The Impact of Business Rates on Business

The Treasury Select Committee has launched an inquiry into Business Rates, to examine their impact on business, including Business Rates retention and alternatives to property-based taxes, such as the proposed digital services tax. Crucially the inquiry will consider the impact of changes (proposed and actual) of Business Rates on Local Authorities and Councils, and the High Street.

Sebastian McCarthy in City Am quotes Nicky Morgan MP, chair of the treasury committee: “Many high street businesses are struggling to remain competitive. It has been estimated that 10,000 shops will close this year. Unless action is taken, closures could continue and job losses may soar”, adding: “We’ll examine how the current system is working and consider whether an alternative system, for example, a land-value based tax, may help level the playing field between retailers.”

The non-domestic rates multiplier will rise to 50.6p in the pound in April, marking the first time that firms will pay an effective tax rate of more than 50 percent on their properties.

John Webber, head of business rates at Colliers International said “…the current business rates regime needs a roots and branches reform: regular revaluations, a proper review of reliefs, a sensible multiplier, a reform of the appeals system (which ground to a halt in 2017) and a properly funded valuation office, as well as some immediate action- to freeze rates rises this year and to remove downwards transition, that is strangling many of the provincial retail stores. But…if the Government insists on raising the same amount of money by the same group of people (25-30 percent of business rates are paid by the retail sector), then we will be no further forward.”
The Liberal Democrat policy on business rates calls for replacing business rates with a commercial landowner levy i.e. assessments based on land rental values excluding buildings and other improvements. The Policy was adopted at the 2018 autumn conference Tax Land Not Investment.

Vince cable speaking to the policy said:
“Business rates were a badly designed policy to begin with and have become an unacceptable drag on our economy. They are a tax on productive investment at a time of chronically weak productivity growth, and a burden on high streets struggling to adapt to the rise of online retail.”

“Many of the areas around the country that voted for Brexit feel they have been left behind. In place of policies, the Brexiters offer only rhetoric. Great swathes of the country demand better, and this policy offers change to the manufacturing industry and the small towns passed over by economic growth.”

The IFS has come to the same conclusion IFS backs Land Value Tax saying a Land Value Tax “would remove altogether the disincentive to develop and use property that business rates create.”

ALTER will make a submission to the Select Committee Inquiry
based on Libdem policy and the capture of economic rents accruing to the benefit of International digital services companies operating in the UK.

* Joe is a member of Hounslow Liberal Democrats and Chair of ALTER.

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6 Comments

  • Paul Griffiths 2nd Feb '19 - 8:49am

    One recurrent criticism of LVT is the alledged attendent need for frequent and accurate land valuations. I wonder if this would be a fruitful application of artifical intelligence. I envisage an AI app which, when fed the boundary coordinates of a parcel of land, could produce a presumptive (challengeable) valuation based on data from various sources. Perhaps such a thing already exists?

  • Peter Martin 2nd Feb '19 - 9:47am

    I thought the article might be more about a LVT than business rates!

    The idea of a LVT goes back to the 19th century and the 1897 book written by Henry George, Progress and Poverty. His idea was it could be a single tax. It would have appealed to the emerging capitalist class, at the time, who didn’t like the idea of paying out ‘money for nothing’ to the more established aristocracy who owned much of the land.

    Effectively, although modern day Lib Dems might not want to see it like that, Georgists wanted land nationalised without compensation so only the Government would then receive rental value from land. The capitalists would pay their land rent to the Government instead of the aristocracy and so the Government would have no need to levy income taxes, business rates, purchase taxes, import duties etc. That was the theory!

    Hopefully we’ve moved on in the 21st century from 19th century conflicts between capitalists and the aristocracy. LVT could have a place in a balanced and well managed tax structure, but it will be just another tax. Don’t hold your breath waiting for it to replace income tax or even business rates!

    http://bilbo.economicoutlook.net/blog/?p=30215

  • Peter Davies 2nd Feb '19 - 10:47am

    @Paul Griffiths AI might well produce a more accurate prediction of sale value than a human. If it doesn’t exist, there are no doubt estate agents who would love to get their hands on it. In taxation though, I think transparency and predictability take precedence and you need a complex but conventional deterministic algorithm that anyone can use and get the same result.

  • Peter Hirst 4th Feb '19 - 2:12pm

    With all the uncertainty that the possibility of Brexit is causing businesses, they need all the help they can get and abolishing business rates must be a step in the right direction.

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