One of the many reasons for the inquiry is that businesses claim the current system is not fit for purpose in a modern e-commerce economy and that infrequent revaluations ensure liabilities do not reflect current trading conditions. Amid such concerns contributors to the inquiry put forward a number of alternatives that are considered below:
Land Value Tax (LVT) – could be an annual levy on the unimproved value of land at its highest potential use value, disregarding the value of buildings and improvements. Its proponents argue that as the supply of land is fixed and value is created by communities and public works, the ‘economic rent’ is the most logical source of public revenue.
Businesses deserve a system that reacts to change in the modern economy
At this time there does not appear to be sufficient appetite to introduce an additional sales or profits-based tax.
Insufficient data and modelling to make a recommendation for change
Government to prepare a consultation in time for the next Spring Statement to identify potential alternatives.
The inquiry noted LVT is theoretical and difficulties to overcome would include: a lacking public land register; identifying the correct interest to value; limited transactional evidence to assess market value; separating the value of buildings and the ‘incidence’ of the tax is unknown.
The appeal of LVT is the absence of value attributed to buildings would ensure there is no direct liability to a tenant/occupier, although a matter not considered is the potential knock-on effect on the investment market as landowners are quite often pension funds.
LVT is theoretically very attractive but the practical difficulties of taxing an owner who may be difficult to identify or might only receive a nominal ground rent are likely to be insurmountable.
Online Sales Levy – Proponents are typically ‘bricks and mortar’ retailers who are aggrieved that on-line retailers have lower property overheads. A contributor to the inquiry suggested a 2% levy on online sales of physical goods in order to fund a 20% rates cut for all retailers, although such a suggestion could amount to state-aid as a particular sector of commerce would have its own bespoke tax. Another contributor however, was against this levy as most retailers have physical property and online offerings.
Profits Tax – Analogous to corporation tax charged on the earnings of business after expenses are deducted.
Single Consolidated Tax – This would involve replacing all current business taxes with a simple percentage of turnover.
Hybrid Tax – Elements of different business taxes would be combined to create a single responsive tax.
The track record of introducing new property taxes is poor. LVTs have failed as ‘capturing value’ has proved to be notoriously difficult. The most recent example is Development Land Tax that was abolished in 1985. As one contributor comments, LVT “has had its day”.
Domestic-rating was replaced in 1990 by the Community Charge (Poll Tax), but due to its unpopularity and civil unrest rating had to be reintroduced a few years later, albeit rebranded as Council Tax.
The success and longevity of Stamp Duty and Rates/Council Tax is that the end user or purchaser/occupier of the property is taxed. This enables high collection rates and relatively low collection costs to be achieved at the expense of responsiveness to ability to pay or profitability. Moving the point of tax up the chain to the vendor for Stamp Duty or owner for rates or council tax would be a nightmare for collection and enforcement.
A fundamental is that business rates are an ‘input’ tax and therefore a fixed cost. In the absence of a viable alternative one assumes that the government will not risk a £30bn tax with a 98% collection rate by replacing the system with theoretical taxes or ‘output’ taxes that are dependent on the winds of contemporaneous trading conditions.
As the committee observed businesses deserve a system that reacts to change in the modern economy. Nothing in the report has made BNPPRE change its view that this is best achieved by fixing the current system with three yearly revaluations (as is happening in Scotland), a rate poundage of less than 40p and for government to act upon the committee’s recommendation for cutting the timescales in Check Challenge Appeal.
