Land Value Taxation Campaign

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Home Government Scottish Land Reform Response to the Scottish Executive: Land Reform - Proposals for Legislation

Response to the Scottish Executive: Land Reform - Proposals for Legislation

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August 1999



SCOTTISH EXECUTIVE

LAND REFORM: PROPOSALS FOR LEGISLATION

The Land Value Taxation Campaign ("the Campaign") responded to the Scottish Office Land Reform Policy Group documents, "Identifying The Problems" (February 1998) and "Identifying The Solutions" (September 1998), and, for the record, formally reconfirms the stance it took and the comments it submitted on those two occasions. The Campaign also received and studied "Recommendations For Action" (January 1999).

The Campaign assumes that the Land Reform Branch of the Scottish Executive is already familiar with, or has easy access to, both of the Campaign's submissions of last year. If this is not the case, the Campaign will at once respond to a request to supply copies.

Against that background, the Campaign now sets out its comments on the White Paper.

GENERAL INTRODUCTION

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. To the extent that this reduces calls on payments by H.M. Treasury, it constitutes a programme that will commend itself mightily in Whitehall!

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 light hydrocarbon 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. LVT is an important and necessary policy for the whole of Scotland, and it is unfortunate, to say the least, that the Land Reform Policy Group’s terms of reference did not seem to allow attention to the relationship of town to country.

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.

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

The Campaign is disappointed in the present Proposals For Legislation, being 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 PROPOSALS FOR LEGISLATION

1.5 (Role of National Lottery)

The Campaign does not approve of the use of Lottery money to support the Scottish Land Fund, seeing no reason why buyers of Lottery tickets throughout the U.K. should have a portion of their contributions diverted to benefit the cause of landowners and would-be landowners in favoured parts of Scotland.

1.6 (New measures for land reform)

Nothing in the White Paper can trouble country landowners deeply (and those in urban areas, not at all). Unfortunately, nothing in it will do much to stimulate rural development either, or produce affordable housing or other hoped-for benefits. The proffered programme is not radical, despite the claim in the Foreword.

228 of the 846 responses to "Identifying The Solutions" came from declared landowners and land agents. "Recommendations For Action" records (at Annex A, section 3) that the options most strenuously opposed were not right to buy or compulsory purchase (about these and other reforms they were either "relatively relaxed" or "supportive"), but reintroduction of the u.b.r. on sporting rights, repeal of agricultural de-rating, and LVT.

The landowners are of course right not to be concerned at most of what is contained in "Recommendations For Action". In so far as these measures do succeed against the really bad and oppressive landowner, the rest will breathe contentedly to see the emotive heat taken out of the issue. In the narrowest sense, they are right to see LVT as the threat, precisely because it alone would address the problem at source. Indeed they show greater perception here than do most of their would-be critics. However, in a wider, more realistic context, landowners (particularly remoter Scottish rural landowners) are at fault in fearing 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.

The Campaign would welcome the opportunity to make a presentation of its case and answer questions. One of the recommendations for further study made by the Scottish Office Land Reform Policy Group in "Recommendations For Action" (at 8.2) is that "A comprehensive economic evaluation of the possible impact of moving in the longer term to a land value taxation basis should be undertaken." We believe the case is persuasive.

2 and 3 (Community Interest)The map specifically excludes virtually the entire land area of Scotland upon which the great bulk of the population lives and works. Paragraph 2.4 states that "The Government believes in the principle that all landowners should be treated equally under the proposed legislation". By excluding all built-up areas other than, apparently, the tiniest hamlets, the principle is ignored in the most blatant way.

The Campaign holds no views on most of the other issues enumerated, considering them to lie outside its self-imposed remit. However, it does note, and question, the assumption that one community necessarily has just one interest in the use and development of any one piece of land. The Proposals do not appear to allow for possible conflict within a community (according to 2.9, 10% of those aged 18 or over is enough to constitute a legitimate interest group), nor does it, or can it, take account of the legitimate needs and aspirations of incomers and future generations.


3.2 (Limited impact of proposed reform)


"The process will start with a decision by a landowner to dispose of a landholding."

The whole process is thus contingent on an entirely voluntary act. Land to-day may stand idle, with no "carrying charge". The Proposals do nothing to alter this. By contrast, LVT is an annual payment, a prime charge on land which the owner must meet. If he has more land than he can use economically, he will be under inducement to make it available to others. Holders of land will need to generate an income from which to meet the land value duty. This is an incentive to proper land use, and it functions all the time. The quid pro quo is abatement of taxation on the products of the application of labour and capital to land.


3, 4 and 5 (Government involvement)

The Campaign is disturbed to note the nature of Government involvement implicit in the Proposals. Government ranges itself as promoter and facilitator of private land ownership, albeit wishing to see one set of landowners replaced by another. The Campaign considers it important that Government avoid any implication of long-term, established, privileged right in respect of land holding.

The Campaign 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. The concept of 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 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.


4.6 (Price)

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 to-day's operation of the land market. Land is not man-made, is a finite and non-reproducible resource, and may be held without "carrying charge". Potential new owners (bolstered by Lottery money) will be buying out existing owners at prices which anticipate future development with doubtless a topping of speculative froth. Is this what so-called radical reform has come to?


5 (New compulsory purchase power)


This entire unwieldy process is a function of the likelihood or fear of evasion. The associated costs will fall on public funds, yet there appear to be no provisions for penalties on those who flout the legislation.

The Campaign points out the contrast with 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 – for it is a condition of retaining the land holding that the annual duty is paid.


6.3 (Valuation and registration of land)

LVT requires a valuation of all land, but specifically excludes from the assessments the values of all buildings and other developments in or on the land. Trained professional valuers are already capable of valuing the site alone, and need only to familiarise themselves with the details of the legislation, which they can begin doing while the bill is passing through its stages to enactment. There is experience overseas to call upon as well.

Registration of all land can be achieved relatively quickly if the obligation is imposed on landowners to register their holdings by a certain date.


6.6 (Beneficial owners of land)

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. However, as things stand, the superior under the Crown would be responsible for paying LVT, but the Campaign has proposals for apportionment provisions in the legislation to cover the phasing-in period.


7 (Public right of access)

This issue lies outside the Campaign’s self-given remit. As in other matters, though, the effects of public policy decisions will have their impact on land values and will therefore be reflected in assessments made for LVT purposes.
 

CONCLUDING OBSERVATIONS

Sales of land such as are envisaged in the White Paper merely perpetuate the problems resulting from private appropriation of land value. Even if the new "registered 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.

As cannot be said too often, land reform is not only a matter of concern to rural areas, but can be 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.

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. 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.

If it is true that devolution brings benefits, then one may be sure that land values will in due course swallow them whole. All other rights and freedoms are dependent on access to land on equal terms, as guaranteed by LVT. Nationhood can only be strengthened by such participation in the benefits of the common land rent fund.
 


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