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Note on Compensation to Landlords (S391: 1886?)

Editor Charles H. Smith's Note: A pamphlet ("Tract No. XVI") published by the Land Nationalisation Society, probably in mid-1886. Original pagination indicated within double brackets. To link directly to this page, connect with: http://people.wku.edu/charles.smith/wallace/S391.htm

    [[p. 1]] Since the Land Nationalisation Society issued its programme and my book was published, I have found that there is a very wide-spread objection to the method of compensating landlords by means of any form of terminable annuities. There is, in this country, a strong feeling that a form of property which has been always recognized as the most stable and secure, and as that which is most calculated to produce a permanent and often an increasing income, should be paid for at its full value if taken by the State for the benefit of the community. Any other mode of payment is held to be distinctly unjust, and will certainly excite very strong opposition by large bodies of people who would not otherwise object to Land Nationalisation. If, therefore, this objection can be obviated without in any way sacrificing the public interest, it will evidently be good policy to do so, as our views will thereby be more quickly and more certainly brought within the domain of practical politics.

    It is therefore suggested that, in exchange for his land, each landlord shall receive bonds bearing interest at 3 per cent., and producing, together with the amount paid by the tenant for the purchase of the improvements, a revenue equal to the net average income he has hitherto obtained from his land. These land bonds should be redeemable at par value after a fixed term of years.

    Recent discussions have shown that this is a practical proposal. It is often supposed that if the land is thus bought, the State risks a heavy loss in case of any further fall in value, or even in the absence of a rise from possible failure of tenants to pay the rent; but it can be shown that an ample margin will be secured sufficient to cover all such risks, while the absolutely certain rise in land values with increasing population affords the means of redeeming the bonds given in payment, and thus securing in a comparatively short time, the whole land revenues of the country, which will then replace all other taxation. On both these points some explanation is required.

    In Mr. Gladstone's proposed scheme for buying out the Irish landlords, the principle was laid down, and never controverted, that the landlords were entitled to compensation for the net [[p. 2]] incomes they derived from the land, and that the amount of government land bonds given them in payment, at 20 or 25 years' purchase, was to be estimated on this net income, not on the judicial rental payable by the tenants. The difference between these consists of costs of agency, law expenses, and bad debts, and is estimated at from 20 to 30 per cent. of the judicial rents. It was this large margin which enabled Mr. Gladstone to offer the tenants the means of purchasing their farms by means of terminable rentals actually lower than the present judicial rents, which should yet leave a considerable surplus after paying the interest on the landlord's bonds, by means of which these bonds might be extinguished before the terminable rentals came to an end. The same principle is applicable in Great Britain, for the recent reports of the Agricultural Commission show that large English Estates cost from 15 to 30 per cent. for management, while as much more is often laid out for improvements. The net revenue will therefore be, in every case, very much below the gross rental of the farms.

    But according to our proposals, all these costs of management will be saved when the State takes the lands, because we insist that the tenants must always become the owners of the buildings, fences, roads, drains, &c.,--all in fact which can be destroyed, removed, or deteriorated, while he remains a tenant of the State for the bare land. This bare unimproved land will want no "management;" the tenant will be left perfectly free to do what he likes with it, so long as he pays the rent punctually into the proper office; and he will be sure to do this because, if he fails, he will be liable to ejectment, and to have the house and improvements, which are his own property, sold. The improvements will therefore be a security for the payment of the rent, just as the house and premises in a town are a security for the payment of the ground rent. It is thus clear that, even in the case of agricultural land, the State could safely pay the landlord a fair price for his bare land (the tenant paying the landlord for any improvements made by him) and could still with the surplus rent received from the tenant, redeem a number of the land bonds every year. Taking the difference between the fair rental payable by the tenant and the net rental received by the landlord at 20 per cent., this difference will serve to pay off the whole purchase-money in 56 years, even if there is no increase whatever in the value of the land. But as large quantities of agricultural land are required every year for extensions of towns and villages, for manufacturing purposes, and for market gardens, the much higher rents obtained for this portion of the land will render the transaction a still more secure one, and the period of repayment shorter.

    [[p. 3]] With regard to town and building lands the conditions are much more advantageous, because they show a continuous rise in value, even in times of depression, owing to increase of population. It is calculated that this increase for the last 40 years has been at the average rate of 2 per cent. per annum for all the land of the kingdom, agricultural and urban, and as we have allowed for no increase in the value of agricultural land, we may fairly take the increase of the urban land at 3 per cent. But an increase of only 2 per cent. per annum will suffice to pay off the whole of the ground-rents in 40 years, while if the increase were 3 per cent. the repayment would be effected in a much shorter period.

    When this was done, the whole of the revenues derived from the land of the country would be available in lieu of taxation, and would probably suffice for all the legitimate purposes of the community, both imperial and local; but there is no reason why this great boon should be reserved for our successors alone. The fair plan would be to devote one half of the surplus rents to relief of taxation, the other half to repayment of purchase-money by extinguishing a portion of the land bonds. This plan would have the double advantage of immediately reducing taxation, and of effecting this by moderate steps annually, so as not to cause too great a disturbance to trade. It may be surely anticipated that, the relief thus afforded to industry, together with the increased production of wealth arising from the free access to land afforded to all labourers, would so greatly increase the general prosperity of the country that the repayment of the bonds would go on even quicker than has been estimated from the increase of land-values during past years.

    It is, I think, quite clear that by the plan now suggested, we should obtain all the advantages which we desire:--in the first place, immediate possession of the land, then an immediate and progressive reduction of taxation, culminating finally in the substitution of one general tax on ground-rent values in place of all other taxation. This can be done even though we pay landlords the full value of their land in good marketable securities liable to progressive redemption at par value. This method is more simple and intelligible than that of terminable annuities; it obviates all objections of unfairness; and it provides a good security on which all mortgages and other charges would have a lien instead of on the land. We may fairly anticipate that with such a method of fair and full compensation, the time of accomplishment of Land Nationalisation would be hastened one half, and this is surely of far more vital importance than the distant realisation of any ideas of abstract justice. A generous [[p. 4]] liberality will, in this case, as in so many others, prove to be in the result the truest economy.

    Those earnest land-reformers who object to any payment whatever for the land which they claim as the people's right, will no doubt accuse us of sacrificing principle to expediency. We can hardly hope to convince them, but we maintain that our method is not only expedient, but in the highest sense, just. It is just, because it is calculated to obtain all that can be obtained by the most violent and aggressive measures, and at a far earlier date. It is just, because, while obtaining at once the use of the land, and by a gradual process the whole of the revenues from it, no single individual will feel himself robbed, no one will be reduced from affluence to poverty, and consequently, none of those angry passions will be aroused and none of that wide-spread misery will be produced, which would be the certain effect of any large measure of taxation or other form of confiscation. Our plan is essentially one calculated to bring about the greatest happiness of the greatest number. It recognises the moral rights of existing landowners under a system which they did not create, and which has received the sanction of all civilised governments. It is a method which will be productive of the maximum of good with the minimum of injury to individuals; and it thus claims to embody the highest form of equity attainable under the circumstances of the case. We therefore trust that it will commend itself in principle to all who wish to bring about a great reform by peaceful, just, and practical means.

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