Category Archives: Hands Off Our Future!

The first nail in the coffin of Local Income Tax?

I’ve been very good this past month and have managed to keep schtum about the Liberal Democrat Youth and Students’ decision to reject local income tax in preference to land value taxation until after the elections were out of the way. Now I see that the entire motion is up on the ALTER website, I suppose my self denying ordnance can come to an end.

LDYS has a proud history of leading where the party subsequently follows, and I’m hopeful that this will prove to be another example of this. And it is timely, with the National Institute for Economic and Social Research comparing the rise in property prices to the national debt. Aida Edemariam wrote a good summary of how the problem is affecting the whole of the UK in the Guardian on Friday. We have to do something, and a tax on land values is a lot more economically respectable than a crude property tax.

One of the problems the party faced in the latest round of elections was a failure to stand out from amid the crowd. Taking on intergenerational equity would give us a USP. It isn’t simply an old-versus-young issue as older people who were simply in the wrong place at the wrong time have lost out just as much as the younger generation who are now left with the consequences. The introduction of any new tax could be matched by a cut in other taxes, ranging from existing property taxes such as stamp duty through to income tax. Such a tax shift need not be unpopular.

Fundamentally, we have to tackle this situation whereby people have more incentive to invest in bricks and mortar than in stocks and shares. That is bad for the economy whichever way you look at it. I don’t want to sound all Marxist, but if the political system doesn’t solve this problem, the economic system will do it for us in a way that will be much more painful. I’m amazed that the political class isn’t looking at the emerging picture and isn’t worried. To be fair, some individuals such as Vince Cable and David Willets, have been warning about this for some time, but their views have been falling on deaf ears.

But there is no prospect of Local Income Tax on the horizon. With the combined SNP/Lib Dem seats in the Scottish Parliament 2 short of a majority, it won’t be introduced there. Labour and the Tories have resisted the simple populism of LIT with good reason: they appreciate the danger of scrapping property taxation altogether even if they lack the courage to introduce a proper system that doesn’t have the flaws of council tax. Rather than dismissing this as stupidity, the Lib Dems ought to consider why this is one popular policy our rivals (except for the SNP, which in itself should tell you something) have declined to steal.

I still have high hopes that sooner or later the Lib Dems will realise that this is one issue that we could really make our own. Gordon Brown’s announcement to cut income tax by 2p in the pound has forced us to revisit our taxation policy (it’s amazing how much of the paper we passed last year has been borrowed by the Tories in Labour in such a short space of time). Hopefully, more radical minds will prevail.

House price boom should be treated like national debt

Not much time for blogging at the moment, but I thought I should flag this up now:

The National Institute for Economic and Social Research says in its latest journal that the surge in house prices is one “of the major adverse developments affecting the UK economy over the past 20 years”. The thinktank’s director, Martin Weale, says the rise has a similar effect to rising government debt because it transfers a burden to future generations.

Tossers and John Hutton

Now that my various major work crises are out of the way for another calendar year, I will hopefully have more time to spend on this blog.

Right now, two things leap out regarding Intergenerational Equity.

The first is John Hutton’s call today for raising the pension age to 68.

I have to say, I’m with Hutton on this.  The choice really is as stark as raise the retirement age, or force our children to pay the price.  Personally, I’m prepared to accept that there is some give and take on this.

Unfortunately – and unsurprisingly – Labour’s paymasters, the Trade Unions do not share this view.  Indeed, the Labour Conference actually voted down proposals to raise the retirement age back in September.

Malcolm Sage from the GMB union, led the opposition to “any suggestion that the state pension age should rise before health inequalities in the UK are eradicated and improved longevity is equally shared by all.”

Well, actually, the proposal is to phase in raising the retirement age over 40 years.  Is he seriously suggesting that longevity won’t be significantly higher across the UK in 40 years?

Barry Camfield, from the TGWU, added to the criticism: “We want to abandon this threat to voiceless children today that they will have to wait until 68 for their pension and I nor my union are prepared to mortgage and sell out children in years to come. We stand up now for those children.”

No, you’re selling out those children by forcing them to pay massive extra taxes just so you can squeeze a bigger pension out of them.  Trust me, mate, they don’t want your “help”.

Speaking of Tossers, the Tories have launched this new viral marketing ad, which must work because I’m linking to it.

On the one hand, it is true that many people are lured by cheap credit into buying tat they don’t need.  That’s all fine and dandy, and obviously these people should be discouraged.  But if you think that is the be-all and end-all of the current credit culture we have, you are sorely mistaken.

Take me for example.  I resisted getting a credit card for as long as possible.  Eventually I succumbed because of a combination of an employer shitting me about, and the fact that no bank would lend me a responsible loan until I had “improved my credit rating” – i.e. got myself a credit card.  Later, when I sought to consolidate my loan, the same company wouldn’t help, forcing me to get a loan somewhere else.

I’m not claiming to be entirely blameless here, I freely admit to making mistakes, but I’m really not that profligate.  Most of my debt mountain was accrued during particular crises when I needed credit at short notice.  And it was accrued using credit cards with high interest rates because no-one would give me a cheaper loan.

The bottom line is, a lot of the current credit crisis is rooted in the fact that young people are being clobbered by a combination of student debt and exorbitant house prices.  The Tories have precisely nothing to say about either issues.  Until they do, they should watch who they go around calling tossers.

Land Value Tax – Towards a Fairer Society

A guest article by Dr Carole Tongue and Dr Dinos Kyrou, of the Professional Land Reform Group.

“All taxation is theft”. The quote from political activist Lester Neil Smith (also a writer of science fiction), has been used by the right wing and those who oppose distribution of wealth for decades. Ironically, those who support Land Value Tax may think that L.N. Smith was correct – to a certain degree. Continue reading Land Value Tax – Towards a Fairer Society

Radio HOOF

I launched this website a couple on months ago on The Big Issue – a radio programme on Resonance FM.

They’ve just added a couple of excerpts of the programme on their website for your listening pleasure (I’m on all the ones dated 24 May).

One thing that occurred to me relistening to these things.  My initial idea for this website was to have an accompanying forum, but I closed it down because it was being bombarded with porn and I realised there were other forums out there through which I could spread the word (e.g. PricedOut).  Should I bring it back?  What other good ways should I be spreading the word?

The what and why of land value taxation

I must learn to curb my enthusiasm about the Conservative Party. Contrary to my post earlier today, it would appear that the Bow Group’s proposals today (which can be found in full here) are not in fact a land value tax at all, merely a property tax and that going by the comments on ConservativeHome, the Tories are not likely to embrace the system any time soon (hat tip: Jock Coats).

I think we should still welcome the fact that these proposals have been published and added to the public debate on the issue however. There is indeed a very real difference between a tax on property values and a tax on land values, but the fact remains that regardless of the flaws, we would have significantly less of a problem with housing in this country if we had higher property taxes.

Taken as a straight proportion of property value however, taxes of this kind can have a pernicious effect. While it encourages people to want to maximise the use of their property, discouraging empty properties by forcing the landlord to pay an annual rate, it discourages actual investment. Double glazing, insulation, even (at least in theory) a lick of paint would increase the property value and thus the tax. This has a pernicious effect when surely there is a social good in encouraging such investment.

Land value taxation is different in that it is not levied at all on the capital value of a property, just its land.

What’s the difference? Well, without getting drowned in the economics, the simplest way of drawing the distinction is to imagine two houses, exactly the same, one of which is built in Newcastle and the other is in London. Let’s, for argument’s sake, say that the Newcastle house has a market value of £100,000 and the London house has a market value of £300,000. What’s the difference? Relative land values (or, as Kirsty and smug bloke put it “location, location, location“).

London bricks are not made of gold and Newcastle doors are not made of balsa. The reason the values vary so widely are because of a number of external factors such as:

  • the wealth of the surrounding area, including employment prospects
  • public services such as transport links, schools and hospitals
  • speculation

Speculation is a problem all markets face, but it is particularly problematic in the property game because demand is pretty much constant and supply is finite. What’s more, buyers stand to gain by getting in on the game as well. As a result, prices can escalate to quite absurd levels before a correction comes crashing down around people’s ears, and anyone playing the long game can afford to wait a few years knowing that the speculator bubble is bound to begin again soon.

Look again at the graph on housepricecrash: there may well be peaks and troughs, but the overall trend is up. Small time operators may have to be wary, but the large operators can only win in the long term. Why else do you think so much of London is still owned by just a few families? And why else do you think so much of London is now being bought up by Hong Kong conglomerates?

As well as simple speculation however, landowners also cash in because the taxpayer hands it to them on a plate. Property investor Don Riley has calculated that the Jubilee Line Extension earned landowners a grand total of £13bn – the cost of the JLE was £3.5bn, every penny of which was paid for by the taxpayer.

Not all land values are tied to government investment in this way to be sure, but they certainly are generated by wider society.  By definition, anything that the landowner does do to generate value is capital investment.

So, in essence, the case for land value tax is quite simple: it encourages use, discourages speculation and simply recaptures our own common wealth.  It doesn’t have the same problems associated with taxes on labour (including income taxes) and capital.

The downside is, if you tried introducing full land value taxation overnight, you would almost certainly cause huge problems as the housing market plunged and individuals found themselves trapped in negative equity through no fault of their own.  Ultimately, we have to recognise that people have been making the most of the existing system, however flawed, and that imposing any economically “perfect” system is bound to cause problems.

But there are ways around this.  Firstly, and obviously, don’t introduce full LVT overnight.  If instead you simply used it to replace existing property taxes (stamp duty, council tax, business rates and, arguably, IHT), the impact would be minimal.  Secondly, protect the smallholder by introducing a homestead allowance up to a certain value: this means the people at the bottom end of the scale are protected.  Thirdly, allow people under certain circumstances (e.g. the elderly) to defer payment until after the value of the property is realised.  That way, no-one will be forced out of their homes (although there would still be an advantage in moving).

Even land value taxation at modest rates would lead to a more rational property market however. This leads to the most obvious question – if it’s so wonderful, how come we don’t have it already?  The answer is, the people with the most to lose are the people with the most power.  This was certainly true in 1908 when Lloyd George attempted to introduce a modest land tax.  Back then, his enemy was the landed political class, squatting in the House of Lords.  And there’s no getting away from the fact that the people who stand to lose from this proposal now – specifically wealthy landowners – will mount a spirited defence.  But it cannot be emphasised enough that they will ultimately be defending a system that rewards speculation and discourages hard work.  That is not a sound basis for a strong economy.

The difference 100 years makes

Just under 100 years ago the Conservative Party, from its position of strength in the House of Lords, went to war with a reforming Liberal Government on the issue of land value taxation.  Now it is the latest thing in Tory fiscal reforms.

I’ll blog about this later, but all in all this is something we ought to welcome.

A Taxing Question: Do Lib Dems want the Youth Vote?

Tony VickersA poll by the Hansard Society to coincide with the local elections in May had the Liberal Democrats winning the Youth Vote: 30% of 100,000 pupils in over 200 schools voted Lib Dem, with Labour and Greens tying on 25% and the Tories on 15%. National policies such as free tuition fees and opposition to the Iraq War probably account for it, but the Lib Dems could be about to squander this support. The reason is an unlikely one for the Party that still sings “The Land” at its annual conference: the virtual abandonment of any domestic property tax. Continue reading A Taxing Question: Do Lib Dems want the Youth Vote?