Home—Blog—Why a Martian would never manufacture in Britain
Feb 06, 2012, 11:58
Posted byMerryn Somerset Webb
Comments (18)
I had lunch with a long-time MoneyWeek reader this week. He is convinced that the problems of Western economies are caused almost entirely by the fact that we tax everything the wrong way around.
To illustrate this he told me his Martian story. It goes like this. There was once a Martian manufacturer who made exceptionally good sweets – he was solar-system famous for his special space-dust recipe. He also knew how much we Earthlings like candy. So with an eye to cleaning up in the Earth market, he landed in the UK countryside to look for a manufacturing site. He went to an estate agent and asked to be shown a suitable 20-acre site stipulating that it must be as cheap as possible.
The agent said he had just the right spot. So they got in the car and headed off down the motorway. They left the motorway for an A road. They left the A road for a B road. They left the B road for an unnamed road. Then they headed up a narrow dirt track. Eventually the agent pulled over and waved his arm at the isolated fields around. “This is it,” he said. “All 20 acres are for sale and planning permission is already in place. Yours for £1m.”
“Not bad,” said the Martian. “But where are the services. I will need gas, electricity and vast volumes of water. And I need lots of workers. But I see no houses or schools or hospitals. Where and how will they live? And the road is terrible. How will my supply lorries arrive? It will cost millions to provide what I need here. Have you nothing else?”
The agent said he did. So they got back in the car. Down the track. Down the B road. Down the A road. Back to the motorway. In time, they arrived on the edge of a medium-sized town. The agent drove to a few empty fields surrounded by houses. “This used to be a smallholding,” he said. “But Mr Bloggs is old now and keen to move to Tenerife. So it is for sale. There are, as you can see, houses, schools and hospitals as well as a good road network – we are just off the motorway. And your gas, water and electricity are already here. However it does cost more - £50m.”
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“It is perfect,” said the Martian. “Now tell me, who put the services in?”
“The state and the local council,” said the agent.
“Brilliant,” says the Martian, “Tell me where to send it and I will write them a cheque immediately.”
“Oh no,” said the agent. “You don’t pay the state. You pay Mr Bloggs.”
“That makes no sense,” said the Martian. “If I pay Mr Bloggs – whose land is only worth £50m thanks to the work of the state – who pays the state?”
“Oh you will do that too,” said the agent. “As soon as you are up and running you will pay rates, VAT, NI, income tax, corporation tax, insurance taxes and so on."
“I don't think so,” said the Martian.
And he went back to Mars. Immediately.
Supporters of the land tax (details of how that works here) will see where my lunch partner is going with his very good story. But he takes it a step further by referring to the unearned part of the market price of Mr Blogg’s land as “location value” – something that is effectively a social good. And he reckons that the value of the social good should accrue back to the state rather than to the individual.
We’ve written about land taxes here before with our general view being that we’d be all for it if we could be certain that other taxes (income tax and so on) would be scrapped as it was introduced. However as we are pretty certain they wouldn’t be, we can’t really support the introduction of yet another tax. I’ll come back to this – we had a long lunch.
P.S We had lunch at 1 Lombard Street in London – the restaurant very kindly donated lunch for a reader and me as part of the FT’s annual charity appeal. So if there are any inconsistencies in the above story please accept that it is entirely their fault – they kept bringing me glasses of champagne.
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(06 February 2012, 01:17PM) Complain about this comment
And the greedy, selfish, small-minded Martian returned to his home planet, where civil unrest erupted in his own land and war came to pass between nations, leading to nuclear annihilation and the destruction of the planet. I wonder if this happened on Mars eons ago and the remnants fled to earth to repeat the tragic events until they finally learn the lesson.
(06 February 2012, 02:03PM) Complain about this comment
The answer to the states problems lie in less wastage and less intervention in all of our lives.....not inventing ever more insideous ways to part it's citizens from their money. imo.
(06 February 2012, 02:09PM) Complain about this comment
"We’d be all for (land value tax) if we could be certain that other taxes (income tax and so on) would be scrapped as it was introduced. However as we are pretty certain they wouldn’t be, (so) we can’t really support the introduction of yet another tax."Agreed. One way to overcome such a problem with State profligacy is to have a constitutional lock about the maximum percentage of GDP that a government can take in taxation. For example, if the maximum total tax take was 40 % GDP then the introduction of a land tax would only be possible if other taxes were reduced. Problem solved.Land Value Tax was invented in the 19th century when the centres of towns/cities were the most valuable sites for business and wealth creation. That is often no longer the case. How would you tax the founder of Facebook etc who operated from his bedroom? Location, Location... ain't quite what it used to be?
(06 February 2012, 04:19PM) Complain about this comment
Are you sure you didn't misinterpret his story and it was in fact an elaborate and rather poor chat up line over a boozy lunch?I sold the farm & lived off gruel for a month to win that lunch only to be beaten by some bloke who tells martian stories. Where's the justice!
(06 February 2012, 06:09PM) Complain about this comment
The martian makes a very valid point. Of course, Mr Blogg wouldn't agree. And they say "you make your own luck in this world". Mr Blogg was lucky enough to be in the same league as some of those that make the rules!
(06 February 2012, 07:00PM) Complain about this comment
I run a small one man band service company in the UK and the amount of hassle, tax and red tape I have to endure - IR35 being one - is horrendous. I often think long and hard about just moving to the US or to Europe in order to have an easier life.I constantly have to sit and listen to my public sector friends, lovely though they are, whinge and moan about how hard done by they are as teachers, social workers, etc. I can never compete with their salaries, nor the holidays and sick benefits they have, and would need to have about 300K in my pension pot to equal the pension of a teacher or social worker - but THEY feel so hard done by.
(06 February 2012, 07:01PM) Complain about this comment
When you listen to the story of a Cardiff nurse who took 6 weeks off on the sick for stress because the painting of a room in her house had got mucked up by the decorators - yes, it happened last year - you feel the only sensible thing to do is to join them. Or the social worker whose office was 2 miles further away who talked about it as if she was being asked to build her own rocket and commute to the Moon daily!
(07 February 2012, 03:49PM) Complain about this comment
Top piece. I have made similar arguments before but without the Martian element.With the deficit in mind, we should raise land tax by 30bn more than we cut wealth-creating taxes. Deficit down, economic growth up, lower taxes for everyone, and landowners still gain - just not as much. Everyone^s a winner, so it will never happen. HHmm
(07 February 2012, 03:54PM) Complain about this comment
NeutonwarpYou^ll know the story from the hitch hikers guide to the galaxy of the useless third of one planet being ejected from it and sent to earth, I imagine??On Earth, they adopt the leaf as currency and everyone becomes rich by stuffing their shirts with leaves. Instead of dropping the currency once inflation rips for a more scarce object, they decide to burn down the forests and make the leaf scarce.H2G2's little joke is that we descend from these aliens, and not the pre-historic man of previous belief.
(07 February 2012, 03:55PM) Complain about this comment
Taxes are way too high in the Western world, period. I don't buy the usual cr@p from socialists and leftists of all persuasions saying that low government spending is a third world phenomeon. "Hey look at Denmark - one of the richest countries on earth, with the state 60 pervent of GDP!". Denmark is an outlier - small homogenous country, hardworking population, great social cohesion and less risk of a dependent class mooching off the system.
(07 February 2012, 03:56PM) Complain about this comment
The moment you get to countries beyond a certain size, the risk of welfare mooching becomes far too great. And by that I don't just mean unemployment or disability benefits. There is wholesale waste and abuse with the NHS etc etc. It is a real problem that the Western world refuses to address. Why, for example, does my Council need to produce documents in 17 languages? If you come to England, speak English otherwise go back. Why should honest hardworking tax payers be paying for "social outreach workers and multicultural specialists"?During the boom years Brown and Blair turned Britain's state into a client state to hire the unemployable. All that needs to change. And btw, Germany does not tax land that way but manufacturing is booming. And neither does China or Taiwan. Singapore doesn't either (top tax rate just 17 percent).
(09 February 2012, 04:31PM) Complain about this comment
But said Martian would happily move his money here once he was worth a few million.To take advantage of our realtive political stability, clearly enforced property laws, biased slander/libel rules and excellent restaurants.
(15 February 2012, 10:21AM) Complain about this comment
Wow Merryn, after all your articles against the mansion tax (an inferior tax to LVT but much better than taxes on work and profits), I'm delighted to see that you understand the logical appeal of not confiscating publicly created wealth and giving it to people who have pieces of paper from the government saying that they have exclusive rights to the land but no obligation to contribute a cent to the public.
(20 February 2012, 12:36PM) Complain about this comment
Land taxes are a very efficient means of collecting tax for local services but they do restrict enterprise for new businesses. Maybe we should introduce a more predictable formula on what business rates should be based on indicaters of the local economy which should serve to encourage business where it is needed.Or possibly the use of a discounting scheme for new businesses over the first 2-3 years of establishment?Any system that is implemented should always involve less state or local authority involvement as this has , is and always will be the least effective way of using money encouraging business growth.
(01 March 2012, 04:32PM) Complain about this comment
@mombers I've written many times that my opposition to any property taxes is based on the fact they are always extra taxes and the fact that we have IHT as a wealth tax already (to say nothing of stamp duty and non index linked CGT). You can't have both. An LVT would work in isolation. But not as another tax piled on the taxes we already have.
(07 March 2012, 02:14AM) Complain about this comment
JREwing re "And neither does China or Taiwan. Singapore doesn't either " Taiwan has had a land Tax since 1948, China is reported to be introducing one, Singapore has a 70% land development and a form of land Tax. Over 700 cities world wide have land Taxes, from Denmark to Australia Hong kong has LVT and high property taxes. When Britain took control in the 1840s, The Crown resolved early on to retain freehold of the colony for itself. Hong Kong Island, then Kowloon and the New Territories, became a model for how to create a successful free enterprise economy without relinquishing ‘common wealth’ in land. On average,about 40% of Hong Kong Government’s annual revenue still comes from land. Half the working population pays no income tax, start-up businesses benefit from very low taxes – and public welfare is relatively generous for Asia.See libdemsalter.org.uk for more information and news on land tax news and information.
(07 March 2012, 02:44AM) Complain about this comment
Re "Land Value Tax was invented in the 19th century when the centres of towns/cities were the most valuable sites for business and wealth creation. That is often no longer the case. How would you tax the founder of Facebook etc who operated from his bedroom? Location, Location... ain't quite what it used to be?"Land Tax was not invented in 19th Century read Adam Smith's Wealth of Nations of 1776. Your statement is not true, land in central London is the most expensive land in the UK. Land in Chelsea sold for nearly £60m an acre. Farmland is worth only £6000 an acre in England and only about £2000 acre in Scotland. When farmland is given planning permission the uplift in value is usually 100x + its previously value as farmland. When Facebook started Mark Zuckerberg' he was not wealthy, his current house is worth $7 Million and Facebook's offices is London is a 36,000 square-foot listed building in Covent Garden.
(07 March 2012, 01:25PM) Complain about this comment
It is worth adding to William Davison’s interesting comments above that Investec published a table (shown in Caulfields’ True Value email of 17th Feb 2012 associated with MoneyWeek) that the three “Emerging Market” economies listed with the highest productivity compared to the US are Hong Kong (94%), Singapore (114%) & Taiwan (94%). Only Israel (81%) comes even close.
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