Rates going up on petrol stations

Well, yes, one can see the point:

The Valuation Office Agency insisted it was working closely with petrol retailers to reach an agreement on its new rates.

“In recent years, the rental value of petrol filling stations has grown considerably and it is only fair to all ratepayers that this is reflected in the rateable value,” a spokeswoman said.

At heart the argument is about who gets the rise in that rental value? The owner of the land? Or the society around it which creates that value through tax?

Land Value Tax….yes, this is what we\’re talking about here.

However, this nicely illustrates one of the things which will have to be done before a land value tax would work here.

Here\’s the situation at present.

Market rental values (and thus presumably capital values) change at some speed, x. But rateable values change at a different, slower, speed. Say, 1/2 x (or whatever).

So, rental values go up, that increase in value being captured by the landlords. Then along we come and increase rates to reflect this (and this would be true of an LVT as well). But now we\’re trying to capture more than the total increase in that rental value: imagine, originally it was 100. Made up of 80 in rent and 20 in rates for of course to hte renter, the two are the same thing, added together they are the total amount he\’s willing to pay to rent that land for that use.

OK, rental values go up to 150. But our landlord moves faster than the rating officer. Rent goes to 130….and then only later to we raise rates to 30 to reflect the new total value. But we\’re now, in total, extracting 160 for what is worth to the renter 150.

Ahh.

So, we need tow things to happen. The first is simply that rates need to change more often if we\’re to have an LVT. Not that we\’d call them rates but still. The second is more recondite.

Currently almost all commercial leases are on an upwards rent review only. So if the rent plus rates charges go over rental value, there\’s no mechanism at all which can bring them back down to it. So we need to change that: if we\’re going to be arguing over who gets the value of the land rental, we have to make it possible for the landlord\’s part of it shrink if as and when taxes on that land rise.

19 thoughts on “Rates going up on petrol stations”

  1. I’m confused.

    “OK, rental values go up to 150.” Because that’s how much the renter is prepared to pay (free market, voluntary exchange and all). It matters not at all that it’s composed of 130 in rent and 20 in rates; it’s just 150 total. Then along comes the council and increases the rates to 30. If the renter is prepared to pay 150, surely the owner has to suck up the increase in rates. If you add the increase in rates to your rent (and your tenant doesn’t leave), suddenly the “value” is 160, so the rates have to increase again.

    What’s wrong with a system whereby you pay on the basis of what you use, rather than what someone else thinks what you own is worth?

  2. If we believe the owner of a piece of land is the legitimate owner of it – for the sake of argument let’s just assume that – then I fail to see how it is wrong, as LVT advocates (or some of them anyway) for such owners to benefit from the rise in the value of said, whether it be the rise in the “unimproved” value of the land or whatnot.

    To tax the rise in the “unimproved value” of land – on the grounds that the owner has done nothing to “deserve” this rise in value, is, IMHO, no different, in ethical principle, from taxing the rise in one’s earning power due to forces beyond one’s control, such as sheer luck. (After all, as Hayek once observed, not all increases in entrepreneurial wealth are due to “merit”, however you define that).

    Here’s a challenge to LVT supporters, Georgians, neo-Georgians, etc: if it is right to seize the rise in the unimproved value of land from those who own it, even if they own that land fair and square, then why not introduce an “earnings luck tax”, to seize the rise in earnings power of people that is due to chance, rather than their own efforts?

    I fail to see the difference in terms of justice between the two. Yes, land supply is less elastic than say, human beings, but this is a difference of practical degree, nothing else.

  3. A couple of points

    1. the rise in rental value could be due to increased scarcity of petrol stations and rise in car ownership. Both are, AFAICT, quite true. As such, why should the State nab the rise in value when it did not play a part in the causes of that rise?

    2. This “unimproved” bit. The unimproved value of a petrol station plot surely does not change. The value comes from the improvements to make it a petrol station vs a pound shop or some such. Therefore LVT has no extra claim even if the rental price goes up.

    Problem with LVT is how far to go back and a refusal by so many supporters to look ahead.

    Your example of what to do in future shows how absurd it is, for LVT is then price fixing. That, friends, is a road to disaster. Without petrol stations.

  4. The first is simply that rates need to change more often if we’re to have an LVT.

    When was the last time these petrol station rates were evaluated? I’d assume LVT would be re-assessed annually.

    Currently almost all commercial leases are on an upwards rent review only. So if the rent plus rates charges go over rental value, there’s no mechanism at all which can bring them back down to it.

    There is such a mechanism – the landlords can choose to renegotiate the lease terms or else lose their tenants when said tenants go bust because they are now being forced to pay too much. Clearly all tenants should refuse to sign any new contracts that have upwards rent review only. A recession, when there are lots of empty offices, shop units etc, is the ideal time to do this.

    from taxing the rise in one’s earning power due to forces beyond one’s control, such as sheer luck.

    I think a better analogy would be to tax the earning power one gets from a government issued licence to operate, which is why an equivalent to LVT should apply to patents, radio-spectrum allocations, taxi permits, etc.

  5. Johnathan Pearce: “for the sake of argument let’s just assume that – then I fail to see how it is wrong…”

    We can show anything if we “just assume” the necessary premises. It’s not very informative though, is it?

  6. Perhaps look at it in a practical light. Petrol stations are just local outlets (inlets?) for national taxation. The mark up on petrol is not great and when you knock off the £1 that goes to the government from the 112p per litre , the GP is pretty low. When did you last see a petrol station that sold nothing but petrol?

    Many petrol stations have closed round here in the last few years, so this is a strange situation.

    We have a local business whose main function is to collect tax for the government. That government pays – albeit a steadily reducing amount over the years – money to local authorities. The local authorities now seek to place a greater financial burden on the local tax collectors.

    Place your bets for the day when the government pays subsidies to petrol stations to keep them going after the local authorities increase their rates.

    Consistent with Labour fiscal policy over the last 13 years…

  7. Roger Thornhill: “the rise in rental value could be due to increased scarcity of petrol stations and rise in car ownership. Both are, AFAICT, quite true. As such, why should the State nab the rise in value when it did not play a part in the causes of that rise?”

    I think the principle argument is that LVT, by taxing something not produced by the person enjoying the gain, is not a burden on production. Your question could be asked about absolutely anything the state levies a tax on, which would lead you to conclude that it shouldn’t tax anything. It’s a reasonable position to take, but see it through and there would be no state to enforce the land titles it created, rendering the whole thing moot.

    “The unimproved value of a petrol station plot surely does not change. The value comes from the improvements to make it a petrol station”

    I would guess that most of the value comes from planning permission which enables it to be used as a petrol station, rather than arable land, while restricting the use of other sites.

  8. “Problem with LVT is how far to go back and a refusal by so many supporters to look ahead.”

    Well said.

    Paul Lockett, writes:

    “I think the principle argument is that LVT, by taxing something not produced by the person enjoying the gain, is not a burden on production.”

    Maybe not, but that sounds a bit like the Marxist argument that owners of capital are not entitled to the rise in the value of said and that the value should go to factory managers and the workers.

    And the “luck” point I made holds: our earning power rises not just because of our own efforts, but because of the good fortune we have to live in a world where there is an advanced division of labour, laws, technology, and other factors outside of our control, including our genetic makeup. So when a LVT fan says that a resource that Man did not produce should be taxed if its value rises, then that applies pretty widely, not just to land.

    The LVT argument is based on the fallacy of putitng the “unimproved value” of land into a special category. It does not work quite that neatly, hence the question I asked.

  9. Another line from Mr Lockett:

    “We can show anything if we “just assume” the necessary premises. It’s not very informative though, is it?”

    Don’t be obtuse, you know perfectly well that in trying to prise open an argument, it helps if we assume certain things as given, so as to highlight the remaining questions in an argument.

    Of course, many LVT supporters regard all property rights as being suspect, and take the assumption that people own property on sufferance of the collective, with the implication that what the State giveth, the State can taketh away. For reasons too tedious to elaborate on this board, I reject that assumption.

  10. Johnathan Pearce: “Maybe not, but that sounds a bit like the Marxist argument that owners of capital are not entitled to the rise in the value of said and that the value should go to factory managers and the workers.”

    Maybe it would, to somebody who desperately wants to hear that. I think most disinterested people taking it at face value would interpret it more accurately as saying that, if the state collects tax, it makes sense to collect it in such a way that it is less of a burden on production.

    “does not work quite that neatly, hence the question I asked.”

    The answer to your question is quite straightforward – one is coercive, the other isn’t.

  11. @Paul Lockett “I think the principle argument is that LVT, by taxing something not produced by the person enjoying the gain, is not a burden on production.”

    Not so neat. LVT will raise rates on the petrol station, the bakers next door, the hardware store with ample parking. If they each provide a good service, this raises values all round and then BAM! LVT is increased because of all this extra “value”. That, sir, is pretty close to Rent Seeking by the State. It is little better than a Mafia protection racket – they see you doing a little better and then ba-da-bing ba-da-boom they pitch up and ask for more.

    It does not encourage risk taking because it raises up-front costs. Basically the State is saying it has first call on you, your land, your enterprise, even before you have sold so much as a button.

    An owner of a house in a street suffers the same thing. They behave, discourage rowdiness and keep their own property neat and well maintained or even enter a rough area and turn it around. And the “reward”? Higher LVT! Pathetic. Damnable.

    LVT is a sneaky way to end private ownership of land.

    If you want to end it then please, get the previous owner to return my money. Get the money back to that owner from those who owned it before and so ever and on. If I am paying rent to the Great Landlord I don’t see why I should have to have paid for the freehold.

    As the State is the one getting the rent, effectively tearing up my freehold, then the State must pay.

    I want mine in gold.

  12. Roger Thornhill: ‘Not so neat. LVT will raise rates on the petrol station, the bakers next door, the hardware store with ample parking. If they each provide a good service, this raises values all round and then BAM! LVT is increased because of all this extra “value”. That, sir, is pretty close to Rent Seeking by the State.’

    You can argue the same about any tax, so the logical conclusion is that the state shouldn’t collect any tax. Fair enough, but then the state granted land title disappears with the state when all the funding goes, so you’re going to have to re-negotiate it in a free market anyway.

    ‘It is little better than a Mafia protection racket’

    A protection racket is exactly what the state is, but it’s the same protection racket which created and enforces the land title you’re arguing in favour of, so complaining about the rough when you’re more than happy to take the smooth seems a little hypocritical.

    ‘LVT is a sneaky way to end private ownership of land.’

    It’s certainly a way to reduce the impact of the state protection racket and those who gain from it. How you interpret that is up to you.

    ‘If you want to end it then please, get the previous owner to return my money. Get the money back to that owner from those who owned it before and so ever and on. If I am paying rent to the Great Landlord I don’t see why I should have to have paid for the freehold. As the State is the one getting the rent, effectively tearing up my freehold, then the State must pay.’

    In that circumstance, I’d tell you to sort it out yourself. You’re mistaken if you think that by whinging to me I’ll sort your life out for you. You’ve purchased a piece of paper produced by an organisation which, by your own description, is a protection racket. If the power of that protection racket is weakened, any losses that you suffer are no concern of mine, any more than I would feel any obligation to re-imburse the previous holder of liberated slaves.

  13. Roger, interesting comments. I see that Paul Lockett comes up with this response:

    “It’s certainly a way to reduce the impact of the state protection racket and those who gain from it.”

    If by “racket” you mean things like planning permission laws, zoning laws and the like, the solution is to weaken these laws or ideally, repeal them, not slap on a tax that will hit those who both benefit from state privileges and those who simply buy land in a free market undistorted by such things.

  14. Johnathan Pearce : “not slap on a tax that will hit those who both benefit from state privileges and those who simply buy land in a free market undistorted by such things.”

    Land purchased in a free market undistorted by the state protection racket? Are you really so deluded that you believe such a situation exists?

    The thing which people buy is a piece of paper produced by the state.

    Some faux libertarians seem to have a relationship with the state which is a bit like somebody rebelling against mummy and daddy whilst living off the trust fund.

  15. Here’s another:

    “I think most disinterested people taking it at face value would interpret it more accurately as saying that, if the state collects tax, it makes sense to collect it in such a way that it is less of a burden on production.”

    Of course we want taxes – assuming we have to have them in the first place – to do as little damage as possible. Fair enough. I’d rather contest your assumption that LVT is the ideal tax when judged from that standpoint, although it depends on how high it is (a rather crucial point). A LVT that took all of the alleged rise in the “unimproved value” might in fact cause quite a lot of distortion, by discouraging land developers to buy and sell land to take advantage of shifts in relative scarcity, and so on. That is why my point about Marxism applies.

    The arguments that Georgists use about the alleged evils of land speculation apply to speculation in other things, such as commodities. And it is based on the same notion that the speculator, like the landowner benefiting from a rise in the “umimproved” value of his land, is a parasite. You have seen the comments some – not all – Georgists use – it is not surprising that I regard them as quasi-Marxian in tone.

  16. Paul, you posted your last comment before I saw it. So here goes:

    “Land purchased in a free market undistorted by the state protection racket? Are you really so deluded that you believe such a situation exists?
    The thing which people buy is a piece of paper produced by the state. Some faux libertarians seem to have a relationship with the state which is a bit like somebody rebelling against mummy and daddy whilst living off the trust fund.”

    No need to be an arse, Paul. I am perfectly aware of the statist morass of modern property rules – and of course of the endless violations of property rights that go on as well (eminent domain, planning, conservation zone restrictions, etc), but you are rather blithely assuming that all these distortions are somehow, made okay by LVT.

    As for the fact that property rights, in a state, are nothing more than a “piece of paper from the state”, no more proves that the state has a right to claim all of the rise in the unimproved value of what that piece of paper describes, than it means that the state can seize all the wealth that a person earns through luck because the state provides protection of people from criminals. The state cannot offer a sort of bargain that says: “We create these laws which create a structure that allows you to become wealthy, therefore we want any wealth that we decree, by some formula, that you have not deserved”.

  17. Johnathan Pearce: “A LVT that took all of the alleged rise in the “unimproved value” might in fact cause quite a lot of distortion, by discouraging land developers to buy and sell land to take advantage of shifts in relative scarcity, and so on.”

    I don’t see how what you say in any way shows that LVT would act as a burden on production, which was the point I was making.

    “The arguments that Georgists use about the alleged evils of land speculation apply to speculation in other things, such as commodities. And it is based on the same notion that the speculator, like the landowner benefiting from a rise in the “umimproved” value of his land, is a parasite”

    I don’t really care about speculation. Speculate, risk and gamble to your hearts content. So long as it is part of a consensual market transaction, it’s good by me. The parasitism comes about because one of the parties is gaining through state granted privilege, not because of any speculation which might occur.

    “I am perfectly aware of the statist morass of modern property rules – and of course of the endless violations of property rights that go on as well (eminent domain, planning, conservation zone restrictions, etc)”

    This is why I find your position hard to take seriously. The state granted land title is a package, gifted by the state, which says, “we grant you these rights, but retain these rights.” To complain about the state restricting your privilege, when the thing that restricts that privilege is the very thing which gives you the privilege, doesn’t make sense to me.

    “but you are rather blithely assuming that all these distortions are somehow, made okay by LVT.”

    I don’t assume that they would be made ok, just made better, by creating a situation which would more accurately reflect what would be likely to occur in the absence of a distorting state, with people participating in honest, peaceful exchange.

    “As for the fact that property rights, in a state, are nothing more than a ‘piece of paper from the state’…”

    I’ve only said that about monopoly land rights, not property rights as a whole. I believe the general format of material property rights could be justified on a contractarian libertarian basis and isn’t particularly state driven. Other things which are often talked about as property rights, such as copyrights and patents, would probably fall into the same bucket as land titles.

    “no more proves that the state has a right to claim all of the rise in the unimproved value…”

    I’ve not said that I consider the state to have the right to do any such thing. In fact, I don’t consider the state to have any rights at all. I don’t accept that there are any such things as group rights, only individual rights.

    The point is that, if the state doesn’t have the inherent right to claim anything, then nor does it have the inherent right to gift anything.

  18. “The point is that, if the state doesn’t have the inherent right to claim anything, then nor does it have the inherent right to gift anything.”

    Correct. That is precisely why I do not regard state protection of property rights, such as land, as a “gift”. I dislike the idea of a state saying: “We have granted you this right, and if you earn “undeserved” fruits from the ownership we have made possible for you, we’ll take it back in tax”.

    My right to enjoy my life unmolested is not something that the state “gifts” me, like a bag of sweets from Father Christmas.

    “I don’t really care about speculation. Speculate, risk and gamble to your hearts content. So long as it is part of a consensual market transaction, it’s good by me. The parasitism comes about because one of the parties is gaining through state granted privilege, not because of any speculation which might occur.”

    But if you regard property rights as a “state granted privilege”, then presumably you regard speculation in things like gold as speculation in something that also enjoys a “state granted privilege”, since the gold is presumably owned by someone.

    Here is a useful comment by Jan Narveson on such matters:

    I don’t really care about speculation. Speculate, risk and gamble to your hearts content. So long as it is part of a consensual market transaction, it’s good by me. The parasitism comes about because one of the parties is gaining through state granted privilege, not because of any speculation which might occur.

    Here is a good argument by Jan Narveson on the matter:

    “What could Henry George have been thinking, anyway? “From what springs the sentiment which acknowledges his exclusive right as against all the world? Is it not, primarily, the right of a man to himself, to the use of his own powers, to the enjoyment of the fruits of his own exertions?” This interesting thought leads on to another: “This right of ownership that springs from labor excludes the possibility of any other right of ownership.” Yet one’s own body, which is, as it were, the capital base from which one’s labor proceeds, was obviously not the fruit of one’s own labor, and so we should not, on this reasoning, be able to own ourselves – even though that is the foundation on which George, and Locke, and in a way all of us, want to build the right to own the fruits of our labor. And finally: “When nonproducers can claim as rent a portion of the wealth created by producers, the right of the producers to the fruits of their labor is to that extent denied.” If so, though, it would seem that the right of producers to their own labor, which they did not create, to charge for its use, is based on the same sort of thing. It amounts to a rent, as much as does the rent of land.”

    The link is here:
    http://www.anti-state.com/geo/narveson1.html

  19. Jonathan Pearce: “My right to enjoy my life unmolested is not something that the state ‘gifts’ me, like a bag of sweets from Father Christmas.”

    But it does gift you the right to coerce me and vice versa, which is the opposite of being able to enjoy your life unmolested. Now, if that mutual coercion is mutually beneficial, I don’t have too much of a problem with it, but if it is inequitable, then I do.

    “But if you regard property rights as a “state granted privilege”, then presumably you regard speculation in things like gold as speculation in something that also enjoys a “state granted privilege”, since the gold is presumably owned by someone.”

    You persist in making this assertion that I view all property rights to be state granted privileges, in spite of the fact that I’ve told you, ad nauseum, that I don’t. Do you really have so little faith in your own position that you can’t defend it without continually mis-representing my position?

    The Narveson piece makes some valid points, but it is one of those pieces that people look at and take the superficial point that they want from it, without looking at the fundamental argument. One of the most interesting passages, one which, perhaps ironically, led me to support the idea of LVT, is this:

    “For things are just things: they do not come with labels saying that they “belong” to some people or that some people, somehow, have a “claim” on them, nor in turn that everybody has a claim on them, equal or otherwise.”

    It is, of course, true. But by the same token, neither do they come with labels saying “put a fence round this and it belongs to you in perpetuity” or “dance a jig on this and it belongs to you in perpetuity.” His argument is not fundamentally a refutation of Georgism as a whole, as some people take it to be, it is a refutation of the idea of natural property rights.

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