Our Thoughts
Tue, 06/06/2017 - 12:00
· 3 min read

Manifestos Pledge More Business Rates Reform

Conservatives to explore self-assessment while Labour suggests a new land value tax.

One thing is certain. Irrespective of who wins the General Election, more change to the business rates system is inevitable.

In their manifesto, the Conservatives pledge to explore a system of self-assessment, an idea that they have been keen on for some time and that would take recent reforms a step further.

This direction of travel has already been seen in the new business rates appeals system – as of 1 April 2017 the rateable value appeal system was replaced with Check, Challenge, Appeal, a bureaucratic, sequential process that puts the onus on ratepayers to correct any factual inaccuracies in the Valuation Officer's records, before progressing to the Challenge phase.

The difficulty is that whilst businesses may be able to vouch for the accuracy of factual matters they are in the business of running their business: they are not in the business of valuing their premises.  This option may be onerous and therefore at odds with another manifesto pledge of making the overall tax system simpler.

The government first sought businesses’ views on self assessment in 2015, at which time we posed a number of questions as to how the system could work in practice.  Should the Conservatives retain power then we look forward to receiving more detail of this and their other pledges, many of which, such as the desire to update the tax for a world in which people increasingly shop online, and for revaluations to be carried out more frequently, repeat the small print of previous budgets.

Combined with the long term plan of ‘digitising’ the tax system by 2022, one suspects that there could be a grand plan to culminate all of these individual pledges into an overhauled system.

Labour is proposing to initiate a review of business rates (and council tax) and would consider options such as a land value tax, an idea that was consulted on when they were was last in power.

The manifesto does not indicate what exactly the tax is or how a liability would be calculated, although it is commonly understood to be an annual levy on the unimproved value of land at its highest potential use value, disregarding the value of buildings and other site improvements. Its proponents argue that because the supply of land is fixed and its value is created by communities and public works, the ‘economic rent’ of land is the most logical source of public revenue.

The current rating system is based on a market value to an occupier, with rental values for commercial premises (capital values for domestic premises under council tax) reflecting the value of the buildings and the land beneath them.  A land value tax attributes value to land only, which suggests that there is no direct liability to a tenant/occupier.

However, one wonders how the market would cope with such a tax. Would landlords recoup the liability via the service charge? What would the effect be on the investment and annuities markets? There is no doubt that such a transition could also be politically difficult.

Should a Labour government put this manifesto pledge into action then a debate is needed in order to establish how the tax could be implemented in a way that minimises disruption and at least maintains tax receipts whilst this new system is introduced.

Labour’s other pledges are to maintain the £1,000 discount to certain size pubs. They also pledge to change the annual inflationary adjustment to rates bills from RPI to CPI and to exempt new investment from plant and machinery from valuations, matters that have been considered by government recently.

Whoever wins, it seems the system is set for further change. Whether this will produce the package of reforms that businesses have been clamouring for in recent years remains to be seen.

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Source:  Office for Budget Responsibility, Economic and fiscal outlook, March 2017

 

Manifestos Pledge More Business Rates Reform