Simon Pia, writing in today’s Scotsman, provides a welcome reminder that property tax in Scotland is in a mess with politicians of most persuasions (he quite rightly excludes the Scottish Greens & their LVT proposals) have avoided this thorny issue in an attempt to curry populist favour with the electorate. Now I believe in democracy, so why is it wrong that politicians should adopt policies popular with the electorate?

Well in this instance, the council tax freeze was implemented as part of the appeal of Labour and the SNP in a Scottish Parliament election. But the Scottish Parliament does not have the power to set council tax rates. In order to implement its promises following the 2011 election the SNP had, in effect, to bribe local authorities to accept the freeze or face cuts in revenue. This corruption of democracy is made possible by the lack of any constitutional protection for local government’s autonomy – a point elaborated on recently by David O’Neil, the President of COSLA. In short, central government has virtually unfettered freedom to interfere in the affairs of local government even to the extent of abolishing it.

So, if local authorities wish to freeze the council tax – fine. But the Scottish Government should have no power to do so or to appeal to voters in national elections on the basis of this brazen interference with local government’s freedoms and powers.

If, in next year’s Federal elections in Germany, Angela Merkel were to appeal to voters in Lower Saxony by promising to freeze their local taxes, she would be up in front of the Supreme Court for breaching Article 28(2) of the German constitution which entrenches the rights of Länder and Municipalities to regulate their own affairs and set their own tax bases. Scotland’s Holyrood parties don’t need to worry about such a fate.

As Simon Pia argues, we need to sort out property taxation. On the face of it the Scottish Government is very active in this area.

It is proposing reform of Stamp Duty Land Tax.

This afternoon in the Scottish Parliament is expected to pass the Local Government Finance (Unoccupied Properties etc.) (Scotland) Bill which will allow the reduction of certain exemptions on business rates.

Tomorrow it will launch a consultation on the future of business rates.

It is committed to a review of the council tax in this Parliament.

But the problem with the Government’s approach is that it is piecemeal. All these reviews are being conducted in isolation from each other. Land and property taxes are far too important to be dealt with on an ad-hoc basis and need to be considered as a whole in relation to the role of land in the economy.

In a previous post, I highlighted the absurdity of an empty industrial building in Glasgow whose owners have avoided over £600,000 in business rates over their 5 years of ownership. When it caught fire in November 2011, Strathclyde Fire and Rescue were expected to put the fire out at great expense and risk to their staff. Strathclyde Fire and Rescue, unlike the property developers that owned the building do pay business rates – over £2 million in just 1 year.

Under the Local Government Finance (Unoccupied Properties etc.) (Scotland) Bill, empty industrial properties like this will continue to be exempt from tax despite their owners taking advantage of local services paid for by others.

Meanwhile, five-a-side football pitches, river-gauging stations, wind farms, lighthouses, ambulance stations and advertising panels on bus shelters are all liable to pay business rates. Public parks, diplomatic missions and cash machines in rural areas, on the other hand are exempt. So too is agricultural land and sporting rights which is why the Duke of Westminster who is one of the richest men in Britain pays nothing on the 95,000 acres he owns in Sutherland (though the estate office and a self-catering unit are assessed). Sheik Mohammed bin Rashid al Maktoum, the rule of Dubai also pays nothing on his 62,000 acre Killilan Estate. So whilst the pub, the filling station and the local hotel all pay their share of local taxes, most landowners pay nothing.

The OECD and the Mirrlees Review have both drawn attention to the benefits and importance of land taxes as far and progressive means of public finance.

Why do Scottish and UK politicians continue to duck the issue?

UPDATE 1235 I am grateful to Ed Iglehart for drawing my attention to this short article he wrote on the topic of local government. It includes a useful link to a report commissioned by the Scottish Office for the McIntosh Commission in 1998 – The Constitutional Status of Local government in Other Countries. Also, in response to a comment by Neil King, worth having a look at this presentation from the Norwegian Fire Service were fire and rescue is the responsibility of the municipalities which cope quite well with the responsibility.

29. August 2012 · Comments Off on Scottish Land & Buildings Transaction Tax · Categories: Finance & Money, Fiscal Policy, Housing, Land Reform, Politics

Scottish Government’s Council of Economic Advisers with Professor James Mirrlees 2nd from right.

The Scottish Government has been consulting on a replacement for Stamp Duty Land Tax (SDLT) – one of the devolved taxes in the Scotland Act 2012. The consultation closes tomorrow (30 August 2012) and I have submitted a response. Yesterday, I spent a stimulating afternoon as a member of a panel discussing property and land tax organised by the Scottish Policy and Innovation Forum where my personal highlight was hearing from Eugene Creighton, Head of Income and Capital Taxes in the Irish Revenue.

As has become the norm in Government consultations, we are invited to answer a set of questions. In the case of this consultation, I declined to answer these questions for the simple reason that they all assume that it is a good idea to replace SDLT with what is being called a Scottish Land and Buildings Transaction Tax. My view is that such a transaction tax should be abolished in its entirety.

I cite in support of my view no less an authority than Professor James Mirrlees, Scottish economist, Nobel prize winner and member of the Scottish Government’s Council of Economic Advisers. Professor Mirrlees led an exhaustive 5-year review of the UK tax system funded by the Economic and Social Research Council and the Nuffield Foundation.

Their view of Stamp duty land tax?

“Stamp duty is among the most inefficient and damaging of all taxes.

There is no sound case for maintaining stamp duty and we believe it should be abolished”(1)

The Mirrlees Review recommends the abolition of business rates, council tax and stamp duty land tax to be replaced by a Housing Services Tax and a Land Value Tax. (2)

My recommendation to the Scottish Government is to conduct a comprehensive review of property and land tax in Scotland rather than the present ad-hoc approach where stamp duty land tax, council tax and business rates are all subject (or soon to be subject) to separate ad-hoc reform processes. There are a range of issues that need to be addressed in addition to purely fiscal matters. These include the important question of local governance and who should be responsible for setting property tax rates.

I also think that the Scottish Government should pay close attention to the findings of a comprehensive review of tax led by one of their own economic advisers which recommends abolition of transactions taxes on land and property. For a full review of their conclusions read Chapter 16 of the Mirrlees Review Tax by Design especially sections 16.3 and 16.4.

UPDATE 31 AUGUST 2012

The above debate is closely linked to the debate on a wealth tax in the UK kicked off by Nick Clegg’s interview in the Guardian on Tuesday. In the Financial Times on Wednesday, former Deputy Governor of the Bank of England, Howard Davies, dismissed the practicalities of the idea but did advocate a land value tax as workable alternative.

UPDATE 2 NOVEMBER 2012

The responses to the SDLT consultation can be viewed here and an analysis is published here.

UPDATE 3 DECEMBER 2012

The Land and Buildings transaction Tax (Scotland) Bill was published on 29 November 2012.

(1) Press Release 14 September 2011
(2) For further details of Land Value Tax, see my October 2010 paper and other material under “Hot Topics/LVT in the main menu.

UPDATE 22 JANUARY 2013

The Land and Buildings Transaction Tax (Scotland) Bill is now being considered by the Finance Committee of the Scottish Parliament. I have submitted evidence. The Scottish Parliament Information Centre has produced a briefing on the Bill in which they make the important point (page 8 of the briefing) that the power that has been devolved to the Scottish Parliament is a power to levy a tax on transactions. I argue that we should abolish such a tax. Such an option is open to Parliament but it would have to raise the lost tax receipts from other sources which is why I argue for a proper review of all property tax and the introduction of a land value tax. That, however, is not going to happen. The Scottish Government are committed to this clumsy and complex tax that produces revenues that are unpredictable, necessitates a new bureaucracy and has been criticised by the Scottish Government’s own economic adviser, Professor Mirrlees.

UPDATE 28 MARCH 2013

The Finance Committee today published its Stage One Report on the Land and Buildings Transaction Tax (Scotland) Bill. My evidence and the views of Professor Mirrlees are dealt with under “Alternative Approaches” paras. 102 – 108. The Committee recognises that the Scotland Act 2012 requires any replacement tax for SDLT to be a tax on land transactions. The Committee has asked the Scottish Government whether it considered the findings of the Mirrlees Review in bringing forward a replacement tax for Stamp Duty Land Tax.

UPDATE 25 JUNE 2013

Scottish Parliament passes the Land and Buildings Transaction Tax (Scotland) Act.

UPDATE 31 JULY 2013

Land and Buildings Transaction Tax (Scotland) Act receives Royal Assent

The Earl of Hopetoun, Prince Michael of Kent, The Countess of Hopetoun and Princess Michael of Kent

Last night in our ScottishSix show, the topic of Lesley Riddoch’s talk was “Harpies & Quines – is this still Macho Caledonia.” It was a thought provoking analysis of Scotland’s failure to promote the equality of the sexes. I went first and set up Lesley’s part of the show with a link between landownership and gender. For centuries, women have been discriminated against when it comes to inheritance and still today do not enjoy the same privileges as men.

More generally, Scotland stands almost alone of all European countries in not providing legal rights for children to inherit land and property (see Chapter 28 of my book, The Poor Had No Lawyers for a fuller background to the topic including the thoughts of Adam Smith) and so I related the tale of the Earl of Hopetoun and his stated ambitions for his children. The Earl owns the 25,600 acre Hopetoun Estate and is a Director of Scottish Land and Estates (where 8 out of 10 members are men). He has four children – Olivia, Georgina, Charles and Victor.

One of my followers on twitter is a retired lawyer, Neil King (@NeilKing11). He tweeted his concern over what I had said we would be discussing (he lives in the Azores and so cannot make it to any of our shows).

For the record, here is the relevant part of a feature published in the Scotsman entitled “Country Heir” on Thursday 19 July 2012. In the show I read this out to the audience.

Together with his wife, Skye Bovill, whom he married in 1993, the daughter of an army general, he has four children Olivia, 15, Georgina, 13, and twins Charles and Victor, ten.
     Despite his two oldest children being daughters, it is his oldest son who will inherit. When asked whether that posed potential difficulties in choosing his successor, as they are twins, he says: “One is older and one is younger.” He does not want to dwell on the subject but reveals he has had conversations with his own younger brother about who was the lucky one.”

I then handed over to Lesley to discuss the the lot of Scotland’s women folk.

Does anyone feel uncomfortable talking about this? What do folk think about the role of succession law in perpetuating Scotland’s concentrated pattern of (predominantly male) landownership? Should children have the right to inherit land and property? Should anyone have the right – should we not expropriate land on the death of its owner and redistribute it to those in greater need? What do you think?