I am speaking at a Common Weal sponsored event on housing in Scotland in Glasgow this morning.
When doing so I'll be discussing the idea that the problem we have with housing in the UK as a whole is that we have turned them into micro-tax havens, where tax reliefs and advantages for those who are privileged to have access to home ownership get advantages that are denied to those unable to join this exclusive club.
The notes I prepared for the event (which are more comprehensive than anything I will have time to say) are as follows:
- Tax havens
- Cost us money
- Stifle hope
- Destroy opportunity
- Deny us the basics we need in life
- It's my suggestion that there are tax havens nearer to home than many think
- The unfortunate fact is that far too many UK houses have been turned into our own, home grown, tax havens
- Houses as tax havens impact society
- Increasing the cost of housing
- Stifling the chance to have a long term home to many
- Denying the opportunity to move to work when it's necessary
- Forcing people to live in inadequate housing
- The housing tax haven was created in at least seven ways
- By making all the gains people make on their own homes tax free
- By making sure most homes are free of inheritance tax
- By having no wealth tax many homes can escalate in value tax free virtually without limit
- By having a council tax that is not a charge on value: it's a capped service charge that makes no real demand on the wealthier households whilst being oppressive for those on lower incomes
- Because we also exempt large parts of the gains in many buy to let properties
- By giving tax relief (even if it is now being limited) on interest paid to buy buy-to-let properties, which is not available to owner occupiers
- Whilst the costs of repairs, redecoration and much more can be used to offset tax on buy-to-let properties but not on homes
- The result is that like all tax havens
- Some get tax privileges denied to others
- Those who can get the tax privileges tend to be the already wealthy
- And they reduce their overall tax rate as a result
- And wealth and income inequality increases as a consequence
- The fact that this tax haven used to be open to lots of people doesn't stop it being a tax haven
- What it just means is that the privilege is now mainly granted to those who have been around for a while
- And that's the older middle classes and the wealthy
- At cost to those less well off and a majority of the young
- We now know we have to end tax havens to create more equal societies where
- Basic needs are met
- Opportunity is available to all
- Economic fundamentals are prioritised over speculation and gains from financial speculation
- Inequality is kept to manageable levels
- So how do we turn tax haven housing into homes people can afford?
- Again, at least seven ways
- Use tax relief to build new housing, and not to subsidise landlords
- In other words, require that pension schemes who get tax relief on their members' behalf use part of those members contributions to invest in social infrastructure such as social housing
- Charge capital gains tax on homes at the end of life
- No one has a need for a house when they or their partner (or in exceptional cases, their long term carer) die. There is a case for not requiring that CGT be paid on the transfer of ownership of properties used as a principle home during life to encourage labour mobility but there is no reason for this concern either on death, or if the proceeds of sale from a property used as a home are not reinvested within a reasonable period of sale. So there is no excuse for not applying capital gains tax on death, taking into account all transactions in buying main residences and gains on them during life. The advantage is threefold. First the need to sell properties will require that more are sold back into the market. Second, homes will cease to be seen as a tax free means of wealth accumulation for next generations, which means that household investment strategies will, hopefully, be diversified. Third, houses might be seen as homes, not tax efficient tools.
- Introduce a wealth tax
- We have wealth inequality and there is almost no excuse for not tackling it. A wealth tax on all property exceeding £1 million (or so) or more would impact a tiny proportion of households, would not reduce UK income productivity, would deliver useful redistribution, and would reduce the pressure on house prices and the use of property as a store of value that is preventing its use as homes. But do remember, if we have a wealth tax inheritance tax might need to go, which would be no bad thing as it is so easily avoided by so many very wealthy people.
- Use the principles of land value taxation as the basis for local taxation charges
- Council tax is deeply unfair. It either needs total reform to make it substantially more progressive or it becomes a land value tax that takes into consideration the role of land as a basis of wealth on a much wider basis, and brings within the scope to tax a great deal of land that currently falls outside the scope to charge. This is radical and extends beyond housing, but by changing the whole perception of a great deal of land as tax efficient investment it will change the way that land is made available for housing.
- Increase the tax rates on second and unoccupied homes
- The consequences of such a move for tourism have to be considered, with care, bit that apart it is clear that second and unoccupied homes impose a considerable social cost. That has to be reflected in tax paid.
- Remove tax relief on buy to let housing
- Rather surprisingly George Osborne started progress in this direction, but the question as to why investment in private rental income that increase inequality is still state subsidies by tax relief on interest paid has not been answered and needs to be. There appears to be no such justification. This relief has to go, although allowance for repairs and improvements would seen appropriate: it is essential that landlords be encouraged to provide high quality housing.
- Look at broader issues
- Can we change land transaction tax rates still further to make expensive property unattractive?
- Should VAT rates on home improvements change to improve the quality of housing?
- How can tax be used to make homes more energy efficient?
- Are existing exemptions for letting of rooms in homes a good use of tax funds, or should this money be used in other ways?
- How is holiday letting to be taxed?
- The reality is tax has created massive housing inequality
- And the time to change that has arrived.
That comment if, of course, as true for the UK as a whole as it is for Scotland as things stand at present.
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‘but there is no reason for this concern either on death’
I thought it was obvious that is because possibility of IHT and to have cgt on top of that would mean in effect 2x IHT. Do you have any examples where other countries do just this?
‘ Whilst the costs of repairs, redecoration and much more can be used to offset tax on buy-to-let properties but not on homes ‘
That is obvious because renting homes is more akin to a business that simply the house you live in. The same could be said for individuals the cost of travel is not deductible the cost of paints/bricks for the relevant professions are not deductable if your just a regular person. Given those on the left bemoan the low standards private housing has taking away tax relief on those who actaully do this would be a bad step. Given how much it can cost to refurbish a property it mean higher rents, but I guess thats where the rent cap comes along.
I argue for CGT on death and a wealth tax in life
Ultimately I would wish to abolish IHT
Respectfully if you had cgt on death it is not really abolishing i ht in practical terms. Plus those who have had property inflate over the years would be subject to varying degrees of tax. But those who say had a high earning career in the city and deposing huge amounts in a bank when they pop of would be subject to tax at all as simple cash not appreciate. Or take lucky lottery winners they equally would not have to (If I am not mistaken they would not even have to have paid income tax either)
I have suggested a wealth tax during life
Read what I say as a whole
well a wealth tax on the spanish model (that for a couple kicks in at around 2 million euros btw so the £1 million figure given prices in this country in real terms would be less) Or even the french model would mean several decades of wealth tax payments would have to be paid to make up the same amount that otherwise would be taxed on death ( 40%) ? Plus what would you do about those who are ‘asset rich’ but income poor? For example with a expensive house in london. Or a landlord of a handful of properties could probably pay the wealth tax in a good year but what if say the tenants simply stop paying the rent and resulting cash flow problem and due to protections against eviction in effect means the landlord will not have the rent for 6 months?
I am talking a wealth tax and a CGT on death….
Again, please read what I am saying
And maybe read The Joy of Tax where I explore these themes
As for the ‘no cash’ problem: I am happy for earth tax to roll up on property until death, with interest added, of course
Richard, I’m sorry I am not able to be there. Not for your sake, but for mine.
I’d have been interested to hear some of the other speakers aswell.
“The notes I prepared for the event (which are more comprehensive than anything I will have time to say)….”
You’re just going to be there for the one week are you? Shame. With three sessions a day for a fortnight you could cover the basics easily.
I hadn’t thought of homes (houses) as tax havens, but I guess that’s exactly what they are.
Too many people have bought the idea that their parents ‘family home’ is their inheritance by right. And that inheritance becomes due as soon as the elderly parent goes into ‘care’ which they demand be paid for by general taxation.
The Thatcherite narrative of home ownership as a store of financial security for old age seems to have …been forgotten(?) The people who remember that narrative can be identified by their bumper stickers which read: ‘I’m spending the kids inheritance’.
Best wishes for a great conference day. Hearts and Minds.
Going well so far
Really interesting and useful thoughts. Along with the lack of productivity, I think housing is one of the biggest economic challenges in the UK. House prices have become so disproportionate to income for most people, yet we can’t see a sharp fall as this would have potentially disastrous consequences. I was pondering the aim of seeing house prices stagnate or rise by a very small amount, significantly below wage growth to try and rebalance. Obviously you would need wage growth for that to be effective.
Productivity and house prices may be linked.
For investors when the return on housing is higher than elsewhere there is less incentive to invest in productive business.
For consumers, housing costs are a drain on disposable income which suppresses demand for the output of product business.
The economists has a great house price infographic:
https://www.economist.com/blogs/dailychart/2011/11/global-house-prices
Try selecting UK and Germany only and put the start date back to 1970. Germany prices rose by a factor of 3.6. UK by a factor of 60.
I agree you need to tax housing and land and reinvest, or else life will get pretty unpleasant for everyone except the top 10-20%.
Housing is partly a regional problem. There are houses for sale within 5 miles of where I live for £15,000. Germany does things differently – e.g. massive investment in the former East, see:
https://www.ft.com/content/fdbd2caa-51fa-11e3-8c42-00144feabdc0?mhq5j=e7
Thanks Charles
Charles, and Richard for that matter,
Are you familiar with Akhil Patel’s studies/theories relating to the (18 year) land price cycle and it’s influence on ….well most of the rest of the markets one way and another, but particularly the (built) property market?
I don’t know how far it is variant from what you guys think of as basic economic knowledge.
He is approaching the topic from an investor perspective which alters the focus, but not the facts, if that’s what they are.
I have come across it
But paid it little attention
Akhil Patel must be damn old. The 18yr land cycle theory has been around for a long time. It worked pretty well pre financial crash. Fred Harrison accurately predicted the end 2007 house price peak in 2005 using this: Boom Bust: House Prices, Banking and the Depression of 2010. He claimed that he also predicted the previous peak in his Power in the Land 1983, although I can’t find the place. QE and negative real interest rates have put paid to the theory as a predictive tool now. I have a little graph showing real house price inflation 1950s to 2010ish. The 2007 peak was enormous and prices should according to the theory have crashed down, but are much higher now.
The house price graph I referred to could be better explained by changes to banking practices and regulation. House prices are also inversely related to domestic property taxes, but there has not been a significant change recently. I do wonder how the abolition of the old Domestic Rating system affected house prices, because that was a much more progressive tax. Also when Council Tax was decreased by the tories, paid for by an increase in the VAT rate.
The 18 year cycle theory dates back to the US in the 19th century. As Carol says it does not fit the UK that well, especially given the post 2008 behaviour when we failed to revert to mean. I will try to write something on this on progressive pulse (might be next week though).
Thanks Charles
Carol Wilcox,
“Akhil Patel must be damn old. The 18yr land cycle theory has been around for a long time. It worked pretty well pre financial crash.”
No, he’s not old. Just because a theory is old doesn’t invalidate it. Though, like Darwin’s evolutionary theory it doesn’t start life fully formed. And I might ask, which financial crash you refer to? There have been quite a few and 1929 was a lulu. The overall cycle seems to be only moderately affected by two World Wars which were ‘pretty disruptive’.
However, I note your comments concerning the way Central Bank/Government interventions have created ‘interesting’ distractions to the market recently. Compare in terms of economic impact such interventions as : Britain departs from the gold standard, Britain sheds (albeit under protest) its Empire, Roosevelt’s New Deal, Bretton Woods and the Marshall plan, Nixon’s exit from gold standard, the Eurodollar economy, the petrodollar economy.
Tinkering with local property taxes doesn’t register on the scale, except as blip if at all, unless it is fundamental.
Given that your reference is Fred Harrison I conclude that you haven’t read Patel.
I’m not ‘selling’ him. I’m reading him. I find his observations intriguing.
I shall be looking out for thoughts, on the subject, Charles. In response to Richard’s prompting PP is on my bookmarks bar. I have some archive to catch up on.
I have nothing to disagree with here and the general premise is right. I have seen many people in my life getting rich from property – using it as a store of wealth and to acquire more wealth or to fund spending. Housing (established housing that is) is crying out to be taxed properly. This is because its asset value (something that you can borrow against) always seems to come before its use value (somewhere to bloody live).
But I would also that there are many other areas in the economy and society at large that need addressing too.
For example people rely on income from their owned housing because pensions are a mess and pay has not kept up. Much reform is needed here. Income tax for example might be reduced if housing/property tax were introduced.
I mean – look at equity release – using the home to fund what is after all debt. The housing market also certainly adds the debt capacity of a home to the cost of a new one and those in the market attempt feed from the trough too – getting their bit of the pie. For me I would ban equity release tomorrow. Sorry.
The whole housing thing is a feeding frenzy and taxation I think would indeed return equity (as in fairness) to the system. But people rely on their homes as a store of wealth because of other factors and these need to be dealt with too in order win the valid arguments you make.
Can I also say that those who have bought property abroad or in other areas of this country and whom benefit from the income from it should also be taxed in their home country or area. This might stop the property price explosions that shove local residents out of the housing market in areas of this country and abroad.
Pilgrim,
“I mean — look at equity release — using the home to fund what is after all debt.”
You make an excellent point here. This little device is one that bankers have referred to as an “innovation”. It has many effects, one is to spread the risk of (and dependency on) the housing bubble from landlords to owner-occupiers.
Another key effect was neatly summarised by Andy Crow (above) with his reference to “bumper stickers which read: ‘I’m spending the kids inheritance’.” Those effects are loathsome enough, another that is more frightening involves those that have drawn quite a lot against equity. Banks can foreclose on them when property values fall. That has the potential to transform an issue of negative equity into one of widespread disaster.
I’m not sure that we can or should simply “ban equity release tomorrow”. Nor is the answer in tax reform. It could effectively be eliminated with regulations that ensure that the lender takes the risk if property values fall. In which case the banks will be far less inclined to offer these “innovative products”. That, in effect, may be just as good as banning them tomorrow.
I would even take it further and suggest that governments look at measures that insulate owner-occupiers from property market collapse. Negative equity is one thing, mass foreclosures are another. That whole area has legal and retrospectivity complications though and may be good for a different discussion on another day.
I have a lot of sympathy with that
I have a loathing for all the snake oil of equity release
Your idea is interesting
Years ago I suggested a mortgage security should only ever extend to a maximum of 90% of the property value, come what may
Yes this will mean 90% mortgages are harder to secure: I admit that
But then what is also clear is that mortgages may not be the right way to deliver what are always, in effect, long term tenancies. None of us last forever
“…I have a loathing for all the snake oil of equity release…”
I don’t see equity release as a fundamental problem. Yes, I can see an unregulated market open to abuse by swindling sales -people as a problem as it is with any other form of oil. Be it snake derived, vegetable or mineral.
I regard equity release is the final act of the play which started with the ‘own your home for security in old age’ mantra. (The second act was snakes and property ladders)
It seems to me appropriate that the generation who bought that mantra should play it through; and equity release allows them to do so without having to relocate (again for many ). The sensible players of this game will have already downsized and the foolish players should not expect the taxpayer to subsidise them via discounts in council tax (and other tax breaks) while they are hogging family sized homes they no longer require.
I’m not saying this is a model which has much to commend it for the future; and the future is what you are discussing and making proposals for. But I don’t see why the game that was started shouldn’t be allowed to play out for the generation which has benefited. Forcing homeowners to face the consequences of using homes as money boxes (and tax havens) should be a salutary lesson in its flaws.
We’re talking about the ‘baby boomer’ generation which were blessed from the cradle, offered care to the grave and rejected the offer in the 80s and and although I don’t wish to see them ending their days in cardboard boxes under railway arches I think it’s high time some of them came to terms with the true inheritance they are leaving their offspring.
My own experience of letting a holiday cottage in Scotland for 20 years was that the season is short (5 or 6 months at most) the costs are high (Visit Scotland doesn’t see itself as an aid to the small business as the Tourist Boards did but rather as a business in itself. Because it cornered the market in selling accommodation, you have to use it and the fees and charges wipe out much of what profit there is) and the profits are small. If further taxation was imposed, holiday cottage owners would simply give up and sell up.
Bear in mind that in a good season a single cottage will bring in twenty odd families, each spending money in cafés, restaurants and attractions. Lose the cottage and the local businesses lose the revenue.
That was why I asked the question, and did not say more tax was the answer: I made that conundrum clear in the session
Andrew
It is I who spoke about holiday lets and advocated certain policies – not Richard (whom for all I know might disagree with me).
You are right of course that holiday lets bring in a spend in the local economy – I’ve done it myself. But as they say ‘One swallow does not make a summer’. This argument has always struck me as saying that the holiday lets income generation compensates for other issues that make life difficult for local people. But this does not really stand up to scrutiny because the seasonal work that comes in and then goes does not offer the sort of wealth creation that only steady jobs can really provide.
But what is that local economy like out of the holiday season? Dead – that’s what. There are some areas of this country that basically shut down for winter – the Lake District for example. So the incoming money is not really continuous.
I live in Derbyshire and I can tell you that the issue of young people being priced out of the area they were born in and forced to either live away from the area (hence losing their support networks) or having to live in converted garages in the back gardens or whatever whilst they wait to build up capital to cope with competing with cash rich incomers or waiting for more affordable accommodation to come on stream is real. I can point to three such families on the street where I live where this is happening right now.
Note that as Richard has always said in his writings – this is not about unthinkingly adding to the tax burden , rather it is about taxing more intelligently but ultimately based on wealth. People who can afford multiple mortgages are not short of a bob or two! People are drawn to this for one reason – profit (because they have seized upon the fact that it might give them better earnings than paid work or current pension provision).
What would be needed is a broad balance of polices across a number of key economic and social areas. For example, if there was a proper social housing building programme (affordable housing) this might mitigate the more harsher consequences of holiday lets for local people and bring down rents in the private rented sector too. And look at our London centred economic and so-called industrial policies that do nothing for the seasonal workers in some of these holiday let areas.
PSR,
I endorse your comments about the negative aspects of holiday accommodation on a local economy and it was the Lake District I had in mind, because I used to live on the edge of it. My offering was getting out of hand so I dumped it rather than attempt to edit it.
(Similar experience is common in Cornwall I believe; and I guess in part it was what set fire to cottages in Wales in the not too distant past)
The situation is even worse where the holiday accommodation is owner-under-occupied weekend retreats. It really does emphasise the disparity in wealth where locals wishing to buy a home are comprehensively out bid by buyers of occasional weekend retreats.
A new ‘social contract’ is needed and our perverse attitude to wealth, property and taxation seems like a bloody good place to start. It’s commonly said that the winners write the history. I don’t think they should get to write the future aswell.
Andrew
I have no sympathy for remote holiday cottage owners, I would be delighted to tax their business out of existence and bring house prices back to the real level.
The rental income doesn’t even stay in the area.
It lowers the income of hotels and B&B’s and hostels which does stay in the area and actually employ people.
It closes opportunities for locals to open more of those, which could include self-catering flats for families that want that.
Young people would now be able to stay or move to the area to work or start businesses in tourism or a myriad of innovative areas like community electricity generation.
Schools would reopen employing and attracting even more people.
What about the budget traveller?
I have no problem with residents supplementing their income by occasionally letting a spare room with a well-known app.
I can’t see a downside. Anyone?
I think that’s a little hard to sustain
The reality is holiday lets do bring a great deal into the local economy by spending
But I agree, the balance has to be right
I would much prefer holiday lets to second homes used at odd weekends
Well said, Andrew Morton. Far too much focus on people playing the game, making money from property, good luck to them as they are providing what the successive governments could never, that being enough housing and accommodation for everyone. It makes sense to benefit local business and without accommodation being available where would these businesses make their money from? Perhaps we should be building more houses!
I have just invested money in a REIT that builds and manages social housing. That’s a good idea isn’t it? I know that your replies to me often look very rude but they help me to learn
Is it a good idea?
Not if the property is run solely for your gain and without consideration for the tenants and their needs it may not be
I do not believe that market driven solutions per se are the answer here
I think local authorities and maybe co-ops, but not the now discredited housing associations, are the answer here
Professor, with the greatest respect your latest answer was not very illuminating. The investment trust buys social housing from local authorities and housing associations and manages them for a small fee. Thereby providing funds for the authority or association to build more housing. If they don’t have tenants, they earn no fees so they have a direct interest in keeping tenants happy. I am also puzzled by your distrust of public choice theory when almost every week shows up the Republicans or Conservatives handing out favours to their backers, for example the workers at Rosyth
And so the housing is then managed for profit and that’s inappropriate
Social housing is not a for profit activity
And public choice theory is not about public choice or theory
I am surprised that your post doesn’t emphasise the generational transfer of wealth (from the young, generally, to the older and more privileged).
Nothing that you have said in this post is wrong by the way . For my 2 pence worth, however I would recommend simplifying the argument to basic terms:
Making a clear distinction between homes (in this case, owner-occupied dwellings) and investment properties, where the main target of tax reform should be investment properties.
Making a clear distinction between real investment – investing in the construction of new homes, and the more pure speculation ( where landlords purchase existing properties with a view to making capital gains).
Most if not all tax reform proposals should be aimed at speculation in existing (‘established’) homes including ‘buy-to-let’.
Reasons:
There is a political cost (and potentially some political gain) in reforming tax on residential properties and, in pragmatic, priority terms, it is best to target the areas that will bring the most gain for the least cost.
Investment in new construction adds to the supply of dwellings. Speculation in established properties (a secondary market) produces nothing, bids up the price of existing homes and lowers the rate of home ownership.
Owner-occupiers do not generally gain from asset-price inflation unless they are downsizing. If they sell into an inflated market they have to buy in to one as well. Owner-occupiers ride bubble markets but do not drive them. Speculators drive asset-price bubbles (both up and down). Speculation is where the volatility is.
Tax reforms on owner-occupied dwellings potentially affect a lot more people, create fear (justified or not) and would not have as greater impact on affordability in a bubble market. Targeting speculation in established homes would have far greater effect.
Recommendation:
Advocate the removal of most if not all tax concessions for speculation in established homes. Approach everything else with caution and reserve.
As for the Council Tax, a Thatcherite legacy, it should no doubt be reformed and fair reforms would probably be popular. But I tend to see it as a separate (if related) issue. Its probably more about social justice than it is a key element in housing affordability.
Noted
The problem with housing is land. Tax the land. You need to separate out income generating land and owner occupied houses and treat them differently at first. See http://www.labourland.org/wp-content/uploads/2015/09/JonesWilcoxLVTpaperFinal-V2.pdf. If the direction of travel is marked out the market will start to correct quite quickly. Transitional reliefs can be given. The land market is the most dysfunctional market we have. It does not allocate to optimum use. And it is the most important commodity we have: fixed in supply in the foreseeable future and vital to life.
this may not be be the most appropriate thread for this but….
I have this gem from the IEA’s Mark Littlewood.
“The Prime Minister’s encouraging rhetoric (sic) was followed up with the wrong policies. Saying that house prices necessitate government building is as wrongheaded as saying increased food prices require new state-run farms.
Farmers (and major landowners) should perhaps be aware then that following the logic of his recommendation a post-Brexit Britain ‘should’ be looking to remove (or at least not replace CAP) government interventionist subsidies for Agriculture. (?)
That would make for an interesting change in the political and physical landscape.
Comrade Littlewood is guaranteed to get most things wrong
Helps to keep my BS antennae tuned.
Plus there’s a conundrum (one of Edward De Bono’s I think) which involves prison guards and being able to ask them both one question to get a pass out. (Not to be confused with the classic ‘prisoner’s dilemma’) One always lies and one always tells the truth – the crux is to ask a question that they both answer yes to – (then do the opposite!)
I have a notion that it may be useful to me one day. If I can remember how to structure the question when I need it.
From Fournier and Johansson for the OECD in 2016:
“increasing the share of public subsidies in primary spending by one percentage point would decrease potential GDP by about 7%.”
So yes, Andy, your logic that says we should abolish those landowner subsidies for those who own qualifying farm land is impeccable.
You trolls love that obe. Dammit, even Dan Mitchell liked that
But there’s a lot issue you’ll need to explain and it’s simply this: as I have shown in The Joy of Tax, there’s a strong relationship between high government spending and high GDP
Now you could say that’s because they can and they could so so much more. I accept that.
But then you have the slight problem that the. You find people don’t like cuts and won’t vote for them, because they really like what government does. And that suggests that the soend is not because it’s possible. The spend is what made the growth possible is the obvious explanation. And that’s why people want to keep it.
But of course, that requires that we accept democratic choice and I understand that is a problem with ou lid choice theory adherents who believe in anything but public choice, of course. Double speak is the speciality along with the promotion of absurd economics.
‘People don’t like cuts and won’t vote for them’. I’d like to see a citation for that. It depends on what is being cut surely. People voted for welfare cuts in 2015, and for cuts to the UK net contribution to the EU in 2016. If we asked the public if they’d like to see the DfID budget cut in half, and just leave the funding for humanitarian work, disasters and communicable diseases, do you really think the public would vote that down? I don’t.
And if it was explained to people that abolishing subsidies to qualifying farm land owners would lead to environmental benefits and innovation then they would vote for that too.
You cannot insist that every item in the budget has a +1 multiplier in all circumstances if it is spent by government when the OECD literature is telling you that just ain’t so. It depends what it is being spent on.
I think you’re wasting my time Paul
People vote for packages as a whole, and rarely for a micro part of it
And in 2015 and 2017 what people knew was that the Tories could not deliver cuts and that showed
I have never claimed there is a universal +1 multiplier. Frequently it is much higher. Of course good decision making is required. Whoever said otherwise? Now stop wasting my time by assuming otherwise
You are on deletion warning
RIchard, I’m pleasantly surprised, I’d agree with about 80% of that.
http://www.zerohedge.com/news/2017-10-07/trouble-taxes
Tosh
That’s the politest response to that
Tell me how government spend prevents economic activity when it, very obviously, does the exact opposite?
It doesn’t even prevent private sector activity when it is glaringly obviously true that market equilibrium is below (or well below) economic potential
I’ve read some nonsense in my time – but that article is beyond dire
I cannot believe that tosh like this is still out there.
I work in the public sector and most of our contracts (using government funding or our reserves – all ‘public money) are with the private sector (I develop new social housing).
The public and private sectors are not two independent sectors. They are INTERDEPENDENT sectors.
Many of our contractors have noticed that there is more real money about when a Labour government is in power because they believe in investment.
Our Tory friends just believe in sweating assets whilst letting them rot.
Never mind ‘zerohedge’ – more like ‘zero facts’ in my opinion.
I find Zerohedge a pretty dubious economic source on most things
It’s there to remind you that there are economic fanatics out there
“I find Zerohedge a pretty dubious economic source on most things”
It a wierd mix of left and right. Technically or officially “alt-right” but so very often left. Its there to remind me that the distinction between supposedly opposing positions is often quite blurred.
My first house in Bradford, a 2 bedroom terrace is the same price in real terms as it was when I bought it in 1979, sold 6 years later. This is because of the poor local economy, and greater social problems than existed in 1979. The house now has central heating and doyble glazing. Other areas like York, Ilkley and Harrogate have had huge price increases since then.
Limiting bank lending as Graham Hodgson of Positive Money suggests would moderate booms. Each rural village say having 10 to 20 affordable, social housing units would help instead of adding 100s of new builds to already crowded local towns. Many of these new builds are poor quality, compared to council houses built in the 1950s and 60s which were a good size with generous gardens. An upgraded property from this era is usually good and better than an equivalent new build. Some villages have very restrictive planning, so forcing new development to local towns, when each village used to have a few council houses, now privately owned.
I would be wary of taxing second homes too much, I own a flat with expensive service charges, full council tax payable when empty. After all costs, my rental return on the investment is 4%, not excessive, there is no mortgage on it. I agree in principle with some sort of Capital Gains or Land Value tax, as long as it bears down most on the already wealthy and with the biggest gains. Council tax is very unfair, as it impacts far more on poorer households.
Australia has a tax issue called negative gearing, which like the UK reinforces the position of those who already own property. Any property tax needs to reduce the heat in very popular areas, discourage speculation, but at the same time not discourage minor landlords and homeowners like myself who rent out one property in an average area. My gains are not excessive, and I have tried to sell the flat recently, but brought in another tenant because not able to sell. Landlords obligations are quite onerous if you are a good landlord, and some tenants expect something for nothing, so checks on prospective tenants have to be made. For this reason alone, we need a much greater supply of low cost social housing.
Your conclusion is correct
I am not sure about the way you get there, especially via Positive Money
Do you think that the wall of money coming from abroad has had an effect on house prices? Some have said that wealthy foreigners (and criminals – not necessarily the same people) buying up prime property, farmland and estates has pushed up prices and not just in high-end properties, but creating ripples throughout the UK affecting the cost of all properties.
Isn’t also the case that almost anyone can buy in the UK, while many other countries impose restrictions?
It’s a factor, certainly
I have not researched the scale to which it is a factor but the reports from London, at least, are anecdotally that it is significant
But remember we do not know who owns most offshore companies
G Hewitt,
“Do you think that the wall of money coming from abroad has had an effect on house prices? ”
I don’t really ‘do’ numbers and stats, but I would say, yes it definitely it has. And if it hasn’t that would be very strange indeed.
(I am told) There are (luxury) apartment blocks in desirable ares of London which stand empty because they are investment properties. Money invested is sheltering from China and Russia and other places where economic and political considerations make it a rational investment strategy for super-rich individuals (and cartels investment funds etc perhaps) It is sobering, and indicative of the malfunctioning of the market that this is a rational strategy even without rental income from tenancies. (It suggests the underlying land value is wrongly priced or wrongly taxed, I think.)
Suddenly available cash, in quantity, must, inevitably to some extent, affect the property market. Simple supply and demand guarantees that, when cash is plentiful prices go up for the target commodity. Increased prices in the centre push displaced would-be buyers further out so there will, again inevitably, be ripple effect. (Strictly speaking housing is not a finite resource, but it is limited) (Market enthusiasts will point to this proudly and tell you what a wonderful mechanism free markets are!)
Market distortions occur because money (however denominated- let’s call it the Pound) does not actually have a consistent value. ( I mean here, at a given point in time, ignoring changes in value due to currency inflation and other fluctuations over time) In theory a Pound is a Pound and one is exactly worth as much as the next: perfectly exchangeable.
In reality the value of a pound to the person who holds it is dependent on how they acquired it and how many they have in total. If it was acquired easily it is easily spent – especially if there’s plenty more where that came from. If it was laboriously acquired by heavy digging and can only be supplemented by more similar effort the owner of it will perhaps think twice before frittering it away. S/he probably won’t have very many either.
Two potential buyers therefore are not dealing in currency of the same value to them. That imbalance will always skew a market.
Richard
Thanks a million for coming up to Common Weal’s conference. It was a Tour de Force, would have inspired and re-energised everyone to get into action.
I didn’t get to ask a question which would have asked for your thoughts on Chris Cook’s presentation, “Housing without Breaking the Bank” which for those that weren’t there is very briefly summarised by:
“Q: If we have land, resources and people sufficient to create new housing, why do we need credit from government or banks to finance it?
A. We don’t.
We can create housing as a service, through sharing the value of land use – shared, that is, between investors in land, and providers of land development and management services. The key innovation – which is how UK sovereigns funded themselves for centuries – is that investment will come from prepayment for land use at a discount, probably by pension investors.”
These “land-use credits”, as I call them, are not Peer to Peer — they are Peer to Here.”
Also Is it possible to gently deflate house prices without crashing the banks as he said?
Thanks
Mark
Chris and I have known each other for many years, and challenged each other often. I think his latest thinking is amongst his best, getting to the real root of relationships. I will need to reflect on it more but I think he’s moving in a direction Varoufakis is also heading in, and makes more sense when sayin it.
I suspect I will come back to it. Sorry to be vague now: it requires more thought.
And yes gentle deflation could be done without crashing the bank. The trouble is we’re not good with it in existing systems
Richard, I was wondering about your view on “help to buy” schemes. I am not very familiar with the full details but my instincts seem to point me in the direction of thinking that the main beneficiaries are higher earning buyers in London and that the scheme keeps up prices. Could the money be used better?
Help to buy is designed to give people access to unaffordable houses whose price is kept up to appeases voters whi think this is the surest sign of well being
The money is simply a transfer to those better off
It would be much better to use the money to support council house building
Re ‘Help to Buy’
Your assessment is in line with my own, Richard.
I see it as a sticking plaster policy on a gangrenous leg.
Such a government intervention in the ‘efficient pricing mechanism of the market’ would bring howls of protest from ‘free-marketeers’ were they not it’s beneficiaries.
It’s a classic example of insidious State Capture at work.
It will even win votes at the expense of the public purse because it looks beneficent even to would-be homeowners who can’t personally benefit.
Apparently the mp Peter Bone benefits from Help to Buy (via his wife, of course)
Bizarre….if true
“Tax havens are amorphous things. Defining them is hard because they come in so many shapes and forms. What can be said is that ALL of them create laws and regulations that are not intended to be for the benefit of their own population but are instead of benefit to people who live elsewhere in the world.” How does this fit in with your new article?
I don’t see that an owner occupier gets any tax advantages that you claim . It is certain that house prices have outstripped inflation, but this surely is a function of demand exceeding supply. Please demonstrate how i as an owner occupier currently receive a tax advantage over that of a non home owner ?- miras long since being abolished.
I further take issue to your assumption that council tax should rise in accordance with rise in house prices which you are suggesting. If my house rises in value i do not see that i am consuming anymore council services as the increase in my wealth is purely notional.
The statement The reality is tax has created massive housing inequality – i can see no logic in that at all. The fact is that demand has consistently outstripped supply – i see no solution suggested here at all.
I am not sure what to add Bob
Everything I could say seems to be in the piece
Choosing not to tax the benefits arising from property ownership – which pretty much by definition provides benefit to the better off – has conferred enormous financial benefits on them
I entirely accept it’s a different form of tax haven, but I set out the criteria I use and think it meets them
As for the idea that taxes are payment for services; that’s just not true. Where did you get the idea from?
Bob,
“Tax havens are amorphous things. Defining them is hard because they come in so many shapes and forms. What can be said is that ALL of them create laws and regulations that are not intended to be for the benefit of their own population but are instead of benefit to people who live elsewhere in the world.”
I don’t think you are right in what you say. And I think you are missing the point. You are seeing tax havens as something physical (or maybe more amorphous) ‘out there’. An island paradise, or a cunning investment product – however you envisage it. As you rightly say they come in many shapes and sizes.
The thing is that you actually stress ‘ALL’ are beneficial to people living ‘elsewhere in the World’ and in part, the essence of Richard’s argument, as I read it, is that, No…. some of these tax havens are established in plain sight in our midst. Like the housing market .
“…house prices have outstripped inflation,…” Well that depends how you define ‘inflation’ doesn’t it? House price increases ARE (an element of) inflation. With the proviso that where a house has increased in value because of tangible improvements to it that is entirely legitimate. Where the prices have increased because of ‘gentrification’ or improved local infrastructure (paid from public funds) the increase represents a transfer of wealth from public to private ownership. The increase in price in that case is based on a change in underlying land value/price and the built property may be exactly the same. In extremis it may be an irrelevant derelict – or even just a planning permission.
” Please demonstrate how i as an owner occupier currently receive a tax advantage over that of a non home owner ?”
OK. In a situation where your home is increasing in price (without increasing in value by virtue of improvement/refurbishment) your wealth is increasing. ‘My home made more than my salary last month’. You’ve heard that said I’m sure. That’s income, but it isn’t subject to the prevailing income tax. (Now I’m not suggesting that you should have to pay that tax monthly as you ‘earn’ it because it isn’t liquid, but you do still owe it and it should properly speaking be recouped at some stage. Under current tax rules it isn’t even collected when you sell the property because your (first) home is CGT exempt (as I understand it) So to you it’s tax free money/income.
“I don’t see that an owner occupier gets any tax advantages that you claim . It is certain that but this surely is a function of demand exceeding supply.”
Supply and demand is not economically neutral. It is a politically constructed economic environment. Affected by planning constraints, public house-building policy, rent controls or lack of them, local council tax policy, economic activity in a particular locality which is in its turn affected by industrial strategy, infrastructure provision and the list goes on. Free market mechanisms such as ‘supply and demand’ are imperfectly applicable in such a regulated economic landscape. (The ‘Free Market’ is a fantasy. It doesn’t exist. It is not allowed to exist.)
“- miras long since being abolished….” True. MIRAS was stopped, but it wasn’t reversed. Just because it is no longer a current input doesn’t mean it isn’t still there lurking in the current housing market. It was a public, tax-payer subsidy to homeowners. It was designed to encourage home ownership and irrespective of the merits of that policy it is unarguable that it was a political decision aimed at making the housing market work better. It certainly was effective in making the housing market work differently. In simplistic terms public money was injected into the private sector housing market and has never been repaid. ALL homeowners (indeed house owners) have got a bit of it in their ‘portfolio’.
“….assumption that council tax should rise in accordance with rise in house prices which you are suggesting. If my house rises in value i do not see that i am consuming anymore council services……”
Local property taxation (formerly ‘the rates’) was totally unhinged by Mrs Thatcher’s Community Charge (aka The Poll Tax). (A doctrinaire piece of nonsense if ever there was one). Poll tax was probably the most regressive piece of tax legislation ever devised (certainly in modern times).
The theory behind it demonstrated a total ignorance of (or disregard for) the services provided by local government and how those services are delivered and who benefits from them.
Michael Heseletine’s sticking plaster, damage limitation (political party damage) ‘Council Tax’ which replaced it only marginally reversed the regressive shift. One inherent flaw is that the ‘bands’ don’t go nearly high enough up the house price scale. There aren’t enough bands. And the thresholds are (probably) in the wrong places. When the property valuations were done they were based anyway on rateable values which were out of date.
So in short if you think that homeowners are not living in tax havens I think you are missing something, and almost certainly have been playing the game successfully which is all credit to you. You did not make the rules. You just play the game.
I suggest the game has some very badly devised rules and is overdue for serious revision.
I suggest you review Richard’s proposals and try to understand them. You may still not agree, but you might understand why you disagree. Currently I don’t think you do.
I’m sorry but after rereading your piece i still can’t see how housing is a tax haven . If my house increases in value it does not mean that my income has increased- the only way i can benefit is if i sell my house – but then only if i can buy something cheaper – which in my position on the housing ladder is not feasible. It might be a nominal increase in value – it’s not one that i can actually realise within my lifetime – nor i suspect for most owner occupiers.
With regard to council tax it is obviously a payment for services – if you believe council tax is not a payment for services – please explain what you think it is?
Again you ignore the massive elephant in the room – of demand outstripping supply. It is unfortunate for younger people that house prices outstrip rises in wages, but taxing current homeowners much more doesn’t seem to be a solution to increasing supply or throttling demand – it just seems a mean spirited attempt to punish people for nominal increases in value that they had no hand in. And as you have said taxes don’t fund Government spending so what would you achieve except punishing people especially people like myself who are not living the life of riley but existing on a small fixed pension.
I am struggling because I think I am clear
And yes, I am in the process pushing furward the notion of what a tax haven is. If you don’t like that I make no apologies. I wrote the definition you refer to; I can develop it as a result.
At the same time I am also saying that the idea that council tax us a charge is ridiculous and has to go.
And that your tax free gains shoukd b taxed, and that it us fair to do so on death.
Respectfully the only argument I can find from you us that you don’t like it. And that’s not going to work here.
Bob,
With respect, I have to say that if you regard taxation as ‘punishment’, you are in a sort of mental black hole.
There is a lot of mainstream media commentators (including dear old Auntie Beeb) that wants you to believe their ‘world view’. You need to come to terms with where you are in the economic food-chain and how the whole system is set-up. Or you can chose not to know. That’s your right. Hey! you may even agree with them.
If you go to the bottom of the ‘Home page’ of this blog you will see that there are (currently) 1,607 pages to refer to. You will find some of your confusion is explained by reading at least some of them, I suggest. Lots of pages have links embedded which will take you to other interesting and illuminating commentaries and information. You won’t agree with it all perhaps.
Of course i don’t like it. Your idea serves no purpose except as an envy tax – is this anyway for your ideas to get traction by raising taxes (which you say are unnecessary) because you don’t like people to be the recipients of inadvertent good fortune? Tell me how you can explain your desire to tax people on the rise on the value of their houses other than the politics of envy?
How do you expect the council to provide services if it doesn’t receive income from it’s citizens? If you say a council does not need income to provide services why is a council tax necessary? – you can’t have it both ways.
Again you you refuse to take into account the basics of economics – supply and demand. Taxing me and others like me more is not going to reduce demand nor increase supply as you have already explained there is no link between taxes and spending. It might make you feel good I suppose . For a man who looks at the big picture you often seem very small minded.
What the heck has envy got to do with it?
Inequality is demonstrably harmful to economies
And limited access to housing as a result of tax preference for some has fed inequality
I can assure you I am envious of no one: I enjoy considerable personal good fortune, over all and certainly am not seeking to remove anyone else’s
But I am seeking a better world for many denied opprtunity now. Apparently you’d like to maintain that disparity. Maybe you’d like to explain why when it is unearned.
All the rest of your comments are irrelevant in the context of this
I’m ‘hearing’ all the hallmarks of a faith based position, Richard.
The ‘Jesuits’ of the neoliberal consensus and their media acolytes have done a thorough job.
I see you refuse to answer any questions that don’t fit into your agenda. Housing is not limited due to tax preferences – housing is limited to demand being greater than supply- pushing up prices. Your solutions of taxing people more who already own homes would not increase supply or decrease demand You have no answer to this question rather seeking to punish people who have been fortunate. I note in a previous post that you suggested that peoples bank accounts should be monitored for excessive consumption – a position that reeks of envy of those more fortunate than yourself and others. In fact your approach to this problem reminds of Mrs Thatcher and the poll tax. Introducing charges such as you suggest would be deeply unpopular and end up as uncollectable.
I further note that you are unable or unwilling to defend your assertion that council tax does not finance local government spending.
You think you are offering solutions but at best you are throwing scraps to appease people you see as hard done by. You are not offering solutions to this serious problem of demand exceeding supply. Describing it as a problem of tax relief is just fatuous.
And andy crow – i’ve read many of richards pages – has has some good ideas, but often some deeply unpleasant ones. I am not confused. This current idea posits a fallacy that owner occupiers enjoy a special tax status.Furthermore I can assure you that many people do not see tax as a joy . People will pay if they think a tax is fair and they are paying their fair share. If they think a tax is unfair or unjustified then they will not be happy. After 30 years working for IR and then hmrc i can tell you this from hard won experience. Yours is the faith based belief in that taxing people because of good fortune improves the lives of those less fortunate unless you see the way to reduce inequality is to make people worse off – levelling down rather than levelling up. With all due respect you are the one with the faith based position. Making me poorer is not going to help those less fortunate than me, though it might make YOU feel good because i disagree with your opinion.
If a man comes to my door who comprehensively proves himself a fool do I have to engage with them?
I think not
I tried.
I tired.
A couple things that might be worth considering before we go:
1. Foreigners (living abroad) buying existing properties as “investments”. Other nations generally impose much stronger restrictions on this if not outright bans. The UK is something of an unfortunate exception and surely due for change. The situation in London (for example) is ridiculous.
2. The AirBnB problem. It strangles rental supply and leaves a lot of places uselessly vacant for most of the time. AirBnB seems to do a pretty good job of bullying / bribing local authorities. Appropriate tax changes would take them on at the national level.
https://www.theguardian.com/technology/2016/dec/01/airbnb-introduces-90-day-a-year-limit-for-london-hosts
https://www.theguardian.com/commentisfree/2016/oct/17/airbnb-rent-unaffordable-elizabeth-warren-neighborhoods
http://money.cnn.com/2015/11/04/technology/airbnb-after-prop-f/index.html