Taxing questions

With a number of proposals for land and property tax reforms being discussed, Chief Executive Hamish Trench looks at what the Commission’s research and advice says about land and property tax reform.

Council tax, carbon land tax, land value tax – calls for reforms to land and property taxes remain firmly on the agenda and much debated. Recently the Scottish Government confirmed it will explore options for a ‘local carbon land tax’ or similar measures, drawing on a proposal for a carbon land tax led by the John Muir Trust. In October the Poverty and Inequality Commission published a report ‘How better tax policy can reduce poverty and inequality’ which recommended that all land and property should be registered with a current and accurate valuation. The Celtic Academies Alliance including the Royal Society of Edinburgh also published a report last month on the evolution of devolved taxation that proposes a new ‘Green Land Value Tax’.

Calls for reform are unlikely to go away, with a challenging outlook for public finances and a high proportion of our national wealth held in land and property. Questions of how that wealth is used productively, and therefore who contributes more and how, are rightly questions for our politics and governments.

The importance of land in the tax base has long been recognised, with proposals for reforms in a series of tax reviews over the years including the Mirrlees review of 2011 which concluded there is a strong case for replacing business rates with a land value tax and for reform of council tax.

The Scottish Land Commission, in our advice to Ministers, recommends strengthening the role land plays in the tax base. We propose systemic reforms to include all land on the valuation roll and to develop a cadastral ‘one-stop-shop’ approach to information on land ownership, use and value. Putting these measures in place would open up the future policy options for governments to reform and improve the way we tax land values.

The theory of taxing land value is strong. It has been well articulated over the centuries including by reformers such as Henry George in the 19th century, with specific proposals being considered in Lloyd George’s 1909 UK ‘Peoples Budget’. However, its implementation has proven more challenging, so we looked at international experience in land value taxation. Our research shows there are some key practical issues that will need to be addressed to move towards land value taxation. These include the need for up-to-date land information, technical work on valuation methods and the implications for our planning system. International experience also shows that a lack of wide public acceptance and political consensus have been barriers to implementation.

These are all possible to address but will require steady work and development. There are of course opportunities in reforms to existing taxes or new taxes to improve the way tax secures a public share from rising land values and shapes behaviour.

The principle of taxing carbon emissions has a strong logic. Tax is an effective way to secure a productive balance of public and private benefit from land and can drive behaviour change in climate action. There will be lots of practical questions to be considered. How the emissions basis for a tax is modelled could have significant implications both for revenue and behaviour impacts. Discussions tend to immediately turn to who would be in scope and what exemptions there would be. Fairness and consistency are key to public acceptability of taxes so careful thought will need to be given to this and to the interaction with other taxes.

While there is much detailed work needed, Scotland’s just transition ambition means it makes sense to look at reforms to public finance including both incentives and taxation. Particularly when governments are looking to make use of private finance in supporting climate and nature action, reforms to public finance will need to be part of a well-designed approach that shapes behaviour in a consistent way.

The Commission’s advice on land reform and taxation can be found at Land Reform and Taxation: Advice to Scottish Ministers (landcommission.gov.scot)