Cable: Broken business rates system should be abolished
Leader of the Liberal Democrats Vince Cable has warned the Chancellor’s business rates relief is nothing more than “hand-to-mouth support” and has called for the broken business rates system to be abolished.
Liberal Democrat leader Vince Cable said:
The UK high street is suffering the worst year on record, with in-store sales falling and hundreds of thousands of jobs lost.
While I welcome any relief, hand-to-mouth support for businesses simply isn’t sustainable. Liberal Democrats demand better. There needs to be a fundamental change to the system.
We must create a level playing field between the high street and online retailers. That means scrapping the broken business rates system and replacing it with a tax on land values that would boost investment and cut taxes for businesses in nine out of ten English local authorities.
The Liberal Democrats want to abolish business rates and replace it with a tax on land values, the Commercial Landowner Levy (CLL). The levy would remove buildings and machinery from calculations and tax only the land value of commercial sites, boosting investment and cutting taxes for businesses in nine out of ten English local authorities.
Liberal Democrat plans, passed at their Autumn conference, include:
Business rates should be abolished and replaced by a Commercial Landowner Levy based on the value of commercial land only
The levy should be paid by owners rather than tenants
Non-residential stamp duty should be scrapped to improve the efficiency of the commercial property market
Commercial land should be taxed regardless of whether the buildings above it are occupied; the tax should also apply to unused and derelict commercial land.
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6 Comments
This is looking at business rates from the perspective of businesses. Since they are also a key part of the incomes of local authorities (and due to become more so with the proposals for the 100% retention of business rates) this is a road to cutting LA incomes even further unless there are alternative proposals and other sources of funding. But hey – who cares about local Councils when there are some populist points to be made?
And no, I don’t think business rates, as they are, are a sensible system. But if you want to change them set out the changes, and don’t pretend that businesses as a whole can get away with paying less into the public services.
Of course we have to remember that the Rateable Value of a business property is (roughly) equivalent to the rent a business would have to pay for the property if it rented it. Rates payable are then a fixed proportion of that, based on a multiplier set by Whitehall. Overall therefore it can be regarded as a mechanism for sharing total rent between the property owner and the state.
All that has happened is that rental income has risen substantially for property owners, badly squeezing many businesses, and when the smaller increase in rates has came along, it led to an outcry from businesses. The Conservatives’ response is to reduce the government’s cut – i.e. totally failing to address the cause of the problem and instead get the public to subsidise landowners.
Oh dear, and I thought at first reading it that it would be helpful for our NE towns where we have absentee landlords who don’t care if a shop is empty or not. The rates are a huge problem for local businesses, had a long diatribe from my hairdresser the other day (he is pretty clued up and sensible).
Obviously needs to be a way of compensating local authorities. Retired from council now but didn’t they have to collect, send to government and then get back on a secret formula. Don’t we have a policy on reforming?
The policy shifts business rates off tenants and onto landowners. Landowners will have to make a commercial decision as to whether to attempt to pass on the charge in their rents to tenants or risk leaving the building empty without a tenant (in which case the landowner will still need to pay full business rates on the land value anyway). The UK is something of an outlier in this respect as virtually all countries assess property taxes on Landowners not the tenants.
The revenue increases for local authorities come from extending business rates to vacant land that is sitting idle.
I think local authorities could also look closely at bringing residential property letting businesses into their tax base as central grants are cut and replaced with 100% retention of business rates.
Why should businesses pay rates in addition to taxes on their profits, Tony? They exist to make a profit. Perhaps part of their taxes should be redirected to local authorities.
Peter, you ask “Why should businesses pay rates in addition to taxes on their profits?”
Simply because a diversity of taxes gives extra risilience to government revenues and a better chance of equity. For every Starbucks paying minimal corporation tax on its profits there are hundreds of Starbucks outlets paying rates. Property taxes are difficult to evade and avoid.