Response to the Scottish Executive: Agricultural Holdings – Proposals for Legislation
May 2000
SCOTTISH EXECUTIVE
AGRICULTURAL HOLDINGS: –
PROPOSALS FOR LEGISLATION (May 2000)
1 INTRODUCTION
The Land Value Taxation Campaign (“the Campaign”) responded to the following documents:
Scottish Office Land Reform Policy Group
“Identifying The Problems” (February 1998)
“Identifying The Solutions” (September 1998)
Scottish Executive, Land Reform Branch
“Proposals For Legislation” (July 1999)
Scottish Executive, Justice Department
Abolition Of Feudal Tenure Etc. (Scotland) Bill [comments submitted August 1999]
For the record, the Campaign formally reconfirms the stance it took and the comments it submitted on these four occasions. The Campaign assumes that the Scottish Executive, Rural Affairs Department, is familiar with, or has easy access to, all of the Campaign’s submissions of the last two years. If this is not the case, the Campaign will at once respond to a request to supply copies.
In addition to the above, the Campaign has studied the following documents:-
Scottish Office Land Reform Policy Group
“Recommendations For Action” (January 1999)
Scottish Executive, Development Department
Land Reform Action Plan (August 1999) and Progress Report (November 1999)
The Campaign makes two preliminary observations arising from the above.
First, although in the particular context of the current White Paper, “Agricultural Holdings: Proposals For Legislation”, attention is necessarily concentrated on rural issues, nevertheless, as a general proposition, the Campaign urges the Scottish Executive to consider broadening the land reform investigation to encompass urban land as well as rural. Not only are the principles and application essentially the same, but the bulk of the population lives in the cities and towns, so that land in built-up areas is much more valuable than in the country. The resultant benefits will be much greater overall and, obviously, the yield nationally will be really significant.
Secondly, it is noted that in “Recommendations For Action”, the Scottish Office Land Reform Policy Group recommended that “A comprehensive economic evaluation of the possible impact of moving in the longer term to a land value taxation basis should be undertaken”, and that the Scottish Executive has made provision for this in its Land Reform Action Plan.
2 SOME GENERAL POINTS
The purpose of the Campaign is to promote the introduction of land value taxation (“LVT”). Within the present Scottish context, the Campaign seeks powers for the devolved Parliament in Edinburgh to bring in LVT in place of any or all existing taxes, including the council tax and the u.b.r.
The Campaign uses the word, land, in the meaning attributed to it in classical economics, as a factor of production distinct from labour and capital (which is man-made and represents “stored labour”). This use is different from that given it at law, and different again from its treatment in book-keeping. LVT is a property tax which lies exclusively on that portion which represents purely the site value of land: buildings and other improvements are not included in the valuation.
LVT makes land owners accountable to the community through the annual payments they are required to make in exchange for the benefits they gain from holding land, in direct proportion to the value of those land holdings. LVT thus balances the rights enjoyed by the beneficial holders of land with the duties they owe to the community at large.
LVT progressively reduces the selling price of land, as the percentage levied on the annual rental value is increased. Making land more affordable significantly widens the scope for access to land and for use of land in a variety of ways, and it facilitates acquisition for community purposes where this is held to be desirable.
Where land holding is conditional, restrictions on use are reflected in the assessment for LVT, to establish an equitable arrangement. Rights of public access, like any other encumbrance, are reflected in the assessments, providing compensation to land holders who do not enjoy unhindered use of their land.
LVT is based on the benefit principle. In the particular context of remote rural Scotland, existing taxes such as income tax, v.a.t., and motor fuel duties (all allegedly falling on those with the ability to pay) flout verifiable experience of geographical and land value considerations. Their effect at marginal locations (where the LVT assessment would be zero or very little) and in respect of marginal activities (such as crofting) is disproportionately heavy, and is in some circumstances the reason that such activities are not viable – the activity could sustain a livelihood but not when tax has to be paid as well. LVT allows remission of existing taxes and encourages marginal activities: indeed, it promotes locations which are now sub-marginal so that they come to provide an acceptable livelihood.
Rural regeneration will not be entirely agricultural and residential, but will encompass tourism, modern light industry, and commerce. LVT does not address only those activities that are directly land-related (crops, animal husbandry, forestry). On the contrary, its significance is probably the greater where land values are concentrated and high. There are such pockets within rural Scotland now, and doubtless there will be more if correct land reform policy is followed.
The principle of LVT is payment for locational benefits received. Whether they are gainfully used or not is a matter of personal choice, but, in aggregate, holders will undoubtedly be stimulated to make better use of idle or wastefully used land. This is a chief benefit from LVT.
LVT is fair in its incidence, the yield is certain, the administrative costs are low once the system has “bedded down”, and avoidance and evasion are in practice impossible. Land cannot be hidden or removed to cyberspace, and in any case it is a condition of retaining the land holding that the annual duty is paid.
A switch to a system of LVT does not prejudice a proprietor in possession. As the site value of land is collected, taxes on buildings and other improvements attached to land are abated, as are taxes on production (wealth creation), the earnings of labour and capital, and trade. Titles remain. No confiscations are involved. Security in possession is guaranteed by payment of the annual rental value of the land in the form of LVT.
Land holders (particularly remoter rural land holders) actually have no reason to fear LVT. Few will be solely beneficial owners of land. Most will perform work (by hand and brain) and will be providers of capital (man-made, coming from savings). These, and earnings from them, will be untaxed, and land now marginal or sub-marginal will be able to sustain productive economic activity. With full LVT, doing no more than holding land will not produce an income stream for private enjoyment; but using land properly will become fully remunerative.
Information on land holdings is compiled in the LVT registers and maps, and is of course made public.
The Campaign is firmly of the opinion that the taxation of land values and the remission of existing taxes that it makes possible, are the necessary prerequisite for achieving many of the objectives set forth by the Scottish Ministers.
COMMENTARY ON “AGRICULTURAL HOLDINGS:
PROPOSALS FOR LEGISLATION”
Clauses 1.5, 1.8
The Campaign holds no views on many of the issues enumerated in the White Paper and listed for attention in a new Agricultural Holdings Bill, considering them to lie outside its self-imposed remit and believing them to be susceptible to simpler resolution with the full implementation of LVT. The requirement would then, in general, be not so much for fresh legislation as for simplification and repeal of the old.
Much of the discussion in the document on matters of land holding and tenancy, has taken for granted that land rent is to remain as private property. This assumption necessarily means continued acceptance that public revenue is to be raised by imposts on what truly ought to be private, namely the rewards that go to those who work and who provide capital from their savings.
The situation will be different when LVT starts to operate and moves progressively and determinedly towards collection of the full annual location value of land. This switches discussion to treatment of improvements made in or on land, whether by the nominal land holder (farmhouse, agricultural buildings, fencing, for example) or by the tenant (manuring, crops, perhaps additional buildings or extensions), and to related questions of, say, the respective rights of the parties to fish the waters or take game.
Essentially, with LVT as a first charge on landholding, there is an evident incentive to achieve an income sufficient to meet this obligation. In such circumstances, one-sided arrangements are inherently unlikely. That is our underlying point.
Clause 2.2
There are other barriers to entry to farming. Subsidies (not least from the CAP) and tax concessions (such as roll-over relief on capital gains tax and exemption from the u.b.r.) have made agriculture a more attractive pursuit than it would otherwise be. Potential new entrants, whether to buy or rent, are faced with having to pay for the right to enjoy those advantages. In this way, the alleged benefits to agriculture are absorbed by the owners of agricultural land.
Land holders are also reluctant to release land where there is the prospect of intensification of the economic activity of the community at large, leading to demographic change and to new developments in, perhaps, quarrying or support facilities for offshore oil and gas exploitation or – yes – in the opening of a Scottish Parliament. In circumstances of this sort, there may well be associated infrastructural investment as well as increased demand for the likes of new housing and recreational opportunities, giving rise to expectations of planning gain from permission to convert farm land to a higher use category.
LVT tackles these and similar issues directly.
Clause 2.7
The Campaign holds no views on the maximum permissible length of tenancies.*
[ * The Campaign is aware that there are proposals to effect changes in land holding in Scots law, seemingly aligning it more to English law in this respect, or, even worse, going over to an alloidal system. However, as things stand, the superior under the Crownwould be responsible for paying LVT. To cover the phasing-in period, the Campaign has proposals for provisions in the legislation for apportionment to ensure that all who enjoy a beneficial interest in land make their fair share of the contribution. As leases expire, the obligation moves along the chain to the superior, and any new grants of leases and tenancies are to be made on that basis.]
Clauses 2.10, 2.11
The Campaign notes that the White Paper does refer specifically to the problem of letting, in “circumstances where, because of development proposals, the land in question is likely to go out of agricultural use within a few years”. The proposed solution is purely a stab at greater administrative tidiness than hitherto. It does not even address the economic and moral questions involved, much less attempt to answer them. By what right does either the land holder or his putative tenant lay claim to the incremental land value deriving from new development, or, indeed, to the present location value of the land?
Incidentally, the fact that the White Paper can pose this question of land “likely to go out of agricultural use” underlines the inadequacy of the Scottish Executive’s current approach to land reform. In the circumstances being considered, land value increases (a) whilst land remains in agricultural use but has already become the subject of speculative interest with planning gain in mind and (b) after planning consents have made it available for alternative higher use. At stage (b) it is no longer designated as agricultural land and passes outwith the terms of reference of the Minister for Rural Affairs, and apparently therefore out of mind – at precisely the point where its value has shot right up! Further words of ours are surely superfluous?
Clause 3.3
Diversification involving a degree of economic activity outside agriculture, seems to be acceptable. The Campaign certainly does not challenge this, but it does feel constrained to point out that such activity could bring the tenant, or of course the land holder, within the ambit of the u.b.r. The Campaign points out that LVT exempts buildings and all other improvements from tax, and indeed excludes them from the valuation. By contrast, the contemporary tax system penalises useful work and in the present context acts as a disincentive to diversification. A tenant farmer who takes steps to better his condition, with the full approval and indeed the encouragement of the Scottish Executive, will be hit in the pocket. Does this make sense?
Clause 3.5
The Campaign referred to the tax and subsidy régime affecting the business of forestry and timber, in an addendum, dated 28th. November 1998, to its response to the Scottish Office Land Reform Policy Group consultation document, “Identifying The Solutions”. In summary, the Campaign notes that the present tax treatment of forestry already requires the valuation of land separately from improvements. It also (in certain defined circumstances) submits rises in the value of land under use for timber cultivation to taxation (as a capital gain). The Campaign views this as acceptance of both the principle and the practice of LVT, albeit in embryonic and indeed unsatisfactory form.
Clause 5.3
The Campaign thinks that the procedures for approval-seeking and for the arbitration and settlement of disagreements, as recommended in the White Paper, still leave plenty of scope for jurisdictional activity. This is essentially because the relationship between land holder and tenant, whilst indeed being overhauled, is nevertheless being re-established on wholly unsound and unmodernised footings.
4 CONCLUDING OBSERVATIONS
Devolution has left significant constraints on the freedom of action of the Scottish Parliament in land reform matters. Nevertheless the Campaign detects an unwillingness to think radically which contrasts strongly with the rhetoric. If, as is said in the Foreword, “Land reform is a key priority for the Scottish Executive”, the Campaign has to record that it finds no evidence of this in the present White Paper. As an administrative exercise it is impressive, but politically it is feeble. This key opens the door to nothing-in-particular.