Business rates
Helen Miller
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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
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Receipts from recurrent taxes on non-domestic immovable property as a share of national income, 2011
Israel
United Kingdom
Australia*
Poland*
Netherlands*
France
OECD average*
Sweden
Belgium
Slovenia
Finland
Slovakia
Germany
Mexico*
Austria
Czech Republic
Norway
South Korea
0 0.5 1 1.5
Receipts as a share of national income, %
2
Source: Figure 11.3. , The IFS Green Budget 2014.
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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
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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”
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How business rates works
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Only 20% of properties have a rateable value above £25,000
£0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,000
Tax base: rateable value

How business rates works
50%
45%
40%
35%
30%
25%
20%
Standard multiplier: 47.1%
Rateable value of £30,000 implies £14,130 tax bill
15%
10%
5%
England (outside London), 2013-14
0%
£0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,000
Tax base: rateable value
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How business rates works
50%
45%
40%
35%
30%
25%
20%
Between revaluations: multipliers uprated in line with RPI
At revaluation: multipliers adjusted so that average bill increases in line with
RPI
15%
10%
5%
England (outside London), 2013-14
0%
£0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,000
Tax base: rateable value
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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
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Recent policy changes
Two departures from normal process of adjusting bills:
1.
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
2.
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
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‘Temporary’ doubling of small business rate relief
50%
45%
40%
35%
30%
25%
20%
15%
10% with 'temporary' extension of relief, 2013-14
5% without extension of relief, 2013-14
0%
£0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,000
Tax base: rateable value
© Institute for Fiscal Studies

‘Temporary’ doubling of small business rate relief
50%
45%
40%
35%
30%
25%
20%
15%
10% with 'temporary' extention of relief, 2013-14
5% without extension of relief, 2013-14
0%
£0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,000
Tax base: rateable value
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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?
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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
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Conclusion
• Business rates is a substantial tax, with room for reform
• Options going forward:
1.
return to a stable system
2.
levy a simple percentage of up-to-date values
3.
move to a land value tax
• Coalition government’s package of business rate changes didn’t move in these directions
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