National v local: resolving the conflict
There is always political tension between national and local government - LVT won't make that go away but it raises some questions worth considering.
- Should land values be assessed locally or nationally?
- Should the LVT rate be set locally or nationally?
- Should LVT be collected locally or nationally?
- How should the income from LVT be distributed?
What happens at the moment
At the moment Local Authority (LA) income comes from two sources: from national taxpayers via government and from local taxpayers via Council Tax and Business Rates.
LAs have little freedom to increase Council Tax and Business Rates - limits are set by government.
The emasculation of LA powers was started by the Thatcher government in the 1980s and continued by Labour and Conservative governments ever since.
Bloody mindedness by government means that its "flavour of the month" policies will be rammed through despite the wishes of LAs. For example: free schools and academies receive a larger allocation of taxpayer revenue than "bog standard" LA schools.
LAs are not allowed to borrow to build and run new schools - everything must be put out to private tender because "the private sector is more efficient."
Local people have less and less control of local schools via seats on governing or management boards - "the private sector knows best - and what do parents know anyway?"
LAs may not borrow to build new homes - "the private sector will meet demand" - especially if the market is distorted by taxpayer money being used to line the pockets of conservative supporting developers through things like "Help to buy".
This is glaringly unfair because it puts private profit before accountability to local people - but since when have governments, of any colour, been fair when they get a bee in their bonnet?
Should land values be assessed locally or nationally?
The "open market" value of land (what someone would pay for it) is determined by only two things:
- Where it is - location, location, location!
- What it may be used for - and that's determined by the planning system.
The Valuation Office was established in 1910 and has been valuing property (land and buildings) for almost 110 years - so it has had a lot of practice!
It is now the "Valuation Office Agency" (VOA) following the "Agency Mania" of the 1980s/1990s.
The VOA has regional and local offices so market values will be determined by people with local experience working for a national body.
Should the LVT rate be set locally or nationally?
Council tax is unfair because it is determined locally. Band H Westminster: £1,421, Band H South Derbyshire: £3,445.
The LVT rate, the percentage of market value, must be set nationally or we will be stuck with the same levels of unfairness.
We need to know two things before the rate can be set:
- The total market value of all land in the country.
- The amount we need to raise - and that is determined by the taxes LVT will replace.
We don't know these values yet but let's make some wild assumptions for England and do some sums:
- Total value of land: £4 trillion. (£4,000,000,000,000)
- Total raised by Council Tax: £30 billion. (: £30,000,000,000)
So, to replace Council Tax alone the LVT rate would have to be 0.75%. More if it also replaced Business Rates.
Should LVT be collected locally or nationally?
From the above:
- Land values will be determined nationally.
- The LVT rate will be set nationally.
There are over 150 LAs in England - does it make sense to have over 150 expensive teams collecting a national tax when HMRC has been doing this for 170 years since the Inland Revenue was established in 1849?
Collecting it locally would lead to another problem: the areas with the highest land values will rake in the most money - and that is exactly the problem we are trying to solve!
LVT should be collected nationally.
How should the income from LVT be distributed?
This is the tough one, this is the political football.
LAs have obligations placed on them by national legislation - the cost of meeting those obligations can be assessed and must be be funded.
So far not so bad.
As we saw above, LA revenue comes from two sources: national government and local taxes.
It may make more sense if LA funding came from a single source - LVT - this makes things simple.
Doing this would increase the LVT rate but it would also reduce other taxes which would no longer be required to meet LA funding from central government. Perhaps Income Tax or VAT could be reduced.
Whatever is done the result must be "revenue neutral" - there must be no overall increase in taxes raised - just a shuffling of how they are raised.
After all statutory obligations have been met there remains a problem: how to fund disctretionary spending by LAs? These are the things that local people and local politicians want to do.
Actually, that's not as hard as it looks - as long as we make a few more assumptions.
Let's assume that:
- local people, and local political parties, can make their wishes known,
- those wishes can be costed,
- with knowledge of the wishes, and their costs, local people can decide if they want them or not.
How can it be done?
- Other countries, the USA for example, have simple ways of doing this through "propositions".
- A proposition is a wish put up by a political party or by a group of local citizens - with maybe a rule that at least x hundred people must sign up for a proposition before it will be considered.
- LA officers and professionals, such as RICS valuers, now cost the proposition.
"If you want to build a Velodrome it will cost £27 million for the land and the building."
- It is most unlikely that the LA will want to lash out multiple millions on multiple propositions at one time so the funds may be borrowed and the cost spread over X years.
- The LA officers now show that:
"Repaying the borrowing for the Velodrome will cost £2 million per year spread over 20 years which will add 0.1% to the LVT rate during those years."
- At the next local election, the ballot paper contains the names of those competing to be elected and the costed propositions.
The Velodrome supporters will no doubt engage in a campaign to whip up support for their proposition.
- The local electorate votes for its representatives and for the propositions it is willing to pay for.
- The additional LVT, if agreed, is collected nationally and returned in full to the LA.
There - not so hard after all and it may have a couple of additional positive consequences. It may encourage people to vote (turnout at local elections hovers around 20% - which is no way to run a democracy!) and it may stop politicians engaging in expensive vanity projects!
The problem is that politicians are a devious bunch and more often than not they put themselves, their parties and those who support them (usually with cash) above the public good.
A political party decides that its interests are best served by reducing national taxation, or removing the amount of tax paid in areas that support it, by dumping more costs onto LAs.
This is simple to do.
For example: national government could remove the legal obligation to provide old people's homes or free school meals or anything else that is in low demand in the areas that support it - Westminster or The City for example.
Outside Westminster LAs still need to do something for old people, and the children of less well-off families, so they are forced to put up propositions to cover the cost - and therefore forced to put up the LVT for their LA!
Of course, no honourable politicians would do such a thing, they wouldn't dream of setting things up simply to reduce the tax on their supporters.
If, on the other hand, you think this may be a possibility, please contact us with your suggestions for a way round it!