Land Value Taxation Campaign

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Land rent for public revenue

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. "

 

The VAT meme propagates

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VAT is amongst the worst conceivable of all taxes; it fails all the criteria set out in the Canons of Taxation. Yet its advance continues like the plague. India has adopted it, and now Saudi Arabia is going down the same path, as oil revenues fall and the tax free economy comes to an end.

Oil revenues are of course a resource rent, and so Saudi Arabia is accustomed to funding public revenue from this source. Saudi Arabia is one of the world's biggest investors in infrastructure. What seems not to be appreciated is that this is also generating resource rents in the form of land value, which could be used to replace the falling oil revenues.

Yesterday, the Saudi cabinet approved an IMF-backed value-added tax to be imposed across the Gulf, which demonstrates that governments should not take advice from the IMF. And so the VAT meme will continue to propagate until one of the HIgh Priests of the economics establishment breaks ranks and draws attention to the fact that VAT is not worth the candle, at which point politicians will rush off to pursue another fashion. It is a bit like fashions in healthy diet; for decades we have been told that fats are bad for us, until one fine day, sugar is declared to be the villain.

 

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 staff-cutting imperative

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The current disruptions on the railways, the cost of care for the elderly and a host of other issues affecting labour-intensive services can all be traced to a single cause: that the principal sources of public revenue should come from the taxation of labour, goods and services rather than the taxation of the rental value of land, which is what we have consistently advocated.

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Arran farm evictions

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There has been a wave of evictions of farmers on the Isle of Arran, following a ruling by the Supreme Court, that tenants' rights granted under Scottish legislation in 2003 contravene the landowners' rights under the European Convention of Human Rights. The case is complicated. In short, however, the ruling appears to contradict the principle that ownership of a land title is not the same thing as absolute ownership of land, and that the title is no more than a grant of rights over land, derived ultimately from the Sovereign. Thus the decision undermines Sovereignty and the Sovereign's rights to determine the terms of the grant of title.

http://www.bbc.com/news/uk-scotland-38105277

https://www.supremecourt.uk/cases/docs/uksc-2012-0111-judgment.pdf

 

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