Above – Richard Lochhead at NFUS AGM. Image: Paul Watt Photography

The future shape of the Common Agricultural Policy for 2014-2020 has become clearer following the EU budget summit on 7 – 8 February and the European Parliament’s adoption of a negotiating mandate with the Commission and Council on 4th February.

One possible conflict between the Parliament and the EU leaders is on the subject of capping direct payments to farmers (see my previous Nov 2011 blog on the topic). As the Parliament noted,

The distribution of direct income support among farmers is characterised by the allocation of disproportionate amounts of payments to a rather small number of large beneficiaries. Due to economies of size, larger beneficiaries do not require the same level of unitary support for the objective of income support to be efficiently achieved.” (1)

MEPs voted to cap direct payments paid to any one farm at €300,000 with additional reductions in payments for those receiving over €150,000.

At the EU budget summit, however, European leaders agreed that,

Capping of the direct payments for large beneficiaries will be introduced by Member States on a voluntary basis.” (2)

This difference between the Council of Ministers and the Parliament will be one of the many items to be resolved over the coming months.

As far as Scotland is concerned, agriculture is devolved. If capping is to be left to member states to decide, then which way will Richard Lochhead and the Scottish Government decide to proceed? In Scotland, the amount of farm subsidy paid to the top 50 recipients increased from £22m in 2008, £24m in 2009, £27.6m in 2010 and £35m in 2011. The existing subsidies are allocated in a very unequal manner as the graph below shows. For 2011, the top 10% of farmers received £345 million – 48.6% of the total subsidy pot of £710.4 million. Over two-thirds of subsidy goes to the top 20% of farmers.

Were payments to be capped, this would apply to only the £500 million of so-called “direct payments”. Under the €300,000 cap proposed by the Commission and agreed by MEPs, this would result (based upon 2011 figures) in a clawback of £35 million from the 484 recipients of the largest subsidies (7% of the £500 million of direct payments).

Were a more reasonable cap to be adopted (say a maximum of £100,000 per farmer) then the amount that would be clawed back from the 813 farmers who receive more that this would total £53.9 million. (over 10% of the £500 million of direct payments).

This is money that could be used to support new entrants to farming and supporting local food schemes such as the Fife Diet.

Recent surveys of opinion have shown that the majority of Scottish farmers want a ceiling on the amount of subsidy any one farmer can receive. (3) Whether capping is left to member states or not is yet to be decided. But if it is, then Richard Lochhead has a decision to make and it will be interesting to watch what he decides to do. He is very close to the farming lobby.

At the National Farmers Union of Scotland AGM last week, he made the startling admission that for the past six years “I have had the honour of being your representative in Government”. (4) The last time I looked, Richard Lochhead MSP was the representative of the people of Moray and as a Minister in the Scottish Government he represents the interests of the people of Scotland.

It is always a danger that Ministers are captured by elite groups and the NFUS is both a powerful lobby group (what other organisation would attract 2 UK Cabinet Ministers and 2 Scottish Ministers to its AGM?) and is further dominated by the interests of the larger farmers and landowners who (it would appear) Mr Lochhead is in Government to represent.

As I say – it will be worth paying close attention to how this question resolves itself over the coming months.

(1) Amendment 8 to Regulation recital 15

(2) para 65 of Conclusion of 7 – 8 February 2013 EU Summit

(3) See Alyn Smith MEP consultation results and Scottish Government consultation

(4) Speech to NFUS AGM 12 February 2013

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.

The following was first published as a Guest Column in the West Highland Free Press on 3 August 2012.

The subject matter is one of a large number of vital topics that should be addressed by the Scottish Government’s Land Reform Review Group.

Last November, a huge fire engulfed the former Co-op building on Morrison Street in Glasgow. Over 100 firefighters and 16 fire engines fought the blaze. It was the biggest fire in the city for many years and the fire, police and other public sector workers performed valiantly in the face of an extremely dangerous situation.

At the time I remember wondering who owned the building and found out that it was a property developer called Straben Developments Ltd. of Belfast (Title here & here). This company bought the building in September 2007 for £4.2 million but it had lain empty ever since. One of the strange consequences of that abandonment is that, as an empty industrial building, it was exempt from business rates. This means that over the past 5 years, the owners have avoided over £600,000 in local taxes whilst Strathclyde Fire and Rescue are still expected to come and put the fire out despite the fact that last year alone they themselves paid over £2 million in business rates.

I recall this strange tale to highlight the fact that many land and property taxes have long since ceased to have any logical basis. Privately-owned schools for example, receive 80% discounts whilst local authority schools pay the full rate. The single largest item of expenditure of the Scottish Parliament after staff and MSP wages and allowances is the £4 million it pays in business rates to the City of Edinburgh Council.

Across the country land lies derelict and buildings empty. Sometimes there are good reasons for this but too often it is simply because there is no penalty for doing so. This despite growing demand by communities for access to land for housing and community facilities.

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.

Historically, land was the source of all taxation through feu duties, tithes, hearth taxes and land taxes. Over time, however, the influential landowners of Britain conspired to pass the burden of taxation to labour and business. At the beginning of the 20th century, death duties and estate tax operated very effectively as a means of breaking up large landholdings and diversifying landownership, allowing more people to own farms and smallholdings. Today, such taxes are long gone and even the minimal sporting rates were abolished in 1995.

The Scottish Government is currently consulting on a range of property tax issues including council tax reliefs, Stamp Duty Land Tax and a forthcoming review of business rates and council tax. At the moment these efforts are very much being made in isolation to each other when what in fact we need is to have a proper debate on the principles behind land and property taxes. These should include ensuring that land is put to good use and that abandonment and speculation is penalised and not rewarded. It should also be beyond dispute that of land and property is to be taxed, every owner should pay their fair share.

It is also vital to see such taxes in the context of local democracy. In John Swinney’s budget speech in February, he complained that 90% of Scottish tax revenues are controlled by Westminster. What he didn’t mention is that the situation for local government in Scotland is is even worse and that his Government is responsible. Thanks to the centrally imposed council tax freeze and the fact that business rates are set centrally, local authorities have virtually no financial freedom to raise their own revenues beyond library fines and parking charges (and for all I know these may well be subject to centrally imposed rules as well).

In many European countries, local government not only raises a significant proportion of its own finance through exclusively local taxes but has far greater freedom to set and levy a wide range of other taxes. This means that local communities have the incentive to improve their environment and invest in infrastructure confident in the knowledge that they will see some return in the form of tax receipts.

Tax has always been a hotly contested political issue and national governments will remain responsible for setting the overall framework within which local government operates. But if we want to revitalise our towns and cities, promote civic enterprise and repopulate rural areas, local government must have far greater financial freedom and flexibility.

Last week I was in London travelling on the Jubilee Line extension. This impressive piece of transport infrastructure cost around £3.5 billion to build and was paid for by public money. Once it was completed, land values in the vicinity of each of the new stations rose by a total of around £12 billion. A 30% land tax would have paid for the new railway at no cost to the taxpayer.

All investment by government in new schools, hospitals, roads and ferries raises the value of land. It is appropriate that this be considered as a source of public revenue for local communities. Getting land and property taxes right will, over time stabilise land values and reduce the inflated cost of land. That in turn means more communities can afford to buy it and young people can get hold of the land they need to build homes at an affordable cost.

Such outcomes are possible if the land and property taxes are designed with the public rather than vested interests in mind.