IFS is right to back Land Value Tax

Dave Wetzel, President of the Labour Land Campaign congratulates the Institute for Fiscal Studies (IFS) on its conclusion in its Green Budget 2014that a Land Value Tax on all commercial land would be more efficient and better for businesses than the current Business Rates system.

The IFS states that a land value tax “would remove altogether the disincentive to develop and use property that business rates creates”.

The Labour Land Campaign agrees that taxes on buildings act as a disincentive to use commercial sites efficiently but also that taxes on business are not only inefficient but are easily avoided and evaded whereas because land is immobile, an annual tax on the economic rent of each site according to its optimum permitted use cannot be defrauded and acts as an incentive to use valuable land in towns and cities efficiently and discourages the land hoarding and speculation that forces prices up.

Dave Wetzel says "The Institute for Fiscal Studies’ work showing the greater efficiency of Land Value Tax is a huge step forward for the UK to see a fundamental shift in taxation off earned incomes, savings and production and on to land and other natural resource rents. Land is not produced by human endeavour and land wealth is created as a result of public and private investments which we all pay for as tax-payers and consumers and not by the landowners who benefit financially."

The Labour Land Campaign recognises that most current taxes in the UK are unfair and inefficient. Income Tax along with National Insurance Contributions and Corporations Taxes are avoided and evaded by many, leaving the tax bill to be picked up by honest and less devious taxpayers. Everyone pays tax in some form or other directly or indirectly and those taxes pay for our public services that create and add to land value in the UK including transport, health care, good state schools, parks and so on but it is owners of land that reap the unearned income of land wealth through no effort on their part.

By reducing taxes on wages and business and introducing an annual Land Value Tax, land will be used more efficiently, demand for building on green land will greatly reduce and speculation in land prices increasing will disappear. Employment will grow as investors are encouraged to expand current businesses and start up new ones all over the UK and the land wealth which is created by all of us will be collected and used for the public good.

Don't be distracted by an exaggerated 'intergenerational divide' ...

There has been some quite silly spinning in recent days about an 'intergenerational divide'. It reached its apogee on twitter (where else?) with this tweet:

For once the UK's economic differences are not so much between rich and poor...they are between old and young http://t.co/uKjcuVQprd
— Shiv Malik (@shivmalik1) June 14, 2013

The tweet links to an article by Paul Johnson - the director of the Institute of Fiscal Studies. What he says is somewhat different to what Malik tweeted. Johnson says of distrubutional changes in income since the recession, "the differences are not so much between rich and poor" - and points out that "pensioner incomes have continued to rise on average, albeit very modestly".

But when Johnson uses terms like 'rich' and 'poor' he is talking about quintiles (20%) or deciles (10%) at best. The real rich are the top 1% or even less - whose grotesque incomes and wealth continue to grow unhindered (for example FTSE director pay grew by 34% in 2010 and by 49% in 2011). The Sunday Times Rich List also shows that in the last year, the richest 1,000 Britons saw their wealth expand by £35 billion - that's more than all the welfare cuts announced, in total!

In the last five years, since the start of the recession, unemployment has increased by a staggering 49% for 18-24 year olds, but the same is also true for 35-49 year olds. More staggering is that the number of 50 to 64 year olds unemployed has risen by 82% in that same period. So actually the hardest hit by the recession (remember youth unemployment was high and rising before the recession) are older workers.


And pensioners are not having it easy - as DWP poverty figures released yesterday showed. The pensioner poverty rate is 18%, compared with 17% for working age adults (see Guardian article). The UK still lags behind the rest of Europe on what it spends (public and private) on pensions: with our spending just 5.4% of GDP, compared to 6.0% in the US, 8.8% in Japan, 10.7% in Germany and 12.5% in France.

The reality is that we need intergenerational solidarity to defeat the cuts that are hitting both young and old. Whether one section of society is being hit slightly harder is only of secondary importance to us all uniting to stop the bastards that are hitting us!

Inflation is a class issue - the IFS confirms

If imitation is the sincerest form of flattery then the development of your idea is pretty satisfying too.

Yesterday the Institute for Fiscal Studies published a report 'The spending patterns and inflation experience of low-income households over the past decade'. In 2009 LEAP published 'Inflation Report 2009: why inflation is a class issue'. It showed that inflation was hitting the poorest hardest, and concluded that:

"the rate of inflation is not an objective single headline figure, but a subjective complex of forces which affect people very differently"

The IFS report showed that the poorest fifth of households faced an average annual inflation rate of 4.3% between 2008 and 2010, while the richest fifth only had a rate of 2.7%. This is because, as LEAP found, if the cost of essential goods (e.g. food, utility bills, housing) rise then the hardest hit will be the poorest who spend a higher proportion of their incomes on essential goods.

The IFS doesn't endorse our 'Essential Inflation' measure but does refer to 'Inflation inequality', which means "that poorer households will have fared worse over the period of the recession than poverty and inequality statistics that don't account for these differential inflation rates would suggest".

The report also finds that "Pensioners, and in particular those dependent on state benefits, experienced higher rates of inflation than non-pensioners". People on working age benefits have experienced an average rise of 4% in recent years, compared with 2.9% for those in work. This makes the change to CPI uprating for pensions and benefits all the more appalling.

Like our report in 2009, it's important that trade unions and other campaigners use these statistics to make the case for their causes: whether that's an end to pay freezes, uprating of benefits and pensions by RPI or wages (whichever is greater) or for nationalising or regulating the profiteering energy companies.

Confirmed: Cuts will hit poorest hardest

Working people, the unemployed and the sick will be hit 10 times harder by spending cuts than previous Con-Dem predictions, a new TUC analysis revealed on Friday.

TUC-commissioned economists shattered myths peddled by Chancellor George Osborne and Deputy Prime Minister Nick Clegg that the spending review was about "fairness."

They revealed that the poorest 10 per cent will be hit 15 times harder than the richest 10 per cent.

The new analysis stands in stark contrast to government claims that overall the cuts would hit the worst off only five times more than the richest in society.

The TUC originally predicted in its Where The Money Goes report that cuts of 25 per cent by 2012-13 would mean that the poorest 10 per cent of households would lose around 20 per cent of their income.

But using data from the Spending Review the TUC showed that overall cuts to public spending - excluding benefits and tax credits - of £48 billion by 2014-15 will be even more regressive, partly because of deep cuts to services which are disproportionately used by the poorest households, such as social housing and social care.

TUC commissioned economist Howard Reed pointed out that if the cuts were examined by their social "function" rather than by department, the picture looks even bleaker.

"Social care will be cut by 20 per cent, social housing 24 per cent, policing 20 per cent and higher and further education 27 per cent," he said.

TUC general secretary Brendan Barber said: "Even when the effects of benefit changes are taken out of the equation, cuts to services surgically target the poorest households and leave the rich relatively untouched."

And Haringey Council leader Claire Kober warned that cuts to local budgets, services and housing allowances will make it impossible for local authorities to cope with the influx.

"We are being set up to fail," she said.

Left Economics Advisory Project co-ordinator Andrew Fisher called on the TUC to co-ordinate resistance to the coalition's "obscene attacks."

He said: "The TUC analysis of Osborne's spending review is to be congratulated and confirms what the IFS said the day before and what our instincts told us all immediately: the CSR was all-out class war.

"At the June Budget and again this week, Osborne lied to us that his cuts would be fair.

"Within a matter of hours again his lies have been irrefutably exposed."

*This article appeared in the Morning Star on Sat 23 Oct

The Real Story of UK Inequality

The Organisation for Economic Co-operation and Development (OECD) Growing Unequal? report published on 21st October 2008 found that "since 2000, income inequality and poverty have fallen faster in the UK than in any other OECD country" and the head of OECD's social policy division, describes it as "remarkable".

This conflicts with the report Poverty and inequality in the UK: 2008 by the Institute for Fiscal Studies (IFS) published in June this year, which found that in the UK "income inequality has risen for its second successive year and is now equal to its highest-ever level (at least since comparable records began in 1961)".

According to the OECD, the "the gap between rich and poor is still greater in the UK than in three quarters of OECD countries". It also states that "the wage gap has widened by 20% since 1985", and that "child poverty rates are still above the levels recorded in the mid-1980s".

Poverty and inequality is still yet to be tackled by New Labour. Even on the terms of the OECD report there is a real inequality problem which the Government needs to address. However, neither the IFS nor OECD reports look at wealth – which has been increasingly concentrated in the hands of the richest. Wealth inequality has risen massively in the last twenty years.

Unless there is a substantial shift in policy, this will be the first Labour government to leave office with society more unequal than when it came to power. Its legacy will also be the most unequal society in living memory.

Download the LEAP report: The Real Story of UK Inequality for a full evaluation of UK inequality, and policy solutions to reduce it.