business rates
DESCRIPTION
Business rates. Helen Miller. 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. - PowerPoint PPT PresentationTRANSCRIPT
Business ratesHelen Miller
© Institute for Fiscal Studies
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
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Source: Figure 11.3. , The IFS Green Budget 2014.
South KoreaNorway
Czech RepublicAustria
Mexico*GermanySlovakiaFinland
SloveniaBelgiumSweden
OECD average*France
Netherlands*Poland*
Australia*United Kingdom
Israel
0 0.5 1 1.5 2
Receipts as a share of national income, %
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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£0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,000Tax base: rateable value
Only 20% of properties have a rateable value
above £25,000
How business rates works
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£0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,0000%5%
10%15%20%25%30%35%40%45%50%
England (outside London), 2013-14
Tax base: rateable value
Tax
rate
(tax
as
% o
f rat
eabl
e va
lue)
Standard multiplier: 47.1%
Rateable value of £30,000
implies £14,130 tax bill
How business rates works
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£0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,0000%5%
10%15%20%25%30%35%40%45%50%
England (outside London), 2013-14
Tax base: rateable value
Tax
rate
(tax
as
% o
f rat
eabl
e va
lue)
Between revaluations: multipliers uprated in line with RPI
At revaluation: multipliers adjusted so that average bill increases in line with RPI
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 changesTwo 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
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£0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,0000%5%
10%15%20%25%30%35%40%45%50%
with 'temporary' extention of relief, 2013-14
Tax base: rateable value
Tax
rate
(tax
as
% o
f rat
eabl
e va
lue)
‘Temporary’ doubling of small business rate relief
© Institute for Fiscal Studies
£0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,0000%5%
10%15%20%25%30%35%40%45%50%
with 'temporary' extention of relief, 2013-14
Tax base: rateable value
Tax
rate
(tax
as
% o
f rat
eabl
e va
lue)
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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