Here’s a new report about replacing business rates with a land value tax – an idea that people of all parties have been interested in. d3n8a8pro7vhmx.cloudfront.net/libdems/pages/… Some conclusions... (1/20!)
Why are business rates bad? Well, they’re a tax on physical structures as well as land. So it’s a building tax, a lighting tax, a blast furnace tax, a wind turbine tax, a railway tax, a broadband tax. Tax profits, sure, but it’s mad to tax physical infrastructure each year.
Business rates make lots of investment uneconomical at a time when Britain needs to boost productivity and build new, green infrastructure. Scrapping them would (over time) boost capital stock, productivity and people’s incomes.
But if we scrapped business rates entirely, the main effect would just be to allow rents to rise – particularly where land is in short supply. (If you look at property taxes as the community’s share of land rents, it’s obvious that cutting them just helps landlords.)
As others have suggested, we should replace rates with a land tax, removing structures from tax. Land value data is scarce but @dominijk has done great work modelling commercial values. These results show that land makes up 75% of commercial property value in England. 
With a smaller base (no buildings), this replacement tax would need a higher rate than business rates (e.g. 63% not 49%). Our paper recommends a rate of 59% of rental value (or ~3% of capital value), giving a slight tax cut overall
Moving from rates to a land tax has significant geographical impacts, as land is a higher share of property value in wealthier areas. Average taxes would fall in 92% of local authorities (and that’s only partly because it’s a net tax cut)
Taxes would rise in central London, and supporters of land taxation should be aware of that. But the tax rises needn’t be large, could be phased in over 4 years, and would suppress rents.
(On the face of it, cutting taxes in most of the country would be bad for local government finances in those places, but that can easily be solved through the redistribution mechanism.)
This tax switch would also be great news for manufacturing – bringing an end to the heavy taxation of capital-intensive factories – as well as renewables (generally on roofs or cheap land!), railway lines and other infrastructure
The government should also scrap stamp duty for commercial properties. It too discourages investment, and stops the efficient allocation of property. It only raises a few billion, so in my view a 1p corporation tax rise would be a price worth paying for its abolition.
A big, separate problem with business rates is that it uses outdated values. Even with plans to improve this, it will always have a 2-5 year lag, and big jumps every few years. We should be aiming for annual revaluation.
Linking business rates revenue to CPI (formerly RPI) means that if there’s a recession, taxes might have to rise! And when the commercial property market’s strong, business rates fall in importance. This is the wrong way around: taxes should be linked to the health of the market.
A tax that’s actually linked to land values, with regular revaluation, would also do a better job of capturing price uplifts that occur as a result of public and community investment, helping make the financial case for new infrastructure
We should also move responsibility for the tax to land *owners*, not occupants. Transition would be tricky but worth it, as most SMEs would no longer have to deal with rates. Yes, rents would rise, but big property companies should be the ones to deal with property tax admin.
In addition, there are far fewer plots of land than business rate ‘hereditaments’. So the number of separate tax bills would be more than halved (from around 2m to 800k), saving councils tens of millions a year in collection costs.
As a tax on owners, the ‘Commercial Landowner Levy’ would apply equally to empty and derelict sites. No more vandalising or demolishing properties to avoid business rates, and no more speculative holding of empty sites without paying tax
Small business rate relief is not great – it probably just goes to landlords, and it has marginal tax rates of over 100% at the boundaries. But a land value tax should seek other ways to help small businesses, e.g. doubling the Employment Allowance to cut employer NICs:
A continuation of charity relief might be needed under a land value tax (or another kind of help agreed), but relief for private schools and private healthcare should end. And the Commercial Landowner Levy should probably not extend to agriculture, at least to begin with.
Replacing business rates with a land tax could happen in any of England, Wales, Scotland and NI. I reckon it’s only a matter of time before at least one nation does it, and hopefully this report will be useful! d3n8a8pro7vhmx.cloudfront.net/libdems/pages/…
@threadreaderapp unroll please
