My generation – at the tail end of the Baby Boom – benefited through no effort on our part from massive unearned gains in land values due to successive booms driven by unconstrained bank credit for mortgage loans and the transactional land development model I have come to think of as the ‘Four B’s’ – Buy, Borrow, Build and B…er Off.
It is an everyday occurrence when visiting London to talk to Londoners whose homes have ‘earned’ more than they have during their career. But land-rich Londoners are increasingly finding themselves care-poor, unable to look after either themselves or increasingly decrepit and cold homes on crazily valuable sites, while carers themselves are priced out of living in London.
On the other side of the land divide is my sons’ generation, who are care-rich but land-poor with little chance of anything other than a minimum wage job if that, still less any chance of affording anywhere to raise the next generation.
The unwritten and unspoken organising principle of Westminster housing policy is simple: it is at any cost to keep the banking system afloat. House prices consist of the capitalised future rental value of land/location (which does not depreciate), and that of the buildings and improvements on the land (which do depreciate). So if rental values become genuinely ‘affordable’ ie fall significantly to what is known as a ‘social’ rental level then this will reduce the value of the land which secures bank mortgage loans, and the UK banking system will essentially become insolvent in terms of assets and liabilities.
This same systemic problem of bank solvency now prevents the modern day introduction – as was suggested until maybe 100 years ago by classic Liberals such as Winston Churchill, J S Mill, and back through Adam Smith to Tom Paine – of a tax on land rental values which is once again surfacing as a policy proposal.
As austerity and automation make inroads into the middle class, the attention of local Councils is increasingly turning to accessing equity in the homes of the elderly in order to cover the costs of what has become a rapacious private care industry. Rent-seeking in the care sector is rife, and inaptly named private equity investors who acquired portfolios of care homes and loaded them with debt to take out massive dividends are now being squeezed by Council cuts. Meanwhile carers are paid a minimum wage, if that, and this is a fraction of that charged by agencies and care homes for their services.
It seems to me that underlying both problems is a fundamental question: how can we make a transfer between a generation which is land-rich and care-poor to a generation which is care-rich and land-poor?
For thousands of years, the bedrock of economies was – and remains – promises or credit. If someone trusts me enough to give me something now in return for my promise that I will provide something of equivalent value in the future then he has given me credit, by accepting my promise.
But as the economist Hyman Minsky said anyone can issue promises or credits – the problem lies in getting them accepted. Institutions such as temples, government and now banks have long provided a role as a trust or risk middleman (intermediary) who essentially guarantees the performance and credit of the promissor.
It seems to me that the inter-generational transfer may be achieved through mobilising the value of land and care through creating a new framework for guarantee of care credits and land rental credits. But such a framework and system is at the moment only be an aim or aspiration: the question in terms of practical policy is always: “How do we get there from here?”
Westminster has left Scotland with few tax options, none of them inviting, to the extent that the power to tax Scots’ income has not been taken up by the Scottish Government.
One of the interesting historical backwaters of UK income tax policy was Schedule A income tax, which was based on what is known as ‘imputed income’. This was based on the proposition that owner-occupiers receive an invisible economic benefit or subsidy from house occupation since if A rents out his house to B who in turn rents his house to A then both A and B would be in receipt of taxable income. In other words, the proposition that home ownership should be a taxable privilege.
So the first part of this policy proposal is that a Care Levy may perhaps be raised as an imputed income tax in Scotland based on the rental value of residential land. This levy will raise a fund – a Care Pool – available for public investment in the creation of a networked Care service as a co-operative of co-operatives.
The second policy element is for a Care Dividend then to be paid directly – administered professionally by service providers with democratic Council oversight – as a form of Universal Basic Income to all qualifying Scots. The innovation is that rather than being paid in £ sterling the care dividend will be paid in £1.00 care credits which are returnable in payment for the care levy.
Owner occupiers would be able to use the care dividend to pay their own levy, but if they wish, to use it to pay for care: tenants – many of whom will be carers – would be able to use the care dividend to pay their rent, because landlords would accept it in payment of their own obligation.
The above Levy/Pool/Dividend approach opens up interesting policy options .
Discounted prepayment of land rentals is actually a simple form of Equity Release which is superior to existing forms of equity release in terms of cost and offers the potential for ‘Care Loans’, which the occupier could repay through buying back credits, or simply leave open until they move or until their death at home. Such discounted prepaid £1.00 land use credits are almost precisely how UK sovereigns funded themselves for 500 years from land rentals, taxes or duties.
This in turn enables anyone – including care home operators – who wish or need to refinance existing bank loans to do so at the same time as creating an optimal asset based on land values for long term investment by pension funds.
A Care Service
Initiatives such as the US Freelancers Union, based upon a need for health insurance, and the Independent Workers Union of Great Britain, which is recruiting members from courier companies such as Deliveroo, are opening up new methods of associating to a common purpose. This leads to the possibility of what a hardcore Marxist I know in Berlin memorably termed Venture Communism – a new generation worker Co-operatives.
The care pool fund which results from the collection of a care levy could be used to provide the necessary development and working capital required to create a Scottish Care Service as part of the emerging sharing economy. But as we may observe from sharing economy platforms such as Uber, Shareholders don’t share value – they extract it. By using simple collaborative agreements and instruments local councils may sponsor platform co-operatives to enable networked carer Coops to be supported by service providers without value being drained out by rent-seekers.
Independent Living & Resilience
In the same way that resource resilience and energy independence may be achieved bottom up using simple mutual agreements and credit instruments, so it is that the land and people of Scotland may be mobilised to attain independence and resilience through building capacity and delivering care for Scots and for Scotland.
West Lothian Questions have West Lothian Answers.