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How much will I pay?

Many people ask this and there is no single, simple answer.

The answer depends entirely on which taxes would be replaced. Political reality is what it is, and a modest start in the right direction would be to merge all existing taxes that relate to land and buildings, occupation and wealth generally into a single LVT.

The prime candidates for being merged are Council Tax (less Council Tax discounts and related benefit payments), Business Rates and Stamp Duty Land Tax. The corresponding LVT bill for a median home would be approx. £1,000. Out-of-town industrial sites would see a fall in their bills; the bills for prime city-centre retail and office space would go up.

Next on the list are Inheritance Tax, the TV licence fee and Capital Gains Tax/Non-resident Capital Gains Tax. Then all the planning fees and charges (‘roof taxes’, Community Infrastructure Levy, s106 agreements) paid by builders and developers (who would pay LVT on what they have been given planning for, whether it is built yet or not). Other minor taxes in this category are the Annual Tax on Enveloped Dwellings (a kind of Mansion Tax lite), the non-domiciliary levy, Landfill Tax, Insurance Premium Tax and Stamp Duty on buying shares.

There are also subsidies to land ownership which should be scrapped (such as Housing Benefit for private landlords, agricultural subsidies, Help to Buy, Lifetime ISAs, VAT refunds for construction of new housing). This would reduce the amount that a fiscally neutral LVT would have to raise.

The overall effect and incidence of all these taxes is similar to LVT, just heavily disguised and badly implemented. For example, Business Rates is quite close to LVT but over-taxes out-of-town factories and under-taxes city centre premises. Stamp Duty Land Tax is like a lump sum LVT paid in advance and Inheritance Tax and Capital Gains Tax are like lump sum LVT paid in arrears.

The total revenues from all these taxes, less subsidies is approximately £80 billion a year in the UK. LVT at a national rate of about 33% on the location element of rental values (very approximately 1% of current selling prices of housing or £2,000 for a median value home) would raise the same total amount.

Having cleared the decks and tidied up these relatively minor and messy taxes, we can look at replacing the big, damaging taxes. The most damaging tax is Value Added Tax, which raises approx. £130 billion a year, but depresses other tax receipts (because of dead weight costs) by approx. half that. If VAT were phased out and revenues collected from LVT instead, then the amount collected in LVT rate would have to be doubled. Instead of the average household paying nearly £5,000 in VAT, it would be paying an additional £2,500 in LVT – a big win for households and businesses alike.

The next most distortionary tax is National Insurance (on employers, employees and the self-employed), which raises approx. £143 billion gross and perhaps two-thirds of that in net terms (the government pays Employer’s National Insurance to itself, and the tax depresses employment levels and wages, which imposes costs on the welfare system and reduces income tax receipts). Collecting these revenues from LVT instead would increase the LVT bill for a median value home in the UK to approx. £7,000.

A large chunk of the VAT and National Insurance reductions will feed through to higher business profits and hence higher commercial rents. Higher disposable incomes will push up rents on housing. It is difficult to predict how much rental values for city centre commercial premises and housing will increase once VAT and National Insurance are scrapped (or what the relative changes will be), so we will not make predictions as to how much a 100% LVT would be able to raise, to enable us to start making inroads into reducing Income Tax and Corporation Tax, which are relatively non-distortionary taxes.