Business rates

1. Business rates Helen Miller

2. A substantial but (usually) little discussed tax • Business rates are levied on non-residential properties, with some exemptions • Raise substantial revenue • 2012–13: £26.1 billion; 4.5% of total revenue • council tax: £26.3 billion; corporation tax: £40.4 billion

3. Receipts from recurrent taxes on non-domestic immovable property as a share of national income, 2011 Source: Figure 11.3. , The IFS Green Budget 2014.

4. A substantial but (usually) little discussed tax • Business rates are levied on non-residential properties, with some exemptions • Raise substantial revenue • 2012–13: £26.1 billion; 4.5% of total revenue • council tax: £26.3 billion; corporation tax: £40.4 billion • Revenues are high by international standards • Are not responsive to economic conditions • business rates revenue increased as share of all revenues since 2007

5. Response to recent concerns David Cameron, January 2014: • business rates are “businesses’ – and particularly small businesses’ – number one complaint” • “I think we do need to look at longer-term reform” Ed Miliband, September 2013 • “[we propose] cutting small business rates when we come to office in 2015 and freezing them the next year”

6. How business rates works Only 20% of properties have a rateable value above £25,000

7. How business rates works Standard multiplier: 47.1% Rateable value of £30,000 implies £14,130 tax bill

8. How business rates works Between revaluations: multipliers uprated in line with RPI At revaluation: multipliers adjusted so that average bill increases in line with RPI

9. Problems with the business rates system • Discourages development and use of business property • taxing value of land (excluding buildings) would not do this • Rateable values move out of line with current rental values • could improve this by having more frequent revaluations • and/or by uprating rateable values to keep them as close as possible to current values - e.g. uprate in line with a local rental price index • Some types of property treated differently, with no clear justification

10. Recent policy changes Two departures from normal process of adjusting bills: • Multipliers to be increased by 2% in 2014, rather than the 3.2% implied by the September 2013 RPI • giveaway mainly to property owners in the long run • Revaluation of rateable values due in 2015 delayed until 2017 • aim: prevent sharp changes in bills • likely effect: sharper changes in 2017 • largest losers: offices in London; offices in the West Midlands; offices & retail premises in the North • largest winners: offices in the East Midlands; retail premises in the East Midlands and London

11. ‘Temporary’ doubling of small business rate relief

12. ‘Temporary’ doubling of small business rate relief

13. Temporary relief for retail properties • Discount of £1,000 for retail properties with a rateable value ≤£50,000 for 2014–15 & 2015–16 • 300,000 properties estimated to be eligible • Disadvantages to treating retail premises differently • Possible rationales: • bricks-and-mortar retailers face more competition from online rivals • (smaller) retailers bring benefits to wider society • If there are compelling arguments for the relief, why only temporary?

14. Moves to localisation • Aim: incentivise local authorities to promote development, for example through the planning system • From April 2013, English LAs retain a share of receipts from new properties until 2020 • desire to equalise resources across LAs dampens incentives • Merit in the intention, but complicated design, with room for improving incentives • e.g. allow LAs to keep a fraction the revenue for a given number of years (five or ten, say) rather than until a given calendar date

15. Conclusion • Business rates is a substantial tax, with room for reform • Options going forward: • return to a stable system • levy a simple percentage of up-to-date values • move to a land value tax • Coalition government’s package of business rate changes didn’t move in these directions