Sirius Minerals and the case for a land-value tax

Sirius Minerals drilling rig © Sirius Minerals
Sirius Minerals is going to make a lot of lucky landowners very happy.

Imagine working for 50-odd years at an RAF radar station in Yorkshire. You retire to a five-acre farm nearby with your comfortable but not exactly luxurious pension. You raise a few dairy goats. Then one day someone comes by and tells you that there are millions of tonnes of a fertiliser called polyhalite under your goats. They’re going to start digging it up. And when they do, you’ll get a cut of its value. Hello luxury.

That’s what’s happened to Liz Worthy.

Sirius Mining has broken ground on what the Sunday Times called the “biggest mining project ever undertaken in Britain” and she will get a cut of the £65m-odd a year they think they will be paying out in royalties to around 500 landowners (including the Crown Estate).

However, Worthy won’t be getting anywhere near as much as some. Larger scale farms will bank “seven-figure royalty cheques”.

It’s heartwarming stuff. But is it reasonable? Why should a group of people who have done nothing in particular – taken no risk, had no ideas, dug no holes – receive a huge windfall just because they happen to own land in the right place at the right time?

It’s a question you might also ask about anyone owning land near a big taxpayer funded infrastructure project (Crossrail for example)? And if you think about too long you will end up wondering about the concept of a land value tax as a possible replacement for our current system of taxation. You can read all about that here.

In the meantime, if you aren’t lucky enough to own a farm in the right place in Yorkshire but still fancy an outside chance of getting rich from polyhalite you could buy the shares (LSE: SXX). We haven’t looked at the company in detail but it is getting into a high-risk business: the construction work will be tough, the project is huge and the market is uncertain. Midas in the Mail on Sunday rates it “an adventurous long term buy.”

  • Jab

    The taxation system is not working when e commerce companies pay so little and small business pays over the odds.

    • Ben Jamin’

      Why should e commerce pay more? What makes you think small business are paying too much?

      Surely we do not want to be taxing people/firms for what they produce, as this shrinks output. Why not fund State services by asking people to pay compensation, as tax, for their right to exclude others from scarce natural resources, mainly that from valuable location?

      Not only would that grow the economy, but would lead to less inequality and a true meritocracy.

      Amazon make a fantastic contribution to our society. If they don’t use much valuable land, their tax bill should be commensurate with that. Nothing else.

      • pyradius berning

        Land in this case would be the internet that e commerce companies are using to make their profit.

  • Ben Jamin’

    Thanks Merryn, I’ve written a few letters to politicians over the years highlighting this issue and inconstant way we tax natural resources ie Land, in the UK.

    This is of course no different in principle from farmers pocketing the uplift in land values when they get granted planning permission to solve our so called “housing crisis”.

    Why should it be that we apply a defacto 100% LVT to offshore oil/gas, but nothing else?

    And how can it be correct that every freehold title attaches 47 billion tonnes of the Earths resources with every acre at the surface? By what moral justification is this possible?

    • Andrew Crow

      It’s not just farmers – the whole nonsense of escalating house prices could be sensibly moderated by a well constructed land tax.
      People don’t actually own land they only borrow it for their lifetime. It belongs to the nation (in large part that’s what a nation is – a chunk of land) as a whole it would not be unreasonable to introduce a taxation system that was form of rental agreement as compensation for the disbenefit to the rest of the population who are denied access.

      • Ben Jamin’

        There’s actually no reason why the selling price/rental incomes from Land should be above zero. That they are is a measure of economic injustice.

        The LVT is merely the way by which we equally share the scarcity value derived from resources supplied for free by nature/god.

        What could be fairer or more meritocratic than that?

  • Good article, it’s always nice to see LVT get a mention.

    E-commerce companies pay a lot of tax – Amazon have huge warehouses and head offices which attract Business Rates. They don’t pay much tax on their profits because they genuinely do not make much in the way of profits (yet). And really it is just glorified mail order/postal delivery service – for small businesses trying to sell to a larger public, Amazon and people looking for obscure or niche stuff like a second hand passenger door mirror for a 1998 MX5 is a God-send.

  • rory

    Oh dear… We already have an entirely adequate ‘land value tax’ called CGT. If the land has suddenly become more valuable then the profit will be taxed if it is sold. In the meantime income tax will be charged on the royalties. By MSW’s argument nobody should be allowed to win the lottery just because they bought a lottery ticket! Suggest the ‘Wealth of Nations’ as a little light reading on what a LVT actually is.

    • Ben Jamin’

      Imagine there was a lottery and the prize was stolen goods or slaves.

      Do you think people should be allowed to win that?

      Those landowners have no moral claim to the winnings from their “tickets” any more than if they’d lucked into some slaves or some other stolen property.

      The only adequate justice is 100%, and therefore the only adequate LVT is 100% of lands rental value.

      Only the creation of a good or service and its provenance confers a moral property right. Not legal title, purchase, discovery, first use, a change in value or any other such nonsense people use to justify their immoral ideology.

      • rory

        Land bought legitimately by definition is not stolen and hasn’t included the serfs working on it for several hundred years. Dyson didn’t get rich just because he ‘created a good or service’, he got rich because he sold it for more than it cost to produce i.e. with a margin of profit, which he has defended vigorously in patent courts throughout the world.

        NB. If you are not comfortable with the concept of contract law &
        private property, I suggest you give Zimbabwe or N Korea a try.

        • Ben Jamin’

          Yes, and slave owners and the recipients of other “legitimate” stolen property from conquered countries no doubt shared your exact sentiments.

          Luckily, not everyone else did, or does.

          As for Dyson, he produces goods and services which gives him a property right over the income he derives from them. Glad you appear to agree with me on that.

          As for his patents, that’s highly debatable. If the discovery of ideas conferred a property right over that idea then why wouldn’t that be in perpetuity? It’s not, because it doesn’t. Discovery is a service that the IP rewards. Whether or not that is necessary is open to question.

          And where on Earth did you get the notion I’m not comfortable with law and private property? In my opinion, what constitutes those needs to change as they have changed thought history.
          Should anyone who wants change be banished in your opinion?

          As I said above, only the creation of a good or service and its provenance confers a moral property right. So those farmers are only entitled to the same share of the proceeds from that potash as the rest of us. Not one penny more.

          • rory

            I am not certain how colonialism (good or bad) is relevant in this argument, or perhaps we should blame the Angles & the Saxons or the Normans! However: In the UK, land & mineral rights have been created in law. IMO; if someone speculatively or otherwise legitimately buys those rights and subsequently makes a fortune, then, as long as they pay the relevant taxes – good luck to them. That the mining Co with the mineral rights wishes to pay the landowner with the access rights a royalty in order to make money, is a commercial concern between them and them alone. There is a legitimate public interest in other issues such as
            environment etc, but that is what the planning process is for. I agree that IP is a very vexed issue which is why there are a lot of very rich patent lawyers, but that is the point. The law is the codification of a myriad of different ‘moral’ viewpoints and you are perfectly entitled to yours, but until the law is changed – it is the Law. Which brings me back to my original point that IMO LVT is not compatible with the principle in law of private property. If you want one, you can’t have the other.

            • Andrew Crow

              The rights of ownership were not created by law they were created by pillage and the gift of monarchs then codified by laws made by the lucky owners.

              • rory

                …and then ratified time and time again over 100s of yrs of parliamentary democracy. In several countries I could name the standard way to steal something is to create a corrupt tax, and when the legitimate owner can’t pay the State can then confiscate it. Sounds like LVT to me.

                • Andrew Crow

                  The underlying problem with the attitude you take (and I have some considerable sympathy with it) is the role of ‘the State’. In theory the state is no more than the administrative functionaries whom we employ to run the things which benefit society collectively.
                  Much of the problem we have as a society is that governments tend to behave as if we have granted them a divine right that sets them above we ordinary mortals. and entitles them to skew the economy of a country to benefit of a favoured minority.
                  This represents a failure of democracy to effectively hold our elected rulers to account.
                  This applies to the way local councils behave aswell as national governments and is the main reason (though I voted to remain) that I can see the advantages of leaving the EU.
                  The EU is not democratically accountable at all despite the facade of regular elections.
                  The principle that underpins LVT is that the nation and its resources belongs to us all not just a wealthy few and power-grabbing technocrats.

                  • rory

                    No that is not the original principle of LVT. In 1776 when the wealth of Nations was written, the tax base, such that it was, was limited pretty much entirely to excise duties on goods and trade and the landowners (because, as you rightly point out, ran the country and wrote the law to their own satisfaction) paid virtually nothing. Given that the economy at that time was virtually entirely agrarian, the only source of new production (mainly wool) and therefore trade, was the release of land to ‘manufactures’ sic. Smith’s idea of a LVT was to coerce landowners into making that land available in order to make money to pay the tax, thereby increasing capacity and allowing a reduction in tariffs, further incentivising production – a virtuous economic circle. When the ‘Nation’ takes your house off you in lieu of the LVT you can’t pay, you will remember these words.

  • Zap

    Set up a payment plan and buy £1000 worh of Sirius shares every month. Until they start production in 2021 you will be cashing in like those lucky land owners.

  • Andrew Crow

    Good to hear someone else talking about a land tax.
    In general we tend to tax things like tobacco and alcohol to discourage their use. By that logic it makes little sense, when you think about it, to tax work through income tax and corporation taxes.
    A land tax would offset many of the unearned gains (in house prices for example) which come from infrastructure and facilities paid for out of the public purse and then effectively transferred to private gain.
    When people talk dismissively of ‘redistribution of wealth’ there is a general acceptance that this refers to successful and ‘hard working families’ subsidising the poor and feckless. In past decades redistribution has been sharply in the other direction from collective publicly owned assets being transferred to private ownership.
    It makes a lot of sense to tax assets rather than income. Income tends to be associated with productive and useful activity which needs to be encouraged not penalised.
    Any change of emphasis of taxation from income to assets would have to be phased in very gradually or it would cause major disruption but the sooner the process is started the better.

    • rory

      I don’t have a problem with wealth taxes, if that is what the majority want, CGT is a very good wealth tax. But LVT isn’t a wealth tax – it is a potential wealth tax. It is like charging someone income tax on expected earnings even though they haven’t got a job and can’t pay.

      • Andrew Crow

        The downside of wealth taxes is that they discourage success and/or encourage tax cheating. Donald Trump is perhaps not right about much, but he is right to point out that much of the profit from the likes of Apple is ferreted away in foreign hidey holes and therefore not available to circulate in the US and stimulate economic activity there.

        A similar problem exists here. The seriously wealthy hide their cash in tax havens safe from the taxman whilst simultaneously flaunting their wealth in the possession of assets which go largely untaxed; particularly property and land much of which is not producing financial profit or providing benefit for the nation and its people.

        There are huge sums tied up in speculative holdings of land just waiting for the planning permissions which make it suddenly vastly ‘valuable’. Its true value has not changed only the price has changed. Much of the added value will be realised when public money is available to install the transport and utility infrastructure. This transfers wealth from the national purse to private hands. This isn’t an equitable exchange; particularly given the lobbying power of the wealthy to influence both local and national government policy.
        Its akin to blackmail. Dog in the manger land holding against the interests of the wider public.
        The eventual profit is not earned by the land holder in any way adding value to that land. The housing market is similarly skewed by speculation. Would be homeowners are held to ransom. (Mind you home ownership is something of a national obsession which is not entirely rational in itself)

        • rory

          Sorry, are we talking about the merits of LVT or your problems with tax dodgers? Tax dodging is easy because of the massive loopholes in our current taxes, not because we need a new one, and land is hoarded simply because its value is going up faster than the cost of ownership. All this is happening because the ‘downtrodden proleteriate’ allows it to happen because they want to get rich by sitting on their backsides watching the value of their house go up too. You want to get public value out of land? Easy:
          Charge VAT on new-builds.
          Charge CGT on all property.
          Restore interest rates to a ‘normal level’.
          You don’t need LVT!
          NB. I have said enough on this matter.

  • Dominic Elsworth

    The recipients of the fat royalty cheques will be paying tax on the income, and you never know they might deploy the money they receive as a result of land ownership in an efficient manner. Alternatively, the state could take an even bigger slice of the pie.

    • Highlander

      The point of a LVT is not to punish the many but to raise revenue by taxing the very wealthy. We know that much of land ownership came about by basically taking land by force. Why should we be afraid to do the same to those descendants or owners who own massive country estates?. Huge tracts of land could be freed up for community house building but this would requires Government to take action. The problem is the perennial one of vested interest and party political funding routes. In another world some people may see this as a form of “inducement”.

  • the pigman

    unless the money received is rolled over into agricultural land it will certainly be taxed on the difference between the purchase price and the selling price with some allowances