Written evidence submitted by The Scottish Tenant Farmers Association (STFA)

Introduction

The Scottish Tenant Farmers Association (STFA) is the only organisation dedicated to representing the interests of tenant farmers throughout Scotland.  Its stated aim is to support and enhance the tenanted sector and in that role welcomes the opportunity to respond to the Scottish Affairs Committee’s report.  STFA has already responded to the Scottish Government’s Land Reform Review Group (response attached).  STFA’s response to the LRRG’s call for evidence was based on an extensive online and postal survey of members. 

However, much has changed since the original response was made.  The Scottish Government has announced a comprehensive review of agricultural holdings which will be commencing in the next few weeks.  The Cabinet Secretary has also made it clear that the introduction of an absolute right to buy will be considered as part of the review. 

STFA was disappointed that although the LRRG’s report acknowledged that there were considerable problems within the tenanted sector their interim report stated that to address tenant farming issues would be to “stray considerably away from our remit which focuses on communities rather than relationships between individuals.”

Most Scottish tenant farmers consider land tenure is fundamental to communities and had expected the group to address basic issues which currently prevent the best use of land in Scotland and the rural communities which the land could be sustaining.  STFA, therefore welcomes the interest in land reform in Scotland shown by the Scottish Affairs Committee and hopes that their deliberations on the matter will influence change.

1.  How does Scotland compare to other countries in terms of the pattern of land ownership?

1.1Scotland retains an extreme pattern of concentrated land ownership.  In the lowlands a group of neighbouring parishes may be owned by a single person, and in the highlands a single sporting estate may be an entire glen of over 20,000 acres.

2.  What are the benefits and disadvantages of the current pattern of land ownership, and to what extent is this pattern sustained and reinforced by subsidy and taxation arrangements?

2.1  It is difficult to identify any benefits arising from the current pattern of land ownership in Scotland.  Landowners claim alleged sporting and environmental benefits resulting from the management of a single estate, however experience from other European countries show that such benefits are easily achieved through multiple ownership.

2.2 The main disadvantages are prevention of repopulation of areas and stifling of investment. Some landlords wish their estates to be private, so houses and cottages are left to crumble and no efforts are made to attract people back to these rural areas.  Landlords have a lever of control over the development of businesses on their estates, and many do not wish to see investment taking place, whether it be on a tenanted farm, or another diversified business.  In the case of tenanted farms, landlords retain the right to object to a tenant’s proposed investments and a tenant’s proposed successor, thus landlords have the power to influence key business decisions which the tenant would be better placed to make.  The controls retained by landlords over a tenant’s ability to invest and pass on the business leads to frustration and a sense of hopelessness.

2.3  Aspects of current taxation, especially capital gains rollover relief and the exemption of agricultural land from IHT, serves to maintain the current ownership pattern and no doubt leads to higher land prices as non-farming investors seek a tax shelter for wealth.

2.4 The range of uncapped subsidies available to large estates (SFP, environmental & forestry grants) also serves to maintain the current ownership pattern.  The high costs associated with some grant systems also favour the large estates who typically employ a range of professionals who can access the grant systems.

3.  Is the current system of land tenure in Scotland the most efficient model for food security?

3.1  The current system of land tenure is not efficient for food security.  30% of land in Scotland is tenanted, and it is obvious that these tenanted holdings are not keeping up with investment when compared with owner occupied holdings.  Secure tenants struggle to invest due partly to objections from landlords, and partly due to the difficulties tenants face in securing finance.  In the case where land is farmed under short term leases, neither party is motivated to maintain the fabric of the land and holdings quickly deteriorate.

3.2  Modern farming systems require increasing levels of fixed equipment, especially the dairy sector, and the tenanted sector is not supporting the necessary investments compared with owner-occupation.

3.3  A key difference for tenants compared with owner-occupiers relates to bank finance; in the case of an owned holding, the farmer can use past improvements as security to access finance.  However, due to the nature of tenancy legislation, it is not possible for a bank to hold a standard charge over a tenant’s improvements, which limits a tenant’s ability to borrow for future investments.

4.  In particular, is the current land ownership pattern contributing to, or inhibiting, economic and community development? Is it socially just?

4.1  The current pattern of ownership inhibits economic and social development, especially where landowners do not wish to see economic and community development.  The areas of Scotland which are characterised by concentrated land ownership cannot be described as socially just. Exclusivity and lack of access by the public is seen a unique selling point of Scottish Estates.  Foreign investors see Scotland as an attractive country to buy land due to thelack of regulation on ownership.  This has led to escalating land prices and an increasing number of sales of estates to outside and usually absentee investors.

4.2  Where there are businesses on estates, often tenanted farms, landlords appear increasingly reluctant to allow tenants to invest in their business, and there are cases of landlords actively obstructing the day to day running of businesses on their estates.

4.3  In the case of secure tenants, landlords continue to be able to exercise influence over succession of a tenancy, by having the ability to object to a family successor.

4.4  Tenants feel inhibited by the controls a landlord has over their business, and they would be better motivated if they could freely plan the running and succession of their businesses without unnecessary interference from landlords. 

5.  Given mounting political interest in, or commitment to, a programme of land reform in Scotland, what form should this programme take?

5.1  To date land reform in Scotland has had limited effect and has been driven by short term review groups set up every 10-15 years.  Instead land reform should be a continuous process and promoted by a permanent Land Commission or a Land Agency. 

5.2  The legislative process frequently fails to deliver the intended outcomes due to the time and costs associated with the legal process.  For example the Crofting Act 2010 which conferred the right on Small Landholders to convert  to crofting status, has been unsuccessful due to the complexity and expense of the legal process, especially when faced with a hostile landlord.  A Government Land Agency, if established, might offer help in these cases.

5.3  There are many examples of poor land management on Scottish estates, and if a Government Land Agency existed, the Agency could be appointed to deal with such cases.

5.4  In the case of the agricultural tenanted sector, any review of the tenancy legislation should not be considered in isolation from wider land reform.  Although Scotland has had 130 years of tenancy legislation (the first Act was in 1883), some key problems have persisted throughout the period such as short termism, rents outstripping farm profits, and loss of tenant’s improvements.  While the Ag Holdings legislation has had some effect on the relationship between landlord and tenant, of greater importance may be the balance of power between the two parties which remains unchanged since the 1880’s and is determined by the continuing unregulated concentrated land ownership within the tenanted sector.  Furthermore the vast majority of estates in Scotland are now managed by only a handful of agents and lawyers, which further strengthens the position of landlords.

5.5  Scotland historically has attempted to resolve tenancy problems from the bottom, and introduced tenancy legislation, whereas other countries have looked at the problem from the top and regulated the freehold land market.  Scotland’s attempts to achieve a healthy tenanted sector within an unhealthy ownership structure have met with limited success. Whereas other countries have created a healthy ownership structure for land and a healthy tenanted sector has followed.

5.6  STFA believe that the problems in the tenanted sector can only be resolved by looking at reform of tenancy legislation in the context of wider land reform measures.

6.  What sort of subsidies and grants are available to landed estate owners in Scotland? What are the advantages and disadvantages of the subsidy regime? In particular, are support payments being capitalized into land values and making these higher than they otherwise would be?

6.1  There are a wide range of support payments available to large estates, mainly CAP, forestry and environmental payments. 

6.2  CAP payments were intended to support farm production, but instead have resulted in higher land rental values and higher land prices.  In the case of tenanted farming businesses, a vicious circle has operated where increasing CAP payments have caused higher land rents, and the producers then require higher high CAP payments to allow production to prosper. 

6.3  Scottish estates are now positioning themselves to take full advantage of the new CAP due to be implemented in 2015/16, often at the expense of existing tenanted farming business.  CAP going forward will be based on area payments and estates are looking to access these payments by removing tenants wherever possible.  On much of the grazing land landlords are implementing minimum levels of agricultural activity in order to qualify.  Where in hand farming operations exist they are taking land back in hand either to farm themselves or under contract farming arrangements. 

6.4  Contract farming arrangements are a means of avoiding the use of a farm tenancy with the rights and some degree of security embodied in a farm lease.  The have the added benefit of significant tax and subsidy advantages to the landowner; income is treated under Schedule D (earned rather than unearned); IHT benefits; and the landowner will have ability to draw down SFP entitlements under the new CAP regime as an “active” farmer. 

6.5  CAP now has a significant influence on the tenanted sector and in probably the main driver for estates to take tenanted land back in hand.  Without a capping of payments to individual businesses, the new CAP is likely to have a destructive influence on the tenanted sector.

7.  How does the tax regime affect the way in which land is owned in Scotland? For instance, does it offer landed estate owners the opportunity to minimize the tax they pay, thereby increasing the value of land, adding to speculative interest (on the part of those looking for ways to minimize or avoid tax) and making it less likely that it will be made available to others?

7.1 Investment in land is seen as a shelter from inheritance tax (IHT), which without doubt has increased the attraction of land as an investment. This has the effect of increasing land values, as land is seen as a tool to protect existing wealth.  If Government is serious about improving access to land ownership, then consideration must be given to change the current blanket exemption of IHT on agricultural land.  As above the contract farming route provides an opportunity for the landowner to gain income tax benefits. Consideration should be given to give tax incentives to encourage longer term letting of land especially to new entrants.

8.  How easy is it for communities in Scotland to take ownership of land and other assets? Should it be made easier in the light of the substantial achievements of existing community ownership groups?

8.1  Communities would appear to be successful in purchasing their land and there are many examples where this has happened and many examples of how ownership has revitalised the community.  However, community ownership is only really evident in the Highlands and Islands where there has been a willing seller and where the land has less value.  There is a compelling case for establishing a Land Agency with stronger powers to force the transfer of an asset into community ownership where it is in the public interest. The Pairc case has paved the way for communities to exert an absolute right to buy where it is in the public interest.

9.  How easy is it for tenant farmers in Scotland to buy their farms? Should they be granted an absolute right to buy? Would such a right be compatible with human rights conventions and declarations?

9.1  Tenant farmers holding secure tenancies under the 1991 Agricultural Holdings Act have a statutory pre-emptive right to buy their land, providing they have registered their interest,   when the landowner decides to sell.  There are 1181 current registrations held by the Registers of Scotland.  STFA has questioned the need to register an interest and has recommended change to an automatic pre-emptive right to buy land triggered by a landlord’s decision to sell.  Some landlords resent the pre-emptive right to buy and this attitude has deterred many tenants from registering their interest for fear of damaging relationships with their landlords.

9.2  To date the statutory process has rarely been used and only one valuation has taken place through the process. Anecdotally, the existence of the pre-emptive right to buy has encouraged a number of farms to be sold to the sitting tenant rather than being offered on the open market.   However, the fact remains that tenants can only buy their land if the landowner decides to sell.  Tenants who have been able to buy their farms have done so to safeguard the future of their farms and to provide them with the security and confidence to plan for succession and future investment.  Once bought, former tenanted units bought at the sitting tenant discount are rarely sold to capitalise on the increase in value as is frequently alleged. 

9.3  While almost all tenants would aspire to own their farms, opinions are varied as to whether the right to buy should be absolute.  There is evidence, however, that the desire and justification for introducing the absolute right to buy is strongest in the Highlands and Islands and in other areas where there is a monopoly of land ownership by large estates.  STFA will be conducting a survey of members in the coming weeks to seek views on this and many other potential reforms as part of the Scottish Government’s Agricultural Holdings Review.

9.4  Any right to buy should only apply to heritable secure tenancies held under the 1991 Act.  To extend right to buy legislation to short term leasing arrangements would interfere with the laws of contract and would discourage future letting of land in Scotland.

9.5  A recent poll conducted by STFA showed 85% of respondents agreeing that there should be a greater diversity of landownership in Scotland.  There will be a number of ways of encouraging this such as taxation, regulating land purchase and landownership or the introduction of an absolute right to buy for communities and tenant farmers.

9.6  It is likely that the introduction of an absolute right to buy for tenant farmers would be compatible with human rights and declarations providing it was part of a public policy to create a more diverse structure of landownership in Scotland and proportionate compensation was offered to owners of the land.

10.  Is there a case for establishing a Land Agency to facilitate both the expansion of community ownership and the creation of new, especially “starter”, tenancies on land acquired for this purpose?

10.1  STFA believe that the establishment of a Government Land Agency would have a key role to play in the expansion of community ownership and in the tenanted sector.  In the case of poor estate management, the Land Agency could be instructed to ensure efficient land use.  The concept of a ‘Tenancy Commission’ has had support from the Tenant Farming Forum, and could operate as part of the Land Agency.

10.2  The difficulties facing new entrants getting a start in farming has been a preoccupation for many years, particularly access to finance and access to land.  The former is probably outside the scope of the SAC report, but access to land, especially through starter farms is vital component in providing a first rung on the ladder for new entrants.  Scotland, unlike England, does not have the benefit of County Council farms as a route into farming.  The Scottish Government is to be commended in its starter farm initiative through Forestry Commission owned land; however, this is but a drop in the ocean to judge by the number of applicants.

10.3  Private landlords, with a few exceptions, are reluctant to make smaller farms available to new entrants despite a number of farms regularly becoming vacant.  Landed estates usually prefer to take land back either to farm themselves or under a contract farming arrangement.  If  rented, the vacant land is frequently let out to neighbouring farmers on short term arrangements with houses and cottages sold or rented separately and farm buildings often sold for development.  When offered for rent on the open market, existing farmers will invariably outbid a new entrants.

10.4  STFA would support any initiative to create new tenancies on community owned land, especially as starter units.  There are already tenanted farms operating successfully under community ownership on Gigha and Eigg.

10.5  Starter farms represent the first rung in the farming ladder and will, of necessity, be of modest size, STFA believes that opportunities must be created to allow new entrants to progress to a more secure larger unit at the end of the starter lease. Currently these opportunities do not exist and STFA would also like to see a ring fence on land under secure tenure to preserve a reservoir of tenanted land for this purpose.  The extension of existing assignation provisions would allow new entrants access to existing tenanted farms and pave the way for innovative share farming arrangements with retiring tenants.  We believe that such an initiative would also be compatible with conventions of human rights.

11.  How easy is it for land in public ownership to be transferred to communities and other private individuals, where that would be in the public interest? Should steps be taken to make it easier? For instance, should the UK and Scottish Governments compile a register showing land and assets for disposal? Should there be changes in the way in which such land and assets are valued? What UK Treasury rules are relevant to this area?

11.1  A register of land and assets under public ownership would be a good first step in establishing opportunities for community and private ownership. Forestry Commission holds a large and varied portfolio of land acquired for woodland expansion, although starter units are being created from some of this land there are further areas which would be more suited to farming than forestry.

11.2  The Crown Estates owns large landed estates in Scotland comprising some 90 or so tenanted farms which would be better under private ownership.  We would encourage steps to be taken to offer these farms to the occupying tenants.

12.  Should a Land Value Tax of some sort be introduced in Scotland, as a replacement or addition to council tax and business rates?

12.1  Land Value Tax would be a fairer tax than council tax and business rates, and could be used as a tool to influence  the land ownership structure and land use in Scotland.  LVT may be an appropriate tax to address the problems resulting from the speculation in land and property values over the last 30 years.

October 2013