Tag Archives: tax

Green doesn’t need to mean gentrification

Jim Gleeson has an interesting blog entry about the consequences of making a city more liveable. In short, there is a danger that making an area more liveable can price out lower income people. By reducing air pollution and generally improving the local environment in more deprived areas,  richer people will start to move in displacing the people who should have benefitted.

His prescription is more housing supply to accompany environmental improvements. But we need to think a bit more carefully about this to get the medicine right for places like London.

As he points out, the economic benefits of making an area more desirable will largely go to existing home owners and landlords as the value of the land, and therefore the rent they can charge, increases. Lower income people will be forced to move, presumably (according to Jim’s argument) to less liveable areas. Council and housing association tenants who are secure in their homes gain a nicer environment, but they have no direct stake in the increased value of the land their homes sit on.

Building more homes as Jim suggests could help to keep prices down, meaning less of a windfall gain for land owners and possibly more stable rents. But in practice, due to London’s policy of “mixed and balanced communities”, deprived areas tend to see council housing demolished and replaced overwhelmingly with housing for sale in order to “balance out” the social “mix” of people in the area. There’s no way anyone with an average income and average wealth would be able to buy a new flat in most areas of London on the open market.

The flats will be bought by wealthier-than-average people, and probably many then let on the private market, with a good number of those subsidised by housing benefit. So while more supply might dampen the economic consequences of making an area more liveable, and while it might spread the wealth a little more widely, the economic benefits will still mostly go to wealthier people.

You would need to increase house building across London to 50% higher than Boris Johnson’s aspirational target just to stabilise prices. It would be interesting to know whether there is enough spare land and available development finance to raise supply levels high enough in order to gradually reduce prices so that the benefits of new homes would be principally accrued by ordinary Londoners.

But there are other ways in which we can reduce unequal access to nice local environments while maintaining or reducing levels of economic inequality. Housing supply is undoubtedly part of the picture, but policies need to be a bit more sophisticated to achieve this aim.

One simple policy would be to try to build lots more council housing in wealthier areas that already enjoy high environmental quality. That would require a government to reinstate an adequate housing capital budget; the new budget for London in 2011-15 is two-thirds lower than than the budget for 2008-11!

Another would be to ensure all the new housing is put into the control of a Community Land Trust, which owns the land and so can keep homes permanently affordable. Members of the Trust, usually a co-operative, use any rise in land values to benefit the local community and not private individuals. To date, there is only one example of this in London – Coin Street. Despite valiant efforts and credible plans from various other communities, the HCA, GLA and government have done little to make this concept happen.

A third more radical solution – radical as in dealing with the root of the problem (from radix, Latin for ‘root’) – would be to bring back taxation on land. Winston Churchill and Lloyd George both tried, and failed, to do this at the turn of the 20th century. They were blocked by wealthy landowners in the Lords, whose ancestors got rid of them as the power of the Crown diminished.

We have a tax system that raises income off hard work and consumer goods, and that leaves people to rake in huge gains from increases in land values and capital gains with comparatively little or no tax. If we brought back “schedule A” taxes, land values wouldn’t rise so much, the benefits could be clawed back for investment in affordable housing, all local residents could therefore benefit including council tenants, and people might be encouraged to invest their savings in productive stocks and shares rather than dead bricks and mortar.

These solutions have all been applied in the not-too-distant past. But as with the debate over the National Planning Policy Framework, they seem to get overlooked in simplistic debates over false choices like “housing supply vs. conservation”.

Jim’s post is much more sophisticated, looking at the relationship between environmental improvements and the housing market. But his prescription – more supply – needs to be equally sophisticated to ensure that we deliver environmental and social justice side by side.

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Why so concerned about tax?

The chart below shows a breakdown of where my monthly gross income goes. I’m earning in the region of £30k/year, above the London average but not exactly an enormous sum.

One of my favourite adages is that British people want Scandinavian public services with American tax levels.  Raising taxes to tackle the deficit is treated as something approaching political suicide. But do we pay all that much in tax?

Put aside the fact that at 36% of the UK’s GDP, the current tax level is lower than under Margaret Thatcher (when it dipped to 40%) and much lower than the Swedish level of around 50%.

How does tax affect me? Well my income tax and council tax, which pay for all the basic public services, the roads, waste collection, public transport investment, welfare for people in harder circumstances and much more account for less than my rent, which pays for my half of a flat with my fiancee. My national insurance and pension contributions that are hopefully securing my retirement add up to much less than my rent as well. Since I don’t spend a great deal on clothes, cars, TVs and the like, I’m not too affected by indirect taxes like VAT either.

After all those taxes and basic life expenses, I still have 35% of my gross income left over for fun, holidays, personal savings and the like.

If I were to get pissed off about someone taking all my money, my first target would be the property market. Look how much money I have to spend just to afford a reasonable flat in an area I like! Then there’s my inability to afford to buy a home making my future less secure, low interest rates on my ISA bond and in the short term the likely rises in bus and train fares due to spending cuts.

Yep, all things considered I think tax is the least of my financial worries.

Anyone on similar or higher incomes who crows about tax levels should stop for a moment and think about the majority who earn less and stand to lose a great deal from public spending cuts.

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Eco taxes going down in the UK!

I came across a shocking statistic today: environmental taxes are decreasing in the UK!

The total revenue has risen slower than inflation between 1999 and 2008; from around £32.6bn in 1999 to £38.5bn in 2008. If it had grown with inflation over that period it would have stood at £41.4bn in 2008.

As a percentage of GDP over that period it fell from 3.5% to 2.7%. As a percentage of the total taxes and social contributions in the UK, it has also fallen behind. In 99 it peaked at 9.7% of total tax revenue, then fell to 7.2% in 2008.

Environmental taxes made up a lower share of our economy and tax revenue than at any time since 1993, when the ONS records begin. So much for shifting the tax burden from income to environmental damage!

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TaxPayers Alliance accidentally show we need more eco-taxes

If you read beyond the squeals of indignation from the latest TaxPayers Alliance “research” you find an interesting conclusion. The taxes we pay on measures aimed principally at reducing carbon dioxide emissions are much lower than the cost of those emissions to the economy. So we should be putting more tax on carbon dioxide, and perhaps less on good stuff like work!

The TPA, better known for their corporate tax avoidance and personal tax evasion than robust research, have really gone to town on environmental taxation. So here are two fatal flaws and an interesting conclusion for those worried by the headlines.

First, they pit these taxes against the cost of carbon dioxide emissions. But by their own, buried and obfuscated admission, these taxes do a lot more than just reduce carbon dioxide emissions. Fuel and vehicle excise duty, which make up the bulk of the taxes, also address congestion, air pollution, service maintenance and help to suppress the level of driving generally. Landfill tax targets the waste of good land being used up for rubbish, and forces councils to get a move on with decent recycling facilities for residents.

The real cost of the taxes that specifically target carbon dioxide emissions is much smaller than they suggest.

Second, they chose a completely misleading figure to estimate the cost of the carbon dioxide emissions. They use an estimate which takes the cost to society of the emissions, then deducts the immediate benefits. They pretend this low figure is representing the gross costs. If you look at the costs based on the Government’s shadow price for carbon, the costs come out – shocker – three and a half times higher.

This real cost of the emissions is actually higher than the real cost of the taxes that directly address those emissions. Nice one, TPA.

The other interesting nugget is in their analysis of who these taxes affect. If you’re lucky enough to live somewhere with plenty of public investment in public transport, energy efficiency programmes and good recycling facilities, the cost of these taxes is far lower for you. So the best thing is to, er, live in a green area! Nice one, TPA.


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Who is really ripping us off?

A discussion with two friends on the back of my post about the cuts agenda brought up some interesting figures about benefit and tax fraud.

There’s nothing the Tories and right-wing media pundits like more than a good old attack on benefit fraud. Lazy good-for-nothings scamming our taxes! Get ‘em! But how big a problem is benefit fraud, and how does it compare to the rich ripping us off with offshore tax havens and the like?

Benefit fraud in 07-08 cost us around £800m out of a budget totalling £125bn. Tax evasio by the rich cost us around £18.5bn and a tax avoidance is estimated at around £100bn compared to a government budget totalling £589bn.

Tax evasion  is harder to tackle, involving international negotiations, but it says a lot about your priorities. Tory plans to bail out a few thousand rich families through inheritance tax changes would cost considerably more than benefit fraud. Are they cutting public finances to help the country, or to help their wealthy mates?


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Don’t let the Tories get away with it

As long as the Democrats talked within Republican frames like “tax relief”, they always lost the argument. So why are Labour taking on Tory economic narratives during their party season? They’re handing the election to Cameron on a plate.

The first narrative is that we need to cut public expenditure to save the deficit and curb the national debt. Except that our national debt is much lower than most developed economies, and is projected to stay that way. Our deficit is large, but Cameron’s criticism of any fiscal stimulus would only have landed us in a bigger hole with more unemployment and smaller tax receipts; perhaps even a depression.

The second is that the public sector is an unproductive drag on the economy, and should be the focus of cuts. Except that the public sector injects stable spending power into the economy; provides the infrastructure and services that business can’t function without; subsidises businesses who want to pay scandalously low wages through the benefits system; is funded more by working people’s tax contributions than those direct from business; and so on.

For much of the left wing commentariat, who think “Left equals Labour”, this is more evidence of the intellectual vacuum at what’s left of the heart of the left Labour project. But New Labour was born from the marriage of social democracy and New Right economic thinking. Brown et al are never going to seriously rethink the economic terrain they shaped, which contributed to the near-collapse of the economy. Their only narrative these past few months has been “our cuts will be nicer”. Nice.

If only those commentators would look beyond Labour to parties who are articulating a genuine alternative, and who are challenging these Tory narratives. Like, urm, the Green Party. At the moment they seem resigned to an electoral wipeout without redeeming heros.


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