Land Value Taxation Campaign

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Home Government Scottish Land Reform Land Title Conditions Bill - Campaign Response to the Consultation Paper (May 2001)

Land Title Conditions Bill - Campaign Response to the Consultation Paper (May 2001)

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June 2001

SCOTTISH EXECUTIVE

TITLE CONDITIONS (SCOTLAND) BILL

Consultation (May 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)


Scottish Executive, Rural Affairs Department, Land Reform Branch

Draft Land Reform (Scotland) Bill Consultation Paper (February 2001)

For the record, the Campaign formally reconfirms the stance it took and the comments it submitted on these six occasions. The Campaign assumes that the Scottish Executive, Justice Department, Civil Law Division, 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, for example, are, like any other encumbrance, reflected in the assessments, providing compensation to land holders who do not enjoy unhindered use of their land.

(f) 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.

(g) 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.

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

Commentary on the draft Title Conditions (Scotland) Bill (May 2001) ("the Bill")

General

The Campaign holds no views on many of the issues which arise in the Bill, considering them to lie outwith its self-imposed remit.

The Campaign notes that many of the technical and practical points in the Bill are concerned with buildings and other developments on, in, and over the land rather than with the land itself. This underlines the difference in definition of "land" in law and in political economy. The Campaign is firmly of the opinion that the taxation of land values and the remission of existing taxes that it makes possible, would greatly facilitate the attainment of many of the objectives set forth by the Scottish Ministers. 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, one-sided arrangements become inherently less likely.

The Bill tackles land questions whose significance is substantially or even wholly urban. In the particular context of the concurrent 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. Most of the Scottish people are concentrated on only 2% of the land area. These days, it is largely in the great 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 – that poverty and misery co-exist in the shadow of great riches.

The references cited below are to the Title Conditions (Scotland) Bill Consultation Paper (May 2001). The initials, "DP", mean Discussion Point.

Page 41, DP35 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. This sporting rights provision in the draft Land Reform (Scotland) Bill is artificial, understandable only 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. Whether sporting rights conserved by superiors are burdens or servitudes does not seem to matter from a future LVT point of view.

Page 42, DP36 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, as the 100% mark is approached, almost nothing is left and effectively there is 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. LVT as advocated by the Campaign is based on the site rental value of land, which is to say on its value in optimum permitted use in current conditions, having regard to planning and similar constraints (such as a development value burden of the sort described here). When LVT is fully operating, with frequent valuation updating, there is (as explained) for practical purposes no land (site or location) value left in private hands at any time. The "problem" posed in this DP simply does not exist so far as the pure land element is concerned.

Page 44, DP37 The Campaign is pleased that irritancy rights have been abolished (by the Abolition of Feudal Tenure etc. (Scotland) Act, 2000). In the case of clawback clauses in contracts of land sale, the response set out above (DP36) in respect of burdens, applies with even greater force in the circumstances envisaged in paragraph 167. The operation of the LVT mechanism ensures that the site value of land does not pass in to private hands. Land is the product of no man’s labour, and neither in morality nor in economics is there any justification for awarding planning gain, or the pre-existing land value, either to the current landowner or his successors. Planning permission does not of course create value. Rather does it unlock it. Value stems from the population itself, from its general economic activity, its prior investment in infrastructure, and its current demand for living, working, and leisure space. What happens when a public authority approves an application for development or redevelopment for more intensive land use, is that the permission translates into enhanced site value and becomes a windfall gift from the public to the landowner. More accurately, it is an enforced gift made by an organ of the state, acting ostensibly in the name of the people but nevertheless transferring a collective public value to a private interest. That is immoral and contrary to natural justice.

The Campaign agrees with the Commission’s view set out in the first sentence of paragraph 170.

The issue considered in paragraph 171 presents itself differently when LVT is fully operating. Land as such then has no buying/selling price. Land in the legal meaning of man-made developments set upon it, such as buildings, may have a value (or indeed a negative value, if the building has to be pulled down and the site cleared in order to make best use of it). The price paid to acquire pure land is nil, but the obligation assumed is then to meet the annual LVT demand (the site rental charge). This is a revenue cost, a running cost, and it replaces the council tax, the u.b.r. and many other taxes (perhaps all of them, other than in the transitional period and in national emergencies). There is no longer a mortgage to finance and pay off in respect of land. Capital is not uselessly tied up in land purchase, but is available for productive purposes. A developer’s borrowings are limited to construction and any associated development. Lenders will adapt to the changed circumstances. The international financial market does not lack resilience.

LAND VALUE TAXATION CAMPAIGN
June 2001
 


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