In this Guest Blog, poet & novelist John Burnside reflects on the land, nature, folk and elite power. John’s most recent book is a collection of short stories, called Something Like Happy (Jonathan Cape). This essay was first published in The Scotsman on 29 June 2013 and is published here with their kind permission.

Should Scotland’s environmental policies be governed by the rich and powerful?

John Burnside 29 June 2013

IN 1997, I gathered with a group of other writers at the Edinburgh Festival, gamely sporting my yes/yes badge, to pledge support for a Scottish Parliament. At the time, I had no great expectations of the radical changes I thought were needed, here and elsewhere; what I hoped, however, was that a devolved Scotland might moderate, or even abandon, the high-handed approach to government that I had come to know and despise under Thatcherism. The gathering that day was jovial, with much joking and not a little self-consciousness for some. I had only been back in Scotland for a couple years, having moved south at the age of ten when my father got a job at Corby Steelworks and, at the time, I felt a little uncertain of the territory. I had no party-political affiliations and the idea of nationalism had always rendered me queasy. Still, crossing my fingers, I pledged my support and cast my vote, then stood back to see what would happen.

Now, we are about to do the referendum ceilidh all over again, only this time the stakes are higher. The trouble is, none of the changes I want to see are even on the agenda. Well, they are, in the usual lip service, greenwashed fashion, but none of it is real.

Meanwhile, I am much the same this time around as I was then: unaffiliated, highly sceptical and wondering which compromise to make in order to avoid the lesser of two evils. I would like to be affiliated: like many people, I suspect, I am still waiting for a green party in Scotland worthy of the name, but I see no sign of that for the near future and, to be frank, I want to weep when someone like Al Gore pops round for the day to praise the current government’s supposed environmental credentials (built entirely, and rather ironically, on a flawed energy strategy that, while it lines the pockets of landowners and developers, is devastating our wild places).

In fact, it is a mark of how compromised we are that my political wish-list for today is much the same as it was in 1997: a sound energy policy based on energy saving and informed research into genuinely renewable technology; land uses governed by environmental principle, rather than developer whim; meaningful, by which I mean radical, land reform; clear policies to eliminate, or at least reduce, pollution, (rather than craven kowtowing to the interests of neonicitinoid producers); and democratic social policies aimed at effecting equality of opportunity, not ‘community’ initiatives that sneak ‘Big Society’ in through the back door. Central to all of this, and the chief cause of our failed environmental policies to date, is land use. Or rather, land ownership.

In his 1931 polemic, Natural Prosperity, the Australian economist, RF Dyson, wrote: “It is just as impossible to secure to each his full earnings and at the same time to treat land as wealth, as it is to make an omelette without breaking the eggs. For first of all the private ownership of land means the private collection of its rental value. Since the rental value, which is always collected in money, is purely a community product, incomes gained through its private collection are as morally indefensible as incomes gained through common burglary…theft is morally wrong because it enables some to live on the labour of others. The private collection of land rent is worse than burglary because it is a continuous and increasing theft, and also it keeps opportunities unequal. That is economically wrong because incomes gained in that manner are not limited by the natural productive power of the recipients, and consequently a few people receive incomes far in excess of their needs.”

If we add in the continuous and increasing theft that is the current agriculture/energy subsidy system, Dyson could be talking about Scotland today – which is not to say that all landowners in Scotland are thieves. There are many who, in the context of current practice, are both responsible and, given the temptations, restrained in the uses they make of the land. The fact remains, however, that because of the way land is owned, and because the subsidy system throws public money – our money – at any business interest that can afford the consultancy to complete the appropriate forms and doctor the Environmental Impact Assessment, (should this even be called for), the fact remains that it is the larger landowners, along with developers and corporations, who dictate Scottish environmental policy, such as it is.

There can be no more obvious illustration of this than the Menie scandal. There is not room, here, to rehash all the details, but one clear fact remains: this was a defining, even textbook case of how to override local democracy, environmental issues and the basic rights of local residents.

On the environment issue, The Scottish Wildlife Trust’s objection was clear: “The very high nature conservation value of this coastline is recognised at both a European … and national level … indeed, the whole stretch of coastline hosts a rich assemblage of specially adapted higher and lower plants and other wildlife, including a diverse breeding bird community and otters. Of even greater concern [is] the destruction of over a third of Foveran Links Site of Special Scientific Interest (SSSI), which is important nationally for both its biological and geological features.” As we know, these concerns were ignored by Holyrood. The billionaire developer would come first; local people, and their environment, came nowhere.

It would be foolish to suggest that this government is any more cynical or undemocratic than many others; for some reason, governments do tend to pander to the rich and powerful. Nevertheless, it’s galling when even our supposedly ‘green’ policies are blatantly shaped by the interests of landowners and developers. Take wind energy, for example. In 2012, the Spanish Ornithological Society, having conducted an independent study on the impact of turbines on birds, said: “The more than 18,000 wind turbines [currently operating] in Spain, could be causing an annual mortality of birds and bats [of] between 6 and 18 million individuals.”

Researchers working on raptors, migrating birds and bats in the United States have called for a moratorium on wind farms or, at the very least, clear guidelines and regulation that would help lower the number of birds and bats killed. With this in mind, surely it would make sense, in a country so fanatically committed to Big Wind, to do all we can to protect birdlife – but in Scotland, turbines all too often go where landowners want them to go, because turbines attract huge subsidies, (the system was, in fact, originally modelled on agricultural subsidies). As The Guardian reported recently: “The boom in onshore wind power, likened to a “new industrial revolution”, is being dominated by a small number of private landowners who will share around £1bn in rental fees over the next eight years. Rental payments vary and are secret but…landowners can now expect £40,000 a year “risk-free” for each large turbine erected on their land. Those set to benefit include senior members of the Royal Family and the Forestry Commission in Wales and Scotland.”

That our energy and land use policies should be governed by the most brutal profit motive is tragic, but this subsidy-grab is just the latest in a long history of moral and environmental crimes. In 1808, tenant farmer named Robert Burns penned these satirical lines:

Farmin, and fencin, an a

Ploughin, and plantin, an’ a

Beha’d how our kintry’s improvin,

An’ poverty wearin awa

Since then, we have continued ‘improvin’ the land for the benefit of the richest and the least socially productive, to the detriment of what should have been a shared environment. As long as it is in the interests of corporate landowners, faux-green energy companies and billionaire developers, Scotland still means business.

However, as we ask ourselves again, over the coming year, what Scotland ought to mean, and what we ought to be doing to protect the quality of life of all (human and otherwise) who live here, we must finally begin the work of making Scotland free for all, not just by redistributing a few acres here and there in ‘community’ buy-outs, but by revolutionising our ideas of how land could be used, not for the profit of a few, but for the delight of all.

 

The tortuous negotiations over the next Common Agricultural Policy reached a conclusion of sorts today although some of the details remain unclear. This morning BBC Radio Scotland invited me to speak about the implications of “capping the CAP” – an upper limit on what any claimant can receive in EU farm subsidy. You can hear the interview here.

This is a very short blog to highlight the key issues covered in the interview.

The current distribution of EU farm subsidy in Scotland is grossly unequal as the graph above shows. (see previous CAP blog) for further discussion). The top 10% of farmers receive 48.6% of the total 2011 Scottish farm budget of £710.4 million.

This is not surprising since the distribution of agricultural land in Scotland is concentrated in relatively few hands and Scottish farms (average size 107ha) are the largest in the EU. (1) Fully 75% of Scotland’s agricultural area is held by fewer than 9% of farmers in holdings of over 200ha in extent.

As a consequence of this and the operation of the system of Single Farm Payments (a system of transferable “entitlements” to subsidy that have been much abused over the past 10 years), the amount of subsidy received by the top 50 recipients has risen from £22 million in 2008 to £35 million in 2011.

The simple fact is that these 50 people (who include the Earl of Moray, Earl of Seafield, Earl of Southesk, Duke of Buccleuch and Duke of Roxburghe) do not need any of this money but they are the beneficiaries of the system.

There is a proposal to cap farm subsidies at €300,000 (£254,000). Neither this nor the question of whether it is to be mandatory or voluntary have yet been agreed and are to be dealt with separately within the Multi-Annual Financial Framework for the overall budget. (2) In any event, it may have little immediate effect since the Scottish Government seems keen to phase in the new CAP regime over, perhaps, as long as five years.

At a time when welfare payments to the poorest and most vulnerable in society are being capped at £26,000 per year, perhaps it is time to consider capping farmer welfare at a level considerably lower than £254,000

UPDATE 27 June 2013

George Lyon MEP reports in a tweet that capping will be voluntary. He says this is good news. I am not sure why.

Press Release from European Commission on the final shape of the CAP.

UPDATE 28 June 2013

Excellent analysis from Professor Alan Matthews – “A triumph for the Irish Presidency – a damp squib for CAP reform” including the astute observation that “The bulk of the CAP budget will continue to be spent on land-linked payments under Pillar 1 with no obvious rationale other than that to remove them is opposed by the current beneficiaries.”

(1) For detailed analysis of farm holdings see Eurostat – Large farms in Europe.

(2) According to Alyn Smith MEP today, “capping of direct payments is “square bracketed”. Council are adamant that capping should not be mandatory for Member States to apply.  A likely compromise will revolve around degressivity of payments above 150,000 EUR, with Member States deciding on the percentage to be applied.”

 

The Forestry Commission is planning to sell the 790 hectare Tioran Forest on the Isle of Mull and have advised the community that it has the opportunity to acquire it under the National Forest Land Scheme (NFLS).

I have blogged about Mull and forestry already and how it appears that the Scottish Government is intent on turning the island into a resource colony for distant multinational corporations. The sale of this large public forest adds to that sense of unease.

This sale raises further important questions, however.

If the community is to be successful in taking ownership of this land (and it appears keen to do so), it will have to pay the full market price for the property. I don’t know how much this forest is worth but I would guess one would not get much change from £1 million. Where is a fragile community to raise such a sum of money?

If we are serious about community forestry, there is a better way to go about this. The Forestry Commission owns no land. It is not a landowner. Instead, the land that it manages across Scotland is owned by Scottish Ministers and the FC merely manage it on their behalf.

Section 3(1) of the Forestry Act 1967 states clearly that

3 Management of forestry land.

 (1) The Commissioners may manage, plant and otherwise use, for the purpose of the exercise of their functions under this Act, any land in Scotland placed at their disposal by the Scottish Ministers under this Act or in England and Wales placed at their disposal by the Minister under this Act, and—

(a) the power of the Commissioners under this subsection to manage and use any land shall, without prejudice to the generality of that power, include power to erect buildings or execute works on the land;

(b) any timber produced on land so placed at the Commissioners’ disposal shall belong to the Commissioners.

As an alternative to the complex and expensive process of buying this land, Scottish Ministers could, since the FC no longer with to manage it, simply appoint an appropriately constituted community body on Mull and “place” the forest “at their disposal” under an agreed scheme of delegated authority. This would require a modest amendment to the Act to the effect that Ministers have the power under secondary legislation to appoint other bodies as capable of having the Scottish Ministers’ estate “placed at their disposal”.

No money would change hands. The forest would remain in public ownership and would be managed by local people for the benefit of the Mull economy.

The silliness of the proposed NFLS transfer is illustrated by a similar situation in Cowal, Argyll. On 22 February 2013, Colintraive and Glendaruel Development Trust was awarded a grant of £311,500 from the Scottish Land Fund to part finance the acquisition of the 615 hectare Stronafian Forest in south-west Cowal. The Scottish Land Fund monies come not from the National Lottery as was the case ten years ago (when I was a member of the Fund) but from Scottish Ministers. It is part of the Scottish Consolidated Fund – taxpayers money.

So Scottish Ministers paid £311,500 to Colintraive and Glendaruel Development Trust to part finance the acquisition of a forest being sold by …. Scottish Ministers!

In other countries across Europe, public forests are not the sole responsibility of the State. Regional Governments, Counties and Communes and Municipalities own extensive forests. See the map below for an illustration of this where in France over 20% of public forests are owned by Communes.

See previous blogs which highlight this here and here together with a report and essay on forest ownership in Scotland.

Some years ago I edited an editorial by the historian, James Hunter , in which he observed that “the Forestry Commission is to Scottish forestry what collectivisation was to Soviet agriculture.”

Why is Scottish forestry policy so primitive?

 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.

Above – Richard Lochhead at NFUS AGM. Image: Paul Watt Photography

The future shape of the Common Agricultural Policy for 2014-2020 has become clearer following the EU budget summit on 7 – 8 February and the European Parliament’s adoption of a negotiating mandate with the Commission and Council on 4th February.

One possible conflict between the Parliament and the EU leaders is on the subject of capping direct payments to farmers (see my previous Nov 2011 blog on the topic). As the Parliament noted,

The distribution of direct income support among farmers is characterised by the allocation of disproportionate amounts of payments to a rather small number of large beneficiaries. Due to economies of size, larger beneficiaries do not require the same level of unitary support for the objective of income support to be efficiently achieved.” (1)

MEPs voted to cap direct payments paid to any one farm at €300,000 with additional reductions in payments for those receiving over €150,000.

At the EU budget summit, however, European leaders agreed that,

Capping of the direct payments for large beneficiaries will be introduced by Member States on a voluntary basis.” (2)

This difference between the Council of Ministers and the Parliament will be one of the many items to be resolved over the coming months.

As far as Scotland is concerned, agriculture is devolved. If capping is to be left to member states to decide, then which way will Richard Lochhead and the Scottish Government decide to proceed? In Scotland, the amount of farm subsidy paid to the top 50 recipients increased from £22m in 2008, £24m in 2009, £27.6m in 2010 and £35m in 2011. The existing subsidies are allocated in a very unequal manner as the graph below shows. For 2011, the top 10% of farmers received £345 million – 48.6% of the total subsidy pot of £710.4 million. Over two-thirds of subsidy goes to the top 20% of farmers.

Were payments to be capped, this would apply to only the £500 million of so-called “direct payments”. Under the €300,000 cap proposed by the Commission and agreed by MEPs, this would result (based upon 2011 figures) in a clawback of £35 million from the 484 recipients of the largest subsidies (7% of the £500 million of direct payments).

Were a more reasonable cap to be adopted (say a maximum of £100,000 per farmer) then the amount that would be clawed back from the 813 farmers who receive more that this would total £53.9 million. (over 10% of the £500 million of direct payments).

This is money that could be used to support new entrants to farming and supporting local food schemes such as the Fife Diet.

Recent surveys of opinion have shown that the majority of Scottish farmers want a ceiling on the amount of subsidy any one farmer can receive. (3) Whether capping is left to member states or not is yet to be decided. But if it is, then Richard Lochhead has a decision to make and it will be interesting to watch what he decides to do. He is very close to the farming lobby.

At the National Farmers Union of Scotland AGM last week, he made the startling admission that for the past six years “I have had the honour of being your representative in Government”. (4) The last time I looked, Richard Lochhead MSP was the representative of the people of Moray and as a Minister in the Scottish Government he represents the interests of the people of Scotland.

It is always a danger that Ministers are captured by elite groups and the NFUS is both a powerful lobby group (what other organisation would attract 2 UK Cabinet Ministers and 2 Scottish Ministers to its AGM?) and is further dominated by the interests of the larger farmers and landowners who (it would appear) Mr Lochhead is in Government to represent.

As I say – it will be worth paying close attention to how this question resolves itself over the coming months.

(1) Amendment 8 to Regulation recital 15

(2) para 65 of Conclusion of 7 – 8 February 2013 EU Summit

(3) See Alyn Smith MEP consultation results and Scottish Government consultation

(4) Speech to NFUS AGM 12 February 2013

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.

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.

Today, the Scottish Government announced the establishment of a “Land Reform Review Group” that will oversee a “wide ranging review of land reform in Scotland”. If this happens it will be very worthwhile.

However, the remit and membership of this group are yet to be agreed with Scottish Ministers and it is unclear how wide the remit will be. If it is simply to undertake a technical review of the Land Reform (Scotland) Act 2003, it will be of very limited value when the real issues concern inflated land values, affordability of housing, succession law, tax avoidance, secrecy, absentee landlordism, theft of common land, land registration laws, common good etc. etc. etc.

Whether any of this gets looked at depends on two things.

The definition of the term “land reform” and the remit for the group. Let’s crowdsource ideas on both of these. Please leave comments on:-

1. a definition of land reform and

2. a remit for the Land Reform Review Group.

I will moderate comments strictly to these two questions.

My interview on Radio Scotland Newsdrive at 1750 today 24 July 2012.

UPDATE 25 July 2012 Rob Gibson MSP has issued a press release welcoming the establishment of the Group. From his comments it appears that the review will focus on community land issues. The “Overview of Evidence on Land Reform in Scotland” published by the Scottish government also restricts itself to the Land Reform (Scotland) Act 2003. Given too that a review of the Act was the focus of the SNP manifesto commitment, this all suggests that the remit of the Review group is not going to be a review of land reform but a review of one piece of legislation. Since the remit has yet to be published, however, it is still impossible to be sure.

UPDATE 27 JULY 2012 Professor Peter Dale OBE who is a past President of the International Federation of Surveyors 1995-99 and currently their Honorary President has contributed a useful summary of what land reform means. It is an analysis that I agree with. In my view land reform is about the reform of power relations and how that power is derived, distributed and exercised form the core of any serious land reform project. Here is what Peter has to say.

“The words ‘land reform’ often mean almost whatever you want them to mean and depend on to whom you are talking.

Unless I have missed it, the Land Reform (Scotland) Act 2003 does not define the term, it merely lists those examples of land reform that the Act addresses. It is as if you had a Health Reform Bill that didn’t address health, only some service delivery such as patient waiting times.

Land is a diverse concept that depends on whether you are looking at it from a legal, financial, land use or social perspective i.e. its ownership, value or use. Reform may concern the changing of land rights (land tenure reform), the redistribution of ownership or use rights (including land consolidation and land reallocation, i.e. reforms to the pattern of ownership), alterations to land use (e.g. physical changes in agricultural practice or through inner city development), changes to land tax (that bring about changes in land ownership, value or use), or changes in how land is managed, etc.

In summary, the term ‘land reform’ embraces all those processes that alter the pattern of land ownership, land rights, land values or land use within a specified area.

Professor Peter Dale 26 July 2012

 

Proposals for the development of Craighouse Campus in Edinburgh were reported in the Scotsman today. The developers. Craighouse Partnership is proposing to build 116 houses on the site. A local campaign, Friends of Craighouse, has been opposing the proposals. I do not have a view on the proposals but was curious as to who owned the site.

It turns out that it is owned by Craighouse Ltd., a company incorporated in the Isle of Man (No. 006516V) and with its registered office at Fort Anne, Douglas, IM1 5PD, Isle of Man. The title is available here and a plan here. In a letter written by the developers, Sundial Properties to the Friends of Craighouse, they assert that this company is 100% owned by Mountgrange Real Estate Opportunity Fund. The Fund in turn is 90% owned by overseas investors.

This development adds to a growing list of property in Edinburgh owned by companies registered in offshore tax havens. I do not think it is acceptable that owners of land in Scotland should be allowed to record titles to land in the name of companies registered in tax havens. The Land Registration etc. (Scotland) Bill is currently going through Parliament and is the ideal opportunity to crack down on tax avoidance. I outlined the arguments in this post and have submitted evidence to the Scottish Parliament Committee.

Fergus Ewing, the Minister in charge of the Bill has indicated he is not interested in making any such provisions in the Bill. The Economy, Energy and Tourism Committee has, however, recommended in its Stage 1 report (paras 214 – 219) that the Scottish Government should consider options for cracking down on the scope for tax avoidance.