From a book by Dr Duncan Pickard – The present condition of agriculture is unsatisfactory for all concerned: for the farmer, for the farm worker, for the consumer, for the taxpayer. Farming is heavily subsidised, yet farmers are being driven out of business. Farm workers are so badly paid that many have to rely on income support to buy the very food they spend their working lives producing. The consumer is forced by import restrictions to pay prices way above those at which food could be purchased in the free world market. The taxpayer has to pay for the subsidies. Today these subsidies are linked to the Common Agricultural Policy (CAP) of the European Union; but agricultural subsidies were in place long before Britain joined the Common Market. The introduction of the Single Farm Payment in 2005 removed the link between subsidies and production. It was intended to be a simpler system of income support for farmers, but the fiasco seen in 2006 in the management of the SFP showed how complicated the system still is.
Farmers periodically call for “help”, which in practice means either increases in subsidies, reductions in the value of sterling or the rate of bank interest, or perhaps all three. Governments retort by demanding “restructuring”, which means that they would like fewer and larger farms. This implies even fewer farm workers, whose wages would be likely to go down even further in relation to industrial wages. The taxpayer or consumer simply sees his money going into a bottomless pit, and some people are beginning to wonder whether it is worth supporting agriculture at all.
The farm worker’s problems are even worse. His job requires a multitude of skills, and yet his wages are a good deal less than those of people with comparable jobs in industry. He becomes more and more tempted to abandon his present job, which he really knows and understands, and drift into a humdrum, but better-paid, job in the nearest town.
The Root of the Problem.
The root of the problem from the point of view of all concerned is that costs of agricultural production are too high. One major element in those costs which could be controlled is the price of land. Another is the cost of employment: not the money which the worker actually receives, but all the incidental costs which the employer has to pay, but the worker doesn’t receive.
Land prices in Britain are already vastly higher than in most of our world competitors, which inevitably puts British agriculture at a massive disadvantage. Those prices continue to increase at a rate far beyond the rate of inflation. The way to control land prices is through taxation policy. Farmer, farm worker, consumer and taxpayer have conflicting interests in some respects, but in one essential feature their interest are identical. It suits all of them that taxation should be levied in a way which does the minimum damage to production.
The vital question is not just how much taxation is levied, but what is taxed. An old legend illustrates this point. A Middle Eastern king wanted more money. So he levied a tax on date palms. Accordingly, people with date palms cut them down, to avoid paying the tax. So the king decided instead to tax the land on which date palms could grow, irrespective of whether there were actually any date palms on that land or not. As a result, people replanted date palms in order to get enough money from selling dates to pay the taxes. Under the new arrangement, everybody benefited. The king got the money he wanted, the date growers were able to make money by selling their products, and consumers were able to get the fruit.
The same principle applies to modern agriculture. The main taxes which fall on farmer, farm worker and consumer are income tax (with its variant, corporation tax) and VAT. We might add National Insurance which, – though in theory not a tax at all behaves like one for practical purposes. Such taxes not only collect revenue, they also damage production because they increase the costs of employment. On top of that the cost of actually bringing in the tax money is very considerable, while the employer incurs considerable compliance costs.
None of these taxes helps reduce land prices – indeed, if anything, they work in the opposite way. If we really want to help agricultural production, we need to think out a different kind of tax: a tax which doesn’t damage production, but which actually helps production by bringing down land prices and also reduces those costs of employment which the worker doesn’t receive.
A Different Tax.
Suppose that income tax, corporation tax VAT and National Insurance were largely replaced by a tax on land values. How would that be done, and what would the consequences be?
The first thing to do would be to assess the value of all land, urban and rural alike.
In that assessment, the value of “improvements” like buildings, crops, fertilisers, machinery, etc., would be discounted. Surveyors assure us that it would be a quick and cheap job to make such an assessment. Then, when the assessment was complete, a tax would be levied, related to the value of the land sites alone. This is known as Land Value Taxation, or LVT. The tax would be small at first, but would gradually be increased. At the same time other taxes would be reduced and in some cases abolished. LVT would then be levied on all land, wherever located.
How Would Agriculture Benefit?
The farmer would not have to worry so much about income tax, corporation tax, National Insurance and all the odd taxes on things he requires for food production. He would be able to use his land in the way he knew was best, making allowance for soil, climate, markets and so on. But the greatest change would be that the cost of land as an element in agricultural production would drop dramatically. If people had to pay a tax on land whether they used it or not, they would have no incentive to hold on to idle land. This would bring a great deal of land on to the market at a low price. That land would be available for productive use. This might disappoint people whose idle land was reduced in price, but everybody else would benefit. Land costs would become a much smaller element in the farmer’s bills.
L VT would reduce rural unemployment. The ambitious farm worker would have a realistic prospect of eventually owning a farm of his own if he wished. So also would people brought up in completely different walks of life, who have the interest and ambition to become farmers. Better conditions for farm workers would mean that the general taxpayer would not need to contribute so much in social security. It would also point the way towards a really successful agriculture, which would not need constant injections of taxpayers’ money, or fiscal devices to compel the consumer to pay unnecessarily high prices for food.
At present, some farmers are in a far worse plight than others, and L VT would be of especial value to the farmer who is a tenant, or the farmer who wishes to increase his production. Broadly speaking, owner-occupiers without borrowings, particularly those who rely on family labour, are doing quite well; while tenant farmers, particularly those who need to hire labour and have large overdrafts, are doing very badly. Farm rents have to be paid.
There are other important differences between different kinds of farmers. Those who employ labour are required to pay PAYE, income tax and National Insurance contributions. Of course, in theory PAYE is recoverable from the employee, and so in the employee’s share of National Insurance. In practice, both operate as employment taxes. When the owner-occupier retires, if the farm is not passed on to his family there is usually plenty of money from sale of the farm to provide for retirement, but when the tenant retires, all he can recover is the proceeds of sale of livestock and machinery, which is seldom enough to provide for a house or a respectable pension. With Land Value Taxation, that element of a tenant-farmers rent which is attributable to the values of the land would be collected by the State, and therefore the landowner would obviously not be able to collect it as well.
But as LVT comes into existence, other taxes will be reduced, and therefore most kinds of farmers will be much better off. At the same time land prices will fall dramatically, and the tenant will have a realistic chance of acquiring land of his own if he wishes.
There has been a great deal of argument about big versus small farms. From an economic point of view, neither bigness nor smallness is universally preferable. For some locations, for some kinds of soil, for some kinds of crops, the balance favours one, in other circumstances the other. LVT will cause the farmer to consider which, in his own conditions, is the better. There will be no advantage in holding on to surplus land, because that will simply mean holding on to the obligation to pay a tax, without any benefit in return.
Land Value Taxation in Context.
In the last hundred years or so, innumerable short-term solutions to the problems of agriculture have been proposed and tried. Today, agriculture is in as big a mess as ever, and the whole community is paying for that mess. What is necessary now is to tackle the matter at its root; and the root of agriculture is land.
Nobody claims that LVT, by itself, is the answer to all the problems of agriculture.
Many other measures are required as well, which are outside the scope of the present Topic Paper. What is claimed, however, is that LVT is an essential element for any sound agricultural policy. Without LVT, agriculture will just continue lurching from crisis to crisis.
In other Topic Papers of this series, it is shown how LVT would produce beneficial results in many other directions, as well as helping agriculture. It would, for example, transform housing. greatly improve the financing of transport and communications, and avert the alternation of booms and slumps. It would strike at the roots of poverty and unemployment. It would have big positive effects on the environment in which all of us live.
Dr Duncan Pickard, The Lie of the Land (Shepheard-Walwyn, London, ISBN 0 85883 227 8)
Duncan Pickard PhD: Lie of the Land: a study of the culture of deception (Land Research Trust, Teddington, 2004)
Richard Body, Agriculture, the triumph and the shame. (Temple Smith, London 1982: a study of post 1945 developments)
Richard Body, Red or Green for Farmers (Broad Legs Publishing Co, Saffron Walden 1987)
J L and Barbara Hammond, The Village Labourer, (Longmans first edition 1911; many subsequent editions. A classic study of the effects of enclosure and other policies on the condition of the rural poor, especially in the “Industrial Revolution” period.)
W E Tate, The English village community and the enclosure movement (Victor Gollancz, London, 1967
Graham Harvey, The Killing of the Countryside (Vintages 1997)