Nigel Lawson’s 1988 Budget
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.
The astonishing thing was it didn’t matter whether or not the trees grew. When we came to Argyll in the early 1980s they were being planted where they had absolutely no chance.
Yet another can of worms! From the Scottish Government website ( http://www.scotland.gov.uk/Topics/farmingrural/Agriculture/Environment/Agrienvironment/ForestrySchemes/FWS ) we have
“Following this was The Farm Woodland Scheme (FWS) established under The Farm Land and Rural Development Act 1988, and opened to applicants in 1988. Its stated aim was to encourage farmers to convert agricultural land to woodlands with annual payments of up to 40 years to compensate for the loss of agricultural income.
The FWS was closed to new applicants in 1992, to be superceded by the Farm Woodland Premium Scheme.
Although the FWS is now closed to new applicants it is still funding 362 scheme participants covering an area of 3,100 hectares with an annual budget of £470k. This financial commitment will last, in some cases, to 2032.”
It was also widely advertised as an investment opportunity for non-farmers living in the English home counties!
More recently the Forestry Commission, Scotland was told to let others onto its land (sale or lease,) for example local communities to use areas for amenity use or coppicing etc. So what did the Commission do?
First bite of the cherry was given to big business communities had to make do with what was left and of course the Commissions preferred option was to lease thereby keeping control of the land.
One day we may see real land reform, one day.
Despite the changes in 1988 the tax treatment of forestry remains very attractive (though a recent landowners’ submission to the Land Reform Review Group maintained that forestry ‘operates with relatively small amounts of public subsidy’!). The proof of this can be found on many forestry sales websites which without exception highlight prominently the tax benefits.
However such tax benefits are a blunt instrument and have a number of unintended and undesirable consequences, and furthermore some of them are only available to the wealthy.
I think most taxpayers would agree – especially in an age of austerity – that public subsidies would be far better delivered exclusively through a grant system which targets positive management for public benefit.