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What would be the impact of LVT on pensioners?

The Campaign needs to give further attention to the criticism that the introduction of LVT would force elderly people on small fixed incomes out of their homes. This comment we have received describes a not unusual situation…

Steve Hill: I write on behalf of myself – 55 and semi-retired – and my octogenarian widowed mother.

One of the reasons that the elderly need to sell houses they have lived in all their lives is because already punitive property taxes force them to do so. I don’t dispute that there are other issues like funding personal care, or adequacy of pensions as well. However, my mother – 83 last weekend – is fit and active, lives in her own home which she manages with no help, is an active member of the village croquet team (runner-up in last year’s competition) and until a year ago worked three days a week in a charity shop. She still cooks lunch every Wednesday in the church hall for “the old folk”. She has no need or desire to sell her house.

On retirement many people on modest pensions essentially fall out of the income tax net.

They do however still need a roof over their heads. With people living longer and possibly (like me) retiring earlier, retirements of 30 or even 40 years are possible and increasingly common.

Replacing income tax (and VAT and anything else you have in mind) with a “simple” land value tax means that the sums people currently pay in Council Tax will have to go up five-fold or ten-fold. These retirement decades will for most people then be unaffordable. Pensioners will, quite simply, be paying the same taxes as people in employment.

My mother makes ends meet but is by no means rich. If her property were to benefit from the “windfall” (?) of a high speed railway line increasing local property value, according to your thesis her property taxes should increase.

What will actually happen is that should your plans ever be implemented, 95% of pensioners will dump their homes on the market, at any price (they will have no choice) and the knock-on impact on house prices will, probably, halve all UK property values overnight. And your projected tax revenues will fall through the floor. You could then try to double property tax rates as a response, if you were very foolish, causing a further collapse in prices.

Your position is that your little old lady in Folkestone should be thrilled at the increase in value of her property (why?; she’s not going to live to spend it?) and jump at the chance to have her remaining years turned upside down by selling up, and buying an equally over-inflated, but smaller, property in Folkestone, or leaving the area and whatever friends and social support network she has in place.

My position is that to the maximum extent possible people should be free to decide for themselves when to sell and where to move to, with taxation being the least important driver behind such decisions that society can contrive to make it.

Your position is totalitarian, mine is libertarian.

Response: You have identified a very real issue of which we are well aware. If you look at the literature on LVT, this has often been discussed. There is little on our own web site due to the way the Campaign has developed and the particular issues which the Campaign has addressed since it was established about 20 years ago. The Campaign has perhaps been lazy in not previously addressing the issue in our own material and it is good that this has been brought to attention. But please remember that we are proposing a tax based on annual values, not on selling prices, thus nobody would be expected to pay tax on a bubble value.

When the subject has been discussed previously, the commonest suggestion is that pensioners should be allowed to defer LVT payment, the amount due becoming a land charge. Other options include some sort of rebate scheme. Or, dare one say it, pensions need to rise; pensioners who are tenants are badly affected because their incomes have not been tied to average wages and are faced with ever rising rents, as are leaseholders in flats who have to pay for ever-rising maintenance charges. Pensioners also generally have children who can reasonably be expected to contribute to the support of their aged parents, especially if they want to inherit the house, and more especially if the introduction of LVT means that they are paying less tax out of their earnings. It is also the case that many pensioners do not wish to continue with the responsibility and expense of running a large house and garden and move as a matter of choice. A related issue concerns tenants occupying premises at below the market value, for example in housing association property.

The problem is primarily one that affects the present generation of pensioners. Those born after
around 1955 have been stuffed anyway due to the banking collapse and the government’s response to it, and possibly a forthcoming collapse of sterling, which is currently sinking like a stone. Had today’s pensioners lived their working livese under an LVT scheme then she would have enjoyed the full fruits of their labour instead of paying almost half of earnings in tax, so they would have had ample savings.

This position is not totalitarian. Totalitarian is a good description for a tax system which requires everyone to disclose, regularly and on threat of severe punishment, full details of their financial circumstances.

Steve Hill:
Relieving pensioner liability by e.g deferring it for life and rolling up a charge on the property would be less helpful than you suppose. Council tax on my home is about £3k a year (not top band). If it was replaced with LVT it would not be less than £15 – 20k a year, probably more. Put it this way, I currently pay more than that in income tax. It would only require me to live a couple of decades (I’m 55, remember) for the accrued LVT charge to exceed the value of my home. What happens then? Do you sell me up regardless before things get even worse? Do you send the bailiffs round to seize my other assets? Actually none of these: any pensioner with children will not let such a situation begin to develop. They will sell up pre-emptively, before the charge wipes out their kids’ inheritance. And property prices will fall… etc etc..

Response: I am not convinced about roll-up schemes either. I think your objection holds. Though on what basis do you assume a figure of £15k? So much government expenditure is either churning or used to mitigate the poverty resulting from the present tax system that there is every reason to expect the government’s requirements for cash to fall very substantially. But in any event, LVT or not, pensions just need to go up. Substantially. Pensioners have been swindled for years. Though perhaps people should not suddenly stop work at a certain age, especially when they could be doing useful work. I was on a bus the other day which was being driven by a woman who must have been well into her seventies. So much government expenditure goes on mitigating the collateral damage caused by the tax system that a gradual changeover to LVT would leave plenty in hand to increase pensions and perhaps eventually introduce a Basic Income as well.

When people have been complaining for years that housing is not affordable, surely falling house prices would be a good thing? After all, nobody accepts that food or fuel should be “unaffordable”. Falling prices would not result in a collapse in the land value tax base because people will always be prepared to pay to occupy land that suits their requirements.

On roll-up deferral of LVT
: as existing taxes come off, land values go up and if the amount is not collected as tax (which we think it ought to be) there is still substantial capital value remaining in the land. If it is collected, then there is scope for increasing the state pension. That this problem arises should draw attention to the need to keep the state pension in line with pay. It may be resolved by a rebate scheme, combined with a deferral. In the longer term, people who have worked for a lifetime without having to pay tax on their wages should have ample savings for their retirement, though retirement itself is a concept that may have become outmoded.