Land Value Taxation Campaign

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Farming support

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With Brexit impending, perhaps, UK farming policy is back on the agenda. We need to be clear about the effects of support for farmers, in whatever form it takes. This requires an understanding of the great economist Ricardo, who formulated the Law of Rent.

Farming support has two effects. The first is to keep sub-marginal land in agricultural use. This is equivalent to keeping uneconomic coal mines in operation, with the difference that without the support, the farmland would go over to other uses or be abandoned as wilderness; most probably, the alternative uses would be forestry or recreation.

The second effect is that the benefits do not remain with the farmers as such. This is because rental values reflect the availability of the grants, subsidies or guaranteed prices. Thus, tenant farmers gain nothing from the support. Existing owner occupiers benefit, but the benefit stops with them, because the value of the support is capitalised into farmland prices. Consequently, new entrants have to pay more for farmland than would otherwise be the case, leaving them with the burden of higher repayment and interest charges.

Thus, support is a one-off benefit to farmers and landowners, but a perpetual cost to taxpayers and/or consumers.

 

Labour’s confused land policies

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”After urging land reform I now know the brute power of our billionaire press”, writes George Monbiot in the Guardian today about press response to the Labour’s proposals, set out in ”Land for the many”, which was published last month. The heavy criticism was well-deserved; there is an incoherent mish-mash of suggestions which reveals a lack of understanding of the fundamental moral and economic principles involved in land policy. The policy package was an inviting target for being shot down in flames.

Astonishingly – and I am in contact with some of the members of the Labour Land Campaign (LLC) – there was no consultation with those in the Campaign when the proposals were being put together. Whoever was responsible for the report had evidently not read and digested what was on the LLC’s excellent website.

The landowning interests will obviously squeal at whatever threatens their privileges, but the classic land reform proposals put forward by the Land Value Taxation Campaign, and by the Labour Land Campaign, are an intellectually defensible position in the way that the Labour Party’s latest proposals are not. They were evidently put together by a committee in which all the members had to get their favourite ideas in, regardless of whether they were based on sound ethical and economic principles, or not.

Monbiot attacks Farage and the Brexit party for standing in the way. He seems not to understand that EU trade and economic policy also works for the landowning interest. The CAP is an obvious example, but import tariffs and free movement of labour also drive up rents and drive down wages – a process which the landowning classes have always sought to do. Then there is VAT, a requirement of EU membership; it is not a coincidence that VAT is not charged on rents but on the products of labour; any Marxist - and there are plenty of them in the Labour Party - knows that it is labour alone which adds value.

   

Punishing the Republic of Ireland

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Few, if any, commentators have remarked that with a so-called hard border, the main victims will be inside the Republic, since the EU's rules will restrict the flow of goods INTO the Republic. If they have to come from Continental Europe, either they have to be driven across the congested roads of the Midlands and North Wales, or they will have to be shipped direct. The latter is going to be much more expensive than getting the goods from the UK.

Compare the distances.

Dublin to Rotterdam is 667 NM, sailing time 2 days, 3 hours
Dublin to Liverpool is 126 NM, sailing time 10 hours
Dun Laoghaire to Holyhead is 61 NM, sailing time 3 hours.

The differences will add very substantially to transport costs, which will add to the price of goods in the Republic. To make matters worse for those in the Republic - it has no large container port comparable to Southampton or Felixtowe. There is not the traffic to support one, so the economies of very large container vessels will not be achieved. One would have thought that Vradakar would have had his eye on the ball and was concerned about this. Seemingly not.

 

Taxed to dereliction

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Most proponents of land value tax these days do not appear to understand the theoretical background to what they are advocating. This is usually revealed when they talk about a wealth tax on land, or propose that the tax should be levied as a percentage (usually between 1% and 5%, of the selling price).

The primary value of land is its gross annual rental value. The point about gross value is that the rental value includes rent already taken in tax. This was at one time well understood; the old local authority rates were based on gross value. Gross annnual value (GAV) was the rateable value, comprising actual rents plus rates payable, the charge being a percentage of the GAV.

Land value tax (LVT), properly administered, is a percentage of the gross annual land value, ie the rental value, excluding any buildings or improvements. In the case of farmland, actual rental value is usually little more than the value of the land itself, the difference being improvements such as farm buildings, drainage works, boundary walls, etc, which must be ignored in the valuation. Marginal farmland, such as uplands sheep grazing, has a rental value close to zero.

The bulk of land value is of urban land, the most valuable being city centre land in the City of London and the West End, followed by land used for manufacturing, retail and warehousing. These values are constantly changing; for example, retail values are apparently falling due to the growth of internet shopping, which will raise the value of land which is suitable for distribution warehousing

There are large tracts of urban land which are worth next to nothing, mostly in the north and south-west of England, Wales and in Scotland apart from the main cities. This is of critical importance, because it applies not only to a tax on land values, but to all taxes. If the tax take exceeds the rental value, the land will eventually go out of use. The advantage of land value tax is that no tax is taken at marginal locations, they are, in effect, tax havens. All other taxes attempt to collect tax from business activities at the margin. This is of course impossible, and so potentially productive sites are taxed into dereliction. And there is the explanation for the UK's grotesque regional economic imbalance.

 
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