Land Value Taxation Campaign

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Treasury plan to rescue mortgage lenders

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The Treasury is preparing a radical rescue plan for the housing market which may involve pumping billions of pounds into the stricken mortgage markets. Alistair Darling, the Chancellor, has asked his leading advisers to investigate a plan to provide government support for lenders until the financial crisis has abated.

The proposal is being investigated ahead of the completion of Sir James Crosby's report into the funding struggles faced by UK banks. Crosby is expected to warn that banks are facing a massive "funding gap" caused by the collapse of the securitisation markets which previously provided around 40 per cent of backing for home loans. Experts think the gap to be filled by the Treasury could amount to £40bn-£50bn a year... Although he will not provide cast-iron recommendations until his final report in October, he is expected to warn the Government that some form of intervention is necessary to lessen the eventual economic pain. In advance of his recommendations,

Treasury officials have been working hard to formulate a rescue plan; the Government would offer to swap new mortgage debt with banks for gilt-edged government securities. The scheme is very similar to the Bank of England's Special Liquidity Scheme in which the Bank swaps treasury bills for old mortgage debt, except in this case the scheme would cover new mortgages issued this year In reality, the scheme would be designed to support the wider housing market and economy...
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UK tax credit scheme in trouble

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The latest tax problem to hit the UK goverment is the tax credit scheme. Apparently about £2.8 billion was overpaid and the authorities asked for their money back. But people challenged this, using the Freedom of Information legislation to obtain evidence that the Inland Revenue had been incompetent when they made the overpayments. Most of the losses will now have to be written off.

How long will it take the government to realise that the whole tax system is broken?

 

U-turn on multinational company tax changes

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Yet again, the British government is in trouble with tax. The Daily Telegraph business section reported today (22 July 2008) that...

"in a letter to the CBI, the Treasury apparently relented on its plans to levy new taxes on multinational companies. With two already having opted to move their headquarters away from the UK and more threatening to follow suit, the business lobby's brinksmanship appears to have paid off. The Treasury, which in 2007's Budget unveiled skeleton plans for a major overhaul of the way foreign profits are taxed, yesterday admitted that it will have to go back to the drawing board.
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UK Government budget deficit growing

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Figures for June show that the UK's budget deficit has now reached the point that the Labour government will have to breach its own self-imposed borrowing rules. Naturally this has invited plenty of comment, most of it slightly off the point. On the right, it is suggested that too high a proportion of GDP is in the public sector and that cuts are needed. Nobody these days is arguing that taxes ought to go up. Brown is being criticised for not putting away money for a rainy day while things were good. But since he, like most people, had come to believe that the boom/bust cycle had been beaten, it is understandable that nothing was put aside as there would be no more rainy days.
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UK unemployment rising and set for worse

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Some 15,500 people lost their jobs in June, according to the Office for National Statistics. It is the biggest increase since 1992, and means 45,000 people have already lost their jobs since the start of the year. Economists warn of worse to come, as the economy slows sharply in the coming months and possibly dips into recession at least as bad as that of the early 1990s.

Vicky Redwood of Capital Economics said: "The latest labour market figures show that the upward trend in unemployment is picking up pace. Much worse is to come - we expect unemployment to rise by around 900,000 in total by the end of 2010."

The increase would take total unemployment from its current level of 1.6 million to 2.5 million.
 

Credit crisis explained in pictures

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For an explanation of how the present credit crisis originated, click on this link.

Mortgages were being packaged, good and bad together, and sold on to investors, just as a shifty street market trader might sell boxes of apples with the good ones on top and rotten ones underneath. It has to be said that a lot of these "investors" were being remarkably stupid or naive not to check to see what was inside the box. This was a classic land price bubble, the speculators this time being ordinary home owners desperate to jump onto the so-called housing ladder. These recurrent financial storms cannot be prevented directly by legislation and regulation to impose control on banks and moneylenders.

The only way to stop a crisis like this from happening again is for government to collect all or most of the current rental value of all land and use it as the principal source of revenue. This would substantially eliminate the trading of land as a commodity, which is the underlying cause of the problem. The great bonus of such a reform is that present taxes on labour, goods and services could be much reduced and possibly eliminated entirely. There might even be a surplus which would allow a payment for every citizen in the country.

The prompt introduction of this form of Land Value Taxation also offers the best chance to get the economy out of the trouble it is in as quickly as possible.
 

Fannie Mae and Freddie Mac

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In early July, we told our visitors to expect to hear more about the US mortage organisations Freddie Mac and Fannie Mae. As it is turning out, there is plenty to hear as the financial disaster unfolds. In case you are wondering what these organisations are, information on the companies' own websites explains...
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The Swedish Tax Gap

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According to the Swedish taxation board, Skatteverket, there is a large gap between the amount that it believes it should be collecting and what it actually manages to gather in, amounting to 5% of the gross national product. It is referred to as the Tax Gap. As nearly everywhere else, most of the tax is levied through charges on labour, goods and services. Skatteverket states that "The tax administration envisages a society in which everyone wishes to do their share."

This is a great ideal, but present taxes work against it, one consequence being the kind of leakage referred to. The obvious conclusion would be to seek for other sources of revenue which where not vulnerable to such leakage through avoidance and evasion. LVT perhaps?

Download the English language version of the leaflet about the Tax Gap
 


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