Killer Arguments Against LVT, Not (330)

There are people who don't understand maths who say that because selling prices can fluctuate quite markedly from year to year, and because rents also fluctuate (although nowhere near as much) that the revenues would be too unpredictable.

Well, if you just have low level LVT, fluctuations wouldn't matter, there are just good years and bad years and it all evens out.

If a government relies on LVT as a major source of revenue (or in MMT terms, "a major source of money unprinting"), then the UK already has a perfectly sensible system for dealing with fluctuations/revaluations.

Even if you didn't know that this system existed, you would invent it anyway.

Take it away, Valuation Office Agency:

The rateable value assessed by the VOA and shown in a rating list is broadly the open market rental value (Local Government Finance Act 1988) at a valuation date set by Regulation. This set valuation date (known as the Antecedent Valuation Date or AVD) is normally two years before a rating list comes into force, so 1 April 2008 was the AVD for the current rating lists that came into force on 1 April 2010.

All non-domestic properties (hereditaments) are assessed on this basis, even new properties, so they are valued on a fair and consistent basis. The business rates bill is calculated by multiplying the rateable value of a property with the multiplier (tax rate) set by Government.

A cycle of 5 yearly revaluations has existed since 1990 in England & Wales. The aim of each revaluation is to redistribute the same overall business rates bill to businesses, based on the relative changes in property values since the last valuation date; revaluations do not raise any extra revenue.

So, going by their figures to illustrate the point, in 2008 total rateable values (the amount of rent that could be collected by landlords, assuming tenants pay the tax, which is slightly circular but not even that matters) were £57 billion in England, the government's target receipts from Business Rates in that year were (say) £25 billion, so the multiplier (i.e. the tax rate) was 43.9%.

They guesstimated that total rateable values in 2012 had fallen to £48 billion, so assuming that target receipts are still £25 billion, the multiplier is just nudged up to 52%.

It is only relative changes in value which matter; if the rental value of your building goes up and everybody else's goes down, then your tax bill goes up markedly. If yours goes up but everybody else's goes up even more, your tax bill goes down.

So absolute values don't matter either, as long as the valuation method is consistent, i.e. if all rental values are slightly over- or understated, it cancels itself out and everybody ends up with the "right" tax bill.

And while it is intellecually more sound to base such a tax on rental values than on selling prices (and on site values rather than total values), not even that matters, you can divide the required tax revenues by total selling prices and then apply that smaller percentage to selling prices, it always evens itself out. As long as values are based on averages for similar plots/buildings in any area regardless of the actual condition of each building, then there is no disincentive to improving your own building; your tax bill won't go up if you do.