IN 2021, a report by the Scottish Government’s Social Justice and Fairness Commission was, among other things, highly critical of our tax system which it described as “dysfunctional”.

The report came out strongly in favour of land value taxation (LVT) which it recommended “as part of wider reform of property taxation that would ultimately remove our dependence on Council Tax, Land and Buildings Transaction Tax and non-domestic rates”.

The convener of that Commission was Shona Robison (below), who is now the Finance Secretary and therefore the best-placed person in Scotland to implement those recommendations.

The title of the report was A Route Map To A Fair Independent Scotland, but we do not have to wait for the country to gain independence to replace Council Tax.

The Scottish Parliament has always had the power to do that, yet it clings to a system introduced in a panic by the Conservatives in Westminster more than 30 years ago to save then-prime minister Margaret Thatcher’s political future after the poll tax debacle.

The Council Tax is so regressive that, as a percentage of property value, those in the poorest housing pay many times more than those in mansions.

READ MORE: I am in arrears for council tax – it's a horrendous feeling

In 2022 the Scottish Government’s own think tank, the Scottish Land Commission (SLC), produced its report Land Reform And Taxation: Advice To Scottish Ministers.

The very first recommendation was “to increase the options available to it by strengthening the role of land in the tax base”. This was to be achieved by two steps: 1) Establish a programme to bring all land on to the valuation roll.

2) Commit to the development and use of a consistent and comprehensive cadastral approach which would enable the integration of information on land ownership, use and value, building on the current work of Registers of Scotland.

Later in 2022, the SLC responded to the Scottish Government’s draft bill Land Reform In A Net Zero Nation, repeating almost word for word the above two steps, preceded by a recommendation for “systemic changes to enable government to tax land values more effectively”.

The logic of using an LVT is straightforward. No-one built the land, and its value is distinct from the value of buildings and other man-made improvements on it.

As it had no production cost, its value is simply an indicator of public demand for location, further enhanced by the provision of publicly funded services and infrastructure.

It is a publicly generated value and ought to be returned to the public purse as public revenue. LVT would be a recurring charge on all land, so it could not be depicted as selective or arbitrary.

Valuation would be based on annual ground rent, according to optimum permitted use within planning and environmental constraints.

Unlike the current system, which fails to discourage land hoarding, there would be no exemptions for usable land held deliberately idle or under-used.

The potential for LVT in Scotland is enormous and ultimately could go well beyond its use as a replacement for Council Tax.

In a Financial Times article in August, the eminent economist Professor Charles Goodhart wrote about how to deal with the UK’s £22 billion deficit.

(Image: PA)

He urged Chancellor Rachel Reeves (above) over a period of time to “raise the bulk, if not all, of the required revenue from a tax on the returns from land ownership” and noted the “overwhelming case for a land tax” made by the most prominent economists.

Goodhart led a recent study into the potential for LVT in Scotland which, using OECD data and figures supplied by Scottish Government economists, calculates the total value of privately-held land in Scotland at £422.5bn.

Even this is considered by the authors as a possible underestimate, but it is the key to a huge potential tax base. The great economists agree on the non-distortive nature of a tax on land values, unlike taxes on work and enterprise.

In the study Tax By Design for the IFS, James Mirrlees noted: “Taxing land ownership is equivalent to taxing an economic rent – to do so does not discourage any desirable activity.” And in The Price Of Inequality, Joseph Stiglitz states that: “It is highly efficient to tax rents because such taxes don’t cause any distortion. A tax on land values doesn’t make the land go away.”

While LVT as an alternative source of national revenue may be some time away, its introduction as a replacement for Council Tax would be an ideal start.

The Scottish Government doesn’t seem to have grasped the crucial link between tax reform and land reform, but it would be fitting if those who claim to own the country were obliged to pay for its running costs.