Land Value Taxation Campaign

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Home Government Scottish Land Reform Draft Land Reform (Scotland) Bill

Draft Land Reform (Scotland) Bill

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June 2001

SCOTTISH EXECUTIVE

DRAFT LAND REFORM (SCOTLAND) BILL

Consultation Paper (February 2001)

 
THE CAMPAIGN’S RESPONSE

Prepared by David Mills and Henry Law




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]


Scottish Executive, Rural Affairs Department

"Agricultural Holdings: Proposals For Legislation" (May 2000)

For the record, the Campaign formally reconfirms the stance it took and the comments it submitted on these five 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 three 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)


General introduction

(a) 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 UBR.

(b) 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.

(c) 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.

(d) 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.

(e) 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.

(f) LVT is based on the benefit principle. In the particular context of remote rural Scotland, existing taxes such as income tax, VAT, 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.

(g) 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.

(h) 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.

(i) 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.

(j) 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.

(k) 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 ctivity. 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.

(l) Information on land holdings is compiled in the LVT registers and maps, and is of course made public.

(m) 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.

(n) In the particular context of the current consultation on the draft Land Reform (Scotland) Bill (February 2001), 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. Certainly from the standpoint of LVT, not only are the principles and application essentially the same in both cases, but 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 of major significance.


Commentary on the draft Land Reform (Scotland) Bill (February 2001) ("the Bill")

The Campaign holds no views on many of the issues which arise in the Bill, considering them to lie outwith its self-imposed remit and indeed believing them in many cases to be susceptible to simpler resolution with the implementation of LVT in its fullness.

Page 13, ch.3 The detailed proposals affecting access to land do not fall within the Campaign’s remit. However, as a general proposition, rights of public access are like any other encumbrance on land. Land of which the owner has exclusive and unfettered use has the highest value. As limitations are applied, that value is lowered, step by step as the burden of the limitations is increased. With LVT, the national revenue is maximised where the nominal owner is left to enjoy exclusive and unfettered use, and is reduced by degrees as limitations are set. This allows politicians, officials, and the general public to see the cost (in revenue foregone) of extending access rights to land; and it allows informed consideration of their desirability and worth. It also affords the owner of land due and tangible compensation for the burden of the restrictions imposed. LVT neatly balances rights and duties.

Page 21, 4.2 Any "blight" on land values will be taken into account when a cadastral survey for LVT is made, and the charge on the owner of land will be adjusted accordingly. As noted above, where land holding is conditional, restrictions on use are reflected in the LVT assessment, 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. The Campaign cannot help observing at this point that landowners who are vocal in defence of their privileges are silent when they benefit from legislation, investment, and demographic change which have the effect of enhancing the value of their land. The introduction of LVT asks them to surrender nothing they have produced for themselves or have acquired from others who produced it.1 This contrasts markedly with current taxes on work performed, on the rewards to capital supplied from accumulated savings, and on goods and services in the course of trade and consumption.

[ 1 Improvements to land are not subject to LVT except those such as infill which, after a determined number of years to allow for proper amortisation sre held to have merged with the landscape, having become invisible or indistinguishable and requiring no further maintenance. ]

Page 21, 4.4 The Campaign hopes Ministers are not complacent about the need for urban land reform. Right-to-buy, however, is no answer, and in this the Campaign is in full agreement with Ministers. Far from being a matter of concern only in rural areas, the land question is of even greater significance in its impact on the conurbations where sites are in high demand, where values are correspondingly much greater, where speculation, dereliction, non-use, under-use, and mis-use are rife, and where poverty and misery co-exist in the shadow of great riches. Most of the Scottish people are concentrated on only 2% of the land area and it is there that the bulk of the land value lies. The Campaign urges the Scottish Executive to address this question, with LVT in mind as the underlying solution.

Page 23, 4.9 The Campaign takes note that right-to-buy is to include mineral rights (other than oil, coal, gas, gold, and silver), and salmon fishing and sporting rights. These are rights which "run with the land", and, as such, are subject to assessment for LVT. The value of minerals in place at or below the surface, but unworked, is public. The difference between that value and the value after extraction and any processing in preparation for transportation, is private, being a product of labour and man-made capital.

Page 27, 4.27 The concern of landowners to be allowed to pocket the rise in land value resulting from a grant of planning permission, is duly noted. Please see our comment on Page 33, 4.50, below.

Page 31, 4.42 Value should be based on optimum use of the land in question, within prevailing planning and similar constraints. This concept is developed below in the wider context, for example in the footnote to the comment on Page 35, 4.59, and in the comment on Page 53, 6.36.

Page 32, 4.47 If the land is to be used for crop growing, forestry, or animal husbandry, the assumption for LVT purposes is that the land is "in good heart" (account being taken of its inherent qualities). This penalises wearing the land out and rewards special attention (such as heavy manuring). Together with the criterion of optimum use within prevailing planning and similar constraints, adequate control of "sustainable development" or "sustainable use" is obtained, and it should not be necessary for Ministers to see and approve land use plans. It has been thought necessary to include this provision in the Bill, but this can be justified only in the absence of LVT, fully and correctly implemented.

Page 33, 4.50 Given the fact that land value to-day is privately appropriated and that betterment (whether from grant of planning permission or other cause) is similarly appropriated, the Campaign sees why Ministers worded the Outcome as they did. Neither in morality nor in economics, however, is there any justification for awarding planning gain or the pre-existing land value either to the landowner or the successor community body.

Page 34, 4.55 There is a sense in which it does not much matter to the nation at large who it is that pockets the value of the nation’s land. The complaint is that it is being privately pocketed in the first place and that thereby the national exchequer is being deprived of its natural public revenue base. LVT is always in the highest community interest, especially when it covers all land fully and equally. The collection of land value and its use for the public revenue mean that all share in the national bounty. The income stream from land rent replaces taxation which to-day falls on genuinely private values.

Page 35, 4.59 The Campaign holds that LVT would ensure the desired outcome without recourse to bureaucratic intervention or the risk of persistent inadequate management on the part of the new community body. LVT is always assessed on the assumption of optimum use within prevailing planning and similar constraints 2, and payment of the annual land rent charge to the national exchequer is a condition of holding and retaining possession of the land.

[ 2 The Campaign distinguishes "optimum use within prevailing planning and similar constraints" from, say, "highest permitted use", because highest permitted use could be greater than optimum use in current circumstances. Thus, a theoretical right to build thirty-storey office tower blocks on Tiree would still leave, say, housing or a small hotel as optimum use. This, incidentally, is part of the answer to those critics who allege that LVT would lead to widespread over-development. ]

Page 35, 4.61 The Campaign is opposed to any suggestion that a sale of land should receive "some sort of tax break" as an incentive to landowning interests. Far from putting this to the Chancellor at Westminster as a future Budget idea, the Scottish Executive should be proposing a National Land-Rent Bill to introduce LVT.

Page 36, 4.62 The Campaign is certainly of the view that introduction of LVT constitutes far and away the single most important land reform action needed. It underpins all other aspirations in this area. The argument presented in the Outcome (that LVT could not be incorporated in the Bill in any way because evaluation of the policy has not yet taken place) is convincing only in the sense that, having put the cart before the horse, it is thought desirable to go ahead with this improbable mode of traction before testing whether the horse pulls more efficiently than it can push! When the LVT study comes to be undertaken, the Campaign trusts it will not read that proper consideration of LVT is not now merited because a Land Reform Act has just been put on the statute book without its being thought necessary to make so much as a single mention of said proposal.

Page 36, 4.63 The Campaign strongly opposes taxation on man-made goods and on the rewards of work. Instead, it favours collection of the site value of land alone. The national non-domestic rate (the UBR) is a composite tax, falling on the value not only of land but also of buildings and of other fixed developments put on or under the land. Re-introducing the UBR on sporting rights, and abolishing the relief afforded to agriculture and forestry, are supported by the Campaign only to the extent that, in the absence of LVT, it reluctantly prefers the UBR to the present exemptions.

Page 44, 5.20 The Campaign is opposed to taxpayers’ subvention in principle. Of course, LVT acts to reduce the income stream which remains with the owner and is capable of being capitalised in a selling price. Price thus declines as the percentage of the levy on annual rental value rises, until, at the 100% mark, nothing is left and there can be no selling price at all. At this point, when land is transferred, the price negotiated will be solely in respect of the value of buildings and other improvements.

Page 51, 6.27 Establishing who is the owner of land may be accomplished by requiring the relevant details of all land to be entered on a register. If, after a designated period, no one comes forward with a substantiated claim of ownership, the land is provisionally repossessed by the Crown and, after a further period, lapses finally into full possession by the Crown. From, say, the end of year 1 in this sequence, any rents or other payments due to the seemingly untraceable owner are to be made to the Crown office in lieu. Receipt for such payments absolves the payer of his obligations to the unknown owner. Where a version of LVT (however imperfect) is in operation overseas, enabling legislation recognises forfeiture of title to land as the ultimate sanction for non-payment (from whatever cause) of duly presented demands. In this way, and because the land itself cannot be removed or hidden, LVT can in practice be neither avoided nor evaded.

Page 52, 6.31 LVT, fully applied, captures, as nearly as is practicable, all of the annual site rental value of land. Land per se thus confers no financial advantage on its owner, and the only purpose in owning land must be to make good use of it. The value paid by the owner reflects, as already noted, optimum use within prevailing planning and similar constraints, and payment of the annual land rent charge to the national exchequer is a condition of holding and retaining possession of the land. There is nothing further that need be demanded of an owner, except that he obey the law. We all own the land. The individual owner or body corporate that wishes to have exclusive use of any part of it, compensates the rest of society by meeting the site rent demand. The sum thus raised defrays governmental expenses. What could be neater? The Bill is seeking to solve a self-imposed, unnecessary dilemma.

Page 53, 6.34 From a LVT standpoint, the observations on 6.31 apply here too. The public interest is in full collection by the exchequer of the annual site rental value of the land.

Page 53, 6.36 LVT as advocated by the Campaign is based on the annual rental value of land, which is to say on its optimum permitted value in current conditions. Price is more than just a capitalisation of that value. It takes account of such factors as the likelihood of obtaining planning permission for higher use; the prospects for grants, subsidies, and tax concessions; developments in general, and localised economic activity; public and private schemes involving investment in the infrastructure; possible future demographic change; economic growth forecasts (including trends in interest rates, and perhaps also in exchange rates and inflation expectations). Collectively, these add up to what is called "hope value". At times of rapid growth, this gives rise to potentially rampant land speculation, where the land price bears less and less relation to its underlying value in optimum permitted current use. It seems the Government-appointed Valuer is to assess price in the constrained conditions of today’s operation of the land market. Land is not man-made, is a finite and non-reproducible resource, and may today be held without "carrying charge". Potential new owners (or the state, if there is to be compulsory purchase) will be buying out existing owners at prices which anticipate future development with doubtless a topping of speculative froth. This is not exactly radical land reform.

Page 56, 6.50 The situation described is one in which the potential new landowners agree to lease valuable sporting rights back to the current owner at a purely nominal sum. Because the income is utterly negligible, the land is of limited value and becomes relatively inexpensive to buy. In a LVT régime, the sporting rights run with the land, and the whole is assessed at its current annual rental worth. The owner of the lease on the sporting rights is a beneficial owner of land and is expected to meet his portion of the LVT demand. The Campaign envisages legislation which will provide that all new agreements such as leases and sub-leases and sub-sub-leases are to be concluded on the basis that responsibility for payment of LVT passes back up the line towards the registered owner of the land. Transitional arrangements will provide for apportionment of the amount due in LVT amongst the beneficial owners in proportion to their interest in the whole.

Page 109, S.39 In Part I of the Bill, dealing with access rights, "land" is defined as including man-made improvements such as bridges. This gives the general public the right to use (for example) bridges built on or over land. Clearly the landowner owes a duty of care to the passing public and is expected to maintain a bridge in good and safe condition. This obligation and others like it limit unfettered enjoyment of the land and indeed imply outlays of labour and capital to do so. This is bound to reflect back on the value of the land itself. With LVT in operation, the landowner is compensated by paying less than would otherwise be demanded, and of course the public exchequer receives less. In the Campaign’s view, this is right and proper.

Page 173, S.89(4)(a) Please see comment on Page 56, 6.50, above. This provision in the Bill is understandable in that it seeks to ensure that the price of the land itself is kept down in cases where sporting rights are to be leased back to the previous owner. It will not result in consistency, obviously, because the present owner will not always lease back the sporting rights. As previously explained, the LVT approach is to treat the location value of land as a whole, and to move payment obligations progressively back up the chain to the registered owner.

Page 181, S.94(10) Please see previous comment.

Page 183, S.95(5)(a) The Campaign does not approve of payments of compensation to landowners, who never, after all, consider compensating the community when they are in receipt of the many benefits extended to them. Subsidies (not least from the CAP) and tax concessions (such as roll-over relief on capital gains tax and exemption from the UBR) 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 an 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 in new housing demand to support growth in the counties around Edinburgh in the wake of establishment of the Scottish Parliament and Scottish Executive. In circumstances of this sort, there may be associated infrastructural investment as well as increased demand for the likes of new recreational opportunities, giving rise to expectations of planning gain from permission to convert rural land to a higher use category. LVT tackles these and similar issues directly and simply. It is a superior and more fundamental reform.

Conclusion

The Bill, and discussion surrounding it, have taken for granted that land rent is to remain as private property – not unreasonably, given the view expressed in 4.62 on page 36. This assumption, though, 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 a LVT régime, pure land value has to be paid to public coffers, and is a first charge on landholding. There is thus evident incentive to achieve an income to meet this land rent charge (LVT). The situation will be one of an eager owner and a willing tenant. In such circumstances, coercive, one-sided arrangements are inherently unlikely.

The Campaign has noted that this latest document from the Scottish Executive has already drawn attention to the Scottish Office Land Reform Policy Group recommendation that "A comprehensive economic evaluation of the possible impact of moving in the longer term to a land value taxation basis should be undertaken." LVT has been in the political arena in the U.K. for over a hundred years. Indeed, land taxes (none of them actually LVT, though talked about as such) were put on the statute book by the Finance (1909-10) Act, 1910, and LVT itself made up Section 3 of the Finance Act, 1931. Both measures fell victim to major catastrophes (World War I and the Great Depression) when opponents were able to nullify previous legislation. LVT has been kept alive, and anyone holding land or making a transaction in land has done so in the knowledge that LVT could be introduced. Ignorance of history and of the content of the wider political debate throughout the course of the last Century is no reason for new land owners to be allowed to believe they may enjoy special favour. "Investment" in land (the inverted commas are deliberate) does not take place in a moral and political vacuum.

Sales of land such as are envisaged in the Bill merely perpetuate the problems resulting from private appropriation of land value. Even if the new "community bodies" are considered worthier than their predecessors, they have no greater moral title, and the excluded of the present and succeeding generations are in no wise better off. The system being proposed is still wrong in principle and needlessly bureaucratic by comparison with LVT, which allows every citizen to share equally in the yield of land value to fund the public revenue.

LAND VALUE TAXATION CAMPAIGN
June 2001
 


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