Land Value Taxation Campaign

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Land rent for public revenue

The obscene Institution of “ability to pay”

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I received this from a correspondent yesterday. It is food for thought.

"From my contract work, more evidence of the tax collectors' wicked approach: He won't come after your because your tax planning is fraudulent per se. You'll attract their attention based largely on how much more they estimate they can squeeze out of you relative to the associated collection costs of the squeezing. That is, so called tax avoidance is not seen by the tax collector as a moral crusade. It's pure revenue generation. So taken up to the very large scale of the likes of Amazon, Google, Facebook etc. there will be a 'negotiation' on their so called 'tax avoidance', related to how much more they are able to pay before they'll simply ramp down their business activity and wealth production. The amount one is able to pay and the effort the HMRC are prepared to devote to the investigation will both meet at this 'break point'.

"Here is more evidence of the obscene institution of taxation based on ability to pay - the break point is determined by the point where business will stop operating and the hard working self employed go back onto benefits, and all iterations in between. On this observation alone, how much more will be dead weight losses from total revenue collected, to add to all the other monstrous losses totting up?

Taxation is the root cause of bankruptcy and unemployment.*

Sure, there are other causes. Tax is the biggest.

* Editor's comment: HMRC is the largest single initiator of bankruptcy proceedings.

 

Vacant buildings law collapses

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Vacant buildings and sites used not to be subject rates, the UK national tax on business property. The Rating (Empty Properties) Act 2007 removed this exemption. We were sceptical about the legislation at the time and events have proved us right. Property owners have been trying to challenge the legislation and have now got their way. The owner of a building in Sunderland took the Valuation Office Agency to court. The case, Newbigin v Monk, went to the Court of Appeal in 2015 and then to the Supreme Court. The decision of this test case, announced on 1st March, was in favour of the owners.

Despite what the judges claim, we would argue that this pulls the rug from under the vacant rating legislation. It gives the green light to owners to leave buildings unoccupied and sites derelict, under the pretext that they are "under redevelopment". At first sight, one might expect that owners would be keen to avoid having sites vacant. Because of the way the land market and the banking system interact, however, it is often financially advantageous to hold premises and sites vacant, especially at the low points in the land price cycle; there are instances of sites which have been through two cycles whilst remaining vacant for the entire period, despite development consents. This promotes urban decay and ensures that economic recoveries will be retarded when the cycle begins to pick up.

The judges summarised the point at dispute as follows: "Does a commercial building which is in the course of redevelopment have to be valued for the purposes of rating as if it were still a useable office? That is the question raised in this appeal. An analogous question would arise if the building were a former hospital which was in the process of conversion into flats. Should it be valued as if it were still available for occupation as a hospital? The question is of general public importance to the law of rating and valuation."

The central issue in this appeal was whether the premises should be rated by having regard to the physical condition they were in on 6 January 2012 (the date of assessment) or whether para 2(1)(b) of Schedule 6 to the 1988 Act as amended by the Rating (Valuation) Act 1999 (“the 1999 Act”), requires a valuation officer to assume that "that immediately before the tenancy begins the hereditament is in a state of reasonable repair, but excluding from this assumption any repairs which a reasonable landlord would consider uneconomic. As the Act puts it: "Where the rateable value is determined with a view to making an alteration to a list which has been compiled (whether or not it is still in force) the matters mentioned (in sub-paragraph 7 below of the decision summary) shall be taken to be as they are assumed to be on the material day."

In making a judgement in favour of the landlord, the discussion specifically mentions the principle of rebus sic stantibus, referring to a series of cases as far back as Poplar Assessment Committee v Roberts [1922], and to the principles set out the Rating and Valuation Act 1925

The judges argue that their decision would not undermine the provisions of the Rating (Empty Properties) Act 2007, which increased the unoccupied business rate to make owners of unoccupied property liable for the same rate as those payable on occupied properties, since parliament had also introduced into the 1988 Act, in section 66A, an anti-avoidance power, which, to date, had not been used. The judges inferred that the practice before the Court of Appeal’s decision had not caused a serious problem and that the power could be exercised, if needed, for example to prevent avoidance by the partial implementation of a scheme of works and its deliberate non-completion.

In the light of the law as it is, this outcome was inevitable; the judges' decision was correct. It is what happens when valuations are based on anything other than site values only. Anti-avoidance powers just add another layer of uncertainty and provide endless scope for dispute; it remains to be seen whether they will ever be invoked.

The full details of the judgement are given here.

 

 

Il-informed comments epidemic

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The latest revisions to the UBR have brought about a wave of ill-informed comments in the press, even in publications such as the Financial Times, where one would expect journalists to be on top of the subject.

The incidence of all property taxes is on the landlord. An increase in the UBR means that rental levels will drop, or rise less quickly than they would otherwise have done. This has been well researched. In the days when rates were set by local authorities, it was often the case that identical properties on the two sides of a boundary were subject to different charges eg low-rates Wandsworth and high rates Lambeth. The same situation arose with the Enterprise Zones. In all cases, as one would expect, TOTAL OCCUPATION COSTS WERE THE SAME. This is also the reason why small business rates relief is nothing but a gift to landlords. Business tenants gain nothing at all, since the availability of the rates relief is reflected in the rent, as should be obvious. One wonders whether the policy is not a cynical means of putting more money in landowners' pockets, whilst deceiving the public into thinking that the government wants to help businesses.

The real problem for businesses is that rents do not respond promptly, partly because tenants are locked into agreements which fail to take account of tax changes, and partly because of the prevalence of upwards-only rent revision clauses. Tenants should have the right to renegotiate under certain circumstances, and upwards-only rent revision clauses should be banned. Upwards-only clauses are an unreasonable and onerous condition which fails to take account of the reality that rental values can go down as well as up.

This study was done for the government HM Treasury and HM Revenue and Customs. If policymakers and journalists would study it, comment would be better-informed and misguided policies would not see the light of day. It is essential reading.

http://webarchive.nationalarchives.gov.uk/20090211195642/http://www.hmrc.gov.uk/research/report42.pdf

Postscript - this comment which came as response sheds some light on the issue...

"My friend's hairdresser biz has an upward only clause set to the RPI. If this is typical its also a feckless mistake - RPI fluctuates significantly between 1% and 25% and is only 1.7% currently and has averaged 3% over the past 20 years so is not a reflection of the actual rental value at all. It's been 40% too low for 20 years so if the theory stands UBR should have risen to take up the difference.

The premises had a rent of £8,400 in 2011, and rates of £2,700. Her new contract 5 years later is for £12,700. The RPI over that time has averaged 2.3% which going by the leases own upward only clause equates to £9,400- But... subject to recent changes in the UBR her shop is eligible for zero rating. 12,700 - 9,400 = £3,300 One does not need to be scientifically precise about this. The zero rating to encourage small business has been swallowed up completely by the privatised rent. Funny. Are our government administrators and operators aware of their actions? We do keep pointing it all out to them.

The other problem is psychic - my friend thinks by buying the business she is buying the location too. And further still, that the rent she pays is for the location and the building, where its obviously not because she has a Full Repairing and Insuring lease (FRI)All this shows why its a mistake to blame landowners and economists exclusively. "

 

An essential book for a confused time

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PROTECTION OR FREE TRADE? was written by Henry George in 1886. It is still in print and readily available. It rebuts most of the arguments being put forward by both camps in the Brexit debate, as well as the protectionist sentiments that seem to be at large in the USA following the election of Donald Trump. It has become essential reading, for it provides a guide to the morass of debate that has developed in the wake of the referendum result and the Trump presidential victory

The EU is founded on protectionist trade principles, as becomes clear when people express concern about losing access to the Single Market, which is not a free trade area but a customs union, sustained by an external tariff wall and the internal tariff that is Value Added Tax. Brexit supporters are divided between those who want to see a tariff wall around the UK, under the pretext of protecting British jobs, and a minority, who are in favour of genuine free trade.

Trump was elected partly on the populist belief that protectionism would somehow bring about a revival of industry in the US which has become obsolete as production has moved to other parts of the world. It seems as if he is intent on putting policies into effect with the intention of reversing this long-term trend. They can be guaranteed not to work, except in isolated instances. The overall result will be to do nothing but damage to the US economy and make most people poorer. A trade war with China also brings with it wider risks.

George demonstrates, wittily, with irony, and using the technique of reduction to absurdity, the fallacy of the protectionist arguments. Anyone who reads the book will realise that the best way forward for a post-Brexit Britain would be to open the doors to tariff-free imports and scrap the internal tariff of VAT. The prospects of the latter do not look good, unless the Chancellor takes the bold step of putting the tax under scrutiny. Tariff-free imports, on the other hand, are a more realistic proposition, if only because of the trouble and expense involved in blocking the import of goods by holding them in customs compounds at every port around the country while they wait for clearance.

However, unless we get rid of VAT and resist the temptation to replace it with some kind of purchase tax, people entering the UK will once again face the return of the "anything to declare" business, the abolition of which was one of the better aspects of being in the EU.

 

The dead loss of VAT

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Brexit is a golden opportunity to get rid of all the trade tariffs we have been saddled with by the EU - that is, to reduce taxes on sales of goods and services, by dropping not only existing ‘free trade agreements’, with their enforced tariffs, but while we are at it, VAT as well.

VAT is a trade tariff - just the UK’s intra-national version. The irrationality of government, elected by the people, is here without bounds when it comes to such a destructive tax. Persisting with VAT merely retains our own home-grown version of the poison of trade tariffs.

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