Sunak vs Truss: Debt, Inflation and Levelling Up

The Conservative leadership contenders ask:  When does the Covid-induced public debt start to get paid off? What about inflation if we reduce taxes to ease household finances? How do you achieve levelling up?

A FT letter writer Mark Hofman in August 2020  said that in the example of Japan which has had huge public debt levels for a long time:

     'government bonds held on the balance sheet of the Bank of Japan are effectively the Japanese government owing the bond debt to itself...so why not put a line through those entries on each side of the balance sheet? The level of debt would be reduced without the        taxpayer having to pay anybody anything, and with nobody being poorer.' 

If there is a possibility of inflation due to this he says it can be resolved by raising the reserve requirements of commercial banks at the central bank (in the UK's case - the Bank of England). He asks: Why consider the conventional way of paying off this debt with taxes for generations, when there is a better way?

Beware of suggestions that governments are like households and must not spend beyond their income.  Householders are not like that as they cannot create their own money whereas sovereign govenments, with careful monetary control can do so safely, as Hofman describes. 

On levelling up:  Change how tax is raised by levying a small annual charge on the value of all land, including the value of the land footprint of all homes. At the same time any tax raised in this way would be allowed against a personal income tax liability. For many homeowers the total charge would not change. 

Benefits would accrue:

• House price rises - now with a land value levy - would slow or fall and homes become gradually more affordable since speculation would be damped down and a steadier market would encourage first time buyers. 
• Homes would become less attractive for pure investment rather than for living in personally. Recent governments just subsidise new buyers which raises the price of homes and brings developers more profit. The crazy price boom continues.
  
• More homes would be built as development would be encouraged - for example a house with a large plot would be built on to share the land value levy over new, extra homes. Or an extension to create a separate rentable flat. New homes would be built to low carbon standards. Countryside would be preserved.
• Renters would be helped as the land charge would be on the landlord. Landlords would be anxious to have their property occupied at lower rents rather than keep homes empty waiting for increased rent.
  

Levelling up at a stroke, for many. Those who are land rich and income poor, thus short of cash, would be allowed to defer payment until they sell the home. 

The young would be able to consider buying and homeownership would increase. Older people in large homes would be nudged into downsizing. The increasing wealth divide between homeowners and renters would ease.

For the common good we need such monetary and taxation policies. Which candiate, or party, will grasp these choice fruits?  

Posted by THE FREE LUNCH - FAIRNESS WITH FREEDOM Charles Bazlinton

             

What John Kay & Citizen's Income Trust agree on about basic income

Professor Kay thinks basic income for all (not means-tested / tax-free / regular) is unaffordable. His article  (Intereconomics 2017/2) carefully analyses several international proposals, but it does not take full account of the work of the UK's leading advocate for basic income the Citizen's Income Trust. CIT is confident that their revenue-neutral scheme would make a positive start on the road to a larger regular income than their initial scheme allows for. As they say in their critique of John Kay's investigation: 'What matters is the direction of travel'. CIT's scheme retains many existing welfare benefits - essential due the the low level of basic income needed to be revenue-neutral, but it is only a start. John Kay seems to assume a full 'living wage' basic income must be affordable immediately or he won't consider it relevant: 'basic income is a distraction from sensible, feasible and necessary reforms'. Both he and CIT acknowledge there could be sources of revenue yet untapped for a full basic income, but whereas Kay shies away from the political difficulties of that, CIT sees the start of an evolutionary reform away from the complexities of current welfare and its disincentives to work.           
One effect of a citizen's income is that some will use it to pay for better housing with rents and house prices likely to be pushed up. It is fairly clear that the incentives given out by recent governments to first-time buyers are a factor in rising house prices. A new source of income from a regular basic income would enable buyers to afford larger mortgages thus adding to the price hike. For every new £100 per month available at 2% interest another £20,000 of mortgage is freed up, driving straight through to rising prices and rents.

This blog has always advocated an holistic approach to citizens income to prevent bad side effects. After all if the housing market is encouraged to let rip even more through a basic income aimed to alleviate poverty, what help is that to the poor?

This is not the state planning for citizens
but citizens planning for themselves, 

empowered through a basic income.

To block that perverse effect of such a benign thing as basic income, what is needed is the levying of land value tax. This to be charged annually on the underlying land value of the building + land plot. It would have a braking effect on house prices as property owners who could not afford the levy would sell. Mortgage providers whilst assessing the added basic income would have to consider the expense of a regular land tax levy and this would reduce the potential of greater credit, which would lead to price restraint, and not, like the government help-to-buy schemes, a price bubble. 

The levying of LVT would raise a fresh source of government revenue concentrated at the higher property value end (see below). It would address the acknowledgement by both John Kay and the CIT that more revenue is needed to make a basic income more effective against poverty. The national pot to run a comprehensive welfare system founded mostly on basic income is currently limited. But the time is approaching when the the huge shift of younger people excluded from property ownership through unaffordability, will translate into a ballot box revolt in their favour. If we are to continue to believe in a fair society, the haves - the larger property owners - sitting on the accumulating nest-egg gains in their land values, will eventually have to release some of these sooner than at their demise through estate duties.

Land values, as clearly spelt out in The Free Lunch - Fairness with Freedom arise from the efforts of us all and are a common resource to be shared. A good start to implementing LVT would be to make a regular charge on a percentage (say 25% representing the land) of the property's value. For political acceptability the overall charge per household would need to be cost neutral for the bulk of hometypes: thus whatever was paid in LVT would be an allowance against a homeowner's income tax. Those in high priced properties having lower earnings would need to consider selling up which would bring a downward pressure on the market and help alleviate the housing shortage. The net LVT raised would go towards increasing the basic income for all. As well as estate duty, transaction taxes such as Stamp Duty could also be abolished and bring a new liquidity to the housing market to the benefit of those needing larger accommodation but prevented by the existence of many under-occupied homes. The Annual Tax on Enveloped Dwellings owned by companies is legislation that taxes total property value and would need modifying to catch land value only, to adapt it for LVT purposes.   

For the hard case of property-rich / income-poor homeowners with a liability for LVT greater than their income tax liability a deferment scheme should be allowed so that the accumulated  LVT would be a registered charge against the property, payable on the next sale.  

Whilst we must be grateful to John Kay for crunching the numbers, the philosophical and moral case should be addressed. The Free Lunch - Fairness with Freedom  makes the case for putting the citizen at the focus of politics. This implies the acknowledgement of particular rights for people and the expectation of particular responsibilities from them.  A basic income is essential if this concept of  a new 'citizen focus' is to have real meaning. This is not the state planning for citizens but citizens planning for themselves, empowered through a basic income. It is a combination of increased fairness and increased freedom for everyone.

Posted by Charles Bazlinton. Author: The Free Lunch - Fairness with Freedom  

Bishops' Letter: Postscript coming?

The Bishops' Letter 'Who is my neighbour' is strong on analysis. It looks searchingly at the socio-political scene and pronounces that we are in  dangerous times, evidenced by such as: an adversarial stance in politics - where there are no distinctive political goals, attractive visions or idealism; people are viewed largely as consumers and as mere recipients of narrowly targeted policies; there are grotesque inequalities of wealth and power; we are living through a banking and a housing crisis.

We are becoming a society of strangers. Respect for views other than our own, is disappearing through ignorance, leading to a selfish and competitive mindset which assumes that unfamiliar groups are a threat. The individual is king and autonomy is celebrated, but the support of those in deep need is an undervalued activity, yet therein are revealed the deepest human qualities.  The idea of a common bond between us is fast disappearing. We are moving away from the idea of a 'community of communities'.

Salvation is expected from the market and the state. But the market has damaged the condition for its own flourishing; and the 'anti-messy' bureaucracy of the state, favouring neatness, law and regulation induces a 'chill factor' which stems the flow of common sense and neighbourly help.

So what do the bishops prescribe? They think the solution, rather than to choose between right or left politics or even to split the difference, is to find sources for answers from within them all.  They still like the concepts behind the Big Society. They like mutuality and volunteering (e.g. credit unions and housing associations); subsidiarity (lower levels for decision making); 'intermediate institutions' between family and state (credit unions, housing associations and the churches). They back the idea of the living wage.

But the bishops do not discern any bigger vision for us to hope towards: whilst in 1945 and 1979 there were new visions which 'changed the political weather', they say that 'no such thing is yet on offer in 2015'.  How can it be that their telling analysis has not allowed them to do more than anxiously wring their hands and merely ward brownie points to established remedies for the failures of market and state?  What about examining valid solutions towards recovering the common good and the common bond that they long for? 

1. The living wage liked by the bishops is a voluntary measure and depends on the employer's willingness to pay it. Why did the bishops not champion the work of  The Citizen's Income Trust -  their very own minister Rev. Malcolm Torry? His organisation has painstakingly shown over some years how every person, youngest to oldest could, with economic fiscal prudence, receive a regular income which would not only help unite all citizens in a new basic monetary right, but also eradicate many of the failings of the state welfare and benefits system and so start to address the 'grotesque inequalities of wealth' the bishops deplore. Bishops, have you considered a state-paid, regular citizen's income payment to all?

2. The only suggestion in the letter about the 'banking crisis' is that credit unions are 'an ethical alternative'. What about another ethical alternative - community banks? I declare an interest as a director of Local First CIC - which is helping to form a full-licence independent local bank where profits will be directed to community causes. Such community banks are likely to become transformative common good economic agents in years to come in the UK. Not only will they generate productive lending and provide sound banking, but their surrounding communities will benefit from the banking profits hitherto taken privately. The national effects of the banking crisis we are still living through will start to mend and largely be prevented from recurring bearing in mind the local and small scale nature of these banks. Bishops, have you considered such full-licence community banks?

3. Another solution to the banking crisis unacknowledged by the bishops is that all money should be created by a branch of government under democratic scrutiny with private banks taken out of the creation of money altogether. The money supply monopoly and privilege would then be serving the common good in a powerful new way. Bishops, have you considered monetary reform?

4. To provide homes through housing associations is a reaction to a failed property market and whilst helpful, this is not a permanent solution for the difficulties of home ownership. Those who own a property are in the enviable position of gaining wealth as their property land value rises over time, even as they sleep; but those renters who own no property have no such comfort. That land values are not widely taxed is a national disgrace and a betrayal of the common good. Every citizen - including renters - who add to the success of the economy, thereby raises the common good in wealth terms, much of which is then captured in rising property values, benefiting owners alone. This reform would be accompanied by a balancing cut in income and other taxes.  Bishops, have you considered land value taxation?

5. The early church fathers of the 2nd to 4th centuries: Clement of Alexandria, Ambrose, John Chrysostom and Augustine of Hippo preached and wrote in the context of Roman law and concepts of ownership which are largely the foundation of our own law in the 21st century. (Book: Ownership by Charles Avila). These esteemed church leaders were strong on the contrast between koina - things common for all,  and idia  - private property created by yourself.  Koina being naturally occurring things - that are there for the using. As Chrysostom has it: 
        'God generously gives all things that are much more necessary than money, such as air,   water, fire, the sun, all such things ...That we may live securely,... given to us in common.'  

The problem, they pointed out, is that the law authorised people to take by force or buy up koina as idia , to the diminishing of the common good, then, as now. They also majored on koinonia - community sharing inspired by the common bond of humanity. 

The good news is that bishops today are speaking the common good talk and the common bond talk of their spiritual ancestors. I wonder when they will write a postscript to their 2015 letter and give us the 'Common Good Recovery Plan'. Attractive vision? Idealism enough, bishops? Just imagine what Chrysostom might have achieved with the benefit of a democratic system like ours... 
Charles Bazlinton. Author: The Free Lunch - Fairness with Freedom

Homeowning - A Brilliant Wheeze

The democratic struggle moves towards respect for the rights of all. Reform follows when the rights of some are seen to blatantly burden others involving a denial of their rights. In the UK a new regulation is coming into force that will criminalise the squatting of someone else's home. Up until now it was usually a civil offence if someone moved in uninvited. Now it will go like this: You are out. Squatters are in. Police are in. Squatters are out (cops leading). You are in. Quickly.

Squatting usually happens after buildings have been left empty and the hard cases such as someone having a long hospital stay and finding squatters in when they get back home are quite rare. Besides there are apparently criminal remedies for such squatting already before this new law . 

Squatting is one symptom of our divided nation. We inordinately favour home owners to the detriment of the propertyless. See this YouTube video where Fred Harrison uses researches from his book  Richardo's Law, House Prices and The Great Tax Clawback Scam . He shows that the nest egg that accrues to many homeowners in the equity stake over a lifetime, effectively refunds a huge amount of income and other taxes that the homeowner has paid over the years. This, whilst being a brilliant wheeze for homeowners, blights the lives and social opportunities of renters and tenants. Poverty. A huge imbalance is perpetuated in our society through our failure to face up to this unfairness. We unfairly burden renters with the tax for the services we all use and unfairly allow a protected nest egg (i.e. tax refund) to homeowners. Horrendous for any democrat worthy of the name. We don't even have adequate rent controls - see this UK/Germany.   

Howard Davies, a one-time deputy governor of the Bank of  England in a article in the Financial Times A wealth tax may work once but don't make it a habit   advocates taxing all land values rather than the wealth taxes mentioned by Lib-Dem Nick Clegg. A levy on the location value of all land would address the land utilisation problem that is one root of the squatting problem. If you had a property that you were keeping empty but had to pay a levy on its land value every year you would soon let the building out and the rent payments would cover the new levy. Hey! With every landlord having to rethink about their empty properties, rents might drop so that even poor potential squatters could pay them.

Trouble is there are more homeowner-voters than renter-voters. Homeowners-voters must be given a promise of  a drop in income tax to match a new land value tax. It is called a tax shift. It will be the only way.

10 Downing Street: Empty homes petition result

A petition I Iaunched in January 2008 gained 380 signatures in a year and any petition with over 200 names gets a comment from the Government. Which is...they are not going to do anything new. Click here to read their response.

For them the existing law is sufficient. The Empty Dwelling Management Orders (EDMOs) that they refer to, are enough for Local Councils to bring back empty homes into use. The first EDMO was issued in Peterborough in January 2008 and they have since been used on only 20 properties in the entire UK. They say the threat of an EDMO gets the owners to do something. Also that there has been a 9% fall in empties since 1997 (less than 1% a year) but David Ireland of the Empty Homes Agency says that the figures have been climbing for 3 years now and on a programme on ITV on Friday 17th April it was noted that in 2008 we had the biggest jump in numbers ever. There are now nearly 1 million empty homes in the UK. It is not difficult to see why EDMOs are not used. The Peterborough case took 20% of the council officer’s time to handle it. As the EDMO rules are so complicated the Empty Homes Agency have produced a helpful guide,click here for their flowchart which shows nearly 60 actions needed before the builder even gets on site to do repairs!
Meanwhile, ideas from LibDems and Conservatives include proposals to charge the same VAT (or none) on house repairs as on new build; and various schemes to ensure that funds for social housing can be spent on repairing rather than only new-build. But this is merely well-meaning tinkering.

What no party is actively proposing yet is the single most effective measure to bring unused buildings, and empty land with planning permission, into productive use: to tax all land according to its value. It would be a substitute for Council Tax and with reductions in other taxes it could be adjusted to achieve the efficient use of land and existing buildings.

This is a thoroughly green policy and is now getting more possible to legislate for. The current credit crisis had it origins in tempting low-earning families into home ownership. That scenario is now busted and firm steps must be taken to prevent its recurrence. We need land value tax to control the next speculative housing and land bubble well before it starts again. This measure would help force empty homes onto the market and help to give people what they need – affordable homes where they want them.

Dear Gordon Brown…this is a scandal!

I have just launched a petition on the Prime Minister’s Number 10 Downing Street website. It asks him to get Local Authorities to make a register of empty homes in their area and then take steps to put the empty homes to use. The latest Housing Act gives Local Authorities powers to do this, but not much is being achieved. Meanwhile there is a nationwide planning policy review called the Local Development Framework which is forcing these authorities to identify green fields for new homes! Note: It is estimated that there are 870,000 empty homes, which is 4 year's supply.

Wouldn’t you have thought that a green-inclined government also wanting to help people have a decent home would force the empties into use first?

Help raise the profile of this issue by visiting the following link and signing up.
http://petitions.pm.gov.uk/emptyhomes/

The debate needs to be joined on a massive scale and the Empty Homes Agency is fighting hard (see: www.emptyhomes.com).

Read my book The Free Lunch – Fairness with Freedom for many more ideas as to how to bring a fairer society and a greener land. Buy it on Amazon, at bookshops, on www.the-free-lunch.com or email me directly: info@the-free-lunch.com