CLA Presentation to Silk Commission Monday 14 May 2012

10 November 2013

CLA Wales Director Ben Underwood and CLA Chief Taxation Adviser Adrian Baird were invited by Paul Silk to give evidence to the Silk Commission on Devolution. The Commission is looking at the case for devolving fiscal powers and will review the powers of the National Assembly for Wales in general.

Over-arching concern was expressed by CLA that use of devolved powers should not create complex border issues (the example given was Capital Gains Tax, the scoping charge of which depended not only upon the concept of residence - easy to establish by postcode - but also ordinary residence, a difficult concept that depended upon future intentions). Resolving complex border issues would also significantly increase the cost of administration as well as creating unintended consequences. High tax rates increase the pressure for reliefsand exemptions, both of which would require policing. Simple low-rate taxes were almost always to be preferred.


Three specific tax issues were discussed in some detail:


1. Land Value Tax ('LVT'). We agreed that LVT was not a type of wealth tax on the capital value of land (= land & buildings). Nor was it a tax based upon the rental value. Rather, LVT was a tax on economic rental value. The CLA was aware of preferences expressed by Kate Barker and, more recently by Sir James Mirrlees for the introduction of LVT. However, the economic basis of LVT as being a preferable tax was founded on it being The Single Tax - i.e. a replacement for other taxes charged on the two other factors of production (capital and labour). There was a disingenuous belief that LVT could be introduced as an additional tax even though most evidence suggests it would then merely increase distortionary behaviour. If WG were to experiment with LVT as a replacement tax it would have to address the borderline issues (see above) for at least some of the taxes replaced. Without a clear political consensus it was difficult to see how LVT could be successfully introduced.


2. The CLA suggested that it would welcome attention being focused on fiscal changes that would encourage the provision of affordable housing by the private sector. The CLA thought that the major fiscal impediment for private rural landowners - who had very long-term horizons of deployment of capital assets, often above 50 years - was the impact of Inheritance Tax ('IHT') on let residential property. Whereas in some rather specialised cases it may be possible to gain business property relief (where the housing was part of a wider business of which letting was a smaller part), the impact of IHT was likely to reduce the stock of let residential property over time. A possible solution is conditional exemption modelled upon the version offered for heritage property, i.e. offering a conditional deferment of IHT on let residential property where the landowner entered into undertakings to provide the accommodation on an 'affordable basis' to be determined by the Assembly.


3. The CLA also thought Silk might wish to consider how smaller, unincorporated businesses could be helped through the tax system, especially as many rural businesses were unincorporated firms. One possible suggestion was the introduction of a simple unified tax structure applied to all such businesses whose turnover fell below a threshold. To do any good, the CLA suggested this should be set far higher than the £77,000 chosen by the Chancellor for 'cash accounting' in the March 2012 Budget. The principle aim would be to remove the fiscal impediments to the optimal deployment of capital assets (e.g. changing use from redundant buildings to office accommodation) that currently existed because of the artificial boundaries that exist between amongst classes of income