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Let’s redesign business rates, not scrap them

Paul Finch
  • 1 Comment

Calls to scrap business rates are misguided, says Paul Finch

No doubt architects in many parts of the UK will be fuming, to use tabloid jargon, at the increase in the rateable value of their premises. For many, a hike in value will inevitably mean an increase in the tax actually paid. For others, especially north of the Watford Gap, the news may be more welcome, since a revaluation inevitably reflects the changing economic fortunes of different regions.

The latest revaluation should not come as a shock to anyone with half a business brain. The idea that values in London have not risen since the last revaluation seven years ago is laughable. Business people should have been smart enough to take that into account in their budgets.

It is true that the revaluation should have taken place two years ago, but was postponed in cynical fashion by spin-man David Cameron because he thought it would give him political advantage – just as he postponed a decision on the third London airport to half-renege on an electoral promise.

The problem with delays is that they always have unexpected consequences. In the case of business rates, supermarkets have benefited from the delay, while independent traders in prosperous areas have suffered. On-line retailers are laughing all the way to the bank, because they do not operate shops. So-called charity shops are also cushioned, to the understandable ‘fury’ of commercial retailers.

My local butcher is soon to close, partly because he will have to stump up £18,000 a year in business rates, plus a further £3,000 to have his rubbish removed, which adds insult to injury.

However, I have to say that, in principle, I like rates as a form of taxation. They are very cheap to collect, very difficult to duck, and are a reflection of the premium our culture has always put on property ownership. They are predictable, as are revaluations, and can be very flexible, depending on the way they are administered – in the case of Margaret Thatcher disgracefully, since she centralised the collection of business rates in a most undemocratic way, a policy subsequently being unpicked.

She never understood rates, which is why her disastrous ‘poll tax’ mania (not the EU) led to her political downfall and why one of John major’s first acts as prime minister was to abolish a policy which meant Prince Charles’s valet paid more than his master. Mrs T tried to reform rating but got it all wrong.

It is no accident that Crown, Church and Aristocracy are big winners. They invented the system

As with many systems, an architectural analysis would have paid dividends, then as now, since it would begin by looking at overall context, rather than one narrow issue. Such an analysis might begin by reviewing property that is not rated – for example agricultural land. It is no accident that Crown, Church and Aristocracy are big winners in a system of property taxation that excludes such a significant element of their wealth. They invented the system! So how about rating farmland, but offering exemptions where it was put to useful purpose (ie not growing crops just to attract EU subsidies)?

As to business premises, what about annual revaluations, not difficult in the world of big data? And what about addressing the anomaly that any lease with rent reviews contains a clause saying they will be ‘upward-only’? This is an owners’ ramp which distorts the market by artificially propping up false values, the truth only becoming apparent when a lease ends.

There is room for reform, certainly, but let’s remember that it is not rateable value which determines the amount you pay, but the rate itself. An obvious point, but one which gets very little air-time in the over-excited discussions now taking place. Let’s redesign business rates, but let’s not scrap them.

  • 1 Comment

Readers' comments (1)

  • There's surely a case for making 'upward only' clauses in rent reviews illegal, and the current state of some British high streets suggests that their rateable values should be nosediving.
    It's not just delays that have unexpected consequences - who would have guessed that the phenomenal growth of the giant online retailer (with its all-encompassing tax dodging business model and - to add insult to injury - its ability to attract development grants to build vast warehouses providing lots of crap jobs) would annihilate our high street traders, starting with local bookshops?
    If there'd been a referendum, I bet the vote would have been in favour of unrestricted online retail selling, and the people would have spoken.
    But, rather like the 'Brexit' vote's potential impact on us all via Northern Ireland, sometimes neither we nor our politicians show much foresight.

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