Land for the Many, not the money: New report takes aim at land ownership and distribution

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As the value of land in Britain has skyrocketed, housing crises and runaway business rates have started to bite. The answer to these issues, according to Land for the Many, a major new report on land ownership and distribution, lies in our tax system.

“Dig deep enough into many of the problems this country faces, and you will soon hit land.” That’s how the writer and activist George Monbiot opens his introduction for the Labour-commissioned ‘Land for the Many’ report.

And yet, as Monbiot observes, land rarely features in our political discourse. Houses, property, inequality, Generation Rent -- yes, these terms crop up, but the land that underlies these things often eludes closer inspection.

It wasn't always this way. In the 1890s, social theorist Henry George’s book Progress and Poverty sold millions of copies, a rare feat in those days usually reserved for the Holy Bible.

In George’s book, which is outside copyright so it can be read online for free, he asked a question many are asking now: Why, amid economic and technological progress, does poverty persist and why does the economy tend towards cyclical boom and bust?

Land, George argued, was the culprit. The price of land outstripped the pace that wealth can be produced, and as a result, people were cut off from the land they needed to live and work on.

George’s solution was a Land Value Tax (LVT), an idea that has recently enjoyed a second life, and has been labelled a ‘Garden Tax’ by elements of the press. But George’s LVT enjoys remarkable popularity across the political spectrum. Even Milton Friedman called it the “least bad tax”.

An LVT is, as the name suggests, a single tax on land values, ignoring anything that’s built on the land. It’s praised for its efficiency and, perhaps unsurprising given the focus of the ‘Land for the Many’, it features as one part of the report’s tax proposals.

But the LVT is just one among a few suggestions. To find out more, we spoke to one of the report’s authors: Laurie MacFarlane, economics editor at openDemocracy and the head of finance at the UCL Institute for Innovation and Public Purpose.

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We rarely seem to talk about ‘land’ as a salient political issue any more. It’s disappeared from the political lexicon to a large extent. Why do you think this is?

In general, there's been an image that's been ingrained in people's minds that land as an issue invokes images of farming, agriculture, and pre-industrial society. Many people and even economists believe that in modern, advanced economies where we have smartphones and space travel that land has a less important role to play.

To classical political economists, not just Henry George, but Adam Smith, David Ricardo, John Stuart Mill, Karl Marx, land was integral to the way they looked at and understood the economy in terms of production, distribution, and exchange.

As neoclassical economics replaced classical economics, land got neglected as a factor of production, and instead, economists focused on labour and capital.

Getting to the report, and ​focusing on taxation, what changes are you proposing in terms of taxing land and property?

The way that land and property are taxed has been very poorly designed. It's left us in a position where property has been very attractive as an investment or a financial asset relative to other types of investment.

There's been an incentive for people to invest. If they have money or the means to get money, ie get a loan, the most attractive thing to do is to buy property and get the capital gains.

What we're trying to do is to discourage the use of property as a financial asset, and use taxation not only as a means to raise revenue but actually as the disincentivising the financialisation of property.

So firstly, we want to replace council tax which is currently paid by the occupiers of housing. It's badly designed and regressive. It's based on what the value of your property was in 1991. No government has actually updated the valuation since then.

We want to replace it with a progressive property tax. Crucially, it's based on the modern value of the property and that'll be updated year on year. It will be paid by the owners, not occupiers.

We're also proposing that empty homes and second homes would be taxed at a higher rate automatically. And then any property that's owned by people outside the UK for tax purposes would incur a surcharge.

We are also proposing that stamp duty land tax be phased out. We're saying that the capital gains tax should be phased in on property. At the moment, you don't pay CGT on your property.

Inheritance tax should be abolished completely and replaced by a lifetime gift tax. This has been proposed by the Institute for Fiscal Studies as a more efficient way to tax inheritance. Any lifetime gifts over a certain amount should be taxed.

We're also proposing that business rates should be abolished and replaced by an LVT based on the rental value of the land. There's a long-established evidence base on why LVT is an efficient form of tax.

Just to pause on LVT for a second, which you want to replace business rates. It's proponents often call it an ‘efficient tax’ and that's a sentiment you've echoed. Why is LVT efficient?

It has no deadweight loss. When you tax something in economic theory, you will reduce its supply and it imposes a cost.

But land is a fixed supply. So no matter how much you tax it, it can't reduce its supply because it's finite. In economic terms, there's no deadweight loss. It doesn't impact economic production in the same way if you taxed other things.

LVT doesn't disincentivise development in the way if you tax a whole property. Under the rates system, if you improve your premises, you'll get taxed on it. Whereas if you only tax the land, it incentivises development. You can build and yet face the same tax.

An LVT also disincentivises speculation. One of the UK's biggest problems is that a lot of money flows into property which is an already existing asset. It's not engaging in new economic activity.

If you have a lot of money flowing into an already existing asset, it pushes the price up. If you tax land, you're taxing away the windfalls that would otherwise accrue to the owner. Property won't be as lucrative an investment if you had LVT, and banks and investors will divert their money into productive parts of the economy.

Your proposals would be a radical shake-up, and there's the argument that our political system isn't geared towards radical shifts. If you look at Brexit, it's caused parliamentary gridlock as politicians try to manufacture an orderly withdrawal. Aren’t these proposals for major tax reform DOA?

I don't think it's the case that the UK simply can't implement change. Brexit is a constitutional change that's separate from domestic policy. We've seen radical changes in the UK many times.

Margaret Thatcher completely rewrote the UK economy: radical changes and privatisation, slashing taxes, deregulating the economy. Similarly, if you go back to the end of WW2, we saw a Labour government enact radical change through nationalisation and taxation.

So it doesn't hold that the UK can't implement change. The challenge is that there are serious special interest groups that'll lose from these reforms and will fight them. With property tax, if you introduce it overnight, it can create winners and losers. That's partly why council tax, which everyone agrees is a terrible tax, hasn't changed: it's politically tricky to do.

The challenge isn't necessarily that our proposals are DOA because Britain can't change. The challenge is introducing an agenda in a space where you'll encounter specific, powerful interest groups.

There are people who own a single home but have a vested interest in seeing the property's price going up. Wouldn’t that be one of the larger interest groups you'd face?

We live in a country where the majority of the population are property owners, either outright or with a mortgage. But we should also recognise that home ownership has been falling dramatically. So even on its own terms, if this government thinks home ownership is a good idea then its current policy is failing.

The reason it's failing is that we've allowed house prices to get so detached from earnings that a whole generation is priced out of the market. There's no way to buy and they remain stranded in the private rent sector.

We have reached that tipping point where even homeowners -- parents, for example -- can see that something is wrong in the property market. They see their children struggling. Many parents have helped their kids onto the property ladder. The bank of mum and dad is now the third biggest mortgage lender in the UK.

Many parents can see something needs to change because if it doesn't, we're heading for a bad place. There's a large enough constituency between people in social housing, private renters, and by homeowners who, yes they own housing, but recognise something needs to change. That coalition is now there to enact some changes.

Obviously, there will be homeowners out there who don't want to change, who just want property prices to go up 10% per year like it did in the past. But those days aren't coming back. The idea that house prices will continue increasing forever can't happen, it was a one-off and we're now living with the consequences.

Isn't the problem more about price inequality? Affordability differs by geography: in Bristol, the housing market is extremely competitive, but in areas outside Liverpool it's much more affordable. So wouldn't the answer be investing in these areas so people aren't forced into the cities? Wouldn't that equalise the situation much more than meddling with the tax system?

It's not an either or. Over the last three decades, we've seen de-industrialisation and large parts of the economy completely neglected. That absolutely needs to be addressed through regional policy and investment. But that's not going to alleviate the very real housing pressures that people face today, as in right now in many places around the country.

We talk about the housing crisis, but there are actually multiple crises. Depending on where you are, they're different. The narrative in the media predominantly focuses on London and the southeast, which is a specific and huge affordability crisis.

In other parts of the country, there are other crises. In some parts of the country, it's true we need to build houses. But it's not really true, on aggregate, that we've not built enough houses. Housing supply has kept up with housing formation.

The problem is on the demand side where we've created a system where huge waves of money are flooding into the property market. It's pushed up prices well beyond the means of most people.

So yes, we need to rebalance the UK economy, but we also need to deal with the significant land crisis that we face here-and-now. If we don't, it'll only get worse. People will still view property in London as a financial investment, you'll still get people investing money where they can and in the buy-to-let market.

I've heard it said that property can't simultaneously be a good investment and affordable. Would you agree with that?

Well, there are two different roles that property plays in the economy that are completely in tension with each other. One is as an essential good that everyone needs to survive. We all need somewhere to live and work. From that perspective, it's better for land and property prices to be lower.

Its other role is as a commodity and financial asset, to be invested in, traded and leveraged upon. In that respect, it's good for prices to go up and the rent to be high.

In the past few decades, land has skewed towards that latter function, but they're in direct contradiction to one another.

What we argue is that we need to move away from the world where land is seen as a vehicle for accumulating wealth, to a world where it's seen as an essential place to live and work.

About Francois Badenhorst

Francois

I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 

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12th Jun 2019 12:13

So, this bloke's intention is simply to reduce the price of residential property (and not to build more affordable homes etc.). In my area, if you have bought since 2015 you are looking at a 5% -10% loss (due to the virtual disappearance of BTL investors and Brexit etc.) and if you include SDLT (a pure cost) that's possibly a 10% - 15% loss on your "investment" and this bloke's policy is likely to add at least another 10% to that paper loss, so you are looking at a 20% - 25% loss i.e. potentially negative equity for anyone (yes, including FTBs) who has bought since around 2015. A great idea, not.

If he thinks people buying BTLs & 2nd homes is still a big problem (which it isn't), then surely the simple solution is to increase the SDLT surcharge on additional dwellings from 3% to, say 5%.

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12th Jun 2019 12:20

Another tax gathering exercise that will do nothing apart from drive money offshore while failing to address the real issues of why land is so expensive.
1) The population has expanded massively over the last 10 - 15 years. 6 million not born in the UK. That is not a criticism of immigrants just a statement of fact.
2) Interest rates have been kept artificially low for the last 10 - 12 years with the constant fear of raids on pensions, leaving nowhere else for money to go.

Address uncontrolled migration and correct interest rates and the land price issue will fall away. Then future governments will have to worry about spending within their means and not just coming up with new taxes so that's a non starter.

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to Richard Grant
12th Jun 2019 13:26

It simply isn't the case that immigrants are to blame for high land prices. You disagree with MacFarlane's proposals for land reforms, but I struggle to see how one can disagree with his analysis of what has caused the crisis to begin with: Rampant speculation and financialisation.

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to Francois Badenhorst
12th Jun 2019 15:59

Yeah, increased demand has nothing to do with it........../sarc

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to AnnAccountant
12th Jun 2019 16:15

Demand *has* something to do with it, of course. It's just that it's not caused by immigrants nor is it a matter of an under-supply of housing. The number of houses has actually grown significantly faster than the number of households in the UK over the past 25 years. Land is a speculative bubble. That's the issue at hand.

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to AnnAccountant
12th Jun 2019 16:22

Of course demand has an impact. Look at Japan with its decreasing population. You can't give houses away there I've heard (it is inevitably due to plummeting demand).

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to Justin Bryant
12th Jun 2019 16:33

We agree. Demand has an enormous impact. That's the nature of a speculative bubble. But it's not as simple as there are more households than houses. The data doesn't show that, it indicates the opposite.

Knowing that: What is the cause? If there are enough houses, why the hell are prices so high? It's almost as if Econ101 theories of supply and demand don't cut it in the real world...

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to Justin Bryant
13th Jun 2019 10:59

Due to a technical problem I can only respond here to the demand question to me below. The short answer is that UK land will always be in demand regardless, even if the UK population goes to zero, since English is a common language (c.f. Japanese) and (despite Brexit) is a very stable place and attractive place to live (hence immigrants risking their lives to get here from France - you never see the reverse problem do you?). That is why land values are relatively high and why a penal property tax is probably the only way to counter that, but note my comment above re the severe harm that will cause to many (the old winners & losers problem).

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to Justin Bryant
13th Jun 2019 11:11

Well, if we're talking foreign buyers of land in the UK, I'm in favour of New Zealand's approach: Ban the sale of existing homes to foreign buyers (unless, of course, they are resident here). You could probably take that further.

Forgive me if I'm misreading your comment, Justin -- but I don't think it's a given that land prices will be high. There was a time when land and property was affordable in this country, it can be so again.

What's needed are strong policies designed to disincentivise speculation. I'm not pooh-poohing immigration as an issue to discuss, I'm just saying it's not germane to the issue at hand.

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to Francois Badenhorst
13th Jun 2019 16:59

We have a biggest number of bed in sheds in the country in my outer London borough and one of the most packed boroughs for new immigrants of many kinds. They are all good neighbours but they certainly mean there has been damend for housing which does not exist in Sunderland or Yorkshire where I have relatives. My mother's mother's rented house up there costs £50k today to buy. It is certainly a regional issue.

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to EnglishRose
14th Jun 2019 09:22

So what you're saying is: there's a lack of affordable housing in London, which is literally the epicentre of the speculative land bubble? I'm sorry, I still don't see what immigration has to do with it.

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to Francois Badenhorst
13th Jun 2019 19:44

Increased population hasn't increased demand for a scares resource? How strange. Normally if something is in short or limited supply and the demand for it increases the price goes up. Then again I'm just an accountant so what would I know.
You managed to miss replying to the point about ultra low interest rates and people seeking to make up for that by buying property.

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to Richard Grant
14th Jun 2019 09:33

Homes aren't scarce. The facts don't back this assertion. There are nearly 20,000 empty homes in London alone, and 216,000 in the UK alone.

Yes, again, there IS demand. Of course there is: human beings need shelter and places to work. But, as Laurie says in the piece, land isn't just used for homes and commercial properties anymore, its used as an investment vehicle, which is actively encouraged by government. And this is untenable because land is a fixed supply!

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12th Jun 2019 15:13

I visited New York last year and went to Wall Street to say hello to my money.
"Hello money" I said
"Goodbye" my money replied in a voice that sounded strangely like my kids.....

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12th Jun 2019 17:12

I've done extremely well by borrowing at low interest rates and buying property. i am currently borrowing a huge sum at below the rate of inflation. That is economic insanity.

Much as something like this would hit me, its fair enough. My council tax bill for a 4k square foot property in 1.5 acres is the square root of chaff all. Its not much higher than on my BTL's which are 3 bed terraces and one flat.

As for gifts, again yes, gift taxes raise money. Anyone not from the UK is usually shocked there is no tax on receiving a gift. IHT planning is usually very simple, give it away! Yes it introduces different problems but its the way to go. The rate can be modest as the tax take will be huge if its done right vs IHT which is an optional tax.

SDLT is a lousy tax, and I agree should get kicked into touch. Its responsible for a lot of the current housing market issues in terms of liquidity as its much harder to go "up the ladder" when big chunks of equity are coming out. It also contributes heavily to excess travel as people cant afford to move closer to work, but take on long commute instead.

So yes, bring it on for a fairer society. Yes it will hit some people like me who are doing very nicely in the current system, but meh, its the way it goes.

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to ireallyshouldknowthisbut
13th Jun 2019 17:02

I agree with you on SDLT. My son is moving at the bottom end of the market in the SE from his (owned) house to another costing about £325k. That will cost him about a third of year's wages in stamp duty of about £5k. IN 1997 when I moved house last I paid that on this large house paying 0.5% and I wrote in my diary how extortionate 0.5% stamp duty was in those days. It has just gone up and up and up. Even with the changes for now staged elements of it which have killed off house sales on my road where houses are about £1m to £1.3m and even with the first time buyer new exemption which like all beneficial changes seem always to come just after my family buys. Never mind the 3% extra if you keep your flat when you move in with your new spouse etc.

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12th Jun 2019 18:19

This sounds like a good idea to me, especially if you combine it with my suggested change to inheritance tax :

Estate value up to £2m 0%
On the remaining value of the estate above £2m 100%

In combination, measures like these would really put an end to the numerous non-productive people in the country who simply do pretty much nothing of value and rake in rents. For example the Duke of Westminster.

If Labour are ever to become electable again, their tax and spend proposals must balance. High taxes on property and inherited wealth will do the job.

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to mr. mischief
13th Jun 2019 17:03

The Duk e of Westminster maintains estates and properties to huge advantage to many in the UK taking a 300 year view. Politicians take a 2 year view and make bad choices. Having a few landed estates where the current incumbent is looking hundreds of years ahead and not just this year's gain has done the UK a lot of good.

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13th Jun 2019 15:51

So, I have to pay more to live in my house because half the world wants to live here? And because they can given the open door policy we have.

Government doesn't like it that people have mortgage free houses. How can they subjugate people fully when they have that security? Tax their house to the hilt so they have to keep on working (and paying 40% tax) forever in order to pay the tax.

Can see where this is going a mile off.

The rich will just pay it, no issue - out of all their millions of assets. As usual, the middle earners will be hit hardest - as they bought a house but are by no means rich.

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to AnnAccountant
13th Jun 2019 17:07

It ends up being extremely unfair and basically means if you choose to house a family and do things that are right in society rather than spending your money on shooting up drugs or spending it on three mistresses then because property is sitting pretty then even if you have no savings, no pension, nothing but you own one house (as I do) you will have confiscatory levels of tax imposed on you -0 I would guess the tax Labour will put on my house will be about £30k a year. They will impose the tax weven if you ahve a big mortgage - at one stage given the huge sum I had to pay my ex husband - I had no savings, was overdrawn and had a £1.3m mortgage yet I would still have been regarded as Mrs Moneybags subject to these new huge taxes because I chose to keep the children in their home and this is even if as in my case every penny of equity inmy house has already come out of income taxed at at least 40% (which I know is unusual but is the case for me).

Meanwhile I have5 immediate neighbours who are all over 80 most on state pension income only and presumably would be forced to move or take out big bad deal loans to pay the tax on their death.

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to AnnAccountant
14th Jun 2019 09:37

Curious to hear about this 'open door policy' when the UK has consensus one of the harshest immigration systems in the world. We literally deported British citizens because the system is that inhumane.

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13th Jun 2019 16:56

This is far too difficult and big a change to be capable of going ahead.
What about those of us who have made losses on proprerty - we sold our home at a big loss in the 1990s property cash in London and two buy to "lose" flats then too - I still have the unused losses - would they be compensating me for that or just slapping a £30k a year new tax charge on me because I own a home and choose to hyouse the children whereas many a parent instead buys a boat and a flat and a mistress (which would escape the extra taxes).

If they abolished my income tax and income tax (and my £3600 a year council tax) , gave me back all the stamp duty I have paid then I would accept an annual £30k a year tax on my house value if IHT went too.

A gift tax as done in a few countries is very very difficult to operate. How do we value that when I am paying £150k for the twins at university for example? Or schol fees paid? Or I am about to take the family on holiday or even just £30 given to a teenager to buy a jumper? Do we write it all down in some big book? What if we let an adult child live at home rent free? Is that a gift?

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By Jdopus
to EnglishRose
14th Jun 2019 08:22

Why did you invent a figure of £30k and then get aggravated about how the figure you made up out of thin air is totally unreasonable?

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14th Jun 2019 14:03

"Buy Land - they're not making any more of it" - Mark Twain.
The idea of a Land Development tax has been touted by Fred Harrison (Boom Bust, House proces, banking and the depression 2010), amonngst others; on the basis that much of the increase in property prices is due to the building of local facilities such as schools, hospitals etc.
He also mentions that property prices go in 18 year cycles.
I point this out for information, not to accept or propose his viewpoint. Understanding his proposal is one thing, but how does this proposal deal with families who may be asset rich, and cash poor?
An example being a retired couple who bought a property many years ago that has appreciated considerable, but who are now retired and living on a modest pension.
I accept that the deposit required to own a property in much of the UK makes it tremendously difficult, but I challenge the extent that a land tax could be an effective or ethical way to make home ownership easier.
We shall see if Harrison's trend continues, but interest rate policy alone should not be the sole tool to control land inflation.
The New Zealanders, Danes and Swiss have taken their own steps to try and prevent this type of land bubble. My suggestion is we do the same, alongside reviewing the inheritance tax laws around using agricultural land as a means of avoiding inheritance tax.
A full register of named individuals who own property or land (and where they are domiciled) may also be a starting point.

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By DJKL
20th Jun 2019 17:01

One small point- land can and is some cases is being taxed- rates charging does (certainly in Scotland) and can be applied re bare sites- we have one such site which has recently had rates applied to it and there does appear to be a concerted effort by the Assessors and Local Authorities in this area.

When we received the first such assessment for the site a couple of years back I chatted with one of the local assessors who pointed me to the legislation which was not new but had rarely been applied in the past, when I am back at the office I ought to be able to find the link to the legislation.

The catch is one size does not fit all re land and as always we have a London/South East centric take on it from our political classes. The secret is actually far more devolved taxation so that it is enacted locally, even Scotland as a devolved entity is too large, there are significant differences region to region and even town to town.

Does this encourage us to build on this site- not really, we have planning but the site is marginal as to whether building it out is profitable, and if it cannot be demonstrated as clearly profitable even if we were inclined to take the risk I doubt lenders would be queuing up to lend to us to build- any desktop appraisal would like have it failing funding criteria, there are areas in the UK where build costs can be nearly the same as end value and there is very little, if any, intrinsic land value.

Still, with Brexit if we default into No Deal there will be plenty of hill land available in Scotland above the tree line that will have little alternative use once sheep farming is uneconomic ,so if we can access these areas perhaps they can become littered with uneconomic housing and wind turbines.

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24th Jun 2019 12:53

The main driver behind poverty is taxation. The higher taxes rise, the greater the pressure on the economy. The money cycle with excessive taxation (such as we have) is… Companies have less cash to invest in expansion… less money means more effort in cost cutting… this leads to fewer jobs and upward pressure on overall employment, which leads to less disposable income and less tax revenue from PAYE, plus less money from indirect taxation, lower wages/small pay rises leads to increased claims for benefit which increases Government costs at the same time that tax income is falling. Fewre jobs and more reliance on benefits lead to increased poverty

Cutting direct taxes, especially corporate, reverses this cycle, increasing employment, reducing the benefits bill and increasing tax revenues from Income Tax, Nic, VAT, Duties etc. More money means wages tend to increase right across the spectrum and therefore feeds through to reduce poverty.

In short… High Taxes = Increasing poverty and less money for services

Low taxation leads to decreasing poverty and gradually increasing tax revenues.

And, of course, lower taxes means less incentive to look at tax avoidance opportunities, which adds beck even more money to the system

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24th Jun 2019 12:55

The main driver behind poverty is taxation. The higher taxes rise, the greater the pressure on the economy. The money cycle with excessive taxation (such as we have) is… Companies have less cash to invest in expansion… less money means more effort in cost cutting… this leads to fewer jobs and upward pressure on overall employment, which leads to less disposable income and less tax revenue from PAYE, plus less money from indirect taxation, lower wages/small pay rises leads to increased claims for benefit which increases Government costs at the same time that tax income is falling. Fewre jobs and more reliance on benefits lead to increased poverty

Cutting direct taxes, especially corporate, reverses this cycle, increasing employment, reducing the benefits bill and increasing tax revenues from Income Tax, Nic, VAT, Duties etc. More money means wages tend to increase right across the spectrum and therefore feeds through to reduce poverty.

In short… High Taxes = Increasing poverty and less money for services

Low taxation leads to decreasing poverty and gradually increasing tax revenues.

And, of course, lower taxes means less incentive to look at tax avoidance opportunities, which adds beck even more money to the system

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