are rich to stay rich and for their children to stay rich, while making it very hard for those who aren’t to get there is surely against the idea of freedom for all that we should be standing for.

  • Matthew Huntbach 31st Oct '14 - 2:18pm

    Dav

    London generates the wealth which keeps the UK running.

    Yes, and to what extent has that involved sucking up all the people with the most skills in the UK so they feel forced to live in London, and they are not there to use their skills to help provide jobs elsewhere? To what extent has the finance industry and globalisation helped London at the expense of the rest of the country by encouraging a process whereby industry elsewhere is closed down because all that matters is the global profits coming in from other countries?

  • @ Dav

    It is a black hole if it pays less in tax revenues than it’s rental value of land . Unlike the value of labour or capital, land has value but costs nothing to produce.

    Like the unexploited value of North Sea Oil, this surplus belongs to us all as an equal share. Would you not agree with this?

    This isn’t about London vs the rest of the Country, but economic parasites vs the rest. 99% of Londoners would be better off under a LVT. And so would it’s economy. How could it not be? LVT isn’t a “tax”. It is a user fee. Very different morally, and therefore economically from a “tax”.

    So you agree rents are based on affordability not cost? I certainly don’t base the rent I charge my tenants on cost. I charge them as much as the market will bear. Hence LVT, like rises in interest rates cannot be passed on to tenants.

  • Simon McGrath 31st Oct '14 - 2:36pm

    @matthew – how does the success of financial services in London cause industry to be closed down elsewhere?

  • @ Matthew

    “But that is the opposite of the original argument. There is no special “London tax” proposed. The idea is that wealthier people get taxed more. If it happens that falls on people living in London, it’s because those people are wealthier, not because they are Londoners.”

    It’s not a “tax on London” or a tax on the wealthy either.

    It is a user fee, by which those excluded from using land are compensated by those granted that privilege. If they are not happy with the benefit their freeholder title affords them, unlike taxes on income.capital, they can reduce their liabilities by simply moving. The freemarket in action, applied to raising State revenues.

    So, to call this a “london tax” or indeed a “wealth tax” is plain wrong.

    It just so happens that most of the people who pay it will be wealthy, and will be living in London. But that will be entirely their own choice.

  • Yes, and to what extent has that involved sucking up all the people with the most skills in the UK so they feel forced to live in London, and they are not there to use their skills to help provide jobs elsewhere?

    The point is that by putting all those people with the most skills in the same place, they generate more value than they would do if they were scattered all over the country.

    If you have 100 skilled people in the country, each of whom on their own produces 1 unit worth of wealth, and they are spread throughout the country, then the country gets 100 units of wealth out of them.

    But if you put them all together in the same place, then thanks to the positive feedback effects of them working together, those 100 of them now generate 1000 units worth of wealth between them.

    Result: the country is much better off, and some of those extra 900 units of wealth can be redistributed to other areas.

    But, if you split those 100 people up and send them to the regions, you’re back to them only generating one unit of value each, and the country is much worse off.

    It’s not a zero-sum game. A bright person who moves to London from Hull does not deprive Hull of £X of wealth and provide that £X to London instead. Thanks to the network effects, in London they generate maybe twenty times what they would in Hull, some of which can be redistributed by taxation back to the less-bright people in Hull.

    Result: if bright people move from Hull to London, then Hull gets better off.

  • @ John Tilley

    “I could buy a similar house where my daughter lives in Lancaster for around the price I paid in London 22 years ago and pocket half a million pounds. Nothing to do with skill or hard work.Do you see my point?”

    But it is not realisable wealth unless you move somewhere else to live. It is not wealth in terms of money you can spend. And if you tax me to the hilt despite the fact that I have a modest home and my real living standards are no higher than in other parts of the country, I and many people like me will resent that because it will be unfair.

    Do you see *my* point?

    @ Benj

    “So, to call this a “london tax” or indeed a “wealth tax” is plain wrong.It just so happens that most of the people who pay it will be wealthy, and will be living in London. But that will be entirely their own choice.”

    No they won’t be wealthy, many of them and some of them, like me will have been born and brought up in the area. Why should we be forced to move out of an area where we were born and grew up or have to pay more taxes, on top of the extra we pay already?

    What we should be looking at is how to use better the existing revenue which is transferred outside London and the South East better to generate employment and growth.

  • @ Matthew Huntbach

    I think you are right about the finance sector, but that is an argument about the finance sector, not about where it resides, and could be equally applied to Edinburgh and Leeds as well as to London. We need a finance sector that serves the country’s wider interests, not just those of a few financiers interested in buying and selling companies and assets without any thought for the disastrous impact it often has on long term company performance and on people’s lives.

    Simply taking aim at London because it looks like a nice fat cash cow for extra revenue – which is what this proposal is really about – isn’t going to work because a lot of people will rightly not be having it.

  • Simon McGrath 31st Oct '14 - 3:23pm

    @RC “We need a finance sector that serves the country’s wider interests”
    You mean one which employs many hundred of thousands people in generally well paid jobs, which pays billions of pounds a year in taxes and which generates huge amount of foreign exchange?
    Like the one we have in fact.

  • David Evans 31st Oct '14 - 3:33pm

    … and which pays in full for the unique privilege of being bailed out by the rest of us.

  • Toby Matthews 31st Oct '14 - 3:47pm

    Nobody is ‘taking aim at London’. It has been mentioned many times here that much of London (tenants) has everything to gain from a free economy.

    LVT would be no less affordable for residents in London than anywhere else. It reflects the rental value of the land. LVT would be higher in London because wages are higher in London. Note that supermarket employees in London are paid more than their colleagues in Newcastle. This is not because they are more productive, but because (Ricardo again) the natural wage floor is higher due to the rental value of land.

    At present, People are forced from their homes everyday in the UK because they cannot afford their rent. By contrast, LVT would yield housing by ending speculation and forcing land to be efficient and available. There would be much less pain wrought by housing in such a free economy. This Tory notion that the wealthy must be afforded privilege because of their class, is just that: A Tory notion.

    Much of finance is, of course, based on rent extraction. Finance is good when it helps allocate capital – but unfortunately much of its wealth and power is based not on wealth creation, but by siphoning off wealth from the real economy. There is no reason for people to spend their lives paying interest for something that already exists and required no cost to create – the land beneath their feet.

  • @ Toby Matthews
    “LVT would be higher in London because wages are higher in London. Note that supermarket employees in London are paid more than their colleagues in Newcastle.”

    But wages are higher to compensate for the fact that costs of living are *already* higher, and taxes like income tax, stamp duty etc fall more heavily on those with a modest real standard of living than they do in other regions. Higher LVT would only add to this unfairness.

    If LVT is brought in initially at a level that will substitute existing taxes rather than increase them, that might be a starting point, with *very* gradual long term increases after that. But an immediate tax hike on people with modest living standards in London would be grossly unfair.

    @ Simon McGrath

    “Like the one we have in fact.”

    No, not like the one we have. The one we have positively sabotages large parts of our economy by encouraging the rapid buying and selling of companies to the detriment of long term strategic success. The City’s time horizon for buying and selling companies is three to five years. The growth companies needed to rebuild the UK’s export sector take decades to build. We need a finance sector that offers patient capital, not one eager for the latest juicy victim to flog off willy-nilly.

  • RC
    You are quite wrong when you say — “.. But it is not realisable wealth unless you move somewhere else to live. It is not wealth in terms of money you can spend…”
    You are just wrong in terms of the facts. People do sell up and move somewhere else, usually on retirement.

    The road I live in has slightly more than a hundred houses. As I was the local councillor for 16 years I am pretty well aware of who has sold up and moved to realise that wealth and spend that money. Probably all but 30 houses have now been sold and the old established families have moved out. Each of the families retired and realised more money with the sale of their house than they had managed to earn in forty years of full time employment in relatively well-paid jobs

    We like all those other families have been lucky. It is as simple as that.
    It is nothing to do with merit, or skills, or hard work — we were lucky.
    We just happened to be in the right place at the right time.
    Nobody could have predicted the staggering rise in property values in this area over the last 40 years.

    People move house, pocket the cash like a lottery win, spend the money. You are deluding yourself if you think their gain is anything to do with skills or hard work. It is just not so.

  • Toby Matthews 31st Oct '14 - 4:19pm

    RC- Please note that the article specifically discusses reducing other taxes. Your other points seem to reiterate what I have already mentioned. LVT is not passed on to tenants. It cannot add to the ‘cost of living’, in fact it will redress this very point. The poor already pay LVT (to the rich, instead of themselves). It is not a tax hike (technically it isn’t even a tax). It is a tax shift.

  • Late to the party but I want to try another angle for Dav and RC who from my POV are not ‘seeing it’.

    I agree with it being an advantage to having a productive business hub attracting more to a vicinity which enhances the value of each being there. My question is does the fact businesses who own their own land don’t have to be as lean, to provide services as efficiently nor employ most productively due to their not having to compete on a level playing field with competitors who have to pay rent on their premises make London a more or less effective hub? What the original article failed to mention in talking of businesses leaving London is that those already contributing so much to the economy they can afford rent on business premises would be unaffected. Only those sitting on land whose ‘profits’ as per today’s balance sheets don’t differentiate between their economic contribution to London and the economic rent that accrues to them would need to rethink. I would contend this would be to London and to Londoners’ benefit, let alone to Clacton’s.

  • Matthew Huntbach 3rd Nov '14 - 10:53am

    RC

    But it is not realisable wealth unless you move somewhere else to live. It is not wealth in terms of money you can spend. And if you tax me to the hilt despite the fact that I have a modest home and my real living standards are no higher than in other parts of the country, I and many people like me will resent that because it will be unfair

    Yes, but it IS real wealth when you die, and your heirs inherit it and sell it off. I do think it is unfair that some people might get a million pounds or so for that reason, which they can use to push themselves above others in some many ways. Mostly that money is recirculated into housing, thus serving to push house prices out of reach of those who don’t have access to inherited wealth. So that does serve to shut London off from others.

    If someone actually NEEDS the house they stand to inherit, then it is in their interest to pay any property taxation on it. It would be a lot less than they’d have to pay to but the place. If they don’t need it, well then, bang goes your argument. In practice I think it would be fair to allow some sort of deferred payment option for elderly people, in effect payment by equity, in order to make sure no-one actually would be thrown out of their home due to being “unable to pay”.

  • Matthew Huntbach 3rd Nov '14 - 10:54am

    Me

    It would be a lot less than they’d have to pay to but the place

    Typo – should be “It would be a lot less than they’d have to pay to buy the place”.

  • Matthew Huntbach 3rd Nov '14 - 11:01am

    RC

    No, not like the one we have. The one we have positively sabotages large parts of our economy by encouraging the rapid buying and selling of companies to the detriment of long term strategic success.

    But I agree with you on this. In general my argument in reply to Simon McGrath is that the “finance industry” is now sucking up wealth and talent and so depriving other industries of it. We as a country are becoming dangerously unbalanced by it – as even our own Tory Chancellor of the Exchequer has said.

    To me, the “finance industry” is the bureaucracy of capitalism. Of course we need bureaucracy, it is essential for efficient organisation. But we all know it has a tendency to get bloated and to end up taking control instead of being a service, and to generate more and more jobs which are just about managing itself and therefore strangling real productive initiative. I do appreciate that actually much of our “finance industry” is actually hiring ourselves out as the bureaucrats for capitalism working in other countries – which also is part of my answer, when that means it is actively involved in the process of selling out our country to wealthy foreigners.

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