THE FIX: GIVE EVERYONE £40 P.A. TO HELP PAY THE NEW LAND VALUE TAX

THE FIX: GIVE EVERYONE £40 P.A. TO HELP PAY THE NEW LAND VALUE TAX

What’s wrong with abolishing Stamp Duty completely in one fell swoop, and replacing it with a simple mini-LVT based on the value of the plot your house stands on?

“Keep it simple” they say, but there are snags. (There are lots of benefits, too. It would be daft to cause such upheaval unless a whole lot of good comes out. I’ll deal with the beneficial results of LVT for the housing market in the next posting.)

The snags of mini-LVT? The only real snag[i] is that this mini-LVT hits every single home that is sold. Short as peoples’ memories are, they won’t forget that with Stamp Duty about a quarter of all house-purchasers paid nothing. Now they’re being asked to pay an annual mini-LVT. They’ll notice, and you can be sure that The Daily Mail will rub their noses in it.

Perhaps another presentational snag is London-envy. Stamp Duty was designed to score a bigger percentage hit on more expensive houses. These are to be found in the prosperous Home Counties, especially so in London. My mini-LVT is less ‘progressive’. Hence the ‘Provinces’ outside London pay more than they used to, percentage-wise. (I’m tempted to say “Sod it!”. They are still paying lots more in London and the SouthEast, so let that ride. Even the cheapest house which would now be paying Stamp Duty benefits to some extent from my proposed mini-LVT.)

But practically, politically, Something has to be done to pacify the ‘losers’ in this switch. And while we’re at it, let’s try to do something intelligent, economically speaking, too. What’s to be done?

—    (a) Exempt the cheapest 25% of houses (or land values) from mini-LVT altogether and forever? Or,

—    (b) Give every household a fixed-sum allowance to offset against their mini-LVT?    (I owe this idea to Tony Vickers).

Either of these would fix the snag. But they would be messy to administrate on a year-by-year basis.

Because of changing Land Values a large number of houses would drift into or out of paying mini-LVT each year. Imagine the reactions! Doubly so if you go from zero to paying a largish amount in one step.

In many cases the sums involved in the new LVT would be small. (This would apply to many households). Again, thanks to Tony Vickers there is a way of making this easier to implement. Use the Income Tax system, and the small LVT amounts could be fixed just by moving PAYE allowances up or down. (He got this idea from Sweden, and it makes sense. LVT substitutes for Stamp Duty so it is a national, not a local tax.)

There is a danger that these flat-rate allowances might water down the beneficial effects of LVT (I’m coming to these benefits in the next post).

So I think we can do something a bit smarter. Something that recognizes families who make good use of their house, and ‘nudges’ (to use the jargon) those under-occupiers sitting on over-sized or over-priced plots to get a move on. Nothing vicious, mind. Just a little reminder.

I’m calling this a ‘Citizens Housing Allowance’— or CHA for short. It is a standard £ amount, which would be paid out to each and every Citizen of any age. It would be the same amount in all parts of the country. (That’s England, for the sake of this posting. Other UK countries have their own arrangements.) How the CHA is paid out or is used doesn’t matter (a bit like Winter Fuel Allowance). Obviously the CHA could be used in part- or full-payment of the mini-LVT on that property.

With a bit of calculation[ii] a CHA of £40 per citizen, per year would compensate most of the Stamp Duty losers. Of course the rate of mini-LVT would have to rise to cover these CHAs. Raising the rate to ½% of the LV would be ‘revenue-neutral’ and result in the same nett amount of tax going into the Treasury.

A universal Citizens Housing Allowance of £40 per year per man, woman or child is the sort of figure that would do the trick. It would wipe out a typical family’s LVT altogether in the poorest locations. It would bring help, but not much, to similar family of four in a London suburb. But it’s still much cheaper than the one-off Stamp Duty of £15,000 they might have paid.

Here’s a Table to show the new figures,

Area	average £price of house	Implied LV	If annual LVT at 0.3%	Proposed annual LVT at   0.5%	LVT  at   ½%  less CHA  4 x £40 p.a.	£SDLT (1-off)
Cluster	150,000	30,000	£90	£150	£0*	£500
East Anglia	220,000	100,000	£300	£500	£340	£1,900
South West	230,000	110,000	£330	£550	£390	£2,300
South East	350,000	230,000	£690	£1,150	£990	£7,500
London	500,000	380,000	£1,140	£1,900	£1,760	£15,000
					*actually they are paid £10

---

[i] There are many other ‘snags’ which are often quoted, but are easily swatted away:—

—‘it is difficult in a thin market to calculate land values separately from building value’. Fiddlesticks! Try telling that to any half-competent valuer or estate agent. Even if the first valuation is a bit vague, this new mini-LVT is an annual tax, and can be updated annually using modern statistically-based methods. I know. I was doing this in 1984!

—If the annual up-rating is by the rate of inflation, which measure to take? CPI, RPI or some other property-related index? This is worth debating, but the point of the mini-LVT is to capture local land values which vary depending on local economic conditions. Start with the region’s house price index change, and then refine it down to the locality. Easy with IT.

—

[ii] Aha! You’ve spotted the snag! CHA will cost a lot. If it was £20 per person per year that’s a total of about £1 billion.  If the new mini-LVT at 0.3% of LV without CHA brings in, say £6 billion in tax revenue (about the same as old Stamp Duty), adding on CHA cuts that down to £5 billion.

To give some idea of the figure for CHA take an indicative figure, the cheapest plots (in the cheapest housing areas) cost about £30,000. With LVT at 0.5% this is an annual bill for £150. Assume two parents and two children each entitled to the same Citizens Housing Allowance. Make it £40 each, and they pay no LVT.