When I was at University in 1980s studying forestry, Forestry Commission land was being sold off and the private sector was booming with generous tax breaks on offer to investors to plant trees. Particular controversy erupted over the rapid expansion of afforestation in the so-called “flow country” of Caithness and Sutherland where one company in particular, Fountain Forestry, was recruiting wealthy investors such as Shirley Porter and Terry Wogan to buy land and plant trees. The tax incentives were significant and on one occasion when the Director of Fountain Forestry came to Aberdeen to give a lecture I asked a question at the end hits talk. “Why“, I asked, “is the government giving millions of pounds in tax relief to very wealthy pop stars and celebrities in London to buy and afforest land 500 miles away in Caithness and Sutherland. Why does the government not simply give this money as grants to the landowners and farmers in the north of Scotland?”

I don’t remember his answer but I do remember being asked afterwards by my Professor why I had asked such a “provocative” question. I had not realised that it was anything other than a straightforward question about forestry policy but I quickly realised that any question about power, land and money made a lot of people rather uncomfortable. For me this was all the encouragement I needed to find out more. My activism on this and other issues at the time probably cost me a career in forestry which was at that time dominated by the aristocracy and big landowners.

So when, 25 years ago today, Nigel Lawson stood up in the House of Commons and abolished this tax dodge I was delighted. The announcement was a shock to the forestry world and a reminder that gravy trains don’t last forever. The budget was memorable also as the occasion when Alex Salmond got thrown out of the Chamber for interrupting Lawson’s speech. Anyway, here is the relevant passage (the whole speech is available on the Margaret Thatcher Foundation website).

I now turn to income tax.

The way to a strong economy is to boost incentives and enterprise. And that means, among other things, keeping income tax as low as possible.

Income tax has now been reduced in each of the last six Budgets—the first time this has ever occurred. And the strength of the economy over that period speaks for itself.

However, reforming income tax is not simply a matter of cutting the rates. I also have to look at all the various allowances and reliefs to ensure that they are still justified. With this in mind, I have a number of proposals to announce.

First, forestry. I accept that the tax system should recognise the special characteristics of forestry, where there can be anything up to 100 years between the costs of planting and the income from selling the felled timber.

But the present system cannot be justified. It enables top rate taxpayers in particular to shelter other income from tax, by setting it against expenditure on forestry, while the proceeds from any eventual sale are almost tax free.

The time has come to bring it to an end. I propose to do so by the simple expedient of taking commercial woodlands out of the income tax system altogether. That is to say, as from today, and subject to transitional provisions, expenditure on commercial woodlands will no longer be allowed as a deduction for income tax and corporation tax. But, equally, receipts from the sale of trees or felled timber will no longer be liable to tax.

It is, perhaps, a measure of the absurdity of the present system that the total exemption of commercial woodlands from tax will, in time, actually increase tax revenues by over £10 million a year.

At the same time, in order to further the Government’s objectives for the rural areas, I have agreed with my right hon. Friends who have responsibilities for forestry and for the environment that, in parallel, there should be increases in planting grants. Full details of the new grant scheme will be announced next week.

The net effect of these changes will be to end an unacceptable form of tax shelter; to simplify the tax system, abolishing the archaic schedule B in its entirety; and to enable the Government to secure its forestry objectives with proper regard for the environment, including a better balance between broad-leaved trees and conifers.

 

 David Lloyd George and Winston Churchill.

A Land Value Tax for England. Fair, Efficient, Sustainable (4.1Mb pdf)

Over the past few months I have been undertaking research for Caroline Lucas MP into how a system of site value rating or land value taxation could work in England to replace the council tax and/or business rates. (1) Today we publish the report (link above) which looks at how such a system might work and what changes it would entail. Caroline Lucas has published a Land Value Tax Bill to mandate the Treasury to undertake research into the topic (Guardian report here). With the ongoing debate over a mansion tax, it is time to think more radically about the future of local government finance and property taxes. This report highlights the work of the Mirrlees Review which included the observation that,

“The economic case for a land value tax is simple, and almost undeniable. Why, then, do we not have one already? Why, indeed, is the possibility of such a tax barely part of the mainstream political debate, with proponents considered marginal and unconventional?”

Over the past two decades, a rapid expansion of private debt-based money, created by private banks, has led to a land bubble in the housing market. Not only has this had catastrophic consequences for countries such as Ireland and Spain but it has contributed to growing levels of inequality as illustrated in this frankly unbelievable graph.

This data was obtained from the Office of National Statistics by Faiza Shaheen of the New Economics Foundation and shows the upper bound of net property wealth for each 1% of the net property wealth distribution. The median value for household net property wealth is £90,000 (i.e. half of houseolds have less than this and half have more). To be in the top 10% requires net property wealth of over £314,500 whilst 32% of households have nothing. The top 1% of the population has net property wealth of up to £15,040,000.

A system of rating or taxation on land values would, over time, lead to far greater equality in the distribution of wealth and incomes, lower housing costs for 83% of households in England who will pay less in LVT than they currently pay in council tax, encourage investment in property, make land allocation more efficient and end land speculation.

LVT is practicable and is already implemented in New Zealand, Denmark, Sweden, Latvia and Australia. It could provide a fair, efficient and sustainable source of local government finance in England.

(1) an equivalent exercise was conducted for Scotland in 2010. The Scottish and English reports together with a range of references and literature are available under Hot Topics/LVT in the menu above.

Pictured above – a Danish kindergarten paid for in part by Danish property taxes on Scottish land.

The Scottish Government is consulting on the future of the the non-domestic rates (business rates) regime. The consultation closes this Friday 22 February 2013. Business rates are a land and property tax paid by the occupiers or owners of certain types of land and premises used for business. I have blogged before on the inadequacies of the business rates regime here, here and here.

My response can be downloaded as a pdf here and is reproduced below.

PROPERTY TAXES

The system of non-domestic rates is a land and property tax applied to (most) land and property that is used for business purposes. Like other land taxes (council tax, stamp duty land tax etc.) it should be designed on a set of principles that reflect what a land tax is supposed to achieve.The Scottish Government is currently in the process of reforming non-domestic rates, stamp duty land tax and has announced its intention to review the council tax.

All of these plans represent a fairly comprehensive programme of property tax reform. And yet none of these them appear to be informed by any clear set of principles that should underpin why and how land is assessed for taxation. The challenge for reform of property tax is to develop a system that is;

  • coherent, principled and fair
  • treats all land on an equal basis
  • eliminates inefficient allocation of land
  • eliminates speculative gains arising through unproductive activity
  • promotes affordable access to housing and other vital land-based assets.

In this context, it is disappointing to note that no account appears to have been taken of the significant review of the UK taxation system led by Professor James Mirrlees, a Scottish economist, Nobel prize winner and member of the Scottish Government’s Council of Economic Advisers.

The Mirrlees Review concluded that non-domestic rates should be abolished and replaced by a system of land value taxation. (1) The Review observed that,

The economic case for a land value tax is simple, and almost undeniable. Why, then, do we not have one already? Why, indeed, is the possibility of such a tax barely part of the mainstream political debate, with proponents considered marginal and unconventional?

This is such a powerful idea, and one that has been so comprehensively ignored by governments, that the case for a thorough official effort to design a workable system seems to us to be overwhelming.

The economic case for taxing land itself is very strong and there is a long history of arguments in favour of it. Taxing land ownership is equivalent to taxing an economic rent—to do so does not discourage any desirable activity. Land is not a produced input; its supply is fixed and cannot be affected by the introduction of a tax. With the same amount of land available, people would not be willing to pay any more for it than before, so (the present value of) a land value tax (LVT) would be reflected one-for-one in a lower price of land: the classic example of tax capitalisation.

Owners of land on the day such a tax is announced would suffer a windfall loss as the value of their asset was reduced. But this windfall loss is the only effect of the tax: the incentive to buy, develop, or use land would not change. Economic activity that was previously worthwhile remains worthwhile. Moreover, a tax on land value would also capture the benefits accruing to landowners from external developments rather than their own efforts.

The Review concluded by recommending that,

“There is a strong case for introducing a land value tax. In the foreseeable future, this is likely to mean focusing on finding ways to replace the economically damaging business rates system with a land value tax.” (my emphasis).

In an analysis of land value taxation for the Scottish Green Party, I noted that businesses are currently disproportionately taxed on the land and property that they own and/or occupy. Under a system of LVT, business premises would enjoy a 63% reduction in their tax bill with the burden more evenly shared among all those who own land and property. (2)

I therefore suggest that the Scottish Government do two things.

1. Set this review of non-domestic rating in the context of a wider review of land and property taxation.

2. Adopt the recommendations of the Mirrlees Review and replace non-domestic rates (and I would argue Council tax too) with a system of land value taxation.

RELIEFS AND EXEMPTIONS

Notwithstanding the above, if the system of non-domestic rates is to continue, then there needs to be reform of the reliefs and exemptions. Two in particular stand out.

The first is agricultural land. It is unreasonable and unfair that some of the wealthiest owners of land in the UK such as the Duke of Westminster, Duke of Buccleuch and Sheik Mohammed bin Rashid al Maktoum (the ruler of Dubai) pay no business rates on the land they own whilst local shopkeepers, publicans, ambulance stations, fire stations and business premises have to pay 45p in the pound of the rental value of their business premises.

It is further irony that some owners of sporting estates and agricultural or forestry land do pay local taxes. There are around 290,000 acres of land in Scotland owned by citizens of Denmark. This land is subject to Danish property tax at 1% on the value up to DKK 3,040,000 and 3% of the value exceeding this amount. At a rough estimation this should yield the Danish tax authorities around £1.5 milion per year to pay for kindergartens and health centres for Danish citizens. Yet these landowners pay no tax to any Scottish authority to help to pay for public services. (3)

The second is empty industrial buildings. On 28 November 2011, the former co-op building at 120-130 Morrison Street caught fire and resulted in the largest blaze in Glasgow for many years with over 100 firefighters and 16 fire appliances in attendance. The building is owned by Straben Developments Ltd of Belfast who bought it in 2007 for £4.2 million. As an empty industrical building its rateable value is £300,000 but it receives full relief on business rates. This has saved the owner aroudn £675,000 in tax over the past 5 years. And yet the owner still expects Strathclyde Fire and Rescue to put out the fire, Strathclyde Police to police the incident, the Scottish Courts to provide the means to resolve any disputes arising and Glasgow City Council to absorb the costs and inconvenience of having an empty derelict site in the heart of the City. (4)

The system of non-domestic rates is a land tax on non-domestic land and property. It should thus apply to all non-domestic land and property including sporting, agricultural, forestry and empty industrial property.

WHO PAYS?

Non-domestic rates is explicitly a land and property tax. It is therefore open to question why it should be paid by the occupiers of business premises at the rate of 45% of the rental value in addition to the 100% rental value they pay to the landlord. Whilst non-domestic rates contributes towards the costs of local services, it is essentially a national property tax.

The consequence of good local services and amenities is higher land values and thus higher rents. The occupier pays the costs of this in higher rents and higher business rates but the landlord receives all the benefit in higher rents and higher capital value of their property.

Non-domestic rates should be paid by the owner and not the occupier.

(1) Quotes taken from Mirrlees Review Tax by Design, Chapter 16 The taxation of land and property

(2) A Land Value Tax for Scotland, 2011.

(3) The Danish tax authority SKAT report that property tax paid by Danish owned property in the UK in 2011 totalled DKK 5.5 million (£635,000). Since my estimate for the tax due on Scottish land is £1.5 million there is probably quite a bit of tax still to be collected. SKAT is running a campaign to identify Danish owned land in foreign countries and encourage Danish taxpayers to declare what they own.

(4) See further information in previous blogs here and here.

Simon Pia, writing in today’s Scotsman, provides a welcome reminder that property tax in Scotland is in a mess with politicians of most persuasions (he quite rightly excludes the Scottish Greens & their LVT proposals) have avoided this thorny issue in an attempt to curry populist favour with the electorate. Now I believe in democracy, so why is it wrong that politicians should adopt policies popular with the electorate?

Well in this instance, the council tax freeze was implemented as part of the appeal of Labour and the SNP in a Scottish Parliament election. But the Scottish Parliament does not have the power to set council tax rates. In order to implement its promises following the 2011 election the SNP had, in effect, to bribe local authorities to accept the freeze or face cuts in revenue. This corruption of democracy is made possible by the lack of any constitutional protection for local government’s autonomy – a point elaborated on recently by David O’Neil, the President of COSLA. In short, central government has virtually unfettered freedom to interfere in the affairs of local government even to the extent of abolishing it.

So, if local authorities wish to freeze the council tax – fine. But the Scottish Government should have no power to do so or to appeal to voters in national elections on the basis of this brazen interference with local government’s freedoms and powers.

If, in next year’s Federal elections in Germany, Angela Merkel were to appeal to voters in Lower Saxony by promising to freeze their local taxes, she would be up in front of the Supreme Court for breaching Article 28(2) of the German constitution which entrenches the rights of Länder and Municipalities to regulate their own affairs and set their own tax bases. Scotland’s Holyrood parties don’t need to worry about such a fate.

As Simon Pia argues, we need to sort out property taxation. On the face of it the Scottish Government is very active in this area.

It is proposing reform of Stamp Duty Land Tax.

This afternoon in the Scottish Parliament is expected to pass the Local Government Finance (Unoccupied Properties etc.) (Scotland) Bill which will allow the reduction of certain exemptions on business rates.

Tomorrow it will launch a consultation on the future of business rates.

It is committed to a review of the council tax in this Parliament.

But the problem with the Government’s approach is that it is piecemeal. All these reviews are being conducted in isolation from each other. Land and property taxes are far too important to be dealt with on an ad-hoc basis and need to be considered as a whole in relation to the role of land in the economy.

In a previous post, I highlighted the absurdity of an empty industrial building in Glasgow whose owners have avoided over £600,000 in business rates over their 5 years of ownership. When it caught fire in November 2011, Strathclyde Fire and Rescue were expected to put the fire out at great expense and risk to their staff. Strathclyde Fire and Rescue, unlike the property developers that owned the building do pay business rates – over £2 million in just 1 year.

Under the Local Government Finance (Unoccupied Properties etc.) (Scotland) Bill, empty industrial properties like this will continue to be exempt from tax despite their owners taking advantage of local services paid for by others.

Meanwhile, five-a-side football pitches, river-gauging stations, wind farms, lighthouses, ambulance stations and advertising panels on bus shelters are all liable to pay business rates. Public parks, diplomatic missions and cash machines in rural areas, on the other hand are exempt. So too is agricultural land and sporting rights which is why the Duke of Westminster who is one of the richest men in Britain pays nothing on the 95,000 acres he owns in Sutherland (though the estate office and a self-catering unit are assessed). Sheik Mohammed bin Rashid al Maktoum, the rule of Dubai also pays nothing on his 62,000 acre Killilan Estate. So whilst the pub, the filling station and the local hotel all pay their share of local taxes, most landowners pay nothing.

The OECD and the Mirrlees Review have both drawn attention to the benefits and importance of land taxes as far and progressive means of public finance.

Why do Scottish and UK politicians continue to duck the issue?

UPDATE 1235 I am grateful to Ed Iglehart for drawing my attention to this short article he wrote on the topic of local government. It includes a useful link to a report commissioned by the Scottish Office for the McIntosh Commission in 1998 – The Constitutional Status of Local government in Other Countries. Also, in response to a comment by Neil King, worth having a look at this presentation from the Norwegian Fire Service were fire and rescue is the responsibility of the municipalities which cope quite well with the responsibility.

Scottish Government’s Council of Economic Advisers with Professor James Mirrlees 2nd from right.

The Scottish Government has been consulting on a replacement for Stamp Duty Land Tax (SDLT) – one of the devolved taxes in the Scotland Act 2012. The consultation closes tomorrow (30 August 2012) and I have submitted a response. Yesterday, I spent a stimulating afternoon as a member of a panel discussing property and land tax organised by the Scottish Policy and Innovation Forum where my personal highlight was hearing from Eugene Creighton, Head of Income and Capital Taxes in the Irish Revenue.

As has become the norm in Government consultations, we are invited to answer a set of questions. In the case of this consultation, I declined to answer these questions for the simple reason that they all assume that it is a good idea to replace SDLT with what is being called a Scottish Land and Buildings Transaction Tax. My view is that such a transaction tax should be abolished in its entirety.

I cite in support of my view no less an authority than Professor James Mirrlees, Scottish economist, Nobel prize winner and member of the Scottish Government’s Council of Economic Advisers. Professor Mirrlees led an exhaustive 5-year review of the UK tax system funded by the Economic and Social Research Council and the Nuffield Foundation.

Their view of Stamp duty land tax?

“Stamp duty is among the most inefficient and damaging of all taxes.

There is no sound case for maintaining stamp duty and we believe it should be abolished”(1)

The Mirrlees Review recommends the abolition of business rates, council tax and stamp duty land tax to be replaced by a Housing Services Tax and a Land Value Tax. (2)

My recommendation to the Scottish Government is to conduct a comprehensive review of property and land tax in Scotland rather than the present ad-hoc approach where stamp duty land tax, council tax and business rates are all subject (or soon to be subject) to separate ad-hoc reform processes. There are a range of issues that need to be addressed in addition to purely fiscal matters. These include the important question of local governance and who should be responsible for setting property tax rates.

I also think that the Scottish Government should pay close attention to the findings of a comprehensive review of tax led by one of their own economic advisers which recommends abolition of transactions taxes on land and property. For a full review of their conclusions read Chapter 16 of the Mirrlees Review Tax by Design especially sections 16.3 and 16.4.

UPDATE 31 AUGUST 2012

The above debate is closely linked to the debate on a wealth tax in the UK kicked off by Nick Clegg’s interview in the Guardian on Tuesday. In the Financial Times on Wednesday, former Deputy Governor of the Bank of England, Howard Davies, dismissed the practicalities of the idea but did advocate a land value tax as workable alternative.

UPDATE 2 NOVEMBER 2012

The responses to the SDLT consultation can be viewed here and an analysis is published here.

UPDATE 3 DECEMBER 2012

The Land and Buildings transaction Tax (Scotland) Bill was published on 29 November 2012.

(1) Press Release 14 September 2011
(2) For further details of Land Value Tax, see my October 2010 paper and other material under “Hot Topics/LVT in the main menu.

UPDATE 22 JANUARY 2013

The Land and Buildings Transaction Tax (Scotland) Bill is now being considered by the Finance Committee of the Scottish Parliament. I have submitted evidence. The Scottish Parliament Information Centre has produced a briefing on the Bill in which they make the important point (page 8 of the briefing) that the power that has been devolved to the Scottish Parliament is a power to levy a tax on transactions. I argue that we should abolish such a tax. Such an option is open to Parliament but it would have to raise the lost tax receipts from other sources which is why I argue for a proper review of all property tax and the introduction of a land value tax. That, however, is not going to happen. The Scottish Government are committed to this clumsy and complex tax that produces revenues that are unpredictable, necessitates a new bureaucracy and has been criticised by the Scottish Government’s own economic adviser, Professor Mirrlees.

UPDATE 28 MARCH 2013

The Finance Committee today published its Stage One Report on the Land and Buildings Transaction Tax (Scotland) Bill. My evidence and the views of Professor Mirrlees are dealt with under “Alternative Approaches” paras. 102 – 108. The Committee recognises that the Scotland Act 2012 requires any replacement tax for SDLT to be a tax on land transactions. The Committee has asked the Scottish Government whether it considered the findings of the Mirrlees Review in bringing forward a replacement tax for Stamp Duty Land Tax.

UPDATE 25 JUNE 2013

Scottish Parliament passes the Land and Buildings Transaction Tax (Scotland) Act.

UPDATE 31 JULY 2013

Land and Buildings Transaction Tax (Scotland) Act receives Royal Assent

The following was first published as a Guest Column in the West Highland Free Press on 3 August 2012.

The subject matter is one of a large number of vital topics that should be addressed by the Scottish Government’s Land Reform Review Group.

Last November, a huge fire engulfed the former Co-op building on Morrison Street in Glasgow. Over 100 firefighters and 16 fire engines fought the blaze. It was the biggest fire in the city for many years and the fire, police and other public sector workers performed valiantly in the face of an extremely dangerous situation.

At the time I remember wondering who owned the building and found out that it was a property developer called Straben Developments Ltd. of Belfast (Title here & here). This company bought the building in September 2007 for £4.2 million but it had lain empty ever since. One of the strange consequences of that abandonment is that, as an empty industrial building, it was exempt from business rates. This means that over the past 5 years, the owners have avoided over £600,000 in local taxes whilst Strathclyde Fire and Rescue are still expected to come and put the fire out despite the fact that last year alone they themselves paid over £2 million in business rates.

I recall this strange tale to highlight the fact that many land and property taxes have long since ceased to have any logical basis. Privately-owned schools for example, receive 80% discounts whilst local authority schools pay the full rate. The single largest item of expenditure of the Scottish Parliament after staff and MSP wages and allowances is the £4 million it pays in business rates to the City of Edinburgh Council.

Across the country land lies derelict and buildings empty. Sometimes there are good reasons for this but too often it is simply because there is no penalty for doing so. This despite growing demand by communities for access to land for housing and community facilities.

Five-a-side football pitches, river-gauging stations, wind farms, lighthouses, ambulance stations and advertising panels on bus shelters are all liable to pay business rates. Public parks, diplomatic missions and cash machines in rural areas, on the other hand are exempt. So too is agricultural land and sporting rights which is why the Duke of Westminster who is one of the richest men in Britain pays nothing on the 95,000 acres he owns in Sutherland (though the estate office and a self-catering unit are assessed). Sheik Mohammed bin Rashid al Maktoum, the rule of Dubai also pays nothing on his 62,000 acre Killilan Estate. So whilst the pub, the filling station and the local hotel all pay their share of local taxes, most landowners pay nothing.

Historically, land was the source of all taxation through feu duties, tithes, hearth taxes and land taxes. Over time, however, the influential landowners of Britain conspired to pass the burden of taxation to labour and business. At the beginning of the 20th century, death duties and estate tax operated very effectively as a means of breaking up large landholdings and diversifying landownership, allowing more people to own farms and smallholdings. Today, such taxes are long gone and even the minimal sporting rates were abolished in 1995.

The Scottish Government is currently consulting on a range of property tax issues including council tax reliefs, Stamp Duty Land Tax and a forthcoming review of business rates and council tax. At the moment these efforts are very much being made in isolation to each other when what in fact we need is to have a proper debate on the principles behind land and property taxes. These should include ensuring that land is put to good use and that abandonment and speculation is penalised and not rewarded. It should also be beyond dispute that of land and property is to be taxed, every owner should pay their fair share.

It is also vital to see such taxes in the context of local democracy. In John Swinney’s budget speech in February, he complained that 90% of Scottish tax revenues are controlled by Westminster. What he didn’t mention is that the situation for local government in Scotland is is even worse and that his Government is responsible. Thanks to the centrally imposed council tax freeze and the fact that business rates are set centrally, local authorities have virtually no financial freedom to raise their own revenues beyond library fines and parking charges (and for all I know these may well be subject to centrally imposed rules as well).

In many European countries, local government not only raises a significant proportion of its own finance through exclusively local taxes but has far greater freedom to set and levy a wide range of other taxes. This means that local communities have the incentive to improve their environment and invest in infrastructure confident in the knowledge that they will see some return in the form of tax receipts.

Tax has always been a hotly contested political issue and national governments will remain responsible for setting the overall framework within which local government operates. But if we want to revitalise our towns and cities, promote civic enterprise and repopulate rural areas, local government must have far greater financial freedom and flexibility.

Last week I was in London travelling on the Jubilee Line extension. This impressive piece of transport infrastructure cost around £3.5 billion to build and was paid for by public money. Once it was completed, land values in the vicinity of each of the new stations rose by a total of around £12 billion. A 30% land tax would have paid for the new railway at no cost to the taxpayer.

All investment by government in new schools, hospitals, roads and ferries raises the value of land. It is appropriate that this be considered as a source of public revenue for local communities. Getting land and property taxes right will, over time stabilise land values and reduce the inflated cost of land. That in turn means more communities can afford to buy it and young people can get hold of the land they need to build homes at an affordable cost.

Such outcomes are possible if the land and property taxes are designed with the public rather than vested interests in mind.

A dramatic fire has been raging all afternoon at the Gusset building at 120-130 Morrison Street, Glasgow. The property has lain derelict since it was bought for £4,200,000 by Straben Developments Limited of Belfast, Northern Ireland in September 2007. (title documents here plus plan).

Reports claimed that over 100 firefighters were in attendance and at the height of the blaze, there were 16 fire engines in attendance. These public sector workers did the City of Glasgow proud in managing to control the blaze and ensuring the safety of the public. Remember that on 30 November 2011.

But, equally serious is the fact that fire and rescue is a public service that is paid for by the taxpayer and the council tax and business-rate payers of Glasgow.

Straben Developments, however, are exempt from paying business rates on their £4.2 million investment. So, while they sit on their asset which I am sure is fully insured, they pay nothing towards all the services of the City of Glasgow that work to ensure their land and property is protected. Over the four years since 2007, the company has saved over £500,000 in land tax.

It is high time such exemptions were abolished or (better still) a land tax was introduced to prevent such buildings lying derelict in the first place and to make sure the owners pay their fair share towards the costs of those brave firefighters and their equipment which so quickly came to try and put out the fire that broke out this afternoon.

UPDATE DEC 2011

Folk are asking why do they pay no rates? Well, first of all if you want to check for yourself, go to the Scottish Assessor’s portal and type in G5 8BE. The page is here. Valuation is £300,000.

The Scottish Government provide a brief guide to Non-Domestic Rates here. The reason why this property pays no rates is either because it is an empty industrial building and/or that is is Category B listed. (see paragraph under “Empty Property Relief”). All empty factories, warehouses and listed buildings enjoy 100% relief at all times.

NOTE – John Swinney announced in the 2011 spending review that he would be “introducing legislation to reform empty property relief from April 2013 to support regeneration and introduce incentives to reduce empty shops in town centres” Quite what this might mean for industrial and listed properties granted 100% relief is not clear.

UPDATE 2 JUNE 2012

I now learn that, while Straban Developments have paid no business rates since 2007, Strathclyde Fire and Rescue paid over £2 million in business rates in 2011/12.

UPDATE AUGUST 2015

After the fire, the Scottish Assessor amended the rateable value to £0. This is a consequence of the bizarre definition in land valuation law that for a property to have a rateable value there must be some form of non-domestic usage in the form of property – a building, shop, some shooting etc – taking place. Land qua land is not rateable as such. Since Straban Developments acquitted the property in 2007, it has avoided paying a total of £1,085,700 in non-domestic rates as a direct consequence of the bizarre rules as to who should pay taxes on on land and property.

UPDATE 9 April 2011

Actually, the error I identify below (over-estimate of LVT revenue by £123 million) doesn’t look like an error on further examination. The land values in my original report were from January 2009 (the Valuation Office) and thus that is why the NDR figures are from 2009 also. Land values will have risen since then, probably by a little more than the Council Tax revenue has done (which means if there is a discrepancy it’s probably in the opposite direction – i.e. that LVT would raise a little more extra revenue than the 2009 calculations), but we cannot forecast use figures using different base years. Obviously the precise difference between the two will vary ahead of LVT being introduced, as one taxes properties and the other taxes land. The figures published in the SGP proposals are thus robust.

————————————————————————–

Today, the Scottish Green Party (SGP) published its proposals for a Land Value Tax to raise finance in the next Scottish Parliament. A thoughtful commentater (Steve @3pSteve on twitter) has questioned the figures used. His criticisms are published here. Specifically, he argues that the £1,039 million that the SGP claims will be raised is incorrect and should instead be a mere £150 million. He levels two particular allegations.

The first is that the SGP has underestimated current local tax revenues from Council Tax and Non-domestic Rates (NDR) by £274 million. This is because the SGP proposals do not include income from Council Tax Benefit (CTB) and that the wrong figure has been used for current NDR.

He is correct that the CTB is not included in the figures for current income. This is a benefit paid by the UK government and will continue to be paid under LVT. So, one either excludes it from the current income and future LVT or one includes it. The SGP proposals exclude it (if they were to include it then forecast LVT income would rise to £5,027 million)

On the question of NDR, the figure Steve cites is a mid-year estimate for 2010-11. The SGP paper uses a figure of £1.9 billion which is from 2008-09. The figure for 2009-10 figure is £2,015 million.

So, at most, the SGP proposals over-estimate current income by £115 million.

The second criticism is that the LVT revenue estimates are over-stated by £615 million. This is based on the assertion that the second table in the SGP proposals has current CT at £2,568 million and that this is £659 million more than is actually raised by CT (£1,909 million).

However (and this is made clear in the footnote to the table), the £2,568 million excludes CT discounts such as empty property relief and single person discounts. In other words, this is the TOTAL sum that would be raised by CT were it to be applied in full to all properties. It is wrong therefore to make the assumption that this is a flawed methodology which, if applied to the forecast LVT yield would reduce it by £615 million as Steve claims. The forecast thus remains at £4,839 million.

The conclusion of all of this is that the SGP proposals may overestimate revenue by £123 million (£4,839 million minus £3,923 million current revenue). This should be seen against the background of, imperfect valuation data but also substantial flexibility in the exact level at which to set the rate of LVT. Thus it appears perfectly reasonable to plan for a £ 1,039 million extra revenue.