So Grandpa Death’s Labour Party Doesn’t Understand Tax Incidence Then


Either Jezza Corbyn’s Labour Party doesn’t understand tax incidence or they think that we don’t. That second might actually be true by the way. They’re suggesting that domestic rates – or is it council tax now? – should be replaced with something more progressive, something that accounts for the size of house and garden rather more than the current system does.

There are going to be problems here:

Jeremy Corbyn has unveiled plans for a new tax raid on middle-class homeowners which will see those with larger family homes and gardens pay significantly more. A new report, commissioned by Labour, suggests that council tax should be scrapped and replaced with a “progressive property tax”. The tax would be payable by property owners, rather than tenants, and would be based on “regularly updated” property values. The report says there would be a “progressively higher rate of taxation” for each of top four property bands by value.

A higher rate as well as just paying more simply by being worth more. This is likely to get into significant portions of capital value to be paid on an annual basis soon enough given how progressive they’re likely to make it. Which then of course runs into the little old widow living in the house she raised her children in. Would Labour force her to sell up because the tax takes 80% of her pension?

Well, harsh as it may sound, that’s not actually a terrible idea but it’ll play badly politically. However, the real economic point is this:

The tax would be payable by property owners, rather than tenants

All such taxes are paid by property owners, not tenants. Because such a tax reduces the amount the owner can charge in rent. Here that’s not all that important as it’s just political dressing either way. It becomes absolutely vital when considering business rates. They’re not, in the end, paid by the tenant occupying the, say, retail space on the High Street. They’re paid by the landlord of that space. Which is why we get Tesco, which owns a lot of its shops, shouting that business rates must be reformed. They’re arguing in their interest as landlords, not retailers.

Actually, that’s what the entire campaign against business rates is all about, the landlord interest. And it’s best that we remember that because no one else at all is going to benefit from any change to it.