Quite right George, quite right

Thanks in large part to subsidies, the value of farmland in the UK has tripled in 10 years: it has risen faster than almost any other speculative asset.

Obviously. A payment simply for owning land (or renting it) is equal to a rise in the rental income from that land. Which will feed through into a rise in the capital value of that land. So, after a few years of rising prices everyone\’s in exactly the position they were at the start. They\’re earning 5% (or whatever) off that capital value. Anyone wanting to get into farming simply has to borrow more money to get into it: their incomes won\’t have risen at all.

The answer is to simply stop all agricultural subsidies.

In fact, one could go further. We should have a proper land value tax. That is, we tax those who own farmland, not subsidise them.

24 comments on “Quite right George, quite right

  1. “We should have a proper land value tax. That is, we tax those who own farmland, not subsidise them.”
    Why Tim? There would be a justification for some sort of tax to pay for the public services the land needs. Flood control spending, say. But a revenue raising tax on the land itself? You’re saying the owner is obliged to extract some sort of income from the land to pay the tax & can’t use his property as he wishes.
    Surely, if it’s farmland, it’s only necessary to tax the income stream from the farming.

  2. There are food security reasons for subsidising farmers and there is some point in trying to maintain country towns and villages as functioning entities, as somebody living in Portugal should be acutely aware. As Marx pointed out, stopping the Corn Laws subsidy of wheat would be followed by wage cuts as bread went down in price from imports .In turn farm labourers migrated to towns further depressing the going rate for labour. So, given that leaving more and more to the private sector has seen wages and hence demand drop (for 15 years here ; 30 in the US) it would be sensible to directly pay farmers: just not with payments per farm size.What was wrong with the old payment by results system, where you got paid for what you produced ,leading to wine lakes etc? Keynes favoured buffer stocks. Leave it to the market and we will be stuck with food insecurity, food producer countries being overrun with export only plantations and no food security either and rural towns and villages withered down to dormitories supplied by far away supermarkets.
    BTW Monbiot is in favour of LVT; can’t see why he has failed to mention it here.

  3. @DBC Reed:

    Food security? That’s like the old national security arguments for slapping massive tariffs on the import of Japanese (or whatever) steel. It’s a nonsense. We cannot support our population with the land we currently farm. I eat New Zealander lamb, Dutch bacon, Jock biscuits and drink South American wine. All I get from the English countryside is spuds.

    If the u-boats suddenly cut us off, we’d starve regardless of how much we’ve subsidised the farmers.

    And I’ve not yet heard a convincing argument against the repeal of the Corn Laws. Peel should be beatified for that.

  4. Well as a land owning farmer I’ve got a big vested interest so take it all with a pinch of the proverbial, but I would say that the rise in land prices over the last few years have very little to do with subsidies. In fact they have been falling in nominal terms (they are in euros) but have risen in sterling due to its fall. But the amount of money one can earn from actually farming the land nowhere near relates to the price per acre. You would be very lucky to clear £400/acre net profit in my opinion. Which at 5% would equate to £8K/acre. And that would be top whack Lincolnshire land that can grow 4+tonne/acre. Most of the country would get nowhere near those figures.

    The real reason for the rise is two fold – firstly Ian Bs money cannons – as the State prints money its is seeping out into real asset values, as people in the know cash out their bits of paper for something the State can’t print, and can’t disappear at the press of a Cypriot Bank button, and secondly, the tax advantages from owning land are massive, particularly on IHT. You only have to own and farm land for 2 years and then its all 100% agricultural property relief. Tax man gets nowt.

    When people like James Dyson are piling into land, you know its not because they want to make money out of farming, its because they want their wealth tied up in a way that won’t disappear at a moments notice.

    http://www.agrimoney.com/news/dysons-%A3150m-deal-helps-lift-land-price-to-record–5719.html

  5. Labourers migrated to the town’s, thereby depressing the going rate for labour?

    Eh?

    Not in the countryside, shurely?

  6. >We should have a proper land value tax.

    I think you need to explore how you would set the basis for that.

    Having ploughed through various docs the value to be taxed is based on a very complicated guess of the “deemed” value.

    That spells trouble.

    How would it work? Nuts and bolts required.

  7. LVT is arguable (I don’t know nearly enough to even pick a side, personally) but agricultural subsidies are a gaping sore on the body politic. If the progressives really cared about the poor they’d be campaigning against them with the same fervour that they’re going after the “tax avoiders”.

  8. Most people in farming are convinced that the main reason that the Government don’t seem to want to abolish ag subsidies is because if they did they would lose a massive stick to beat farmers with, and enforce all the legislation they demand we keep up with. Because farmers take the cash, it gives Defra the right to inspect farms for ‘compliance’ and fine farmers for alleged infringements. I say alleged because none of this is ever tested in court – Defra never have to prove anything beyond reasonable doubt, its just their word, and as they hold the purse strings on the next subsidy cheque, most people go along with it.

    Fast forward to no subsidies at all, different world. Farmers could demand warrants for access, proper rules of evidence and self incrimination, civil servants would have to give evidence under oath (its been known for them to exaggerate the truth) and Defra would no longer be judge, jury and executioner.

    I doubt the State wants to give up the control that farm subsidies give it over the countryside.

  9. DBC Reed

    “As Marx pointed out, stopping the Corn Laws subsidy of wheat would be followed by wage cuts as bread went down in price from imports”
    And as any number of economists have shown us since, that is complete and utter crap.
    Food security is similarly complete and utter crap. In short the argument for food security goes “In case our harvest fails, we shouldn’t import food. We should deny consumers cheap food from abroad because, y’know, something might happen”. How on earth do people with these thought processes manage to function on a day-to-day basis?

  10. Having ploughed through various docs the value to be taxed is based on a very complicated guess of the “deemed” value.

    Whatever the details of the mechanism, the basic principle is that the value in a property is not what the owner happens to see in it but what other people see in it if only they could get hold of it. “Other people” are, of course, represented in the mechanism by the state.

    The likes of Milton Friedman (and, I suspect, our host) favour LVT replacing other taxes because it is less distorting of economic activity. The likes of George Monbiot, Richard Murphy, New Statesman, etc, are interested in LVT because they see the opportunity for an additional envy tax on all economic activity.

    So, under whose control do you see the future of LVT – idealistic libertarians or populist statists?

  11. Matt Wardman

    Having ploughed through various docs the value to be taxed is based on a very complicated guess of the “deemed” value. That spells trouble. How would it work? Nuts and bolts required.

    It could be fairly simple. The best way, I think, is simply to take half the improvement in price since the last time it was sold. People have to register sales. They have to tell the government and/or bank what the price was. It should not be too hard to work out what the price was the last time it was sold. Subtract one from another and give half to the Inland Revenue.

    It would not pressure people to develop land that is idle. But neither would it throw little harmless grandmothers out of their homes. There is a reasonable turn over of housing all the time so it should not be too seasonable. And it would be cheap and simple to administer.

    Of course you might have to give people a deduction for improvements, especially if they were made recently. Which would screw up the simple nature of the tax, but probably not too much.

  12. SMFS
    Your concern for harmless old ladies reflects very well on you. However, may I suggest you’re falling into the same subjective pit as Murphy and Monbiot. The point about LVT (and I remain undecided myself) is to tax the unexploited land value. If it happens to be a little old lady with her hands on the deeds, well then she pays the tax. There is no point having a tax based on capital if you then decide income is the important factor.

  13. ” The best way, I think, is simply to take half the improvement in price since the last time it was sold. People have to register sales. They have to tell the government and/or bank what the price was. It should not be too hard to work out what the price was the last time it was sold. Subtract one from another and give half to the Inland Revenue.”

    Thats just a capital gains tax. We already have one of those. The only reason it doesn’t have a great deal of effect is that private residences are exempt.

  14. @ UKL, thanks for linking.

    @ BIS: “You’re saying the owner is obliged to extract some sort of income from the land to pay the tax & can’t use his property as he wishes.”

    Fact is, “land ownership” and “the state” are synonymous, you can’t have one without the other. Have you tried buying, selling or renting land in Somalia or Haiti recently?

    So the existence of a stable government (i.e. citizens co-operating) creates the rental value of land. So if the current owner does not wish to pay the tax, he can sell it to somebody who will. He then takes the proceeds (“his property”) and goes and does something more profitable.

    The notion that people have to “extract income from the land to pay the tax” is a silly anachronism. Most people live in one place (their home) and work somewhere else (shop or office or factory or whatever).

  15. Ironman

    The point about LVT (and I remain undecided myself) is to tax the unexploited land value. If it happens to be a little old lady with her hands on the deeds, well then she pays the tax. There is no point having a tax based on capital if you then decide income is the important factor.

    I am not looking at income at all. The old lady has no problem until she sells the house. Presumably when the Estate does when she dies. She doesn’t get thrown out. Even if her income was high, she would not pay the tax until the house was sold. It a way of collecting it in the easiest and most pain-free way. Not of looking after little old ladies per se. Although the PR would be terrible. Look at the fuss over the idea people with incredibly valuable houses should pay for their own Care.

    Jim

    Thats just a capital gains tax. We already have one of those. The only reason it doesn’t have a great deal of effect is that private residences are exempt.

    But isn’t that what this is? A capital gains tax on a form of investment that is deemed immoral and unearned? Land gains in value despite people doing nothing and this is somehow wrong? As it happens I think that the propronents of LVT ignore the fact that landownership is very much a dynamic thing where landowners do contribute to the value of the land. The entire British landscape has been shaped by landowners contributing – rural and urban.

  16. LVT is based on the unimproved value of the land. By definition the landowner of that piece of land hasn’t contributed to that value (except in abstract where his taxes have helped pay for a new train station or school).

  17. @SMFS: an LVT is an ongoing tax, not a one off. Its not a tax on the increase in value of land, its a tax on the rental (ie annual income) of land. The concept being that the existence of ‘everyone else’ creates the rental value, and therefore ‘everyone else’ should be entitled to that value. OK as far as it goes but the very same could be said for personal income – ones income potential rises the more people there are around to sell stuff (or provide services) to. So its equally valid to say that society as a whole is entitled to a % of our income, because without that society, there would be no income.

  18. As I understand it, Jim has it right. If thought through correctly, it isn’t about deeming anybody unworthy of holding their property. It is a tax as valid or invalid as a tax on a person’s income. The danger is the Murphy’s of the world are distorting the purpose before anybody seriously thinks about it.
    So to my little old lady: I care for her as deeply as SMFS, well nearly, but we can’t wait until she dies. If she is sitting on unrealised value and if that is the tax we are raising, then she pays. She has the money, it’s in bricks and mortar.

  19. ukliberty

    LVT is based on the unimproved value of the land. By definition the landowner of that piece of land hasn’t contributed to that value (except in abstract where his taxes have helped pay for a new train station or school).

    Except that is such a poor definition of what landowners do. It is also utterly untrue. Landowners contribute quite a lot to the value of their land. Again we have seen this time and time again. Especially in America where race makes the situation clear. When Detriot was mainly White, those nice White people picked up their rubbish, didn’t shoot people dead in the street, joined the PTA and worked for better schools and so on. A thousand and one civil society groups that worked to make their local neighbourhood betters. And when Blacks moved into those neighbourhoods, well, not so much so. A third of Detroit now lies abandoned.

    Now the point is not really about race, it is about the way that people can and do contribute to the value of their neighbourhood. I have lived next to drunken yobs, next to farmers and in nice lower middle class suburbs. I can assure you residents make a great contribution to the value of the land.

    Jim

    an LVT is an ongoing tax, not a one off.

    The way that most people describe it, yes. But I am not sure that is really the best way to do it. The point is to capture some or all of the improved property value? Then waiting until sale makes sense to me.

    Its not a tax on the increase in value of land, its a tax on the rental (ie annual income) of land.

    But that is where the problems come in because you have to assess the value. Look at the Council Rates and the political pressure NOT to reassess them even though they are now wildly inaccurate.

    Ironman

    So to my little old lady: I care for her as deeply as SMFS, well nearly, but we can’t wait until she dies. If she is sitting on unrealised value and if that is the tax we are raising, then she pays. She has the money, it’s in bricks and mortar.

    She has assets. She may not have money. We have tried this when the government tried to make old people pay for the costs of their Care homes out of their house value. It was not popular politically. Regardless of the rights and wrongs of the tax, I don’t think it is possible to force asset-rich but cash-poor little old women out of their homes. The public will not wear it.

  20. “The point is to capture some or all of the improved property value? Then waiting until sale makes sense to me.”

    Well, I agree with you that a tax to be paid when someone has the cash to pay it (and can control when the tax is paid too) is preferable to one that is in no way related to whether you have the cash to pay it, and comes every year willy nilly.

    But you don’t need to worry about introducing a new tax to do what you want, all you need to do is extend CGT to principle private residences. And that will be about as popular with the electorate as a bucket of cold sick.

  21. “Fact is, “land ownership” and “the state” are synonymous, you can’t have one without the other. Have you tried buying, selling or renting land in Somalia or Haiti recently?

    So the existence of a stable government (i.e. citizens co-operating) creates the rental value of land.”

    Have you tried running a corporation in Somalia or Haiti recently? The existence of stable government (i.e. citizens cooperating) creates the commercial value of corporations. So, it’s only reasonable that corporations are taxed, blah, blah, blah…

    The populist, socialistic foundation that Mark Wadsworth enjoys stuffing under LVT is repulsive (and almost guarantees that it will become just one more tax to impoverish us all). If that’s the basis of it, you can stuff it.

    By the way, if I’m a powerful warlord in an unstable country then I can own land and rent it out quite profitably, thanks. Ownership by force works as well as ownership by cooperation. Indeed, our “stable governments” came about by warlords stitching things up for themselves, not by “citizens cooperating”.

    We owe them so much.

  22. @PJF: precisely correct. The existence of stable government creates ALL economic values – incomes, rents, profits, wealth, the lot. It also (by and large) creates physical safety for its citizens – with a few notable exceptions, your life is far less likely to be ended violently in the UK than in Somalia (or any other war torn hell hole with no formal State). By the LVTers principle it is therefore perfectly correct to tax everyone on a headage basis because of the extra bounty that stable government has provided them.

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