fredag 23 mars 2007

Council Tax reform damp squib

After deliberating for some three years about how to pay for local government services, the committee headed by Sir Michael Lyons has come up with nothing better than.

1 Reform of the Council Tax so that people in more valuable houses pay a larger share of the cost;

2 Possibly allowing local councils to set part of the business rate and;

3 Increasing the savings limit so that more pensioners can claim Council Tax benefit.

"In the medium term the Government should:

" * revalue council tax to update the tax base and improve fairness;

" * at the same time, reform council tax by adding new bands to reduce bills for those in the lowest value properties, paid for by increased bills for those in higher value properties paying more - there should be no increase in average council tax bills as a result of this;

" * consider assigning a fixed proportion of income tax to local government;

" * find ways to improve the incentives within the grant system; and

" * consider introducing the power to levy a tourist tax if local government makes a strong case based on local public support - this would be appropriate only in some areas.

Interestingly, in its discussion of the principles of a good tax system, Lyons comments most favourably on property taxes in general and in levying a tax on the rental value of land in particular, amongst other things because people are mobile but property is fixed. Lyons then dismisses LVT, saying that buildings should be taxed as well to "widen the tax base", whilst conceding that this is a discouragement to improvements.

This has blanketed it in a nonsensical fog of irrelevant comment, because under a property tax system which is based on land plus buildings in their existing condition, the tax base is actually reduced as vacant and under-developed sites are assessed at a reduced or zero value.

Having pointed the way, then, to a genuine and overdue reform, Lyons runs off purposefully in the opposite direction. Presumably he was assuming that no government will bite the bullet and remain resolute in the face of the tiny vested interest which will howl about having its privileges withdrawn. However, Lyons' own proposals will result in some people receiving much larger bills than they have been accustomed to for the past twenty years, and they are not going to stay silent. So the Lyons policy will not be put into effect unless the government is willing to face-down the opposition. For much the same amount of political effort, therefore, we could have had genuine land value taxation.

As an example of the superiority of LVT over the alternatives, consider the proposed tourist tax. This additional levy will of course only be worthwhile in popular tourist destinations, and as an entirely new tax it will have to be set up with all the administrative costs that go with it. Tourism is already taxed through VAT, but apart from that, the popularity of tourist destinations is reflected in the amount hotels can charge for rooms, and in the prosperity of service providers like restaurants and entertainments. This is in turn reflected in rents and property prices, and the economic benefit of being a place that tourists like to visit is ultimately manifested in land values. Thus a land value tax will automatically collect the value that tourists bring to a place.

Which is worse? Not to see the point about land or to see the point and then ignore the implications? And why was budget day chosen for unveiling this report which had been awaited with eagerness for so long?

Read about the report of the Lyons Enquiry

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