Debate Magazine

Killer Arguments Against LVT, Not (426)

Posted on the 26 November 2017 by Markwadsworth @Mark_Wadsworth

Paul Lewis did a fairly positive piece on LVT (in Scotland) on his Radio 4 Monyebox programme yesterday (h/t Bayard). Duncan Pickard was on top form.
They then invited David Melhuish of the Scottish Property Federation to put the arguments against:
I think, at the moment, we don't know enough about [LVT], so we are unpersuaded at this point, as [the MSP] said, there have been a number of studies of this in recent years and I think most of the conclusions have said that we need to do much further analysis on it.
I think that there's two big problems there.
Yes, I know that the economic theory is supportive of it, but there is a point about how this interacts with the planning system as well, and whether land is unimproved or not, it'll have to have a planning designation and the planning system is not easy to deal with and often a point of frustration. So I think the practicalities come into question at that point.
My other point would be, if you are talking about replacing other instruments of tax, you're probably shrinking the tax base considerably with some of those, and I think there's a risk inherent in that you could have a sizeable redistribution of tax on much fewer shoulders.
It could happen, it's a devolved area. I think there's a huge amount of practicalities to overcome. You've still got between Council Tax and Business Rates £4.5 billion of income and the fact that you would be shrinking the tax base, you know, I think that would put quite a burden on more people than [Duncan Pickard] thinks.

Wow. I'd have expected him to go in much harder than that, but he chose to get bogged down in technocratic sounding waffle.
Barely worth debunking, but here goes:
1. Initial valuations can be based on current actual use, same as council tax or business rates are/were. We can easily tweak those two existing assessment/collection systems to be so close to LVT as makes no difference. Then it can be extended to plots with actual planning permission, we know perfectly well what they've got planning permission for.
2. As it happens, the Scottish Land Revenue Group invited me to do a talk last year, so I know the numbers on this. Total receipts from Council Tax, Business Rates, Land & Buildings Transaction Tax (Scottish SDLT) and other bits and pieces that can be swept up, like planning fees, s106 agreements, Community Infrastructure Levy etc are just shy of £5 billion.
The total tax base, the total of the site premium of all residential and commercial buildings is at least £20 billion. That is completely unaffected by the taxes levied on it.
So a straight replacement LVT, just to get the ball rolling would be a bit less than 25% of the site premium. For most households or businesses, the initial LVT would be the same or less than Council Tax or Business Rates is now, for homes in higher value areas - and a very few shops or office on Princes Street in Edinburgh - it will be a lot more. Unfortunately, Inheritance Tax is not a devolved tax, in an ideal world that would be replaced as well, which would compensate for the higher taxes on the most expensive homes.
He confuses the 'tax base' with the number of people paying what proportion, and contradicts himself on whether more people would pay more or fewer people would pay more. Which is a classic Homey strategy. If those 'fewer shoulders' don't want to pay the LVT, they can sell up to somebody else who will.
Clearly, if LVT were then extended to replace income tax in its entirety (which the Scottish government could now do, if it wanted - see s11A of the Income Tax Act 2007, as inserted by FA 2014), this would mean that the tax rate would have to be about 70% of the current site premium. If the income tax cuts feed through into higher rental values, the LVT rate would be less than 50%. So it's perfectly do-able.
Assuming no change in behaviour, that would mean significant changes (increases or decreases) in how much tax some households or businesses pay, but once people have upsized and downsized, it will all sort itself out. The chances are, most will end up paying the same total, but out of larger overall incomes - with the other big bonuses that taxpayers are getting something directly in return for the taxes they pay, it will be semi-voluntary, as well as dampening land prices and having more efficient use of existing urban land.
What's not to like?


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