Sunday, May 15, 2011

Council housing fraud

Only a 'big bang' will excise corruption in council housing

Whether it is high personal debt, resentment against immigrants, or children with nowhere quiet to do their homework, many of Britain's social ills can be traced back to a shortage of housing. Which is why almost nothing raises passions so much as the allocation of council housing. In many cities, as well as in some rural areas, securing a council tenancy is little short of a long-term win on the lottery. You pay a rent which, in areas of high-priced housing, is far below what you would have to pay for equivalent accommodation in the private sector. Your repairs and maintenance are looked after and, however your personal fortunes develop, you have tenure for life. The huge public-private rent disparity in many areas makes for a profoundly distorted market infested with fraud.

Posted by drewster @ 06:42 PM (2255 views)
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23 thoughts on “Council housing fraud

  • Interesting. All tenancies should be declared null and void and tenants forced to pay marker rents. Talk about missing the point. You don’t clamp down on shysters by punishing more people. This is ludicrous doublethink nonsense. We need to expanding social housing whilst driving rents down, not creating more unfettered opportunities for rent rises across the board. A clueless hound punishes the poor because a few cheeky barstewards exploit the loopholes. Close the loopholes.

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  • The problem is not that people exploit loopholes. It’s that there are powerful incentives for illegal behaviour under the current system, and it doesn’t allocate housing efficiently.

    Of course I’d go one step further – declare all land ownership null and void, and start collecting LVT.

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  • mark wadsworth says:

    D, the proper answer is of course LVT/CI, but if you think about it, social housing is a bit like Georgism by the back door. Sure, there should be more of it, it should be allocated more intelligently and so on, but it’s still a necessary sticking plaster in a Home-Owner-Ist world.

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  • MW,
    If councils were collecting the true rental value of their council housing estates, they’d quickly realise what valuable assets they have and they’d do everything in their power to build more of them. In fact they’d even snap up private homes and convert them to council homes – effectively becoming BTL landlords themselves. There’s your Georgism by the back door!

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  • I didn’t realise Ireland are going to introduce LVT (called Site Value Tax):

    “A Site Value Tax will be introduced in 2012 and completed by 2013
    * An interim fixed “household charge” of €100 per annum in 2012.
    * A full value-based addition will be introduced in 2013.

    These measures will yield €530 million in a full year.”
    Page 98 of http://budget.gov.ie/The%20National%20Recovery%20Plan%202011-2014.pdf

    Interesting what you find; I was only looking up Georgist (a name which in itself is interesting as George comes from the Greek meaning land worker — ie farmer). [Geo-metry, Geo-graphy, … and erg, a unity of work; en-erg-y, etc. but I’m getting carried away. 🙂 ]

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  • Sorry guys, but LVT is the Loony Toon answer..

    ..building an adequate (and slightly more than adequate) supply of homes is the cure to our housing ills.

    Allowing more land to be developed, whilst stabilising the population and penalising those who leave property needlessly empty; is a practical, sensible, and effective approach that will pass muster with the electorate.

    Those who think a new tax that affects most of the electorate is the solution, have absolutely no understanding of politics..

    ..turkeys don’t vote for Christmas guys..!

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  • Fubar – hate to ask but are you bonkers?

    You’re advocating the extension of a system of social support that plainly hasn’t worked. Its ripe for fraudulent exploitation where the only possible counter is extensive micro management by social workers that need to be paid in the first place and aren’t interested in doing their jobs properly anyway.

    The social housing system also artificially effects rental prices; firstly by removing the lowest rent payers from the ‘free marker’ and secondly making some housing available to the selected few at artificially low prices.

    Much better to just give these people a ‘housing allowance’ and let them compete in the market for accommodation. This would force the unemployed out of london resulting in the better use of available accommodation. If house prices are up key workers would not survive, resulting in a exodus of key workers from London, which means their salaries would have to be raised to attract them back. They would get a salary increase rather than a credit limit increase which seems to be the state of affairs this century so far.

    Other benefits as well; a housing allowance can be quantified, while a rental agreement cannot. Its also not protected by inflation, meaning that these few who earn over 50k would be getting peanuts from their housing allowance after all these years, instead of living in subsidised housing perfectly hedged against inflation etc.. Its also politically more acceptable to take away a monetary benefit than kick people out of their homes.

    I’m getting so sick of the ^&*^ state of this economy I’m considering emigrating. It amazes me how these politicians can run a country without knowing the basics of economics or have any political acumen. The only conclusion I can draw is that they do in fact, and that their actions are cynical, selfish and corrupt. The ‘me first’ mentality is something I expect from the third world. But wait, we are in the Spanish/Ireland/Greece league… give us a chance and I’m sure we can do worse.

    err… ok that was a bit of a rant… sry bout that.

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  • dude,

    Wow I hadn’t realised that! Although at an average of just €200 per property, it’s about as much as we pay for a TV licence. Nevertheless that average may hide huge variations; and the temptation to increase the tax will be irresistible to future governments.

    I also uncovered this gem: “We called it SVT rather than LVT so as not to rouse the wrath of the farmers’ groups.” – Farmland is exempt from the tax, for now.

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  • @6 UT: I couldn’t agree more, but the way to sell it is as a replacement for the Council Tax. And as Drewster says once you’ve introduced it it can be bent in whatever way you want. And the attraction of reducing Income Tax I’m sure will be compelling to a left-of-centre administration.

    Plus, if Ireland have introduced it there is an argument to say we could have it too — especially if it is seen to work across the water.

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  • uncle tom is correct. The case for LVT (as put on the site) is choc full of logic fails, inconsistencies and downright porkies. LVT has become this sites’ new Mayan calendar spam and I now look back fondly on the Generals old war cry: “got gold”. At least gold has a case and lots of people really like the stuff. Only 10 blog blokes like LVT and nine of them are certifiable (drewster’s the sane one)

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  • Take one step back.

    Perhaps to many people are having children they can not afford!

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  • mark wadsworth says:

    Drewster 4, yes of course.

    Dude 5, it’s a tiny step in right direction. I think this was down to the Green party who were a junior partner in previous government (rather amazingly).

    Uncle Tom 6, yes that Adam Smith was a compelte nutter, didn’t know the first thing about tax or economics or morality.

    Flash 9, no it’s not full of holes. The fact that all of us LVTers have slightly different concepts of “how it would work in practice” is irrelevant.

    Take income tax for example (the second least bad tax after LVT, according to Milton Friedman), there are right wingers who’d like to see a flat income tax of 25%, loonies who think that we can replace the lot with a flat income tax of 10%, lefties who want punitive rates of income tax like 70% or 80% or 90%, and as many loopholes as there are powerful lobbies arguing for them (or votes to be won by introducing them). The legislation runs to thousands of pages. That is not an argument for or against income tax in principle, it’s arguments as to how to implement it and how much it should raise. And what they do in other countries is sometimes completely the opposite of what we do in the UK.

    The same applies to LVT. It is supported by lefties, ultra-capitalists, libertarians, Greenies and Christians, but we all agree on the basic principles.

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  • mark wadsworth says:

    … and as I always like to say, the UK has two taxes which are pretty similar to LVT, being Business Rates on non-residential land and buildings and Domestic Rates in Northern Ireland (which is an annual tax of about 0.7% of the market value of each home as at 1 January 2005). In the past we used to have Schedule A tax and Domestic Rates on all residential land and buildings. So don’t tell me it doesn’t work in practice.

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  • mark: I didn’t say ‘holes’. I said, “logic fails, inconsistencies and downright porkies”.

    For example, the claimed numbers for potential tax reductions for businesses, the UK tax take to be replaced and the % of benefit that accrues to house owners/landlords from infrastructure projects are variously; fudges, lies, or just plain craziness. I lost all respect for the campaign when the numbers skulduggery started flowing but the constantly screeched claim that anyone who disagrees is an idiot (a permanent fixture of your site), put the seal on it for me.

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  • letthemfall says:

    UT
    But the turkey farmers vote for Christmas, and that is what will prevent LVT as far as I can see. The turkeys are happy so long as some grain is scattered their way from time to time.

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  • Mark: You frequently cite Schedule A tax as if it offers some sort of conclusive proof that LVT would work (for those that don’t know Schedule A tax was a tax on income from UK land).

    You logic seems to be that: more houses were built/ house prices were cheaper/things were generally rosier when we had that tax, ergo LVT works. Children could safely play in the streets and they didn’t have a Burger King on every high street. Were those things also down to Schedule A tax? Way back then, there were so many far more important factors affecting house building and house prices etc.

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  • mark wadsworth says:

    F, I never said that this rosy state of affairs was either that rosy or purely down to Schedule A (but it clearly helped). it would be just as silly to claim that this rosy state of affairs was down to us not being in the Common Market. The fact that I think we’d be better off out of the EU (as at today’s date) does not mean that I am basing my claim on some imaginary state of affairs half a century ago.

    Stable house prices in the UK in 1950s 1960s had also to do with mortgage rationing, strict rent controls, a lot of new supply etc. Germany manages to keep house prices low and stable (barely up in nominal terms over twenty five years) even though its version of council tax only raises half as much as ours; what they have is absence of Home-Owner-ism, strict mortgage rationing, lots of new construction etc (they actually subsidise housing more than they tax it).

    That said, my examples of Business Rates etc show that it is administratively do-able; commercial prices and rents adjust down and the main thing stoping people from building office blocks and factories is NIMBYism, not the tax system.

    As to the insanity or otherwise of LVTers, let’s imagine we didn’t have Inheritance Tax (which raises less than the TV licence fee) and somebody suggested introducing it, that would really set the cat among the pigeons. But we have always had some sort of tax on estate at death, so people accept it as normal. As ever, the right wingers want it scrapped and the left wingers want it increased, separate topic.

    Ditto, if we had never introduced income tax and just kept going with land values taxes (the most ancient form of tax in Great Britain), then people would see it as normal and if somebody then suggested that you have to hand over half your earned income in income tax/NIC they’d look at them as if they were nuts.

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  • mark wadsworth says:

    F:

    Fact: council tax, IHT, TV licence fee, CGT, SDLT, Insurance Premium tax raise a total of about £40 billion a year.
    Fact: the total value of UK residential land and buildings is about £4,000 billion
    Fact: £40 billion divided by £4,000 billion = one per cent
    Fact: In Nothern Ireland, they don’t have Council Tax, they have Domestic Rates calculated as 0.7% of the market value of each house as at 1 January 2005, capped at £400,000 (i.e. maximum annual tax approx. £2,800 (but they still have IHT, TV licence fee etc).
    Fact: in Northern Ireland there is a roll-up option for pensioners
    Fact: when they decided to scrap Poll Tax and have Council Tax, it only took them a couple of months to do the valuations (which are in bands)

    My reasonable conclusion: we could replace council tax, IHT etc in their entirety with a flat annual tax of 1% on the value of each house (how precisely we want to do the valuations doesn’t really matter, we could do it individually like NI or in bands like Council Tax) with a roll up option for pensioners.

    I’m not sure what’s in any way crazy about that

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  • uncle tom @ 6,
    Yes turkeys don’t vote for Christmas, but because property-wealth is so uneven, more people stand to gain than lose. The hard part will be persuading London-based newspaper columnists and BBC journalists; most of whom I expect would stand to lose more than gain (though even then, that depends greatly on the precise implementation and level of LVT).

    mw @ 10,
    Yes it was the green partners in the Irish coalition. LVT is the greenest tax, because it cuts down on people having stupidly long commutes.

    flashman @ 9,
    Thanks. You have to admit though, the General was right so far about gold!

    flash & ut,
    Building more homes isn’t the main answer. There’s no shortage of homes in south Wales or east Lancashire. The “shortage” is in places where the jobs are and where people want to live – London and the southeast, mainly. Building another New Town like Milton Keynes or Stevenage only postpones the problem. There’s still the question of who pays for the construction and running of new infrastructure.

    LVT is incredibly economically efficient. It raises tax revenue without distorting anything else, it’s practically a free lunch for the treasury (actually it’s more like a free breakfast, lunch, and eight-course dinner with wine). It encourages infrastructure-building (“hey if we build a railway/underground here we’ll be able to charge higher LVT!”) and it prevents land hoarding / land-banking / speculation.

    Don’t look through rose-tinted spectacles at the 1960s/70s in Britain, instead look at places such as Hong Kong where unemployment is minuscule and income taxes are incredibly low. Look at how well our existing system of Business Rates works. Look at the London Congestion Charge which is just LVT for roads. Look at the mobile phone licence auction which is LVT for radio spectrum. Yes there might be some quibbles about the details, but there are so many good working examples.

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  • drewster: Hong Kong only raises about 35% of its taxes from a form of LVT and even that small element of LVT has often been blamed for permanent damage to the environment, manic overbuilding, and the pricing out of everyone other than the largest property corporations. A very small cabal of monopolistic property corporations now have a stranglehold on every last scrap of development land. It’s not what I’d call a success. In any case, LVT has almost nothing to do with HK’s low income taxes and low unemployment. It’s the geographical location/history combined with its ‘capitalist annex of China’ set-up

    By the way, it is not so much LVT that I object to as the steady stream of numerical porkies (I’ve pointed them out several times but all I ever get in return is another LVT manifesto) and the absolute refusal to be rational or reasonable (not you). An example is the refusal to accept that the benefits of infrastructure projects (London Tube) accrue to anyone other than local landlords and house owners. A grudging 10% was admitted, to be shared out between the hundreds of other beneficiary types in the region and out of the region. This sort of one-eyed fanaticism does nothing to advance the case for LVT.

    By the way the Congestion charge is not LVT for roads. Its a traffic/polution limiting scheme or a much loathed tax grab, depending on how you look at it. If you told people in the SE that it was just like LVT, you lose a few million more votes on the spot

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  • mark wadsworth says:

    “the steady stream of numerical porkies”

    OK, give me an real example of something that I or anybody else has said, with numbers.

    I’ll give you a counter example – Osborne claimed that increasing VAT from 17.5% to 20% would increase revenues by £13 billion per annum (which is mathematically correct if you take last year’s receipts x 20/17.5). What he didn’t factor in were the businesses which thereby are tipped over the edge, so that’s absolutely no VAT from them, plus fall in PAYE and corporation tax receipts, plus increase in unemployment benefit etc. Add to that, VAT is largely borne by the producer, so to the extent that their VAT bill goes up by £13 bn, you’d expect to see corp tax or PAYE receipts to fall by 30% – 40% x £13 billion anyway.

    “A grudging 10% was admitted, to be shared out between the hundreds of other beneficiary types in the region and out of the region”

    OK, one of the main factors on hosue values in the South East is “minutes by train from London”, the Evening Standard said recently that one minute off the journey time is £1,300 added on the price of a house. Let’s agree that investing in better railways and roads is good for the economy, so overall, people in the area become better off. Those who own a house but don’t work any more and seldom use the railway are better off because they can sell their house for more money. Those who still work win doubled – they have shorter journey to work, more job opportunities, more customers AND their house goes up in value for no extra monthly cost.

    For people who’d like to move to that area in future, yes of course their gross income goes up, but logic and facts show us that the increase in rents they’d have to pay or the increased mortgage repayments they’d have to pay swallow up a large amount of the extra net income. That is because there is free movement of people within the UK – if net wages are £10,000 higher elsewhere and rents teh same, a lot of peopel would move there. So demand bids up rents to the stage where they are £8,000 or £9,000 higher at which stage the financial advantage of moving there is negligible and the movement of people stops.

    Ditto, low income taxes – this is very low in Guernsey, and apparently the average price of a semi is over £400,000.

    And yes, you can say that the extra income tax “goes out of the region” as the government can spend it anywhere it likes, but if it spends it on a new railway in the Midlands, then we get the same effect there.

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  • mark: You were caught red handed fudging the figures in support of your claim that businesses would get a 90% reduction in taxes under your LVT proposals. When you got caught putting stuff in the wrong columns, you called it ‘splitting hairs’! Your total UK tax take figures are a complete fabrication. I can think of several others. Your claim that 90% of the benefit of infrastructure goes to house owners/landlords is preposterous.

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  • mark wadsworth says:

    “You were caught red handed fudging the figures in support of your claim that businesses would get a 90% reduction in taxes under your LVT proposals.”

    That’s what you say. It’s a simple fact that if you scrapped all taxes on business ACTIVITY, then taxes on business ACTIVITY would go down 100%. Sure, businesses still need premises to trade from, and tax on this would still be payable, like Business Rates.

    “Your claim that 90% of the benefit of infrastructure goes to house owners/landlords is preposterous.”

    Yes, you keep saying that, but I’ve explained why I think this is and given you numbers to back it up. Simple fact, if everybody were an owner-occupier (which is perfectly possible), then 100% of gains would accrue to owner-occupiers by definition – some would gain in their capacity as workers as well as owner-occupiers, but even non-working owner-occupiers end up better off.

    I’m not sure what’s so preposterous about pointing out something which is indisputably true, see e.g. The Daily Mail of a couple of weeks ago:

    “Millions of Britons have traditionally headed South in search of a better standard of living. But research suggests those with aspirations of wealth could be better off staying put.

    Those who opt out of the Southern rat race and move North could be even bigger winners. A study of the true spending power of salaries around the country concludes that those in the North of England enjoy a higher standard of living and a better quality of life.

    Research looking at average salaries in relation to the local cost of living suggests Cheshire is the best place to live. And the parliamentary constituency of Tatton, where David and Victoria Beckham have a home, comes out best of all. The neighbouring constituencies of Macclesfield, Altrincham and Sale West and Cheadle all feature high in the spending power league.

    The study, by Barclays Bank, highlights the fact that, while the biggest salaries are available in the South, the high cost of living there means the money does not go as far as it does elsewhere. It measured average local incomes against the regional cost of living – which includes everything from mortgage repayments to the cost of a pint of beer or a bus ticket”

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