Image: Chart from OBR Economic & Fiscal Outlook December 2014. Click for larger image.

Following the changes to stamp duty announced by George Osborne in the Autumn Statement, the Scottish Conservative Party has published proposals to change the proposed Scottish replacement – Land and Buildings Transaction Tax – due to be introduced in April 2015. The topic was raised at First Ministers Questions today (col. 14)

The Tory proposals include halving the rate between purchases of between £250,000 and £500,000 from 10% to 5%. The party claims that its proposals “would mean 97 per cent of transactions, including all those below £500,000, will leave house-buyers better off.”

This claim (and similar claims by the Scottish Government) that cuts in stamp duty rates represent a saving to housebuyers is misleading and wrong. It is a symptom of widespread illiteracy around the fiscal dimensions of land and property.

In broad terms, people have a fixed budget when they buy a house. They can, perhaps afford £150,000 made up of a loan and capital of their own. This sum has to cover the costs of acquisition (fees and stamp duty) and the sum paid to the seller for the house. If stamp duty rates are reduced it follows that more money is available for the other costs (fees and the price paid). Assuming that fees remain fixed (such as land registration fees) and others (survey fees and conveyancing costs) remain unchanged (either as a fixed sum or as a percentage of purchase price), the money saved in stamp duty will be available to bid up prices.(1)

This is a straightforward economic principle that was the subject of this useful analysis by Shelter and is noted by the Office of Budget responsibility in its Economic and Fiscal Outlook December 2014 on page 126 as follows.

The OBR analysis makes clear that the cuts proposed by George Osborne and the Scottish Conservatives will be more than offset by higher house prices. Those higher prices will, in many cases be financed by loans, the interest on which will be higher over many decades. A small saving in a one-off transaction tax will not simply be more than offset by higher house prices but by ongoing, compounded and volatile interest payments to financial corporations.

The best solution (and the one I advocated two years ago and is recommended by one of the Scottish Government’s own economic advisers – Sir James Mirrlees) is to abolish this transaction tax in its entirety and replace the volatile yield with a better-designed system of recurrent taxation of land and property. The Mirrlees Review (Chapter 16 pg 404) noted that,

If the Scottish Conservative (and indeed other parties) want to be truly radical, they would be well-advised to stop tinkering with rates (that will not have the claimed effects), abolish stamp duty and its associated bureaucracy, and agree to far more fundamental reform in fiscal policy relating to land and property.

(1) Of course, buyers are often sellers and will receive higher bids for the property that they are selling. But given that most buyers who are sellers are trading up, this merely exacerbates the inflation in prices.

Yesterday’s Scottish Edition of the Mail on Sunday carried a front page splash claiming that Nicola Sturgeon was refusing to contribute to the costs of running the Royal Family. An editorial then provided further condemnation of the First Minister’s “plan to stop funding the Royal Family’s Sovereign Grant”. The piece was written by Hamish MacDonell, a journalist whose standards of journalism I questioned in March 2013 over another piece written for the Daily Mail.

I described Sunday’s story on twitter as  “a dung heap of unadulterated, fabricated crap”.

Today, Macdonell recycles the same rubbish in an article on the Spectator’s Coffee House blog claiming that Nicola Sturgeon is “picking a fight with the Queen”. Every paragraph of this article is strewn with errors, smears and downright untruths.

Historically the costs of the Royal Family was met from the Civil List – a sum of money voted by Parliament. In 2011, this arrangement was replaced by the Sovereign Grant under the terms of the Sovereign Grant Act 2011 (see previous blogs here and here in which I criticise this act and predict the problems it will cause). The Act provides that an annual grant be made to the Queen from the Treasury [s.1(1)] with funds provided by Parliament [s.1(6)]. Section 6 provides that the annual amount be calculated with reference to the annual net surplus of the Crown Estate beginning with a sum equivalent to 15%. The latest report from the Royal Trustees on the Sovereign Grant was published last week.

The Smith Commission recommended that responsibility for the Crown Estate be devolved and that the Crown Estate Commissioners no longer have any jurisdiction in Scotland. It also noted (para. 35) that the “responsibility for financing the Sovereign grant will need to reflect this revised settlement for the Crown Estate.”

Here are the facts that any competent journalist who is not engaged in a smear campaign should be able to establish.

1. The Crown Estate revenues do not finance the Royal Household. They merely provide a benchmark against which the Sovereign grant is calculated. The grant is paid out of funds voted by Parliament. (1)

2. The financing of the Royal Household is a reserved matter and neither Nicola Sturgeon, the Scottish Government or the Scottish Parliament have any responsibility whatsoever for it. There are no proposals in the Smith Commission or anywhere else to change this.

3. The Smith Commission notes the issue in relation to the Sovereign Grant because once the Crown Estate is devolved, the revenues of the Crown Estate that are remitted to HM Treasury will suffer a one-off reduction by the amount of the revenues generated from Scotland. Such an adjustment will presumably be made by altering the 15% figure to a slightly higher figure and the Sovereign Grant will continue to be paid by the Treasury from funds voted by the UK Parliament as it is now.

None of this has got anything to do with the Scottish Government. There is no snub and no refusal to do anything for the simple reason that the financing of the Royal Household is and continues to be a reserved matter.

I understand the Daily Mail publishing this rubbish – very little of that it reports bears much relation to reality.

I am more disappointed that the Spectator magazine allowed such a dung heap of unadulterated, fabricated crap be published in what is a high quality current affairs magazine.

NOTES

(1)  George Osborne himself noted in Parliament that the Crown Estate revenues are merely “not a bad proxy for how the economy and the economy are doing”. See blog in which I argue that one might as well link the Sovereign Grant to the profits of the stilton cheese industry.

 

 

 

Image: Steven Camley Cartoon, The Herald.

It’s been a remarkable few days.

Last Wednesday, the First Minister, Nicola Sturgeon announced a legislative programme that included a Land Reform Bill and other land policy measures on harbours, domestic property taxation and inheritance laws.

The following day the Smith Commission published its report on further devolution for Scotland. After decades of campaigning on the topic by many activists, the Crown Estate is to be devolved in its entirety together with other powers such as the licensing of onshore oil and gas extraction.

Then, today, the Scottish Government published a consultation paper on land reform in Scotland which provides more detail on the measures that are to be incorporated in the Bill. This all amounts to the most significant political advance on the topic since the establishment of the Scottish Parliament and the series of reforms implemented in 1999-2003.

In the words of the Scottish Government,

The aim of this paper is … to ensure you and everyone in Scotland are given the chance to influence this debate, provide your thoughts and suggestions, and to shape both Scotland’s vision for the future of land rights and responsibilities policy and future land reform.”

The Paper begins by proposing a Land Rights and Responsibilities policy statement (page 7). This in itself is very significant. It provides a draft statement of principles that will inform the development of land policy for the years ahead. One would hope that the final version will be agreed and adopted by whatever political parties are in power in Holyrood. Such a statement puts Scottish land reform firmly in an international context where land rights are seen as an important means of strengthening communities and individuals. It opens the door to the Scottish Government adopting the UN Guidelines on Responsible Governance of Tenure that have already been adopted by the UK government.

The paper then goes on to highlight some further detail on the eleven measures that are proposed to be included in the Land Reform Bill. Some of these were highlighted in the First Minister’s legislative programme last week – see previous blog  but some are new.

Here follows all eleven proposals.

1. A Scottish Land Reform Commission

Announced last week and implements a key recommendation of the Land Reform Review Group.

2. Limiting the Legal Entities that can own land in Scotland This is a new proposal and very welcome. Again it follows a recommendation of the Land Reform Review Group  and previous debates around the Land Registration Act (see my evidence here)  It also addresses the concerns of law enforcement and taxation authorities about money-laundering (1) There has been a long-standing problem of land owned by companies registered in offshore tax-havens. Some own large tracts of rural land and some own urban property – including quite a bit of Charlotte Square in Edinburgh near the First Minister’s official residence. It is quite ludicrous to permit this state of affairs to continue any longer.

3. Information on land, its value and ownership

Announced last week and implements a key recommendation of the Land Reform Review Group. We need to move towards a comprehensive and freely available system like the State of Montana.

4. Sustainable development test for land governance

Again, announced last week but this is the opportunity now to consider how this might be designed and implemented. As the Paper argues,

The vast majority of land in Scotland is owned by the private sector. Landowners are instrumental in promoting sustainable local development and supporting communities. However, in some instances the scale or pattern of land ownership, and the decisions of landowners, can be a barrier to sustainable development in an area. Providing mechanisms to address such situations could allow for potential barriers to sustainable local economic and social development to be overcome.”

5. A more proactive role for public sector land management

This is a new proposal and welcome. As the Paper notes,

It is clear public land should be managed for the greatest overall benefit, balancing a number of differing and sometimes conflicting public needs. … However, the legal framework for some public bodies can be a significant constraint on the range of operations that they can undertake to deliver these benefits.”

If the legal framework and governance of all public land can be modernised and made more flexible, it will help to deliver many of the objectives of land reform can be met.

6. Duty of community engagement on charitable trustees when taking decisions on land management.

This was highlighted last week. What the Government propose is a new duty on the trustees of charitable bodies to “engage with the local community and consider the potential impact on the local community before taking any decision” Such a power would be useful but it does not go far enough. Where charitable status is granted to private landowners who then restrict membership of the organisation to a tight group of family and friends, what is needed is not better engagement but better democracy.

7. Removal of the exemption from business rates for shooting and deerstalking

Announced last week, the Paper makes clear that the proposal relates to the so-called sporting rates abolished in 1995. It would be helpful if the term “business rates” was done away with. It has no legal meaning and is misleading. Such rates are not a tax on businesses (mainly concerned with income tax and corporation tax), they are a levy on the rental value of non-domestic property. The Scottish Parliament is assessed for non-domestic rates (NDR) as are bus stops. Neither is a business. Much though needs to be given to how such rates are to be assessed. I will be arguing strongly that it be done on the rental value of land – an approach that the Mirrlees Review (Chapter 16) recommended should be applied to all NDR.

8. Common Good

I particularly welcome the plans to reform the law around common good land. This is land owned by towns and cities across Scotland that is for the benefit of the residents and os often of great antiquity forming part of the original Royal Charter of the burgh. The legal framework around is complicated and out of date and leads to conflict between councils and communities. Common Good is the oldest form of community landownership and the vast majority of Scotland’s population who live in towns and cities deserve a better system of managing it.

9. Agricultural Holdings

Scottish Government confirms that the recommendations that will be made by the Agricultural Holdings Review Group (which is due to report later this month) will be incorporated into the Land Reform Bill.

10. Wild Deer

This is a new proposal to strengthen the powers of intervention of Scottish Natural Heritage over the management of wild deer. As the Paper notes, wild deer are a public resource but they are managed exclusively by landowning interests. I suspect many will be arguing that the proposals need to go further and introduce a modern system of wildlife management with proper democratic governance of this public resource.

11. Public Access

There are proposals here to make minor amendments to existing access legislation.

Conclusion

These proposals, together with the Community Empowerment Bill, reform of council tax, succession law reform, harbours reform and devolution of the Crown Estate and onshore oil and gas add up to a substantial package of powers that will reform land relations in Scotland. Reform is not going to happen quickly. This is the job of a decade or more but this is an important start

All of these proposals will be subject to extensive debate over the coming months and already there are powerful vested interests engaged in trying to derail them. Scottish Land and Estates issued a press release through Media House in which it expressed “disappointment that the Scottish Government continues to miss an opportunity to create modern and meaningful land reform.” I think modern and meaningful land reform is what is in fact beginning to take shape. There is a long way to go of course. But Scotland is changed now. Thousands of people were energised by the referendum campaign and now want to use the existing powers of the Scottish Parliament to secure a fairer and more prosperous country.

This blog is a brief overview of what is covered by the Consultation. I will be publishing further detailed blogs on individual topics as well as a series of briefing papers to assist people in responding to the consultation.

NOTES

(1) See Chapter 29 in The Poor Had No Lawyers