In a briefing paper put together by the British Retail Consortium (BRC) to press the case for a reform of business rates, it said the tax on property is “no longer fit for purpose” and has become split from the health of the economy and individual businesses.
Retailers including Sir Philip Green, Justin King, and Ian Cheshire have called for business rates to be overhauled to help protect the high street. Business rates are costing the retail industry more than £7bn a year and increased by £175m in April.
Business rates are paid on commercial property and based on the rateable value of the site as well as inflation. They are the only national tax where the revenue generated each year is fixed in real terms.
Merge business rates and council tax, extend it to agricultural land, base it upon rental values as business rates currently are and you’ve a decent approximation to a land value tax.
Then add Heinein’s twist – that the owner gets to set the value of his land – on condition that anybody who wants can buy it t 3 times the owner’s valuation. (Heinlein’s best of all possible worlds in Number of the Beast)
That’s a good long term plan, but in the short term there’s a much simpler solution.
The most recent BR valuation was in 2008 (although the new rates didn’t come in until 2010); the next valuation isn’t scheduled until 2017. Since 2008 was pretty much the peak of the commercial property market, it’s not hard to see that those valuations are artificially high.
Worse though, Business Rates have been increased every year by RPI, the highest measure of inflation. The cumulative increase in RPI since 2008 is 15%; even though commercial rents in most parts of the country have actually been falling in that time.
In the short term, the government could stop raising business rates by RPI, and instead raise them by an index of commercial rents. In many places that would mean a fall in business rates.
It’s not as good as LVT, but don’t let the perfect be the enemy of the good.
AndrewM
Nope. All that would do is allow/enable landlords to increase rents. What the 15% increase in BR has actually done is to keep rents down by 15%. And that would be reflected in your indexing of commercial rents. What you are advocating is a one time special increase in landlords rental yields. Lucky them.
Why on earth would you want a Land Value Tax?
Such a thing would be (eventually) a way of converting accumulated capital into revenue to be wasted by government and its little helpers.
It would be the end of retirement, and the end – in principle – of freehold ownership which is, as we all know from reading de Soto, one of the foundations of prosperity.
It’s a way of converting us all into the State’s tenants and slaves.
Of course none of this would be true to begin with; it never is, to begin with….
Lola – That’s true to some extent, but we don’t know how much pain commercial landlords are able to bear. In my local area plenty of commercial buildings are being converted to residential.
My point is about fairness though. if the government’s aim is to increase the Business Rates multiplier (the % of rent charged), they should say so, rather than sneaking it in through RPI and fiscal drag. Under the current system, rates are likely to fall and landlords will get a windfall after the next revaluation in 2017.
Mr Duffin,
De Soto said nothing about freehold vs leasehold. Leaseholders can obtain financing just as easily as freeholders. LVT is analogous to making all property owners leaseholders to the state. Besides, LVT applies only to the land; the building atop can still accumulate wealth.
“Merge business rates and council tax, extend it to agricultural land, base it upon rental values as business rates currently are and you’ve a decent approximation to a land value tax.”
Well, that is Land Value Tax, all you then do is minus off improvements, which is done easiest by comparing physically similar buildings in different areas – any difference in rent must, by definition, be the value of the “Location, location, location” then it’s just a question of deciding which building is the zero-tax baseline.
“Why on earth would you want a Land Value Tax?”
Click link for answers.
To cut a long story, because, unlike taxes on earned income, it is actually a GOOD tax, it makes things better rather than worse.
Admittedly, the government will always waste a fair chunk of what it collects (separate topic), but it is still better for them to waste LVT than to waste income tax, VAT, NIC and so on.
Leaseholders have no problem with financing because most leases in England expire long after the holders great^20 grandchildren will be dead and forgotten.