One of the top five KLNs of all time is that is would be very difficult and expensive to establish the site premium of each plot, and most land value taxers skirt round the issue (there are plenty of countries which do it simply and cheaply, noteably Chile of all places, but that's by the by).
Having thought about this a bit more, establishing the site premium (rental value/LVT bill) for each residential plot is actually very simple if you start at the right end.
1) First of all, you work out the total rental value i.e. the tax base i.e. the maximum amount of tax you can collect, which happens to be a nice round £200 billion (if you use LVT to replace other taxes, which is of course what most of us want, then it would be much higher, let's gloss over that).
The LVT purists have a bit of a mental block here: there is a difference between how the site premium is calculated and how the result is expressed. Having calculated it correctly, you can express the result in any way you like, as an absolute £ figure, as a £ per square yard, in terms of ounces of gold or as a percentage of the value of the home.
(This issue does not arise with e.g. income tax/NIC. These are calculated as a certain % of your income and can be expressed as such).
The correct way of calculating it is to look at the total £ rental value of each home/plot and deduct the real £ annual costs of maintaining the building to get a £ tax base. I have done this over and over and establish that by and large and in the grander scheme of things, for most homes, the rental value is between 3% and 3.5% of its current potential selling price. And we can safely assume that most plots have been put to their optimum permitted use, so there is little need to worry about alternative better uses. Whatever is there probably is the optimum permitted use.
2) Clearly, simply looking at the size or type of a home or size of the plot is meaningless on a national level; the site premium of a semi-detached in the cheapest areas is plus-minus nothing; in London it is upwards of £20,000 a year.
But if you split up the country into lots of smaller areas with a few thousand homes in each and you know their total value by e.g. looking at average selling prices as recorded by HM Land Registry, then you know the total site premium of those few thousand homes (it's the total value times 3% - 3.5%). You can do the whole country in a few minutes with a spreadsheet and pivot tables.
And if such a smaller area consisted entirely of very similar houses - all semi-detached or all medium sized terraced houses, for example - then all you have to do is divide the site premium for that area by the number of homes, they all get sent the same tax bill, no discussion and end of back chat.
Clearly, such areas are few and far between. In most areas there will be a mix of all types of homes, from small high rise flats to large detached homes with massive gardens. So the valuer just has to ascribe a relative value to each home, starting in the middle with 1.0 'units' for a three-bed semi, down to 0.4 'units' for a high rise flat and up to 2.0 'units' for a detached house with a massive garden.
All the valuer then has to do is add up the resulting number of 'units', divide the total tax base by that number to work out the tax per unit and then multiply up again.
3) So the valuer publishes his initial list and waits for the inevitable outcry with people moaning that their home should be rerated to a smaller number because it's in the shadow of a motorway flyover or whatever. Some of these appeals will be justified and nodded through; others get turned down or put to some sort the popular vote: the gimmick is that the valuer doesn't particularly care.
Whatever happens, the total tax bill still gets divided by the number of units and multiplied up again, the total yield is the same.
To illustrate the point, let's imagine the total site premium is £24 million and the area consists of 3,000 very similar semi-detached homes, rated at 1.0 units each. The tax per unit is £24 million divided by 3,000 units = £8,000 per unit = £8,000 per semi-detached.
Everybody whines and moans until his home is rerated down to 0.8 units, so now there are only 2,400 units in the area. Divide £24 million by 2,400 units = £10,000 per unit. Each semi now has to pay 0.8 x 310,000 = £8,000.
4) So although every homeowner wants his own home(s) to be rerated downwards, nobody wants anybody else's to be rerated down, because the less they are paying, the more you are paying. So basically the valuer is a referee not a player and can let people bicker among themselves.
If people really can't agree, well then the local council just threatens to shut all its schools and hospitals, sack all its bin men and turn off the street lights. If that's what people want, let them have it. If people are selfish enough, they will end up with homes which are unsellable. If people are clever enough, they will use this as a bargaining chip to persuade the council to shut down a few white elephant projects and rein in excessive salaries etc. Who knows?
Debate Magazine
