Thursday 17 January 2013

R. Farmers will go bankrupt

• Farmers would all go out of business (skip to article)
• Farmers would be forced to sell off all their fields for development (skip to article)
• LVT will push up food prices (skip to article)
• What about the smallholder who is self-sufficient? (skip to article)

1. "Farmers would all go out of business"


Before we get hysterical about "all farmers going out of business", "food prices being pushed up to cover the tax" or "all farmers being forced to sell off their land to developers", let's look at actual numbers! They are dwindlingly small:

Residential land = 3.5% of UK by surface area, rental value £200 billion a year.
Commercially used land = 0.4% of the UK by surface area, rental value at least £30 billion a year.
Farm and forestry land = 80% of the UK by surface area, rental value approx. £1.7 billion a year*.

a) Agricultural output, at farm gate prices, is less than one per cent of UK GDP (see below), so that looks about right; the rental value of farm land (about eighty per cent of the surface area) is, unsurprisingly, also less than one per cent of total land rental values.

b) Before we even start thinking about reintroducing Agricultural Rates (which this country had from the 1600s to the 1900s), let's think about getting rid of the negative land value tax which we have on farmland, i.e. the farm subsidies known as the Single Payment Scheme (currently about £80 per acre) which is a straightforward bung to landowners. Nominally it is paid to the working farmer, but the right to receive payment can be traded separately.

c) The total amount of negative LVT paid out was £2.3 bn a year in 2009.

d) Ultimately, most of the subsidies end up as higher rents or land selling prices, see very technical study here, and the rest ends up as higher profits for the supermarkets, who can merrily knock farm gate prices down to less than the cost of production, knowing full well that the farmer lives partly of the SPS payments and only partly from actually producing and selling food.

e) So, in practical terms, rents (in the absence of SPS payments) will be so low as to be barely worth assessing to tax, if the subsidies (£80 per acre) were scrapped, rents would drop by about £80 per acre, two-thirds of lower-value farmland (pasture land) would have a rental value of plus/minus nothing and the rental value of the one-third higher value arable land would fall by half. So the tax on a typical 100 acre mixed farm would about £2,000 per year, i.e. less than the farmer's personal allowance or Citizen's Income.

How much income tax, NIC and PAYE on wages does a typical farmer pay? A damn' sight more than £2,000 per year, and it is always better to tax the small part of farm income that is rent at a high rate than to tax all of their income (earned and unearned alike) at a 29%.

2. "Farmers would be forced to sell off all their fields for development"

No they wouldn't.

a) Nobody said we would abolish planning laws.

b) The tax on farmland (if any) would be a small fraction of farm incomes (a smaller fraction than their current tax bills)

c) In the UK, developed land is less than 10% of the surface area (housing 3.5%, commercial/municipal 0.5%, roads etc 4%), farmland is about 80% and the rest is bits and pieces (forests, lakes, rivers, mountains, marshes, beaches and other quasi-natural land), so it would take us a good while to develop it all.

d) It is the current system where planning gains are taxed lightly that encourages farmers who are lucky enough to own fields near urban areas to sell them off for development, because somebody (the farmer or the developer) can bank most of the planning gain. With LVT there will be little or no planning gain; there will be little or no incentive to get land rezoned for development for its own sake.

3. "LVT will push up food prices"

a) We know for a fact that taxes are borne entirely by the landowner and comes out of rents; taxes on rents do not increase rents, they merely reduce the landowner's unearned income; and we know that tenant farmers (about a third of UK farmers) do not charge higher prices for their output than owner-occupier farmers (how could they?).

b) Or put it this way, what happens to rents if food prices go up? They go up. But what happens if food prices stay the same, and all UK landowners with tenant farmers got greedy and just demanded higher rents? Those tenants would throw in the towel, they would refuse to pay and they would go and do something else for a living. It is food prices and the productivity of land which pull up rents; rents (or taxes thereon) do not push up food prices.

b) Taking the total rental value of UK farmland to be considerably less than £1.7 billion a year (we don't know what rents will be if SPS were scrapped) and total farm output of £7 billion a year, a tax those rents, even at 100% would be less than the total income tax, PAYE, Council Tax and Business Rates they pay. So if their tax bill goes down, why would food prices go up?

Be that as it may...

c) Going by Defra's figures for 2009 (the most recent available), total consumer spending on food in shops is £65 billion a year, and that income/turnover is shared as follows:

Agriculture and fishing - £7 bn (less than 1% of our GPD).
Food and drink manufacturing - £ 25 bn
Food and drink wholesaling - £9 bn
Food and drink retailing - £24 bn.

i.e. out of £10 spent on food in the UK, only 10p goes to the farmer.

So even if a modest tax on farmland, which reduced the overall tax bill on the agricultural sector did push up food prices (which it wouldn'), then it would have next to no effect on shop prices; the tax would be absorbed by others in the chain, and even if it didn't (which it would) then so what? A 50% increase in farm gate prices only means a 5% increase in shop prices, for example.

4. "What about the smallholder who is self-sufficient?"

a) I'd be interested to know how many smallholders there are in the UK. I bet the people asking the question don't know, and probably aren't smallholders themselves.

b) The tax (if any) on smallholdings of farmland would be at the same rate as that on farmland, in other words somewhere between £nil and maybe £20/acre per year. It costs more than that to rent farmland now, and a lot of smallholders do rent their land; it costs far more than that to rent an allotment, and there are still waiting lists for allotments in most places.

c) Which illustrates the point that if you tax land highly (when the government charges rent for land, that is the same as charging LVT), you get more people occupying smaller plots each. If a field is divided into dozens of allotments rented out for £100 a year each, that's rental income of £1,000s per acre per year; if the field were rented out as farmland, the best price that you would get would be £50 to £150 per acre per year (depending on how good the land is), and it would be rented by a single farmer.

d) And smallholders will of course be entitled to their personal allowance or Citizen's Income of £3,500 a year; the £20 a year they might have to pay for an acre wouldn't even make a dent in that.

* If we multiply up land use statistics from here by average rental values from here, the total rental value of all UK farm and forestry land is about £1.7 bn a year; two-thirds is pasture (rents as low as £50/acre) and a third is arable (rents as high as £150/acre).


  1. What position should be taken on farm dwellings, given that at present a family farmhouse placed on the open market seems to kick off at the £1m bracket with rental values to match. Currently these dwellings form part of the family farmers inherited capital accumulation that they pay relatively little for in terms of mortgage or other outgoings like inheritance tax. Are farmers in the category of wealthy widow or something more unique that requires more careful consideration? A quick survey on Google Earth will reveal how many family farms have swimming pools in the garden and a quadrupal garage. A potential hornets' nest of privileged and as yet protected inherited wealth?

  2. PT, no special rules needed.

    Farmland has - in the absence of subsidies - very low rental value so probably not worth taxing.

    Farmhouses have a high value because they are in The Hallowed Green Belt i.e. artificial scarcity.

    You could invent a special rule to exempt genuine working farmers from the high LVT on their house but I don't see the point. They'll just have to commute ten minutes to work from the nearest village instead, same as most of their workers.

  3. My concern is that whether it is rational or not the NFU would strongly lobby and succeed in establishing such an exemption, as they currently have with inheritance tax on farms. Such exemptions that maintain the landocracy status quo are an example of how powerful lobby groups (in various sectors of economy and society) might seek to negate a fair and level implementation of LVT

  4. But LVT on farmland is needed for wildlife to florish therefore I think it essential on many levels for environmental protection. Such as clean water, flood prevention and dare I say it wildlife.... etc

    1. PS, with LVT of (say) £20 per acre, marginal farmland which generates profits of less a than £20 would be abandoned, and left alone, would rewild itself. Is that what you mean?

  5. Hello,

    Is this letter to M.Gove acceptable, or incorrect? Thankyou.
    I sent him a letter.

    Hello Mr Gove,

    Please can you send to me, and others, who want to know EXACTLY where all the proposed subsidies go, from YOU MR GOVE because there is a belief that a substantial sum DOES NOT GO TO PROPER FARMERS.

    There are landed gentry in this country who own, in secret, land which DOES NOT pay its own way, and is then sold in secret, without any taxes being paid at all.

    Some of these are subsidies are named differently to farming taxes, but they all amount to land taxes.

    [Have you included them in your generic term? Because £3.1 billion sounds similiar to the figure given by kevin cahills book own own britian]

    We want to see the land registry [who still do not know who owns up to 50% of UK land!] publish a full online list of people who own what. An updated 1872 domesday book. And how much these people get for owning it, and if it pays its own way.

    The government need to publish how much money they are receiving in subsidies [from the poorest] For no other reason than they own the land. [The telegraph describe these people as Very, very rich benefit cheats!]

    [Land which was stolen through various inclsorues acts over the centuries from our ancestors for no good leal reason whatsoever, rather than being custodians]

    They then parcel up bits of this land, and sell it to developers for million more.

    Housebuilders in this country give the incumbent governmnet of the day massive amounts in donation, and are 'landbanking enough land to build millions upon millions of homes. We need to introduce a land value tax, which would replace our council taxes. But we cannot seem to trust any government to do the right thing.

    A real land value tax as proposed by Milton Friemdan, Winston Churchill, George Orwell, Leo Tolstoy, taxing wealth, and less income can only make sense to 95% of the population.


  6. Rover, lovely, well said. Keep us informed if he replies.

  7. For UK farmland? An average of about £20 per acre.

    Or just exempt it, it's tricky to value and the total rental value is only about 1% of the value of urban and developed land.

  8. Replies
    1. B3455, that all depends on which other taxes you want to replace. There's no reason why we shouldn't scrap most taxes except a (fairly) flat income tax and collect the rest in LVT instead.

      Or we could make a modest start and replace Council Tax, Business Rates, SDLT, IHT and TV licence fee. The LVT rate required would be about 0.6% of the value of each home every year.

  9. And what would be the rate if we have only LVT and flat income tax?

  10. B3455, very approximately, 3% of the current selling price of housing you own. That sounds like a lot, but a two-earner couple on average full time wages would save £16,000 in NIC, VAT, Council Tax etc, so would end up a lot better off.

  11. Sounds good! So just to be clear we will be taxed on value of land we own, and NOT on houses we own on that land?

    1. B3455, let's not get bogged down in numbers.

      Actually full-on LVT would be 90% of the 'site premium', i.e. the annual total rental value of a homes minus the rental value of the bricks and mortar, which is about £4,000 a year for a semi-detached house.

      It's easier to express it in approx. terms as 3% of current selling price. mathematically it comes to the same thing and is easier to understand. So it's about £7,000 on an average UK home worth currently £250,000.

      Strictly speaking, the £7,000 is 90% of the average rental value of about £12,000 minus £4,000 bricks and mortar. What matters to the normal human being is the £7,000, not how it is calculated.