On 30 Oct 2018, at 14:33, Steven Maddocks wrote:

Dear Emile

An enjoyable read, thanks! Very clearly argued and easy to follow – especially when familiar themes (QE, income tax, VAT) emerge!

Two questions: I’m not clear how a land-value tax would fix the problem of buy-to-leave. Aren’t absentee owners of empty properties still liable for council tax? So one tax would just replace another.

Also, you explain the ‘viability assessment’ loophole –  reassessment of the contract gives the builder the opportunity to renege in his commitment to include affordable homes in his plan. But you do not, I think propose a solution. Do you imply that there should be no opportunity to reassess – the initial commitment is completely binding?

My response:

Thanks, Steven – good questions, as I would expect!

1 – The two taxes to which you refer are not interchangeable, and if a site value tax were to be introduced it would not replace council tax. Secondly, the owners of empty property can apply to the council for a discount, which could be as high as 50%. No exemptions if there is a site value tax. Thirdly, if a property is improved, under the present system it will be moved to a higher tax band, so improvements such as those you have undertaken at home can cost you more in council tax. A site value tax, by contrast, is levied on the unimproved value of the land. So no matter how much you improve it, your land tax will not change. Instead of, as now, the system discourages improvement, a site value tax encourages improvement. The more valuable the site (ie the higher its rental value), the more improvement it will attract. The amount on which it is assessed is its rental value. In countries in which site value tax has been tried and tested for decades, such as Australia, NZ and Denmark, a citizen’s main residence is exempt. But second, third, etc, homes held for rent would attract the tax.

More important is the question of properties on the High Street to which business rates currently apply. The complexity of the rules on empty properties inhibits councils from gathering the correct rates, particularly where exemptions and partial exemptions can be negotiated. Can’t happen with site value tax. The land is the land, and occupied or empty the owner is assessed on its rental value – ie a low percentage of its annual rental value. Can’t hide it or dodge it.

The philosophy behind the tax is this: the rental value of any property is created by the existence and presence of the community. The most desirable property (residential or commercial) obviously has the highest rental value. Even though all properties are taxed at the same rate, the higher the rental value, the more tax it will generate.The tax is therefore the way of returning to the community a proportion of the value that it, the community, has created.

2 – This loophole is itself a result of (a) trying to get public sector bodies to engage private sector firms to build according to a prescribed template; and (b) a shortage of housing land that, if brown field and green field sites were selectively released, and site value taxation were introduced, would be much eased – builders would then be able to erect houses that the local community can afford. As things stand the system is rife with backhanders and inside deals and every form of corruption you can envisage – all because local government is able to hold builders to ransom over planning.

To answer your question on the existing system, if the viability vetting of contractors is done properly at the outset, they should not be let off their agreed commitments at a later re-assessment. If they can’t fulfil their commitments, let them go bust!

I hope these partial answers throw at some light!

Best

E