Andy Wightman, author of the Scottish Green Party's report on
A Land Value Tax for Scotland has challenged me to 'crunch some numbers' to demonstrate that land value tax does (
as I contend) effectively subsidise the over-exploitation of marginal land, and also effectively subsidise large estates. The argument is not essentially numeric, it's essentially logical, but nevertheless I'll attempt to do so.
Note that I'm not arguing that Land Value Tax is inapplicable in urban areas - on the contrary, in urban areas it may well be a very good tax. I'm arguing that it has consequences in rural areas which act directly and diametrically against the cause of land reform.
First I'd like to introduce the two characters of a three act drama.
Meet the Neighbours
Meet Alice. Alice lives in wee house on a small holding outside Obaig, where she owns ten hectares. Her neighbour, Boris, owns a thousand hectares, entirely surrounding Alice's holding. Boris's holding includes a hundred hectares of well drained valley land alongside a public road; the remainder of his land is, like Alice's, high, wild and remote from public infrastructure.
Alice, as I've said, lives on her holding, and owns nothing else. She needs to make her living either from it or from the local economy, where wages average £26,000 per annum, or about £21,000 after tax and national insurance. Boris lives mainly in his Monaco home, for tax reasons, but he works in an international private bank, and he also has homes in London, New York and Geneva. His salary, before bonuses, is £1,000,000, and as his residence is Monaco he pays little tax on this.
Following Scotland's independence in 2016, Land Value Tax is introduced. A temporary assessment of £50 per hectare is levied on the lands around Obaig, because assessing the notional unimproved rental value of land is complicated and expensive. So Boris is assessed at £50,000, while Alice is assessed at £500.
Alice keeps eight cows on her holding - it's poor land, and that's as much stock as it can carry. She produces, in an average year, four heifers, three of which she can sell on at about £500 each (she needs to keep one for herd replacement); and four steers, which she sells on at about £350. The gross profit on her holding is thus less than £3000, and the tax is a sixth of that. However, Alice can't afford to go to law to challenge the assessment, so she pays it.
Boris's factor runs 100 breeding cows on his valley land, and so its profit - £37,500 - is somewhat more per hectare than Alice's. On his 900 hectares of hill land, he runs 600 hinds, producing about 400 surplus deer per year; he shoots some of these himself for his own pleasure, but lets most of the shooting for a gross income of £120,000 (£100 each for 200 hinds plus £500 each for 200 stags). That adds up to £157,500. So he could more easily afford his assessment of £50,000 than Alice can hers of £500, but he considers it worth his while to pay £5,000 to a firm of Edinburgh lawyers who challenge the temporary assessment, and so the government reassesses his land at £30 per hectare.
This continues for five years, before the government manages to get the lands properly assessed. The new assessment is £30 per hectare for the hill land, and £60 per hectare for the valley land. So Boris sells his valley land, moves his cattle up onto the hill, and again challenges the assessment. The tax authorities, eager to avoid an expensive legal fight, lower the assessment on his land (but not on Alice's) to £20 per hectare. His land is now overgrazed, and consequently deer keep breaking through the fence into Alice's property. She carries out urgent repairs to her fences; as they're march fences she asks Boris to contribute half the cost. But Boris's favourite lawyers argue that the old fence was perfectly adequate and that Alice's repairs are excessive. They offer to pay only 10%, and as
the poor have no lawyers, Alice has to accept this.
Also, the Range Rovers and Porsche Cayennes used by Boris and his sporting customers have torn great holes in the 5Km track leading to Alice's holding, and it's become too rutted and potholed for Alice's fifteen year old Golf to cope. Her deeds say that the cost of repairs to the track should be divided evenly between all the landowners the track serves, which is her and Boris. But she can't afford to pay 50% of the costs. So either she continues to live in her house but can no longer get out to do her £26,000 job in Obaig; or else she rents a flat in Obaig in which case she can no longer get in to feed and tend her cattle in winter. So she sells her land to Boris for much less than she thought it was worth, and six months later is homeless on the streets of Glasgow.
What are the morals of this story?
The cost of assessment
Firstly, Land Value Tax is complex and expensive to assess, since it's a notional, variable proportion of an uncertain rental value. It's bound to be open to challenge, but only those with large holdings can afford the legal fees to hire the lawyers to challenge the assessment. What that means is, people with larger holdings will pay less tax than those with smaller holdings of similar land, because the assessment authorities will (reasonably) price in the risk of legal challenge.
The economies of scale
Inequity of holding size
Second, people with larger holdings have more economic options for their use. For example, Alice cannot effectively run deer for shooting, because deer need a larger range, and 'sporting' shooters want the experience of the 'romantic' bleak open moorland, not relatively small fenced areas. And if Alice doesn't fence and allows her deer to roam across the land boundary, she's likely to lose more to shooting by Boris' customers than gain from Boris' deer straying onto her land. And if it comes to a legal fight, once again
the poor have no lawyers, so Alice loses.
Geometry and encirclement
Again, suppose an electricity company came along seeking to erect a wind turbine. Suppose the turbine was on Alice's land, she would get the rental from the turbine itself, but Boris would get the rental from the wayleave for transmission across his land - if he even granted that wayleave. If the turbine is on Boris's land, Alice gets nothing. If Boris suggests to the electricity company that he might get difficult about wayleaves if they put the turbine on Alice's land, they'll almost certainly choose his - it's easier and cheaper for them.
Generally, if a large holding is surrounded by many smaller holdings, then the owner of the large holding, if seeking a wayleave for, for example, a new access track, has many potential partners to negotiate with and can play one off against another, pushing down the cost. But a small landowner surrounded by one or two larger holdings does not have that option.
Geometry and linear features
Again, consider that access track. 4.9 Km of it is across Boris's land, allowing Boris to get close to, to feed or shoot, deer anywhere along it. Boris's vehicles, as well as Alice's, use that section, and it gets a lot of wear and tear. Boris can get to his land without crossing Alice's land; he can if he wants build other tracks which don't go near Alice. One hundred metres of the track are across Alice's land; that section gets much less wear, since Boris's relatively high powered vehicles don't use it. But it's normal in Scotland for costs of repairs to a private access track to be evenly divided between the landowners the track serves; it's the arrangement we have here. This suits large landowners far better than small.
Ninety-eight hectares of Boris' land are within one hundred metres of the track, and so easily serviced by it. But supposing the track goes to the middle of Alice's land, only six hectares of her land are. But she pays the same cost of access to those six hectares as Boris pays to service his ninety eight.
Suppose, also, that both Alice and Boris require to fence their land from their neighbours. The length of fence required scales with the square root of the area, so Alice must pay for 1265 metres of fence at about £1 per metre, or £120 per hectare. Boris needs only ten times as much fence, and so pays £12 per hectare (of course, these are march fences and so the cost would normally be shared 50/50 with the adjoining land-owner; so the costs would be half as much, but the scaling factor is the same).
Marginal and submarginal land
Many of Scotland's landed estates are 'sporting' estates on very marginal land. The land is marginal, in many cases, precisely because of a long history of mismanagement by estate owners: they're overgrazed so there's no natural regeneration of trees, the topsoil is washing away. Land which was farmed productively by small holders three hundred years ago is now unfit for any agricultural use. And of course it's remote. It's remote because the landowners have cleared the people off the land, so there are no villages for public roads to serve, so there are no public roads to serve the villages which aren't there. It's rmote because estate owners have resisted the construction of public roads across their land. Because it is overgrazed into wet desert and unserved by public infrastructure, the value of this land is very low. So the land value tax will be very low.
What this means
Because large estates can afford good lawyers and can challenge what are essentially uncertain assessments, they will tend to pay lower rates of tax per hectare than smaller holdings. So Land Value Tax benefits large estates. Because large estates have inherent economies of scale, and land value tax takes no cognisance of this, land value tax benefits large estates. Because large estates have created large areas of Scotland that are depopulated and ecologically impoverished, they have created conditions in which they will pay very little tax on vast areas of land.
Of course, just because land value tax is a bad land tax doesn't mean that land shouldn't be taxed. Of course it should. But, as
I've argued elsewhere, there are better ways.
In summary, Land Value Tax hurts small holders particularly on fertile land and close to public infrastruture where there is a clear public policy interest in encouraging agriculture, and helps owners of large sporting estates. It should be opposed, not promoted, by land reformers.
