Tuesday, July 25, 2006

Bow Group Tax Proposals are Mad

I've seen some wacko tax proposals in my time but the Land Value Tax as proposed by the Bow Group yesterday has to rank as one of the most muddled and ill thought out. It's not even what it says on the tin. It's not a LVT, it's a HVT, a House Value Tax. It seeks to replace Council Tax, Inheritance Tax, Stamp Duty and several more besides by a 1 per cent tax on the value of a house. Barking mad. Like the LibDems' Local Income Tax, it's middle class families who would be stung by this proposal, especially those in London and the South East. If these proposals we're even given the remotest consideration by the Party I have a simple message to Conservative candidates standing in marginal seats. Don't bother. Thankfully George Osborne is far too sensible.

32 comments:

Martin Curtis said...

Yep, absolutely barking, totally unworkable nad impractical. This sort of rubbish does nothing for the reputation of hte Party. It is a shame because the Bow Group are normally pretty good.

Martin Hoscik said...

At least with the LibDem's local income tax there's a logic behind the idea - those who earn more pay more. (though I admit it was poorly presented)

Property based taxes on the other hand are divorced from all reality. The value of a home is not, has not, can ever be a reliable indication of someone's income.

Therefore any property based tax is inherently less fair than any income based system.

JohnJo said...

Yes Iain, they are mad. If these proposals were ever accepted by the Tory party I would stop looking for a reason to vote for them again. We bought our house for half it's value now some time ago and could only just afford it then. The proposed tax would eject me and my family from our local community. Some "think tanks" are too much tank and not enough think.

Jock Coats said...

Property based taxes on the other hand are divorced from all reality. The value of a home is not, has not, can ever be a reliable indication of someone's income.

Therefore any property based tax is inherently less fair than any income based system.


Whilst I don't want to get myself into a long discussion on here as I did on CHome yesterday abou this (and no doubt Iain would have something to say about that as well), but this is just not true above. Income tax is serfdom to the state. And arbitrary at that.

At least land is something that you occupy that the state stands as guarantor to. And what's more you occupy it to the exclusion of others, regardless of how much better used a particular piece of it might be by others.

Land value tax (which this is admittedly not whatever Mark calls it) is a market led mechanism, divorced really from "tax and spend" and reflecting the "added value" (economic rent) that community activities around a particular site give to that site (as opposed to the landowner who doesn't do anything to earn land value increases or decreases).

You only see it as unfair because we are more used today to paying for our homes in one lump sum at the beginning (and owing the bank for a further number of years in most cases) - hence you have an idea that it's "yours, all yours". There are more social costs to underuse of precious and scarce land than there are to you making a high income. I'd far rather tax the former than the latter.

Inamicus said...

Isn't it a bit embarrassing for the Tories to have spent so long attacking the Lib Dems on LIT for hitting the middle classes only to come up with a policy that would hit them even harder?!

Iain Dale said...

Inamicus, ad you well know, these proposals are not Tory proposals. They are being put forward by the Bow Group.

Praguetory said...

For all the talk of population density, overcrowding etc there is an acre of land for each person in the UK. Land ownership is dominated by a handful of groups (namely Church, MoD, farms and heirs). Currently, land can be sat on (i.e not used usefully) at virtually no cost to the owner. Faced with even a tiny annual cost land owners will have to use their land productively or sell it. I am very supportive of the idea.

I would wholly advocate bringing such a tax in at a very nominal level and slowly replace the other less fair taxes over a period of say 20 years.

Colin D. said...

Any system that puts pensioners in the slammer for NOT paying is amoral. This lot have put a few oldies in jug for refusing to pay up. Prezza "forgets" and gets let off! Can anybody enlighten me as "how" it went un-notised for so long??
It is impossible to create a system that is fair to all. There will always be those that are able to duck & dive.i.e. Philip Green [sir] al-fayed et hoc.

Chris said...

As Martin Hoscik says all property based taxes are completely mad. The value of a house has nothing to do with how much money the council spends on services you use. We'd be far better off bringing back the community charge at a very low level, and making some council services PAYG.

Anonymous said...

Surely you are being a premature on this Ian. To get rid of IHT and Capital Gains would be a dream for most middle class families. Lets face it - for a MC family who owns a house worth £1m, his NOK is going to get stung for possibly £300,000 at full rate - that is 30 years of paying the proposes property tax. If CGT goes too then imagine how much more fluid the property market would be. It would be fantastic. I dont know if I fully agree as I would get massively clobbered by this - property rich, income low - but this sort of thinking should be praised not slated because we need radical thinking. Dont strangle it before it has a chance...

Hayek's Grandad said...

I think it's a great idea, it'd mean only productive members of society could aford nice houses. All those old people and poor people that bought decades ago would have to sell and by a more appropriate house.

;)

David Boothroyd said...

Martin Hoscik says that property taxes are "divorced from all reality" because the value of property isn't connected to someone's income. Isn't that a non sequitur? The implication would be that no tax, other than one based on income, is valid.

There is in the Bow Group paper a suggestion that people living in large properties with small incomes should defer their tax liability until death, when it gets collected from their estate. I don't think this is practical (and I can see the fun the Daily Mail would have with it), but I don't see the problem with property-based taxes per se. Practically every country has one.

Without going all Henry George about the idea, why is it so wrong in principle to tax people based on their accumulated assets rather than the amount they are taking in?

Hayek's Grandad said...

Assuming you think that tax can ever be anything but 'wrong', I'd say it's wrong to tax accumulated assets because it taxes those who invest in their future and doesn't tax those who are willing to spend it all having a great time today and let others pick up the bill for their tomorrow. It's wrong to tax income as that simply is a tax on productivity.

If such a thing as a tax that is 'right' exists surely it's based on spending on non-essential items, not on savings or income.

(Of course at present adult clothes are considered non-essential, oddly my local constabulary don't agree, so it's not exactly perfect as it is...)

Praguetory said...

I can almost feel the taps run dry with Hayek's grandad in charge.

Jock - thanks for the link at to Con Home.

From what I can glean it appears that the Bow proposals are not a land value tax at all and rather a property value tax and as such I do not agree with them at all. A property value tax is a powerful disincentive to build and will simply reinforce the housing shortage.

A land value tax on the other hand would solve the housing crisis at a stroke.

James H said...

I agree that it does no good to write this off as "mad" - it gives the impression that we aren't willing to listen to new ideas.

I also agree that this proposal is not in fact a LVT, but floating innovative ideas is exactly what independent groups like the Bow Group should be doing - we should applaud them, even if you may not agree with all the details.

It's also worth checking out the full report via C Home - there are many other worthy ideas about simplifying our ridiculous tax system.

Martin Hoscik said...

chris - absolutely. The value of a home has no connection to the wealth of people. As Council Tax shows, charges based on the notional value of property simply puts people in the position where they can't pay.

david boothroyd - most taxes other than income tax arise from a voluntary action on the payers part. We only pay road tax if we choose to own a vehicle, we pay VAT as and when we choose to purchase goods. For financially literate people these are decisions we make based upon our disposable income.

Property based taxes have no regards to the ability to pay and so create hardship. If I drop down dead tomorrow my sister will inherit my flat. Her income is less than mine and doesn't reflect the money I had available to purchase the property in the first place. There would then be a gulf between the income of the dweller and the value of the property and accordingly no connection between the level of the tax and the ability to pay it.

praguetory - to solve the housing crisis we need the Government to allow local authorities to build their own properties before the parcels of land are all bought up by housing associations and private sector developments.

In the meantime a suspension of any building plan, such as one here in Southwark, which knocks down hundreds of social homes to replace them with dozens and the 'right to buy' must be given serious consideration.

Praguetory said...

Hoscik - your suggestion to fix the housing crisis is the reverse of what needs to happen. Your proposal is also inadequate and inelegant. Council building programmes inevitably denigrate the quality of the overall housing stock. Much better for the long-term to stimulate housing associations and private sector build.

Hayek's Grandad said...

Praguetory - there are some very successful (economically) countries that operate just such a tax regime, so I have no idea why you feel it's obvious it would lead to taps running dry (whatever that means), perhaps you would do me the decency of explaining? Can I take it you do agree it's more equitable since you don't say otherwise?

Erasmus said...

So let's see: two pensioners, one in the south, one in the north, both on the same retirement income, living in houses of the same size and quality, except that the southerner gets stuck for hundreds or thousands more than the northerner.

I have an alternative proposal: The Bollocks Tax. This would involve a flat rate charge, payable to the Exchequer, per word of bollocks. There would be an adjustment to take into account the size of readership of each taxable item of bollocks (this, if nothing else, would save the Bow Group from bankruptcy).

Iain Dale, Guido Fawkes and Tim Montgomerie would be appointed to the Bollocks Commission to set the necessary criteria and adjudicate on some of the trickier cases.

Note that the state would itself be subject to the Bollocks Tax, with all revenues from public bodies being rebated to UK citizens on a equal per capita basis. Thus this would be the first tax in history that not only raised revenues for the government but also encouraged better government.

steves said...

Don't bet on old Davey boy ignoring the idea, if the guardianista he's targetting start drooling it will be in the next speech.

It is just the sort of idea they will love, the producers within the economy would pay all teh atx the parasites non, and they could claim that all landlods, 2 home owners were paying the most.

The more I think about it the more I can see it becoming a modern conservative policy.

Anonymous said...

So lety's get this right. Tory says Tories' policies are completely barking. Well they are the only Tory policies in town at the moment in time.

Enough to make you want to hug a hoodie? What sort of tosh do you think Crazy Cham will bring back from Afghanistan in his hollw heels?

Oh for the reassurance of the old Hush Puppies and the grey underpants!

Anonymous said...

"So let's see: two pensioners, one in the south, one in the north, both on the same retirement income, living in houses of the same size and quality, except that the southerner gets stuck for hundreds or thousands more than the northerner."

One sat on an asset worth £1m, one sat on an asset worth £100k. And where is the property squeeze? In the south, because there are too many asset rich/cash-poor pensioners sitting on assets that should be released into the marketplace. So, either they downsize (making more efficent use of the land they occupy, in that a family can then buy that house and a new one doesn't ahve to be built thereby ripping up more of the greenbelt), or they sit on it and the tax gets deducted from their estate.

Gary Powell said...

Hayeks grandad.
Strange how even Conservatives never mind socialists equate paying money to governments, with the supply of goods and services. This has always confused me as we already trust the private sector to supply us with such important things as aircraft travel, health care, food, houseing, and education. In fact most people including the present government trust these things so much, they are all sectors of the econemy that are doing very well.

This present government for example has created "affordable" pre-school care. This has been simply done by the state paying up to 80% of the invoice cost. If it is ok for this government sort it this way for pre-school education. Why are the Tories so reluctant to bring in a similar system for all education and health care?

All government taxation to me is a sin. However this Bow group idear, seems to be more of a simple one than others I have heard of. Replacing three taxes with one has just got to be a good thing.

Anonymous said...

Martin Hoscik:

You seem to assume, a priori, that a tax is fair if and only if it scales with income.

Perhaps you can explain how it is "fair" that, say, two pensioners on small incomes pay pretty much the same amount of tax when one is living in a small flat and the other in a large 4-bedroom house?

Tax is a necessary evil - we can certainly argue about how much money government needs, and what services it needs to provide, but you can't sensibly argue that the tax income required is zero.

The question is then one of how to equitably distribute the required tax income amongst the people. You seem to be claiming that a man who makes 20,000 quid a year and has nothing in the bank should pay the same as a man who has 20,000 quid a year income, and a million quid in the bank. It is not obvious to me that that is the fairest allocation of tax.

It is well-known that taxing an activity at the margin disincentivises it. Marginal taxes on income discourage extra work, which may not be exactly what you want to do. A tax on wealth, by contrast, discourages the accumulation of wealth, or perhaps encourages the use of wealth for productive economic purposes rather than just leaving all that money lying fallow.

Clearly one wouldn't want a large wealth tax (that would discourage responsible saving) but I don't think a small one is obviously bad.

G Eagle said...

Dear Iain

I wonder if folk are coming at tax from the wrong end – it is Government expenditure that needs to be controlled and reduced, before the excessive taxation it now requires brings the economy to collapse

The Government is unwilling and indeed unable to control its expenditure, which is now at such massive levels that we have to have a tax system which is destroying our Economy, while pushing businesses into bankruptcy and driving jobs overseas

This is why tax system is so punitive and why increasingly the Revenue is dispensing with the old-fashioned Notion that taxation should be by consent

Instead, the Revenue are now treating ever greater numbers of the citizens of this Country as Tax Criminals or Quasi=Criminals who are to be bullied and punished

eg expanding the Investigation Departments for (alleged) stamp duty & inheritance tax "frauds" - this was not necessary in less enlightened times beofer Cruella & her consort came to No 10

eg stamp duty late-filing penalties increased from 6,889 in 2003/04 to 161,016 in 2005/06 - a nice little earner, with penalties extracted for being just a day late, even when no tax is payable

It is increasingly like living in an occupied country

Even in German-occupied Paris in 1943, the Germans did not penalise the locals for finding it impossible to correctly complete 6 to 12 page stamp duty forms - the Revenue’s “explanatory notes” have been so sloppily and carelessly drafted that they are largely incomprehensible


Your obedient servant etc

G Eagle

Andrew Kitching said...

Iain

What has happened to Douglas Carswell's sensible proposal to replace VAT with a local Sale's tax?

It cuts out Fraud, empowers local Government, and gets rid of Council tax. It should be a front line Tory policy!

Andrew Kitching said...

What about a local sales tax instead? As proposed by Tory MP Douglas Carswell? Abolish VAT, and cut out the fraud!

Martin Hoscik said...

Anonymous - it is fair because both are paying based on the same income which is the only real appreciable level of one's day to day 'wealth'.

Praguetory said...

G Eagle and anons - good points.

HG - I will explain my position to your proposal. From where we are today in terms of UK govt spending the abolition of income and land taxes is not remotely feasible. Sales taxes would never plug the revenue gap in the short/medium or long term. I do realise that countries like Dubai do manage to have this taxation policy and that their system is a root cause for their economic success but their revenues are underpinned by government-owned property companies/oil and are they don't bother with lost of the public services that we receive. Believe me, I am a tax cutter, but your idea as I understand it is a complete non-starter in the UK.
MH - You're talking rubbish. Many homeowner's wealth has appreciated more as a result of their homw ownership than their income.

And just to throw another cat amongst the pigeons I would like to see one of our taxes called an EU citizen tax so people know how much of their hard-earned goes to the European project.

Penfold said...

Bring back the poll tax i say, it was fair, which was why the lefties opposed it.

Anonymous said...

Martin Hoscik:

it is fair because both are paying based on the same income which is the only real appreciable level of one's day to day 'wealth'.

Sorry, that statement is absurd. Given two people, each with an annual income of 20,000 quid, one with no savings and the other with a million quid in the bank, are you seriously trying to claim that both are equally well-off?

Our million-quid man can do nothing, sit on his arse and, assuming that he gets just enough interest to cover inflation, live at his current income for the next 50 years by spending his savings. If the other man sits on his arse and does nothing, he's in the gutter next month.

Anonymous said...

Martin Hoscik:

it is fair because both are paying based on the same income which is the only real appreciable level of one's day to day 'wealth'.

Sorry, that statement is absurd. Given two people, each with an annual income of 20,000 quid, one with no savings and the other with a million quid in the bank, are you seriously trying to claim that both are equally well-off?

Our million-quid man can do nothing, sit on his arse and, assuming that he gets just enough interest to cover inflation, live at his current income for the next 50 years by spending his savings. If the other man sits on his arse and does nothing, he's in the gutter next month.