The Scottish Green Party launched their manifesto today and one of the major talking points about it was the tax raising powers of the proposed Land Value Tax.
I haven’t quite made my mind up on LTV yet. I think it is a great idea and the future way forward, but there will be quite a lot of edge cases to sort out during a transition to it.
Opposition parties have quickly attacked it, but they would do well to sit back and think through the responses calmly. I’m not sure an election campaign in the best time to launch the idea in full as the attack dogs will try to tear it apart.
One of the serious problems is in relation to students. Currently, students are exempt from council tax, and in fact, unless they owned land, they would not pay Land Value Tax either. The problem is that the owner of the property a student rents would pay Land Value Tax and is likely to pass some or all of the burden of this tax onto the tennant. It is not clear that this will happen, the Greens think supply and demand will stop this from happening, others do not.
Straight away opponents latched onto this, such as Caron Lindsay who said :-
They are talking about some properties attracting 5 times the level of Council Tax in Land Value Taxation. Presumably they mean in city centres. So what happens if you are a student in Marchmont, or you are not particularly well off? You’ll end up with a tax hike which will force you out of the city, leaving city centres as the preserve of the very rich.
I’m certain a flat in Marchmont is not going to see a 5 times level of Council Tax increase. A quick search on Google shows that a random flat available in Marchmont are in Council Tax band C which will see a reduction in Council Tax not a 5 times rise. City of Edinburgh roughly charge a £1000 a year for a council tax and according to the Green’s this would be about £800 LVT[pdf]. If the landlord were to pass on the whole of this to the student, the student would be £66 a month worse off. It isn’t great, but it isn’t “5 times the level of council tax” (that would be £400 a month).
LVT is a sea change in taxation, and a whole different way of thinking about land ownership, property and taxation. There is a lot to think about it before it is dismissed out of hand and I hope the scaremongers can see the benefits it will bring.
On student rents I think there is an element of ‘what the market will bear’ in terms of whether the cost is passed on – but with council tax if you have a mixed house share don’t the non-students have an undue burden under the current system.
I am at a slight disadvantage here as my council tax has been included in my rent everywhere I’ve lived for more than ten years so I’ve not actually paid it direct for some time.
However, in the process of going to implement this if we find there are some sectors who will be unduly hit, unintentionally, by LVT it’s so incredibly easy to fix. If it’s necessary we could intriduce a scheme where a landlord can apply for reduced rates if his/her tenants are students. This could apply to other areas, we’ve already got a reduced rate in their for farmers for example so the principle is already established.
I don’t think this is much of a hole in the plan to be honest although I do think that before implementation there would have to be a lot of work done to ensure that there are no unintended consequences and to iron those out before the system ‘goes live’.
That’s my thoughts anyway.
Thanks for the comment Jim. Reduced rates for landlords who have students will actually increase the affordability for students as the landlord will have lower costs than if they had working tenants.
I also see one option mooted on the Green’s white paper is that the owner, a pensioner, for example, could continue to pay council tax until they sold the property.
Well, most pensioners would be better off under LVT, but completely agree that you’d have to bring it in over a period of time rather than slap it into place over night. That phased implementation could also be used to ensure that any group is not unfairly penalised.
Apologies for spelling and gramatical mistakes in previous comment – they were pretty bad, even for me!
Why would the landlord have lower costs? Am I being dense (a real possibility!)? They are getting a brand new cost.
Currently tenants pay council tax.
Ergo, the landowner does not.
Proposal is that LVT is paid by landowner.
Ergo, the tenant does not.
The cost to the tenant has gone down in terms of council tax but not rent.
But the cost to the landowner has gone up in terms of LVT but not in terms of rent.
Surely that means that the landowner has higher costs which will probably be passed on in rent?
Where is my thinking wrong here? Or are you only referring to Jim Jepps situation which is not the rental market norm in my experience.
Lower if they had a student than a different type of tenant – was postulating on the idea from Jim “scheme where a landlord can apply for reduced rates if his/her tenants are students”
Ah. In that case I was being dense. Sorry.
I am not a fan of LVT for private households. Whilst there is a tenuous link between homeownership and income (the housing bubble means that people have large amounts of equity for buying expensive homes – there are people out there who have incomes that would not get a mortgage of £150k living in homes that cost more than twice that) there is no link between LVT and income. And that is my primary concern about it.
Although in terms of students who rent there is a case to see what market forces will do (push up prices in some cases and reduce profit margins of landlords in others – neither scenario is particularly pleasing given the number of older people who have seen pension savings collapse and use property as a way to fund their retirement). However, if there is a mature student home owner, the 100% discount they currently receive is not covered by LVT so suddenly they get a tax bill.
Another problem is that LVT is predicated on the belief that house prices rise only because public money has been spent in an area. Yet homes in Leith have risen in value because thats commercial developers stimulated demand. Not public investment. So if you bought a home in Leith prior to gentrification then you now have an unexpected increase in taxes.
I have many more of these issues (and as you can tell, happy to share them too) but the last one for now is that it could, under the law of unintended consequences, mean the communities around Scotland seek to prevent publicly funded improvements from happening as they would then face a tax increase.
LVT for commercial land and as a replacement for business rates? The Lib Dems voted for that at the conference in Perth this year.
There are implementation issues that face anyone trying to bring in LVT, but they come about because of distortions created by the current system. In the long run, the benefits that come to everyone in an economy when those distortions are removed, make the transition worth it. Of course some transition strategies are better than others…
Whilst there is a tenuous link between homeownership and income…there is no link between LVT and income. And that is my primary concern about it.
This is one of those situations that comes about because the current system essentially ignores land-use. Thus economically useful land is used less efficiently than it could (and sometimes isn’t used at all – empty homes for example), which makes the economy weaker. Ironically, just as people maximise their financial gain from the current system, people will do the same under LVT, such that in the end, there will be a definite observable link between Income and LVT. The transition issue is that people have become attached to their wasteful land practices.
Another problem is that LVT is predicated on the belief that house prices rise only because public money has been spent in an area.
Kind of, but not really. LVT is predicated on the idea that because the land/locations were not created by man, but people must compete financially to determine who uses which location, then it is immoral for the proceeds of that competition to be privatised.
Public investment can raise land values, but they are not the only thing that does, and not all public investment will raise land values, namely pointless things that no-one wants will not raise LVT levels revenue.
under the law of unintended consequences, mean the communities around Scotland seek to prevent publicly funded improvements from happening as they would then face a tax increase.
I see that as a benefit. It’s very easy to be supportive of any particular initiative that you don’t directly pay for. LVT is in fact a charge for the benefits of being in a particular location, so if they’d rather have low taxes than benefits, who are we to say that’s bad? As long as the results of a decision are borne by those who make it, I see no problem with it.
Incidentally, one way to reduce your tax bill is to have nearby land be given planning permission, thus reducing competitive pressure on your own land.
With regards to students, this isn’t really a taxation issue. If you want to subsidise students as you do now, you simply carry the exemptions over. There’s no real reason why you couldn’t, administratively speaking.
I’ve thought about this quite a lot, and you can’t really get away from the fact that LVT is regressive, although it is less regressive (more progressive) than council tax. But under LVT you still get people on low incomes paying proportionately more of their income on LVT than people on high incomes.
This is basically because the difference between the highly paid and the low paid are massive, even compared to the value of the land or property they own. To give an extreme example someone on a low(ish) income is likely to own a home that costs them perhaps five times their salary and will take them 25 years to buy with the help of a mortgage. This home might be worth say £140K. On the other hand, top bankers and chief execs are buying £2million properties in Edinburgh outright (no mortgage at all), for about 1 or two times their salary.
LVT is an excellent replacement for business taxation, but it’s not so good for domestic taxation.
Patrick Harvie points out that it was part of the “people’s budget” 100 years ago. But back then, there were low levels of home ownership, lots of lords who owned massive chunks of the country, it made sense back then. Not so much now I’m afraid.
Considering that you and I are probably far apart when it comes to actual tax levels Steve I am always amused that we share a similar opinion on what our tax system should actually look like in terms of a combo of LIT/LVT.
Me too!
Let’s get a sensible system in place first and argue about the overall levels later.
It seems ironic to me that in many ways the best hope Scotland has for a progressive solution to local taxation is that the Lib Dems hold the balance of power. Don’t tell anyone I said that though!
On the other hand, top bankers and chief execs are buying £2million properties in Edinburgh outright (no mortgage at all), for about 1 or two times their salary.
An important thing to remember is that a lot of banking profits are actually land rents. By being able to conjure the money for house transactions, banks collect the land rent from the new owner under the guise of interest. Indeed any collateralised loan, is simply the borrower pledging land rents.
What you end up with is banks effectively charging (and in a bubble, massively OVERcharging) LVT on home-owners over the life of the mortgage. Thus, when LVT is introduced, it can in effect be double taxation (first by the banks, later by the state), but the only way to truly end that robbery without wrecking the economy as a whole is to bring in LVT. Maybe there’s some transition strategy that hasn’t been thought of yet that can cover that. Maybe it’s been thought of and I just haven’t heard it. I don’t know.
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