From the LVT group on Facebook, (H/T to John David Kromkowski)
There are 2 farms next to each other. Same size. Farm A is a bit more fertile. So we can I think agree that Farm A has higher lvt. Farmer B figures out that by planting different things and how he tills he can increase the fertility. 20 later, Farm B has greater fertility than Farm A. Farm B now get a higher LVT levied than Farm A. Farmer B says hold on a second, that increased land value is due to my labor and ingenuity, why should I have to pay more LVT?
My answer to that would be, is that, just because it's land it doesn't mean that all the rent that a landlord could get from it is land rent and therefore taxable under LVT. This is the same fallacy as those who think that LVT would only apply to agricultural land, because land in built-up areas isn't commonly referred to as "land".
The value of the rent that is obtainable from agricultural land because of its ability to grow crops or graze animals is the same as the value of the rent that is obtainable from urban land because it has a house on it. It's not the value of the unimproved land.
Saturday, 30 January 2021
Killer arguments against LVT, Not (488)
My latest blogpost: Killer arguments against LVT, Not (488)Tweet this! Posted by Bayard at 09:57
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16 comments:
1. Valuing farmland is far too tricky and throws up problems like this.
2. Before we worry about TAXING farm owners, let's stop SUBSIDISING them with CAP payments.
3. We will probably find that the rental value of farmland is 1% or 2% of the total rental value of UK land, i.e. not really worth taxing.
4. For environmental protection reasons, it would be a good idea to have a low flat tax of £20 per acre per year or something, so that marginal land gets re-wilded.
3. Nearly all that rental value is due to past improvements. In the UK most farmland was originally scrubby woodland, so, if we say that scrubby woodland is the natural, unimproved state of non-urban land in the UK, everything else is an improvement and not a value conferred by society or infrastructure, which leads neatly on to:
4. Yes, good idea, but it's not really LVT.
BTW, "Unknown" is me, Bayard. Blogger, or Google, is not letting me sign in, or at least, ignoring my attempts to do so.
3. Fair point. But no matter how much work you do, some farmland is better than others (availability of water for irrigation but without flood risk; hours of sunlight and typical temperatures; etc). That is natural. But nigh impossible for a townie like me to calculate, but it's such small numbers we might as well assume zero.
"3. Nearly all that rental value is due to past improvements. In the UK most farmland was originally scrubby woodland, so, if we say that scrubby woodland is the natural, unimproved state of non-urban land in the UK, everything else is an improvement and not a value conferred by society or infrastructure"
As a farmer I'd have to agree with this. Land reverts to scrub very quickly without human input. Drainage and fencing deteriorates fast too if not maintained. Basically the productive capacity of farmland relies on it being continually cropped and maintained. Stop doing that and it would lose pretty much all productivity. If left for too long it would eventually be uneconomic (at current output prices anyway) to clear and start farming again. Plus there are legislative barriers - once trees reach 3" in trunk diameter they are covered by legislation protecting woodlands and such land may never be reverted to agricultural production.
However I suspect any LVT that was introduced would not take this into account and would be purely based on rental values, ignoring the fact that the rental value is largely based on improvements to the lands condition, not its locational value.
S, sure.
You start with a field. You put effort and capital into it and grow crops. The selling price minus the cost of effort and capital = rental value of field.
The benefits of this year's efforts and capital don't just go into this year's crops, they go into the value of future year's crops. This year's efforts reduce next year's efforts. In the long run, everything is a marginal cost.
But there is still a residual amount going to rent. Admittedly, it is only £50 or £100 per acre per year and not worth taxing, but it does exist.
Farmland should only be taxed as soon as it gets planning permission. Farmers might never pay a penny in tax, because they sell it the split second it gets planning. But at least there is no windfall gain to them.
Natures gives adequate water and sunlight to all land in the UK, which I think supports the idea of a flat minimum LVT payable on land with no site value. This is the actual common rent since fertility, soil quality etc are all under the control of the occupant in the long run.
There might be a case for the minimum tax being higher in the south because of higher insolation.
Not sure how I feel about land naturally covered with water (and indeed deserts in countries that have those).
F, the notional charge is per acre actually farmed. So public footpaths, swamps, deserts, mountain tops and natural woodland are exempt.
If there's a lake or a river, that depends on how its used. If it's a privately owned yacht club or a water reservoir, they pay the tax. If it's open to the public, it's exempt. If the farmer uses it to store water, he pays the tax.
I wonder if temporary camp-sites would pay an LVT. The land-owner has to put some work in to drain the land, provide a flat dry surface area, and some deep ditches for faeces to be filled in daily. But no buildings. An example would be a local music festival or regatta that gives you a nice two weeks of income.
Then back to agriculture.
I like the example of mountain tops being exempt from LVT. This would be marvellous for Telefonica and Vodafone who could negotiate splitting the current business rates charges for site with masts.
AC, don't worry about the odd outlier.
1. Festivals pay normal corporation tax on their profits, if they make any. That small amount that relates to income and costs of camp sites is included in profit and loss account.
2. I meant "mountain tops open to the public or unusable for anything". There are separate rules for wayleave payments and business rates for mobile phone masts and electricity pilons - for these purposes, mountain tops are very useable indeed.
"But there is still a residual amount going to rent. Admittedly, it is only £50 or £100 per acre per year and not worth taxing, but it does exist."
The non-subsidised total market rent for agricultural land in decent order is only about that price range. So the unimproved land rent would be virtually zero, if not actually negative - if you let land get into a bad state you could actually have to pay someone to rent it off you because of the amount of work that would be required to get it into productive condition again. In practice you would never have a negative rent though, it would rather be a case of granting a far longer tenancy period at zero rent in order for the tenant to be able to get back the money spent on improving the land. The landlord's 'rent' would be getting improved land back at the end of the tenancy, which he could then rent out for the £50-100/acre.
"Natures gives adequate water and sunlight to all land in the UK, which I think supports the idea of a flat minimum LVT payable on land with no site value."
LVT is a tax on the value given to land by society and infrastructure, not nature. What you propose is not LVT, but a tax on sunlight and rain. Good luck with that.
S, let's not bicker over pennies. I have always said that farm rents are so low they are not worth taxing.
Purely for environmental reasons, I'd have a £20/acre tax or something. That's £2,000 a year for a 100-acre farm. I'd be happy to exempt farm income from income tax and NIC, the same as forestry income (who also don't get land subsidies). I'm pretty sure that a 100-acre pays a darn sight more than £2,000 a year in income tax and NIC.
"Purely for environmental reasons, I'd have a £20/acre tax or something. That's £2,000 a year for a 100-acre farm. I'd be happy to exempt farm income from income tax and NIC, the same as forestry income (who also don't get land subsidies). I'm pretty sure that a 100-acre pays a darn sight more than £2,000 a year in income tax and NIC."
You really don't know much about farming do you? The idea that a 100 acre farm could be making c.£27-28k/yr taxable profit (working on the basis of a married couple in partnership, they'd have to earn that amount between them to pay £2k in taxes + NI) is ludicrous, especially without farm subsidies. Have a look at the data on farming incomes, even including the current subsidy levels they are not making that amount from larger acreages. As I said, for large swathes of the UK farming is not financially viable without the current levels of subsidy, so the idea that farming could lose those subsidies AND pay £20/acre tax is cloud cuckoo land.
S, it's strange that you can say all that, while knowing that tenant farmers manage to stump up a lot more than £20/acre in rent.
"As I said, for large swathes of the UK farming is not financially viable without the current levels of subsidy, so the idea that farming could lose those subsidies AND pay £20/acre tax is cloud cuckoo land."
The only reason why UK farming is not financially viable without subsidies is because they have to sell their produce for half nothing. The whole idea of the subsidy is to keep food prices down whilst allowing the supermarkets to make big profits. The government has had a cheap food policy since the war. I suspect that initially, it was a socialist measure, so that working man would pay less for his food and would therefore be better off. However, the net result was that what wasn't spent on food ended up being spent on rent. 100 years ago, the poor spent 50% of their income on food and 30% on rent. Now it's the other way around. Farming subsidies are, ultimately, subsidies to landowners.
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