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"Land" Versus "location"

Posted on the 20 July 2013 by Markwadsworth @Mark_Wadsworth
One of the typical KLN's is that "farmers will all go bankrupt if we had Land Value Tax", but the people who say this have no grasp of the basic concepts or the actual figures involved, i.e. basically, farm and forestry land is barely worth taxing, it would be quite sufficient to apply the tax only to farm houses (thus putting farmers in the same position as everybody else).
1. Going by Defra's figures for 2009 (the most recent available), the total value at "farm gate prices" (or presumably "dock side prices") of agriculture and fishing was £7 bn a year.
2. 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).
3. So superficially, about one-quarter of agricultural output goes into land rents. This is higher than for the rest of the economy, where about £230 billion goes into location rent (i.e. total rental value minus the rental value of buildings and improvements) out of a total GDP of £1,500 billion, i.e. one-sixth.
4. For a fairer comparison, we'd have to make three adjustments:
a) The subsidies paid out to farmland (single payment scheme) are just under £2 billion a year. The subsidy has two effects: some goes into higher land rents and some goes into higher profits for the supermarkets. Let's call it half each, which means that true farm rents are only £0.7 billion a year and the true value of agricultural output is £7.7 billion, in which case only one-tenth of the total value of agriculture goes into land rent.
b) That GDP figure is questionable as there is lots of double-counting and notional figures, the value of the actual annual output of goods and services might be as little as £1,000 billion, in which case a quarter of GDP goes into location rent, the same as for farming.
c) The rental value of farmland relates not just to location but also to man-made improvements, like walls, drainage, ditches, the cumulative effects of keeping the land fertile using crop rotation and getting rid of weeds etc. I do not know how you would separate the two, but the location element (the advantages provided purely by nature or other things like being close to towns and cities) is going to be a lot less than the rental value net of subsidies of £0.8 billion.
5. Whatever adjustments you make, it is clear that there isn't much in it. While agriculture itself needs a lot of physical land (about 80% of the surface area of the UK), this is only has a very small location value (compared to developed land) so it seems to even out or more likely, the amount of location rent which farmers have to pay 9actually or notionally) as a fraction of output is considerably lower than for the rest of the economy. Basically, farming is bloody hard work, it's not like retail where you can double or treble your turnover for no extra effort simply by having your shop in the best location.
6. And, as I keep saying, before we even think about reinstating Agricultural Rates, let's get rid of the subsidies first and see what happens.

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