Reducing existing taxes on farmers

Duncan Pickard

‘As the owner-occupier of 650 acres of land in Scotland, I support the introduction of Land Value Taxation (LVT). The present fiscal system penalises employment and enterprise by taxing earned incomes, and encourages those who own land by exemptions from tax. We employ two full-time staff and send each month the take-home pay for another employee to the Inland Revenue in the Income Tax and National Insurance, which we deduct from those who work for us. Our farm would be more productive if we employed another person.’

The abolition of income taxes and the introduction of a charge on the rental value of land would allow more people to be gainfully employed on farms. Not only would the cash costs of employment be reduced, but so would the costs of stress associated with the outdated, complicated and disincentive tax laws. Farmers would have the incentive to become reasonably rich from farming their land, not from trying to become unreasonably rich by owning as much land as possible and capturing the unearned increase in its market price. Farmers should gain their rewards for farming smarter, not bigger. Large farms are assumed to be more efficient than small ones, but the only factor which reliably increases with increasing farm size is output per person employed. Other measures of efficiency, such as output per unit area or per unit of capital used, seldom do. By encouraging farmers to minimise the size of their farms to what would be the most efficient and profitable for them, the surplus land would become available for those who want to farm but cannot gain access to land.

With the removal of income taxes, farmers would be able to pay an amount of annual ground rent to the government, which would be more than is needed to rent land at present. Under the existing tax regime, when someone is employed, they are paid the going rate related to that person’s skills. But the amount of tax the employer pays is related to the wage, irrespective of whether the farm is profitable enough to afford to pay. Compare that with rent. When a rent is negotiated with a landowner, the rent bid is based on the estimated profitability of the animals or crops to be produced.

It is difficult to say how much I would pay in annual ground rent, but I can say with certainty that the annual payment would be related to what I could afford to pay as an efficient farmer. Some of the income tax which I pay, as do the other members of my family as partners in the business, includes some annual ground rent. This is because, as owner-occupiers, no rent is paid to another landowner for the land we own. This means that our annual taxable profit is higher that it would be if we were tenant farmers, and we pay more income tax.

The payment of annual ground rent under LVT is the responsibility of those who own land, but I can see that they will be financially better off, because the tax they currently pay on their earned incomes and those of their employees will be removed. In the case of farms, fees for the use of buildings, and other improvements which are supplied by the landowner but not included in LVT, will continue to be charged to the tenant, but the landowner will not pay income taxes on the fees.’