You say ‘If the cost of maintaining the land for ALL LANDLORDS increases by 500%, there will be an incentive for each landlord to raise rental prices.’ But you’ve missed the point! VAT is levied on all sites regardless of their rental value, turnover or profit. But LVT is a graduated charge – highest in town centres, lower in the suburbs and lowest on farmland. And marginal sites will be zero-rated.

Although the same % levy will be applied to all sites we have to remember that the annual rental value is not the same on all sites. Rent is higher in Oxford Street than it is on Brentford High Street, for example. Imagine a pyramid where central sites are the most valuable and the value (and therefore the levy to be paid) decreases towards the base.

If landlords do attempt to pass on the LVT to tenants then tenants will look to moving where the rent + LVT is lower.

Finally there is the kilo of sugar example. If Harrods tries to pass on the LVT on the goods it sells then the Deli round the corner with a lower LVT will be able to sell sugar cheaper. VAT is universal – LVT is applied on a graduated scale according to the annual rental value of the site.

If the cost of maintaining the land for ALL LANDLORDS increases by 500%, there will be an incentive for each landlord to raise rental prices.”

This statement and others you have made suggests that you are not clear what land value IS, and what LVT is intended to tax.

Land value is the surplus after ALL INPUT COSTS HAVE BEEN MET. It may be a value paid over to a landlord or it may be a value retained by an owner occupier. If a tax is levied on land rental value, there is nobody the landlord can pass it on to.

The closest example I can find is when VAT is increased. Shops don’t just keep their prices the same because ‘they’re charging as much as they can’, they raise the prices because the reason they sell the product is to *make money*. The effect of VAT is completely different. Landlords may try to pass the LVT on in higher rents but there is only so much rent that a tenant can pay, and if the property remains vacant the LVT is nevertheless payable. If an increase in VAT results in lower sales, then the amount of VAT payable is also reduced.

Rents are not built into the prices of things, otherwise prices would be higher in areas where rents are high, whereas in reality they tend to be lower, because volumes of sales are higher in areas of high land value and businesses can afford to pay higher rents.

Rent is a residual value. Any property owner who fails to appreciate this will end up in trouble sooner or later.

I’m afraid it isn’t. It’s basic supply and demand.

“If the cost of maintaining the land for ALL LANDLORDS increases by 500%, there will be an incentive for each landlord to raise rental prices.”

So, without the increase in cost of holding the land, why wouldn’t they have the same incentive to increase the rental price? Why would they voluntarily accept less than the available market rent?

“The closest example I can find is when VAT is increased. Shops don’t just keep their prices the same because ‘they’re charging as much as they can’, they raise the prices because the reason they sell the product is to *make money*.”

The key difference is that shops are selling goods which are not in fixed supply. If they increase the price, they will tend to sell less, but they will also buy less and less will be produced as a result.

Land is in fixed supply, so if the rent charged is above the market rate, there will be landlords with no tenants, due to the reduced demand. As they are in business to make money, they will logically undercut the other landlords to get tenants, a process which will continue until the rents fall back to the market rate.

The landlord cannot alter volumes to respond to LVT. The house is either let or it is void, and in both cases the tax is still payable. The profit maximising price is the highest price that a single tenancy bid is willing and able to pay (leaving it void certainly isn’t going to beat a paying tenant in terms of profit). Exactly where else is he meant to get this money? Wishing to keep his margin as it was won’t make it so.

If we have an issue with relying on the Middle East, maybe it’s time that we invested in deepwater drilling within our own waters. That’s a red herring in the argument.

If the cost of maintaining the land for ALL LANDLORDS increases by 500%, there will be an incentive for each landlord to raise rental prices. The closest example I can find is when VAT is increased. Shops don’t just keep their prices the same because ‘they’re charging as much as they can’, they raise the prices because the reason they sell the product is to *make money*.

That number itself is debateable (I recently saw a figure of £5.5tr), but part of the problem of your analysis is that for some reason you think taxing land used by business is taxing work. The easy way to show this is false is to point out that a tax on business land would be chargeable whether there was any actual work going on or not. Thus, tax incidence cannot be on the work itself. Indeed, as long as the land used doesn’t change, the value of the work performed on the site can go arbitrarily high, and the tax charged doesn’t change. This is why LVT increases production (and thus employment).

Not charging LVT on business premises is actually a subsidy to idle factories/shops.

“Yes, that’s not a typo, the cost of this tax on residential property would be absolutely eyewatering.”

…and the taxation laid on production is somehow *not*?

“Now, the private landlord has a new bill for £146,000 a year, so he has to increase the rent prices on those eight people from £12,000 a year to £30,250 a year in order to maintain his profit margin.”

This is a common way to think about rent pricing (and landlords would probably try it in the short term), but ultimately it’s wrong (and they would fail). At the end of the day, rental income can only be what the tenants are able and willing to pay. The average rent can only go up as much as the average amount of personal tax saved (and there’s no guarantee it would go up that high). Any further land tax is borne by the landlord.

“This may seem like it would reduce your grandad’s tax bill, but obviously any tax on farmland would come straight back to us in food prices. Likewise, a tax on factory land would come back in product prices. ”

No, because production costs are more than just land rents, and the components that have elastic supply are the ones that are untaxed under LVT so they increase supply to fill the space (more capital equipment, more workers, more output). In any case, a sizeable amount of farmland value is actually subsidy, so get rid of that first, *then* worry about taxing it, you’ll find there’s not an awful lot to tax.

Somebody might want to make a certain profit, that doesn’t automatically mean that they can.

Take LVT out of the equation for a minute. Let’s just assume that, for no external reason, the landlord decides that he wants his profit margin to be £800. I would hope you can see that he couldn’t just up the rent by £200 and be certain that he would get tenants. If he could, you’d have to ask why he hadn’t been charging the higher rent already. The burden of LVT cannot be passed on to renters for the simple reason that the landlord will already tend to be charging the full market rent.

The reason your argument is invalid is that you are conflating a wish to do something and an ability to do something, when there is often a huge gulf between the two.