AGM and discussion on LVT

Croydon Communist Party held its AGM on Thursday, 19 January. Routine business was swiftly despatched, including the confirmation of Martin Graham as Branch Secretary, leaving the rest of the meeting for the political report and discussion, including a discussion of Land Value Tax (LVT) and the response earlier that week by London Mayor Sadiq Khan to the report A Land Value Tax for London? published by the London Assembly Planning Committee.

The London Assembly Planning Committee report, published in February last year, appears largely to be the work of Tom Copley, a Labour Assembly Member with some progressive ideas – he is, for example a republican – but who has been opposing and undermining Jeremy Corbyn’s leadership of the Labour Party to the extent even of accusing him of lying. It was therefore unsurprising that the report adopted a timid and unimaginative approach to LVT, seeing it as little more than a device to bring forward land for development in London. Mayor Khan’s response was equally limited: he welcomed the report but cautioned that he lacked powers even to undertake a pilot scheme. He would “hold talks with the Treasury”. but as the last thing the  Tories want to do is tax the people who bankroll them, don’t hold your breath!

LVT has significantly greater potential than simply a means of accelerating property development in London. As the Economics Commission of the Communist Party argued in the pamphlet From Each According to their Means, it has a part to play in creating a truly progressive national tax regime. You can read this report here or order a printed copy for £2.50 postage paid from the Communist Party here.

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A Voluntary Tax

In the CP’s 2014 review of taxation, From Each According To Their Means , little emphasis was placed on hypothecation – the principle under which money raised from a particular tax is used for a pre-specified purpose. This makes sense. The primary purpose of taxation is to finance the totality of government expenditure and, subject to borrowing to invest for the future and the cyclical nature of economic activity under capitalism, budgets do need to balance. When, however, there is an opportunity to raise revenue which can be matched with a clear social need for government expenditure, it makes sense, if only for  presentational purposes, to link the two.

Inheritance Tax is currently a “voluntary” tax, not only for the very wealthy but also for large sections of the upper middle class who also see it as their right to pay as little of it as possible. Estates worth less than £325,000 are exempt and the rate of and 40% thereafter is easily avoidable by employing any half-competent solicitor. The Duke of Westminster’s estate, for example, is said to be worth some £13 billion, but no Inheritance Tax will be paid following his death last month as his property is held in trusts. In consequence, Inheritance Tax yielded a paltry £4.6 billion last year. Yet according to even ONS statistics , wealth in private hands is now worth £11.1 trillion, with more than half owned by the wealthiest 10%. If we assume an average lifespan of 60 years between inheritance and death, this indicates an average effective rate of Inheritance Tax of only 2.5%. In reality this average effective rate is much lower due to the wealthy concealing their wealth and the average interval between inheritance and death being much less than 60 years.

Consider now the government’s current level of support for those in residential care homes. According to Laing & Buisson Care of Older People UK Market Report 2014/15. care home charges last year were on average £29,250 per annum, rising to over £39,300 if nursing care was required.  Charges in the London area are significantly higher. Support from local authorities is available (although increasingly difficult to access due to the austerity squeeze from central government), but the care home resident has, in effect to surrender any capital in excess of £14,250 but less than £23,250 at a rate of £250 for every £1 per week of support and 100% of any capital in excess of £23,250. For a small estate of, say £50,000, this is equivalent to paying Inheritance Tax at 72%.

What is to be done? According to the Dilnot Commission in 2011, there should be a cap of £35,000 on the amount an individual would have to pay for their own care costs during their lifetime. Above that level, the state would pay a standard rate for care, regardless of the individual’s wealth. People would still be liable for costs of accommodation and food in a care home, but this would be capped at £10,000 a year. In addition, the commission called for a big increase in the threshold of savings and assets above which the state offers no help with care costs. The limit should rise from £23,250 to £100,000.

These were modest proposals and failed to go to the heart of the problem. The government nevertheless chose to ignore them. Instead it included a vague manifesto commitment to introduce new rules designed to prevent older people from having to sell their homes when they go into care. This has been deferred until 2020. A lifetime cap on care costs in England of £72,000 was also proposed but deferred after council leaders asked for the allocated funding to be used instead to paper over the on-going crisis in day-to-day social care services.

According to another report from Laing and Buisson, residents (and local authorities) currently pay £14.3 billion per annum in care home fees. This figure is likely to increase due to:

  • pressure on fees from cash-strapped local authorities driving many smaller homes out of business, enabling the rest to put up their fees; and
  •   pressure on care homes to improve the pay of their often badly paid and exploited staff. Even the Tories’ so called living wage will have an effect here.

If, however, we disregard the profits earned by care homes – in a sane world they would be run by local authorities, not profiteers – and estimate that the economic cost of the services currently provided is, say, three times that currently paid, this could be paid for by a tenfold increase in the yield from Inheritance tax. Given the current very low effective rate of 2.5%, this could be achieved by abolishing the trust loophole and ensuring other similar scams are not allowed to flourish. With an average rate of tax of 25%, we could have care homes for all with most people still being better off . With a graduated rate of tax, 90% of people could be better off. For example, on the figures above, a rate of 50% on the top 10% of wealth owners and a zero rate for the rest of us could provide care homes for all.

I don’t claim that the above calculations are anything other than rough estimates. The overall position they reveal is, however, undeniable. There is a solution to the problem of paying for care homes: it’s an Inheritance Tax that is no longer voluntary..

 

DODGY DAVE

Revelations that David Cameron “has done nothing wrong” by avoiding tax are reminiscent of the debacle at the end of the last Tory government. Tories, Dodgy Dave included, think everyone is out to feather their own nests and really don’t see what all the fuss is about.

Taxation policy has played a significant part in bringing us to our current state and it’s abundantly clear that the current tax system in this country is deeply dysfunctional as successive governments shift the tax “burden” from those most able to pay tax to those least able to pay. As the late Ken Gill said: “You pay tax and you buy civilisation.” Most people, but not, it appears, Tory politicians understand that taxes are a price we pay for a decent society.

Even under capitalism it is possible to devise a tax structure that does not place the entire burden of taxation on ordinary working people and their families, but it requires an unapologetically class-based analysis such as that employed by the Party’s Economics Commission in arriving at the Party Pamphlet From each According to their Means, available from the Communist Party Shop or from Communist Party, Ruskin House, 23 Coombe Road, Croydon CR0 1BD, (020) 8686-1659.

The criteria employed by the Economics Commission were that taxes should be redistributive, capable of promoting “social justice,” reflective of the ability to pay, simple to understand, predictable, unavoidable, compatible with each other, objective to assess, transparent and free from interference by those hostile to the interests of the working class, including Tories, parliamentary lobbyists, senior civil servants and the judiciary.

The detailed proposals, included:

  • Tackling the estimated £120 billion lost to Britain through tax avoidance and evasion via introduction of a robust, general anti-avoidance rule which actually “does what it says on the tin” and which includes serious financial or other penalties for those found to have broken the law — giving HMRC the resources it needs to do the job properly along with an end to its current big business-friendly mode of operation; and radical proposals to clamp down on tax havens and the transnational corporations that use them.
  • Unilateral action to end the special tax status of all tax havens under British control
  • Restoration of corporation tax to between 30 per cent and 40 per cent, linked to restoration of a form of advance corporation tax to reduce the incentive for corporations to pursue tax avoidance strategies and windfall taxes on corporations’ recent super-profits.
  • Introduction of new 60 per cent rate of tax for earned income over £60,000 a year, and a 70 per cent rate for unearned income over £60,000 a year.
  • Innovative proposals for the abolition of all current property taxes and replacement with a land value tax (LVT), with the aim of shifting the burden of taxation away from earned income and reducing the scope for tax evasion. This would return to society the value of land that society itself creates and help tackle the evident social injustice generated by the concentration of land ownership in the hands of small elite.
  • Tackling the growing gap between rich and poor with the introduction of an annual wealth tax of 2 per cent and higher rates for the “mega rich,” ending “non-resident” and “non-domiciled” exemption from British income and wealth taxes; and steps to prevent capital flight by implementation of robust exchange controls.
  • Reforming current environmental taxation — which has an important role to play in changing behaviour as well as raising revenue, with the aim of promoting sustainable economic development — by moving to a “tax-and-dividend” approach for addressing the problem of global warming — with Britain acting unilaterally, if necessary, by way of example, with the introduction of standardised carbon tariffs on imports.
  • Support for a financial transaction tax (Tobin tax) on trade in currencies to give Britain greater control of its economic policy and introduction of a financial activities tax (a levy on banks’ profits and remuneration packages).

Now those really would give Dodgy Dave some sleepless nights.