Friday, 24 May 2019

I was surprised to see this in The Telegraph

I just stumbled across this, from three years ago:

Business rates are the closest thing we have in the UK to a land value tax (LVT). They're favoured by economists for their property of being "non-distortionary". They don't mess around with incentives, unlike many other forms of taxation.

A higher income tax may be a deterrent to earning more money in the UK, as are corporation tax hikes, but the supply of land is fairly fixed - people aren't going to change their production of it in response to higher taxes...

Business rates have existed for a lot longer than we’ve had evidence in support of them. They were first introduced in their current form in 1990. Their heritage can be traced back further, to the Poor Law of 1572, and later the Poor Law of 1601. They’ve had more than a few facelifts since.

Are they popular? Other than with economists? Not really. Business rates have become the business lobby’s bogeyman. The British Retail Consortium (BRC) is particularly opposed.

“Business rates bills have continued to rise when property values have fallen,” Sir Charlie Mayfield, the BRC’s president has said. “Reforming the rates system would be a welcome boost for retailers and help drive investment in training and technology.”

The opposition from businesses on the grounds of their cost is rather strange, because it's not occupiers that end up taking the financial hit. Rather, it's land owners. This is the so called "incidence" of a tax, who ends up shouldering it. 

If business rates rise or fall by a small amount businesses aren't likely to face different costs, just correspondingly higher or lower rents over time. So there would be no more money for investment [as a result of reductions in Business Rates] after all.

It's the landlords who lose out as a result of business rates. Over a period of two to three years, three quarters of the change in business rates is capitalised into rents, according to a report from Regeneris, the consultancy. This has been backed up by work from the London School of Economics which examined properties in London, and a more recent paper using data from enterprise zones, which also came to the conclusion that it is landlords who end up taking the hit.


Dinero said...

Reads just like a regular post to this blog.

Mark Wadsworth said...

D, thanks, I think.