Our team carried out an economic appraisal of tax reforms to inform the Scottish Land Commission’s Advice to Scottish Ministers on options for Land Reform and Taxation, including (i) encouraging a fair, responsible and productive use of land, (ii) increasing the number of people that influence and benefit from decisions about land, and (iii) using Scotland’s land to create public value.

The Scottish context and the impact of COVID-19

According to the Scottish Vacant and Derelict Land Survey (SVDLS), in 2019 there were almost 11,000 hectares of vacant and derelict land, 70% of which have been vacant or derelict for more than ten years (Figure 1). The COVID-19 pandemic caused the abandonment of many commercial sites in urban areas due to increases in remote working and online shopping, with the risk of creating a new legacy of derelict sites.

Figure 1. Concentration of vacant and derelict land across Scotland

The pandemic has also exacerbated inequalities with a disproportionate impact on lower-income households. With Scotland having one of the highest levels of concentration of land ownership in the world (recent studies show that 432 landowners own 50% of privately-owned rural land), the pandemic created a new impetus for action to encourage a more diverse pattern of land ownership.

Using tax to incentivise land reform

We considered different policies that could support the more productive use of land through changing behaviour of landowners, with a focus on (i) incentivising the development of existing derelict sites and (ii) encouraging a more diverse pattern of land ownership. The report focuses on reforms of existing taxes that can be delivered in the short-term and have an immediate impact on the property market.

Our team developed an economic model to measure the potential of fiscal incentives to reduce the stock of derelict sites and encourage a more diverse pattern of land ownership, accounting for behavioural responses to tax changes.

The proposed policy package includes two key interventions:

Non-domestic rates relief for redevelopment/conversion of existing derelict sites
Council tax reduction for redevelopment/conversion of derelict sites

The increase in property values as a result of these policies will create incentives for development by increasing the profitability of sites for developers as well as through increasing the availability for sale of derelict sites (Figure 2).

Figure 2. Behavioural response to non-domestic rate and council tax reliefs

To encourage a more diverse pattern of landownership the recommended policy package also includes a Land and Buildings Transaction Tax (LBTT) surcharge for existing large landholdings to disincentivise the acquisition of new land by large landowners.

Findings and scope for future reforms

Our recommended policy package could lead to an increase in homebuilding from derelict sites, in non-domestic properties on derelict sites, and a decrease in land concentration in the near-term (Table 1). One advantage of the proposed policy package is that it is self-funding in the 5 years following introduction (revenue neutral).

Table 1. Summary of the impact of the recommended policy package

The scope of our research was limited to tax instruments within the Scottish Parliament's competence, with priority given to measures focussed on derelict sites. However, there is considerable scope for implementing broader and more ambitious reforms at UK level – such as a land value tax – to maximise incentives for productive use of land and create new opportunities for revenue-raising and for wealth redistribution.

How taxes can be used to affect behaviour and help achieve long-term policy objectives