Monday, 5 April 2021

Georgism and Universal Basic Income

This is the draft of something for the Centre For Welfare Reform.
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Not all people who support land value tax (LVT) also support the idea of Universal Basic Income (UBI); and most people who support UBI don't also support LVT (if they've even considered it). Nonetheless, it seems to me that LVT and UBI share the same basic principles.

1. The philosophical level

Putting practicalities to one side, the basic assumptions are:

a) Nobody created land, it's just there, so land belongs to everybody and nobody. The same applies to mineral deposits, radio frequencies, the oceans and so on, which Georgists consider to be 'land' for these purposes.

b) Humans are all equal. We are all where we are by accident of birth, and no human has an inherent right to a disproportionate share of the natural world to the exclusion of others (unless he compensates those others for excluding them).

c) Slightly more prosaically, while all people are different (different luck, energy, intelligence, attractiveness etc), the government should treat all citizens equally - one adult one vote; same right to use NHS; same right to 'free' state education for all children; why shouldn't the same apply to welfare payments?
2. The economic level

a) Physical land itself has little intrinsic value, apart from agricultural use. In the modern world, 99% of land value is in developed and urbanised areas. The value of any plot of land (as opposed to the value of the buildings thereon) has nothing to do with the efforts or ingenuity of the individual owner, it depends on where it is or what goes on around it, or 'location, location, location' as the estate agents like to say.

b) 'What goes on around it' depends on society as a whole - what government services and what jobs, transport and leisure opportunities are easily accessible from it. The number of people who create that value is so large that to all intents and purposes, it is everybody in the whole country, and they all have an equal right to the value (in the same way that they have an equal right to an equal share of the natural world, it is futile to try and distinguish the two).

c) Government services cost money and create and sustain land values. So it seems very reasonable to fund those services out of taxes on land values, it's just a user charge for benefits received. If the government provides the right mix of services and leaves the private sector to do what it does best, the land value that is generated can be far in excess of the cost of those services. For example, if providing public transport in an area costs £10 million a year and boosts local rental values by £20 million a year, there is a surplus of £10 million.

d) To whom does that £10 million surplus belong? Surely it belongs equally to everybody in the whole country, who all have the same moral entitlement to the value of land in every part of the country?

3. The practical level

a) The UK, like all developed countries, collects nearly half of GDP in taxation. Most taxes are collected from earnings and the value of output. In the UK, only about one-tenth of tax revenues are from taxes that relate fairly directly to land and buildings - things like Council Tax, Business Rates, Stamp Duty Land Tax, Capital Gains Tax and Inheritance Tax. As a modest start, those taxes should be replaced with a single flat tax on the value of developed and urban land, which would mean an annual tax of approximately one percent on the current selling price of each house. This would be inherently fair between different regions; between those who move and those who stay put; between first time buyers and older owner-occupiers; or indeed between tenants/landlords and owner-occupiers.

b) Quite how far and how fast we could go in reducing taxes on earnings and output and collecting more in LVT is a purely political question. The further and faster the better, as far as Georgists are concerned, but we have to be realistic.

c) The UK, like most developed countries, has a welfare system which has developed piecemeal over the centuries. There is no real underlying principle to the system, each benefit has its own justification and there are different rules for different benefits. It is all sticking plasters on top of sticking plasters. The most widely claimed 'benefit' is the tax free allowance for income tax and National Insurance (NI), which is not even usually recognised as a benefit. But in reality, if you strip away the overlaps and lacunas and iron out the contradictions, it all adds up to something pretty close to a UBI.

d) If you trawl statistics published by HM Revenue and Customs (HMRC) and Department for Work and Pensions (DWP) and add up the number of claimants or beneficiaries in all the different categories, you end up with more people than the entire population. If you add up the total spending (including the notional amount of income tax and NI not collected on the first few thousand pounds of income) and reallocate some to priority categories (people with disabilities and pensioners), the pot left over is sufficient to pay every adult in the UK about £100 a week and every child about £50 a week. At this level, most people would break even and a few might be £10 a week better or worse off.

4. Common objections

a) "Why should I pay LVT on my house?". Because somebody has to pay for all the govermnent services which create and sustain the value of housing in your area. We expect home-owners to pay for their own repairs, utilities and insurance, why should 'somebody else' be forced to have tax deducted from their earnings to pay for all those government services?

b) "What about the asset-rich, cash-poor? They wouldn't be able to afford the LVT." It is true that some single pensioners who own expensive homes would not be able to pay the LVT each year. Which is why all mainstream LVT-supporters agree that pensioners would be allowed to defer LVT payments. The debts would be rolled up and collected out of the sales proceeds after death, which is another reason for rolling Inheritance Tax into LVT (or else it would be a double-charge on housing).

c) "Why should rich people get a UBI?". It is this sort of narrow thinking which led to people earning more than £100,000 a year losing the tax-free personal allowance (but not benefit of the NI lower earnings limit, another glaring inconsistency) and to Child Benefit being clawed back if one parent earns more than £50,000 a year. This is achieved by making them pay more tax; highlighting that benefit withdrawal and taxation are effectively the same thing.

The answer is, "Why not? There are several tax breaks which primarily benefit higher earners, in particular tax relief for pension savings and certain investments. Would it not make sense to give them their personal allowance (or UBI) and their Child Benefit and reduce the generosity of these tax breaks?". For example, instead of giving somebody on a salary of £125,000 pension tax breaks worth £16,000 and making them pay £10,000 extra tax and repaying £4,000 Child Benefit, why not let them have the personal allowance and Child Benefit (or Child UBI) and not give them tax relief for pensions savings?

d) "UBI would be unaffordable". Most adult UBI recipients would be people in full-time jobs, and paying them a UBI would not be an extra cost. The value of the income tax- and NIC-free allowances is similar to a UBI, and a cost-neutral UBI would replace those allowances. So people in a full-time job wouldn't notice any difference. Their payslips will show about £5,000 more income tax and NIC deducted and an equal and opposite amount called 'UBI' added back, and their net pay would stay much the same.

5. Simple is good

a) LVT is cheap and easy to administer and collect. The tax with the highest collection rate and the lowest compliance costs is Business Rates (which is very close to LVT, except that Business Rates are based on the total rental value of the land and buildings, and LVT is just based on the location element). The Council Tax banding system could easily be changed to be based on average selling prices of each type of home (flat, terraced, semi-detached, detached) in each area, and the LVT on each home would be a small percentage of the average for that type of home in that area.

b) The benefits with the lowest administration costs and fraud/error and the highest take-up rates are Child Benefit (flat rate and not means-tested, if you ignore the claw back from higher earners) and the State Pension (which is not means-tested). At present, the UK State Pension system is moving towards a flat rate old-age UBI; the retirement age for men and women is being equalised; and under the new system, men will receive on average less and women will receive on average more than they used to do under the purely contributions-based system.

c) There would be no duplication between the welfare system and the tax system with the resulting high claw back rates. Lower earners claiming welfare payments (such as Working Tax Credits) are subjected to very high marginal clawback rates. The tax system takes 32% of what they earn, and their welfare payments are reduced by another arbitrary percentage of what they earn, resulting in high clawback rates of 70% or 80% (and the loss of free school meals etc.). This is a massive disincentive to work legally or a massive incentive to game the system by working cash-in-hand.

d) Simple is easy to momitor in terms of behavioural changes. Two other common arguments against UBI cancel each other out. One says that if people are paid an unconditional UBI with no requirement to seek work then they won't unless employers offer higher wages; the other says that employers will use UBI as an excuse to pay lower wages (some people say that UBI is just a subsidy to corporations, which is already true for Working Tax Credits, of course). If all welfare paymnents were harmonised into a single flat rate, then we can easily monitor which effect outweighs the other by adusting the weekly UBI-rate up or down. There's a trade-off between lifting people out of poverty and lifting them so far out of poverty that they work less and it can't be difficult to strike a balance.

6. Final thought

The purpose of UBI is - partly - to reduce inquality and poverty - so there is no point trying to fund it out of taxes which themselves exacerbate inequality and poverty, such as business- and job- -killers like Value Added tax or high NIC on employment. LVT has to be the best tax (by its very nature, LVT reduces inequality and poverty) and second best is higher rate income tax on personal annual incomes above (say) £50,000, because higher incomes include a significant 'rental' element (they largely depend on the efforts and skills of colleagues and subordinates and/or the market or political power of the organisation), not the individual effort and skill of the lucky department head or lucky CEO).

Thursday, 31 December 2020

Most YPP debates happen over here...

This 'blog is mainly for info only, the serious (and not-so-serious) debate is carried out by active members here, ideas filter through all that and end up in our manifesto.

See also John McCone's blog.

We also recommend The New Physiocrats League.

Monday, 13 April 2020

YPP's proposals - how to deal with the corona virus crisis

Our proposals would achieve various things which the government's do not:
- keeping households afloat;
- helping businesses stay in shape during the lock down;
- minimising the cost to the government/the taxpayer;
- recognising that rental values have - temporarily - collapsed.

David Ricardo came up with his famous law of rent in 1809, and it remains one of the most important and firmly accepted principles in economics. The law states that rental values are equal to the economic advantage of using one site over the marginal (rent free) site for the same purpose. In other words, the economic surplus from using one site over the cheapest available.

In this time of national lock down, the "economic advantage" of using one site over another falls to negligible amounts. Imagine you need to rent somewhere for the next three months- would you price central London over rural Devon? Normally, the market does - by a factor of many multiples. Today - we doubt it.

This brings us on to the Governments response to COVID 19- specifically the Job Retention Scheme (aka 'furlough scheme'), but we can include the business loans and a few other policies with the same analysis. For an initial period of 3 months, if an employee is furloughed, the employer must continue to pay the full salary (liable to PAYE as normal) and the government will later reimburse employers 80% of the salaries of furloughed workers (up to a cap of £2,500 per month) (from Taxation.co.uk).

The government initially said it expected 10% of businesses to take this scheme up, but recent figures suggest that more than nine million employees (about one-third of all employees) will be furloughed (from the BBC).

The monthly cost of a furloughed worker on an average salary (say £2,500 per month) can be estimated as follows (from Listentotaxman.com)
Employer pays £2,500 plus £244 Employer's NIC (unchanged)
HMRC receives £740 PAYE
HMRC then later refunds £2,000
Net cost to HMRC £1,260.
Net cost to employer £744
Net income of employee £2,004

Multiplied by nine million furloughed workers is a net cost to HMRC of £11 billion per month.

The scheme does not cover the self-employed, although the government has said that something similar will be introduced, this will add another £1 billion or £2 billion to the cost. HMRC also expect that there will be significant fraud and error involved (from The Guardian) which will increase the cost further.

So the Government (i.e. current and future taxpayers) is diverting massive sums of cash that could be used in other ways to ensure that affected workers can cope through the crisis. Lovely - except when you look at where most of this largesse will go. For most households, their single largest payment (after taxes of course) is to their landlord or bank in the form of rent or mortgage payments. The payments were negotiated and contracted according to Ricardo's famous law - that is - they reflected the economic surplus available at that time.

But the economic surplus has largely collapsed; and true rental values (or notional house prices based thereon) have also collapsed. So, of all the money being used by the government to keep furloughed workers going will end up in the pocket of landlords and banks, based on the fiction that the economic surplus and hence rental values have not collapsed, however temporarily.

So we are paying surpluses that don't exist to groups that in their role as rent collectors produce nothing. Are we mad? That is above the problems and fraud risks associated with the scheme.

The government has therefore come up with the wrong answer to the wrong question.

The question is not "How do we maintain landlords' and banks' unearned income?". The correct  question is "how much do people really need to live on as a bare minimum during the lock down period, assuming they have no rent or mortgage to pay?". There's no right or wrong answer, the lowest defensible figure is approx. £75/week per adult, just enough for food, utilities, broadband and mobile phone (there are arguments for higher amounts such as £100/week). People do not need extra for clothes, entertainment or holidays at the moment, for obvious reasons. People who smoke or drink will just have to cut back or dip into their savings.

Our proposals answer the right question - making sure funds are directed to where they are needed most in an efficient and simple way and at the lowest cost to the government (i.e. current and future taxpayers)

For the duration of the crisis:
• Suspend the enforceability of rent payments by all tenants: residential, commercial and retail  (except those largely unaffected by the lock down - such as supermarkets);
• Suspend interest charges on all mortgages: commercial, residential and buy to let, except for those businesses largely unaffected by the lock down such as supermarkets. (As a quid pro quo, any deposit or savings accounts currently paying interest will become non-interest bearing.);
• Allow mortgage borrowers to defer mortgage repayments if they wish;
• Offer a UBI of £75 per week to every legally resident adult in the country who is not already receiving welfare payments or a state pension in excess of that;
• The claims process should be as simple and automated as possible. All claimants should have to do is provide their National Insurance number and bank details. Payments can start almost immediately;
• To minimise the number of claims, the quid pro quo of claiming is that a claimant foregoes the income tax free personal allowance and the National Insurance exempt threshold, so would be paying approx. £75/week more in income tax and NIC. So the lucky majority still in paid employment have no incentive to claim, meaning that HMRC and/or DWP can process the neediest claimants first;
• The same general principle applies to Child Benefit and Child Tax Credit. HMRC pay a total of £30 billion a year for 12.7 million children (from HMRC Annual Report 2018-19). These could be replaced with a flat £45/week for each child (there is no reason for long-term unemployed parents to receive more than the short-term unemployed or furloughed parents);
• A family of four would therefore have a basic income of £240/week, which is surely enough for the basic necessities.

The total cost of YPP's proposal would be less than half the total cost of the furlough scheme, it  would cover the self-employed and it would place a much smaller drag on the economy. The saving to the taxpayer is broadly speaking equal and opposite to the fall in income that landlords and banks will have to bear in the interim. The homes they own and the stock of outstanding mortgages will still be there in a few months time - people's businesses and jobs might not!

The other important question is "how do we ensure that businesses survive the crisis?"

People need jobs to go back to once this is all over. Many businesses will run out of cash to pay salaries long before HMRC start paying out the furlough refunds. Those businesses will fold through no fault of their own, which will set off a chain reaction. It is madness to expect employers to pay the £744 a month cost of a furloughed employee (workings above) for nothing in return, which is the best case scenario assuming HMRC can implement the scheme very quickly.

We will just have to give employers the flexibility to put employees on temporary leave or ask them to cut their hours (with a corresponding salary reduction) with the guarantee that the old terms and conditions will be reinstated once the lock down is relaxed or lifted. This would be similar to Maternity or Paternity Leave. Yes, this will mean a fall in income for many, but there will always be the £75/week per adult and £45/week per child to keep them going.

Businesses would also be exempt from payment of rent or mortgages for the time being (see above). Instead of waiving Business Rates for a year for small businesses, there should be a general waiver of all Business Rates (except for businesses still allowed to trade as normal, such as supermarkets) for the months that the lock down continues. Large businesses are just as much at risk and provide as many jobs as small ones. Under YPP's proposals, businesses would just go into hibernation for a few months and can hopefully pick up where they left off afterwards.

Saturday, 14 March 2020

Local elections - 7 May 2020

Assuming they don't cancel them because of coronavirus, there will be local elections in many areas on 7 May.

Please check on your local council website to see if there's an election where you live and get in touch if you'd like to stand as a YPP candidate.

There's a bit of form filling involved, which is like anything else in life, tricky the first time and pretty easy the next time.

The good news is, you don't have to pay anything to get on the ballot paper, and it's all good practice. We have found - despite doing no leafletting or campaigning whatsoever - that the number of votes you get creeps up every time you stand, which is good for morale, if nothing else.

Wednesday, 1 January 2020

New Year Message

Just to summarise...

YPP's aims are to shift this country's economy towards Georgism, which is mainly about funding government spending out of the value it generates (i.e. land values) instead of taxing wages and output to pay for it. There are endless knock-on benefits of this, if nothing else, it will reverse the entirely artificial "housing crisis" and make housing more affordable, thereby reducing income inequality between landowners (owner-occupiers or landlords) and tenants/first time buyers.

Our strategy is to try and get so many votes in elections that the major parties are forced to move towards Georgist policies to try and claw those votes back again. We're not going to be elected to anything any time soon, but that is irrelevant right now.

We currently have around thirty members plus non-members who make donations, which was enough to put up three candidates in the 2017 and 2019 General Elections. This was the second or third time we tried in those three constituencies in 2019, and all of them saw their vote share increase. It is a slow hard slog and none of us is doing it for fun.

So whether you see yourself as a natural Labour voter, natural Conservative voter or natural "none of the above voter", we need your your support if you want to nudge Labour or the Conservatives towards Georgism.

You can support us by

a. joining or making a donation. For every ten members paying £12 a year subscriptions, we can afford to pay the £500 deposit for one candidate at General Elections (assuming there's a General Election every four or five years), and

b. putting yourself up as a YPP candidate in local elections where you live (you don't have to pay a deposit and the forms are easier than in General Elections). We tend to do better in locals, because people are more prepared to vote "none of the above" in local elections; it's also good practice and very good groundwork to get people into the habit of voting YPP in your area (which benefits us in future elections in your area, there's a snowball effect).

Thanks and we hope to welcome you onboard!

Friday, 13 December 2019

2019 General Election results

Thomas Hall, 181 votes (up from 110), Epping Forest, 0.4%

Richard Galloway, 50 votes (up from 18), Lewisham East, 0.1%

Rohen Kapur, 80 votes (up from 72), Folkestone & Hythe, 0.1%

Wednesday, 20 November 2019

Our candidates in the 2019 General Election

Richard Galloway @RuudGit - Lewisham East

Rohen Kapur @Dr_RohenKapur - Folkestone & Hythe

Thomas Hall @ThomasBHall - Epping Forest

See also Our Aims and Mini-Manifesto

Any assistance greatly appreciated!