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.


 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.


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.


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.


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.