How Forestry Favours the Wealthy
“Super-rich buying up the forests of Scotland” declaimed newspaper headlines recently – with The Times reporting “Scotland’s forest land in danger of becoming an offshore tax haven for the super-rich”. Those of us who can recall the 1980’s – the dreadful mullets, the leg warmers and Duran Duran – also remember adverse publicity about forestry investors very similar to this.
It is interesting that it was The Times that broke the story, not being renowned for an editorial position favouring social justice; however, FPG is grateful to Magnus Linklater for shining the spotlight. FPG has invested much of our efforts to date looking at the other side of this particular coin – pointing out how difficult it is for people of ordinary means to own woodlands[1]. Flip that coin, and it is clear how the opposite is true – UK forestry is uniquely configured to favour the rich by attracting in what private forestry interests call “high net worth individuals being advised by a solicitor”. This is typically someone with no real interest nor expertise in forestry, and whose only qualifications, aside from having funds to invest, is that they have discovered that current grant and tax arrangements lead to very high rates of return – particularly if you are already rich.
Forestry grants and tax incentives, and who they benefit, need to be questioned. Public money is indeed needed to help deliver more trees and the many benefits they bring. However, giving public money to already wealthy individuals and organisations – and thereby topping up their investment returns to levels exceeding those from the stock market or commercial property[2] – is a highly questionable use of public funds. On the other hand, channelling woodland grants towards upland farmers to diversify land use and keep farms viable via tree planting, or to support community owned forests and local forestry enterprises are far more palatable. The former undermines various aspects of Scottish Government policy, the latter supports it.
It is obvious that rising timber prices have played a part in stoking the returns from forestry investment. However, one quick look at how forestry companies and rural land agents market forestry as an “investment vehicle” underpinned by grants and tax advantages, is enough to illustrate the importance of public money in attracting the “super-rich”[3].
Current incentives disproportionately benefit rich people because the exemptions on capital gains tax and inheritance tax only work for people with assets large enough to exceed the tax thresholds; and because income tax exemptions are worth more to higher rate taxpayers. Your typical “rural person of ordinary means” who might aspire to own and manage a woodland is unlikely to be able to make much use of all of this. But our high net worth individual (and his or her solicitor and tax advisor) do very well, and the higher the value of the forestry asset, the greater the benefit. The Times reports that tax arrangements post the 1988 budget were “treated with caution by the FCA since it benefits only those wealthy enough to take advantage of it”. So, there are a number of issues here for FPG to unpick in future work, and quantification of those benefits would be a worthwhile task. FIM staff have been heard saying that they do not need woodland creation grants for forest investments to be viable – and we know that forestry grants, intended to cover planting costs, can offset the capital costs of land purchase for the incoming investor. Both points are food for thought.
So how is “investment forestry” organised? A complex of profitable businesses exists to capture investing “clients” – rural estate agents, forest management companies, solicitors, wealth management consultancies, accountants, tax advisors, investment companies and pension funds. Not exactly the “military-industrial complex” that Eisenhower warned us of, but we should be very aware of the power, financial and otherwise, of the “rural-land-investment complex” and its extraordinarily well-connected personnel. Forest management companies typically have staff dedicated simply to seeking out clients, some, maybe many, of which will be our “no-expertise-in-forestry” investor clients. This is a remarkable forestry structure, unique to Britain; and one which thrives on the current pattern of forest ownership. These same companies service the eternal merry-go-round of sales and purchases of woodlands, charging a percentage on property transactions, with business oiled by ever increasing land prices – those prices as The Times suggests, being helped upwards by the ongoing recruitment of wealthy clients worldwide.
FPG has long shared the Scottish Governments enthusiasm for land reform, though not uncritically. We have highlighted that the current pattern of forest ownership is non-ideal[4] , and bringing in yet more wealthy people to acquire chunks of Scotland exacerbates the issues and undermines land reform. Our “rural-land-investment-complex” efficiently circulates forests on a worldwide open market; with no controls on who can own land in Scotland, and with wealth inequality on the increase worldwide, there is no shortage of purchasers. Similar factors play a part in spiralling agricultural land values, which in turn makes it more difficult for people of ordinary means, or communities, to acquire land for woodland creation or, for that matter, farming. Just as we have sleep-walked into lack of “affordable housing”, we have invited in the wealthy to bid up our land prices, and now have a parallel crisis of “affordable land”.
We believe that any analysis of the public benefits (local economic development, environmental, landscape and recreation) of “investment forestry” plantations would reveal that they delivered the poorest value for the public money spent. It is also FPG’s view that these types of new woodlands continue to alienate rural people from forestry, because they typically have minimal connection with, or relevance to, local people, beyond the occasional job for diggers and fencing contractors.
FPG is not suggesting that wealthy people should not own forests. We are not even arguing that external investment into forests is always undesirable. In the context of land reform, we are wondering what an appropriate balance of different types of forest owner might be; and we are wondering what a desirable balance of public funding going to different types of owner might be. FPG’s view is that the rich have indeed been getting far too much of the public cake for a long time; and if The Times thinks that is the case, FPG probably does not need to spend too many words arguing the point.
So, what needs to change and how might we try to do it?
We start with a plea for better information on who owns land, citing that the UK probably has the worst data on this of any developed country. We know that some information exists; for example, the National Forest Inventory (NFI) now collects ownership data as standard, but this has not been released. We need up-to-date information on who receives what public money, either as grants or tax relief. To try to get a handle on the scale and types of beneficiaries of tax relief, a Parliamentary Question would be a good start. Getting statistics on the scale of tax relief on inheritance/capital gains tax, the sale of timber and the exemption on corporation tax, as these apply to our larger forest owners, would be useful. And when we have those estimates of public support received by different types of owner, we could compare them with the scale of public benefits each delivers.
Tax arrangements on forestry need reforming to stop them being so regressive – after all forestry tax has remained unaltered since the days of Nigel Lawson and Frankie Goes to Hollywood. Reform would need to take account of agricultural tax arrangements to ensure a broadly level playing field. However, tax arrangements are largely controlled from Westminster, and nothing sensible is likely to come out of there for a few years; so a Scottish Government with commitments to land reform and social justice could usefully start calling for devolution of these powers. We note that concern about land ownership issues are starting to surface in England, which might help progress[5]. Grant income and tax reliefs are essentially uncapped per individual which seems bonkers on several fronts. After all a flagship policy of recent UK governments is to cap the total benefits paid to people receiving disability and unemployment benefits; so why not the wealthy? Action via the Forestry Grant Scheme to cap the financial benefits received by individual owners would be a start. FPG wonders if there is scope for Woodland Creation grants to be tailored to be more attractive “desirable” types of owner compared with incoming external investors?
There is scope for the Scottish Government to intervene in favour of local communities in a way like wind farm income being deeded to the local community. For example, where a community expresses an interest, a proportion of grant-aided new private woodland could be transferred to community ownership. The ragbag of ideas set out above demonstrates that FPG does not have the answers to this complex topic. But we do have the will to investigate further, we don’t accept the Status Quo, we would like to propose solutions, and it is time for this discussion to be had. Now where is that Duran Duran single?
[1]http://www.forestpolicygroup.org/wp-content/uploads/2014/08/FPG-briefing-3-Forest-Ownership.pdf
[2] https://forestry.greshamhouse.com/, https://www.johnclegg.co.uk/forest-asset-management/uk-forest-market-report/
[3] e.g. https://investmentproperty.co.uk/property-investment-resources/forestry-investment-investing-in-commercial-woodlands/
[4] http://www.forestpolicygroup.org/wp-content/uploads/2014/08/Forest-Ownership-In-Scotland-Feb-2012.pdf
[5] https://www.bbc.co.uk/programmes/b006qptc World at One programme Radio 4, 20th August 2019
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