Killer Arguments Against LVT, Not (297) (updated)

In the previous instalment, I pointed out that the total tax (flat income tax plus LVT) payable by pensioners assuming a halfway-house tax system could be collected by deducting it from total pensions in payment.

Assuming no exemptions or relieving provisions whatsoever, the total tax withheld (£66 billion a year) would amount to just over a third of pensions in payment, which is (obviously) more than what pensioners currently pay (£42 billion a year, allegedly), £24 billion a year more, to be precise.

Of course totals and averages for all pensioner households are not the end of the story, because the Homeys always like to choose corner cases (The Poor Widow In A Mansion) and wail about "millions of hard working pensioners being forced out of their homes" etc.

So let's confront this thorny issue in a bit more detail and do some like-for-like comparisons:

1. Pension incomes by quartile from here; "Domestic Rates" bills (a one hundred per cent tax on "site premiums", which works out at about 3% of 2012 selling prices) are:

2. According to the Daily Mail, pensioners pay about £42 billion a year in tax, a mixture of regressive (Council Tax, VAT, TV licence) and progressive (income tax), and net incomes for the three main types of pensioners household are thus as follows (based on average overall tax rate 24% of gross income):

3. Now, assuming we want to be fiscally neutral and keep the total taxes paid by pensioner households the same (the idea behind LVT is certainly NOT to tax more, it is to tax differently), how about using up that potential extra £24 billion (from above) to give each of 8 million pensioner households a £3,000 a year flat discount/reduction from their Domestic Rates bills?

Assuming that there is no correlation between gross incomes and the rental value of the plots they live on (of course there is), here are the net incomes:

4. There are two kinds of comparison, a relative one showing the increases and decreases in net incomes for the various categories, and then an absolute one showing who would end up under the poverty line (single £100/week, couple £150/week) and would be "forced" to do something about it, for example: trade down, take in a lodger, ask their family or heirs to chip in, start spending their savings, agree a deferment/roll-up with the council etc.

5. Here's the changes in net income table:

6. Here's the same table as in 3. above with an absolute comparison, with those households now under the poverty threshold (based purely on current pension income) who might be "forced" to do something about it shaded grey:

This gets the number who would would be "forced" to do something down to about a sixth of all single pensioner households (600,000 or so pensioners). Most of those will probably ask their heirs to pay, dip into their savings or ask the council for a roll-up option etc - not a single one of them would be "forced" to actually trade down (even though there is now every incentive to do so).

Very few pensioner couples would be really negatively impacted, and over half of them would be better off (rather unsurprisingly).