By Ian Kirkwood

Life at the UK margin, including much of Scotland, is blotted out by taxes on wages and trade. It’s why enterprises and jobs hardly exist at Scotland’s more remote or otherwise marginal locations. But this imbalance can be addressed: by instead collecting the site values we all generate together. Because site rental values are high at the economic centre and low at the margin. If these were treated as state revenue, everyone would pay their surplus and no more: life would be revived and enterprises reborn at the margin.

Wages and trade taxes are jealously guarded at Westminster with ‘good’ reason: Taxes invested in London and the southeast automatically boost site values by 400% (e.g. site values were multiplied by a factor of four to five on completion of the Jubilee Line extension).

“Both ground-rents and the ordinary rent of land are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. Though a part of this revenue should be taken from him in order to defray the expenses of the state, no discouragement will thereby be given to any sort of industry. The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before. Ground-rents, and the ordinary rent of land, are, therefore, perhaps, the species of revenue which can best bear to have a peculiar tax imposed upon them.”

The Wealth of Nations, Adam Smith, 1776:Bk.V: 370.

Following the SLC request for submissions on Land Value Tax, our tax expert Mark Wadsworth has prepared a document outlining how MSPs can use devolved tax-varying powers today to boost the Scottish economy by over 9% without collecting any extra revenue.

Scotland’s Path to Prosperity

Scotland’s Path to Prosperity (link to pdf) is published today. Our detailed and fully costed document is a prescription for turning around the perpetual Scottish deficit that is currently the sole future offered to Scots by pundits.

The document not only includes detailed costings but also fully explains the method of assessment and collection of a locally collected levy on site rental values (which we prefer to call Annual Ground Rent, after Adam Smith) to replace a proportion of devolved Income Tax.

The positive outcomes of such a bold move by MSPs would be many. The stream of value generated in Scotland by the combined efforts of society is found in the rental value of all land. Today site owners pocket this wealth, despite wide recognition that they do not generate it.

Adam Smith described how collecting [Annual] Ground Rent (aka LVT) would mean that people would be as well off after its collection as before. Mark Wadsworth shows in figures how and why Adam Smith was right! The reason is that the AGR/LVT levy is immune to deadweight losses (devastating economic damage inflicted by taxes on wages and trade).

We now present that option before MSPs – and all Scots – in a clearly written and fully explained but brief report. Please read it, place it in the hands of your MSP and demand that this policy option be fully debated at Holyrood.

MSPs, it is the duty of government to collect as revenue the surplus produced by society that is the rent of land. Devolved powers allow you to immediately migrate to collecting about one third of that surplus. By collecting that revenue directly from economic rent instead of indirectly by existing taxes, you will undo about one third of the economic and social damage inflicted on Scots by Westminster taxes. Please look carefully at the option before you to turn Scotland around. Our economists and tax experts are keen to explain further and face to face. Please contact us at info@slrg.scot.

Roger Sandilands
Emeritus Professor of Economics, University of Strathclyde

VAT is not just a tax on consumption. It hampers and destroys wealth producing enterprises. Producers have to cover their costs otherwise they go out of business. VAT forces some of them out of business; the survivors were/are able to pass on the VAT to consumers, rich and poor alike. VAT is thus a regressive tax.

But, in line with the ATCOR principle (All Taxes Come Out of Rent) VAT, like all other taxes on wages and trade, depresses business and so depresses rent too. It is not just a matter of the Laffer Curve effect on revenues, but also of the deadweight effects on GDP.)

For this reason, the recorded size of AGR/LVT, in the national accounts, is a relatively very small proportion of GDP. This false accounting is compounded by the statisticians’ practice of conflating land with capital and hence recording business “profits” as a return on “capital investment”, whereas much of it is actually land rent.

Critics of  ‘LVT’ commonly cite this as a reason why it is not possible to finance a modern state in which government spending is, say, 40% of GDP.

The reduction of taxes in favour of AGR/LVT will reveal the true size of actual rents. And not only that. It will also increase them. This makes possible not only a full and fair financing of the functions of state, but also increased economic activity. This yields, year on year, an even greater potential volume of rent available to the state, to spend on behalf of the community that creates it as the social surplus.