AS THE 1ST BEST STEP TOWARDS LVT —
TRANSFORM COUNCIL TAX INTO
A TAX ON THE VALUE OF THE PROPERTY (PVT)?
A number of very sincere, well-read, properly thought out Reformers believe that switching Council Tax to LVT, or to its almost-nearly-there version Property Value Tax (PVT) is the best, and maybe the only way out of the Housing Crisis. I list these CT-to-LVT advocates at the end of this article.
Why the switch is attractive to many LVT advocates: CT is levied on every residential property in all parts of the UK. Despite changes from Rates through Poll Tax and then back to the banded Council Tax, it seems to be accepted as fairish (ref survey). It is also a fairly large revenue source for governments. And since a large chunk of a house price is land value it is close to being LVT already (or is it? This seems like a topic that needs further investigation).
In my scheme of things I left the switch from CT to LVT until last, because of the huge problems. As I’ve said before: The one remaining big tax on property that is ripe for conversion to LVT is Council Tax. For advocates, it is usually the first tax they would like to convert to LVT, but I’ve left it until last. It is different to the other taxes in many ways. It is paid to the Local Authority, not central Government. It has had a rocky political history what with changes from the Rates, through Poll Tax and now Council Tax. The charging system is highly politicised. But CT is important because it generates a sizeable amount of revenue.
But first what’s the Plan: How is Council Tax to be turned into LVT (or near-LVT)
We are all very impatient, and want to see not just LVT, but full LVT implemented ASAP. To that end a number of authors (listed in the Appendix) have published schemes which aim to switch the biggest existing and universal tax on domestic properties into LVT — Council Tax, and quickly.
Council Tax (CT)raises a sizeable chunk of government revenues. At slightly more than Business Rates, and just below the revenue from Fuel Taxes, Council Tax is the 5thlargest source of tax revenue for the government. CT is the fifth largest source of revenue for the Government, far exceeding any of the other taxes on property like Stamp Duty SDLT, IHT, CGT, Dementia Tax. This looks like the right thing to do—go for the biggest existing tax seems to be the idea:
STEP 1. Is ‘reform’. CT is levied in bands, but thee top band is open-ended, and means the occupiers of ‘mansions’ — the most expensive £1 or £2 million plus houses — pay no more than quite expensive houses. Two reforms here are worthwhile: make the owner, not the occupier liable: and, scrap the bands and base the tax as a percentage of Property Value. Exemptions for single occupancy, second homes etc. to be abolished.
STEP 2. Nationalise CT. A standard rate of PVT will be set for the whole country, with the required funds being returned to local authorities to cover that part of their expenditure not already provided by central government. (This is similar to the deal that was struck by Margaret Thatcher when she brought in the Poll Tax. Business Rates were nationalised and a standard rate in the £ was levied country-wide).
STEP 3. Change the basis of PVT to LVT. Every domestic property to be revalued with land value separated from building value. The rate of LVT to be increased to 3% or 5-6% to collect full land value, collected by central government. The proceeds of this to be used, probably to get rid of all other taxes on property, but preferably to reduce taxes on income.
Note: the order in which these steps occur may vary, sometimes with some elements of some steps running concurrently.
IF YOU CAN’T SEE THE POLITICAL BEAR-TRAPS IN SUCH A SCHEME YOU MUST BE LIVING IN CLOUD CUCKOO-LAND. THAT IS TRUE EVEN IF THE ADMINISTRATIVE HURDLES COULD BE OVERCOME!
THE DETAILED SCHEMES:
For example Dorlingsays in an almost casual remark. “I am advocating gradually reforming Council Tax into a ‘national land and property tax”(p308). And that’s his only tax recommendation in an excellent and well-informed (and readable, too) book of 386 pages! The detail he leaves to p310: extend the banding of CT to a Band Z. LVT is not recommended because of necessity it is too gradual.
Chance:A clean break with the past to deliver LVT is not a deliverable policy, says Brian Chance. “Fortunatelythere is a convenient starting point for a low-key approach. It is Council Tax ..”. Firstly the banded CT should be replaced by a simple % tax on the property value but capped at the old maximum value band. “Uniform rates will be set nationally”—This seems to infer that newCT will be a nationalnot a localtax? The newCT would be phased in over three years. In a table, Chance suggests that everyone except the lowest band pays more in newCT. Average householders, Band D will pay £773 p.a. more whilst Band G will be hit with an extra £2965, more than double existing CT. The additional revenue will be used to reduce Income Tax.
Ireland—back-to-front. From LVT to % of Property Value Tax (PVT). In the unique situation in Ireland, the old Rating system had been abolished decades ago as a result of a rash election promise (!). When after the GFC there was a need to bring back some form of property tax, LVT was the clear favourite (Dorling writing in 2014 thought it was a done deal). I explained why LVT was dumped and a % of property value tax (PVT) was smoothly established in a previous posting
Ryan-Collinson p201 waffles, that some taxes such as CT could be converted, but no practical mechanism of how is suggested.
Monbiotin Land for the Many on p33 gives a clear idea of CT reform:
“We recommend that a Labour government replace the regressive and unpopular
council tax with a progressive property tax based on contemporary property values.
Unlike council tax, this tax would be payable by owners, not tenants. This would
result in significant administrative savings, lower levels of arrears and less court action.
Unlike council tax, the progressive property tax rate would be based on regularly
updated property values, and the rates would be set nationally, rather than
locally determined. The level of redistribution between local authorities would need
to increase substantially under this system, to ensure that the local authorities with
high social needs and low land values are not left dependent on central government
grants. However, there could be a tax free allowance that varied regionally so as to
make, for example, the least valuable 10 per cent of properties in each region tax-free.
Progressivity should be further improved by levying a progressively higher rateof
taxation on each of the top 4 deciles of property by value.”
Labour Land Value Campaign—gives a detailed and thoughtful description of the switch from CT to LVT. A paper from May 2015 by Jerry Jones and Carol Wilcox includes the followingpolicy recommendations : (The Tory propaganda machine dubbed this the Garden Tax)
— For principal owner-occupied residential properties, replace the Council Tax with a Land Value Tax (LVT) on a revenue neutral basis. This would require an average rate of LVT, initially, of 0.85 per cent of capital values, but varying according to the total current Council Tax receipts from owner-occupied properties of each local authority.
— The rate of LVT to be set nationally, taking into account initially the revenues currently raised by local authorities from Council Tax, and for local authorities to collect the revenues from LVT, with grants from central government, based on population and needs, reduced by the amount of LVT local authorities are able to collect.
— Over a period of, say, 10-20 years, depending on circumstances, converge the concessionary rates of LVT, and gradually raise the rates to the standard rate of 3 per cent of capital value; then, over a further extended period, say, 20-30 years, gradually raise the rate to, say, 4-5 per cent of capital value, with the aim of collecting all land value for public benefit, thus allowing LVT to reach its full economic potential.
Tony Vickers uses CT only as a benchmark for the initial rates of LVT (following the complete abolition of CT by means which are not explained here)
CT to LVT (or PVT) protagonists
1. Brian Chance in L&L
2. Monbiot in Land for the Many2019.
3. The Irish Govt as reported in How (not) to do public policy: Jim O’Leary September 2018 How (Not) To Do Public Policy: Water Charges and Local Property Tax Galway, NUI; Whitaker Institute for Innovation & Societal Change
It’s available as a free download from:
4. Tony Vickers of ALTER in L&L. “Land Value Tax: Overcoming the Challenges” Stephen Stratton, Andrew Purves, Tony Vickers L&L No 1243, Summer 2018 pp 9-15
5. Danny Dorling 2014 All that is solid How the great Housing Disaster Defines our times and what we can do about it Penguin London
6. Ryan-Collins, Josh; Lloyd, Toby & Macfarlane with NEF (2017) Rethinking the economics of land and housing London Zed Books
7. Labour Land Value Campaign—In a paper from May 2015 A STRATEGY FOR REPLACING COUNCIL TAX AND BUSINESS RATES WITH A LAND VALUE TAX:
A FIRST STEP TOWARDS A MORE EQUITABLE TAX SYSTEM.
A FIRST STEP TOWARDS A MORE EQUITABLE TAX SYSTEM.