Heritability and taxation

Drumlanrig Castle. Photo: Lynne Kirton

The more I've thought about land reform over the past few months, the more convinced I've become that the heritability of land is the key to the problem.

People need security of where they live; it isn't good for anyone to live under threat of eviction from their home. Management of land is a long term issue. It's easy to make good profits out of land in the short term by depleting its long term capital of topsoil and nutrients; at the same time, Scotland needs productive, sustainable agriculture. So farmers should be confident they have their land in the long term. Many other enterprises, which employ many people and contribute significantly to the wealth of the nation, depend on capital plant which is built at a fixed location and cannot be conviently or economically relocated.

At the same time, inheritance of land (and other wealth, but that's not my concern in this essay) from generation to generation is a key part of the development if inequality in society. It's inevitable that different people have different luck in their lifetimes; it's inevitable that different people will have different abilities to enhance their good luck, and to mitigate their bad. There's inevitably some variation in outcomes in people's lives, merited or not. But inherited wealth and privilege create noise which wholly overwhelms the signal in that variation. People born to wealth and privilege are enormously more likely to live their lives in wealth and privilege than those born without it. Worse, they're enormously more likely to accumulate more wealth and privilege, so this becomes a vicious spiral, wholly undermining the possibility of creating an egalitarian society.

So how to square this circle?

The revolutionary answer is to simply confiscate the land and the wealth. I have a great deal of sympathy for that, but my reading of history is that in revolutionary situations, the most ruthless elements in society tend to sieze power, and you tend to end up with a worse situation - or one, at best, little better - than where you started. So I'm enclined to seek the radical redistribution of wealth and privilege through non-revolutionary means, if that's possible.

And it seems to me that it is.

Let's start at the beginning. The current default assumption of Scots law is that land is owned; there is even a highly dodgy legal manoeuvre, documented in Andy Wightman's The Poor Had No Lawyers, which allows any person to grant to any other person ownership of any parcel of land which they believe not to be owned. This whole legal theory seems to me untenable.

As I've written before:

"let's be clear about this: the soil of Scotland was not created with title deeds attached. No single square inch of Scotland has passed peaceably from parent to child over the twelve thousand years since first it was settled. Rather, every grain of Scotland's soil has been seized, stolen, conquered, embezzled, fought over - not once but dozens of times. No land in Scotland - not even my own ten acres - is held with any moral right. Not even estates granted by kings, for wherein lies the source of their moral right? If there's any right in this, the Levellers were right. It is not right to take the livelihood of the many to provide a surplus for the few."

I've written before about the benefits of a highly progressive land tax, which would make large estates prohibitively expensive to own, which would, I hope, lead to either very rapid redistribution of land, or, better still, much land reverting to common.

There's an alternative proposal, from the Land Reform Review, that land holdings should be limited in size. The Land Reform Review Group did not themselves propose what that size might be, but I've argued elsewhere that if we set a limit of 1000 hectares - four square miles - which would be big enough to accommodate Scotland's largest industrial site, and any of Scotlands airports - we would still free up enough land to completely revolutionise rural Scotland.

However I'm not wholly satisfied with that solution, for two reasons. Firstly, I imagine that either confiscating the land (which, let's be clear about this, I'd prefer) or forcing its sale would inevitable face legal challenge. Secondly, four square miles is still an enormous area of land, and so it doesn't really address the problem of inequalities of wealth. So I want to propose another option.

Before I start, let's talk about the moral basis of land tax.

Land is a good. It's the resource from which we produce most of our food, on which we build our homes and workplaces, from which we extract most of our mineral resources. Ownership of land excludes everyone but the owner - the rest of the community - from producing their own food, building their own homes and workplaces, extracting their own minerals - from that land. The owner is enriched and the rest of the community impoverished simply by ownership. It's reasonable that the owner should compensate the community for that transfer of wealth.

If someone has a life-rent of a piece of land - that is to say, they have the use of it for their lifetime, but it reverts to common when they die - it's obviously a lesser cost to the community because in the long term the community will get the land back, whereas if the tenure is heritable the community will never get the land back. Natural persons naturally die, and thus a life-rent naturally comes to an end. Limited companies, and other fictitious corporate legal 'persons', don't naturally die. So any land held by a non-natural person must be considered as heritable - because it is is held effectively in perpetuity, as though inherited from one generation to the next.

But it seems to me entirely reasonable that a higher rate of land tax should be levied on heritable than on non heritable land, because the land is denied to the community not merely temporarily but in perpetuity.

Obviously this means people would not be able to sell more than their own life interest in a piece of non-heritable land, since they don't own it.

But how to decide what land held by natural persons is to be heritable and what not heritable? My answer is, let the owner decide. Allow them to choose to pay the higher, progressive rate of land tax - in which case their tenure will be heritable - or not, in which case it will revert to common on their death (or, in the case of a married couple, on the death of the survivor). Allow people at any time to choose to cease paying the progressive tax, in which case their land would cease to be heritable. But we shouldn't allow someone in the last year of their life to start paying the higher tax after not having paid it for some years, and have that make the land instantly heritable. Just as gifts given in the seven years before someone's death now attract death duty, so land on which the higher tax has been paid for fewer than seven years should not be heritable.

Nothing in this argues that there should not also, separately, be a land value tax paid on all land. I have great respect for many of the people who argue that land value taxation is a good idea. But land value taxation by its nature is not progressive, and won't break up large estates or redistribute wealth. What I'm proposing would be an additional tax, on top of a land value tax - a 'heritability premium', or simply 'higher land tax'. I'm not proposing it as a tax to generate additional revenue - if it were really successful it would generate very little revenue - but precisely to do the redistribution which land value taxation can't.

The benefit of this scheme is that no-one is forced to pay the higher tax. No-one is forced out of their home. No-one is forced to sell their land, and no land is confiscated from anyone. The higher tax should, in my opinion, be strongly progressive - I still think the exponential tax is a good idea - so as to strongly incentivise the large estates to not pay it. But there's no element of compulsion, it's all voluntary.

It would mean that land - and housing, too - would rotate back into the common stock, and could be reallocated by communities to those who wanted it. It would drastically cut the cost of becoming a farmer. It would allow a community to take some land out of agriculture into forestry, for example, or vice versa. It would free up big estates for reallocation in socially beneficent ways. It would allow communities to choose whether to allocate their lands in large agricultural units or small ones, as suited the local economy, the local needs and the local opportunities. It would intimately involve communities in the long term management of their locality.

The more I think about it, the more this scheme seems to me an all-round win.