Emailed in by Ben W, from Prospect Magazine:
The title is This practical fix shows why the chancellor should introduce a land value tax seems promising, but they clearly aren't that enthusiastic at all:
All recent proponents of a residential LVT have started from the premise that it would replace Council Tax. After all, we would surely just be replacing one form of property tax with another. This will never work, for the simple reason that the Council Tax Bands and rates are so out of date at the higher end of property values, they bear no relationship to the market value of today’s homes. How can a Council Tax of £2,474 per annum on a £30m house in Kensington, compared to £2,398 per annum on, say, a £500,000 house in Solihull, be considered as a proportionate property tax? Council Tax has become a (very flawed) system of charging home occupiers for Local Authority services.
But to replace the overall £33bn of Council Tax due for England in 2020-21 would require an LVT rate of around 0.9 per cent. While land values vary widely as a percentage of property market values across the country, 66 per cent is a reasonable guide. At 0.9 per cent this would imply LVT on the Kensington house of around £180,000 a year (and approximately £3,000 a year on the house in Solihull). And at Local Authority level, Kensington and Chelsea could expect their annual receipts to rise from £106m to £787m, whereas Birmingham’s would fall from £362m to £115m. Such dramatic shifts are clearly unacceptable.
A sensible LVT would of course be a national tax, where all revenues go into one national pot (like it used to be for Business Rates) and local councils just get per capita grants. A 'local' LVT to replace Council Tax would be pointless as nothing much would change. At a very local level, Council Tax more or less is the same as LVT.
A further problem is that Council Tax is payable by the occupiers of a property (who may be tenants), whereas LVT is charged only to the owners.
Whether you have LVT or Council Tax, it makes much more sense for the bills to be sent to the owner, for administrative simplicity and improved collection rates.
Two accompanying tax reforms would make sense: reduce Stamp Duty Land Tax on purchases of principal primary residences (PPRs) to a flat 1 per cent, which studies have shown would significantly free up the housing market, at a cost to the Exchequer of around £320m pa. By comparison, LVT at a uniform rate of 0.05 per cent across England would raise approximately £1.6bn pa, and with the higher rates advocated above, total LVT receipts would be much greater. Secondly, introduce Capital Gains Tax at around 10 per cent on all PPR disposals.
Aargh! SDLT and CGT are both taxes on transactions! They're not as damaging as VAT, because they are taxes on land transactions rather than creation of new assets or services, but bad taxes nonetheless. Reducing one bad tax and introducing an equally bad tax is stupid.
One of LVT's many advantages is that it encourages "right-sizing", single people trade down and families trade up. That's a lot more efficient than building new homes. Taking away 11% of the selling price of somebody's home if they decide to down size discourages it.
Verdict: Fail.
Debate Magazine
