Land Value Taxation Campaign

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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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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. "

 

Fee trade area

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The Single Market is described as a free trade area. In reality, is very expensive. It means that if you want to trade with me, even if we are next-door neighbours, we can only do so legally over a 20% high tariff wall between us - Value Added Tax. In some EU countries, the internal tariff wall is even higher - 25% in Sweden. That is not much of a free trade area. Fee trade area, more like.

Green and Brown are neighbours. Green does gardening work for Brown at an agreed price of £200. Brown services Green's car for an agreed price of £200. There are three possibilities.

  1. They exchange their services and no money changes hands.
  2. They pay cash to each other.
  3. They bill each other and add 20% VAT.

If VAT is not a tariff barrier against legal trade, then what do you call it? What do you think they will do in practice? You could of course say the same about income tax. Why would Green pay Brown taxable wages when he could just pay cash under the table?

VAT and Income Tax are a pair of poisonous fruits.

 

What is government for?

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In the aftermath of the referendum, it does no harm to take a step back from the present febrile mood. Conveniently, there was this piece asking "What are governments for?

I came across this about forty years ago.

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