Introducing LVT by stealth

I love LVT and I love maths, so here goes…

First, write down what you know.

1. Let’s get rid of the four biggest and most egregious taxes on housing/wealth: Council Tax (regressive) net of rebates annual revenues £25 bn; SDLT (progressive) £10 bn; Inheritance Tax (hyper progressive unless you are really rich) £5 bn and the TV licence fee (hyper regressive) £4 bn.

2. And let’s get rid of Employer’s NIC, a tax on jobs, total revenues (say) £86 bn (60% of total revenues £143 bn -  I’ve never found an official split so it’ll have to do).

3. To be fiscally neutral, a residential LVT would need to raise £130 bn a year. This would require an LVT of 65% of total annual site premiums, or for the uninitiated, about 1.8% of current selling prices.

4. Politically, this will only way this will fly is if you minimise the numbers of losers and maximise the number of winners which is how the buggers get away with hiking tobacco duty each year, because only one-fifth of adults even notice.
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Let’s start in the middle (and work outwards) with a recent first time buyer couple in an average/median value home, both employees on an average/median wage of £25,000 a year, who bought a house with a 20% deposit (or who have ‘built up £50,000 equity’ since they bought) and a 4 x joint income mortgage, their house is worth £250,000.

At present, their P60 looks like this (courtesy of Listentotaxman.com):
Salary £25,000
- Income tax £2,498
- Employee’s NIC £1,964
= Net £20,538

What they don’t see is that their employers have each had to chip in £2,259 Employer’s NIC. In truth, their gross wages are £27,259 each and they pay £6,721 tax.

And they know that they have to pay about £1,100 in Council Tax and the TV licence fee out of their net income.
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Next year the LVT on their home will be £4,500 (£250,000 x 1.8%), which will be collected via PAYE, half each (the same as any coded out benefit, Student Loan repayments etc) and their P60s will look like this:

Salary £25,000
+ Employer’s LVT contribution £2.259
- LVT £2,250
- Income tax £2,498
- Employee’s NIC £1,964
= Net £20,547

So no real difference there, except they no longer have to pay the £1,100 Council Tax and TV licence fee. So they will be modest winners and will wonder what all the excitement was about.
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It is easy to find ‘hardship cases’ where people will pay more than now:
- Poor Widows in Mansions (who get the ‘defer and pay on death’ option)
- the self-employed who pay less than half as much in National Insurance (tough, they now get the same state pension rights so there is no policy justification for this)

It is just as easy to find a huge group of people who will pay a lot less – tenants (and young adults who still live with their parents), who out-number all the Poor Widows in Mansion and the self-employed in electoral terms.

They will see the lines ‘Gross salary’ and ‘Employer’s LVT contribution’ with no deduction for ‘LVT’, so that’s an extra £190 a month in their pay packets, not massive, but worth voting for.
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Then the government just has to keep going…

If LVT goes up from 65% to 100% that means a £70 bn reduction in other taxes; such as reducing the rate of VAT from 20% to 5% or so (and getting rid of a load of dumb exemptions and the zero rating for new housing). The maths gets a bit more complicated here because of the circularity, but it’s all do-able, I’ll plan the next step once we’ve got going.