This week the Liberal Democrats have launched their suggested blue print for replacing “the broken-down” business rates system with a Commercial Landowner Levy based on the value of the land only.
The report claims that commercial land should be taxed regardless of whether the buildings above it are occupied and the tax should apply to unused and derelict commercial land also. Non- residential stamp duty should also be scrapped to improve the efficiency of the commercial property market. The report claims the CLL would mean lower taxes for businesses in 92% of English local authorities.
John Webber Head of Business Rates at Colliers International, the global property adviser comments: “Whilst it is good to see the Lib Dems are taking the issue of business rates seriously, it is a shame they did not think through the disastrous decision to delay the business rate revaluation from 2015 to 2017 which has caused so much trouble when they were in Coalition and Vince Cable was business secretary!”
“That said, we agree the need to reform business rates. We at Colliers have been calling for reform for years and we are glad someone recognises how poor the current system is and the damage it is impacting on both businesses and the community and in particular at current time, the retail sector.
However, the idea to replace business rates with a full commercial landowner tax is not the answer. And reading the report in depth makes you think the Lib Dems have drifted into Alice’s Wonderland.
Business rates were set up to pay for the amenities and services businesses use in the community. There is surely no dispute that they should pay something for these services. To replace the levy with a total land tax on landowners would impact on land values and discourage investment into property generally (among other things, this would not be good news for pension fund holders).
The additional tax would also result in landlords getting the money back by hiking up the rents they charge to occupiers. In fact, the report even admits this. We would therefore have a system whereby businesses would end up paying more to the landlord but unlike the present system would be unable to appeal against their combined rent and rate bills that the landlord would introduce. So how would they benefit?
Other parts of the report also show nativity. The Lib Dems claim that land will be valued on its "best permitted use" and that this would encourage landowners to work their land better. This implies they are not doing so now and ignores considerations of commercial viability. They seem to think that without a land tax, land will be sitting empty and largely undeveloped, again ignoring the commercial realities of development in today’s marketplace.
Even more concerning is that they admit the system would not produce enough tax income and the gap would need to be filled by also raising corporation tax. Again, I question how businesses would benefit from that?
And the period of transition between the two systems would also be tricky and unwieldly.
“What the Lib Dems are therefore suggesting is a complicated system that many would struggle to make evidence based.”
Webber added, “Of course that's not to say land and property owners should not make some contribution to help ease the current business rates problem. We'd certainly like to generally see a fairer distribution of the costs of the system.
That is why we have introduced our own Colliers Six Points Business Rates Manifesto+ with some immediate actions such as freezing business rate rises and getting rid of downwards phasing which impacts primarily on regional properties. These should have been seeing their business rates bills decreasing at a much greater speed than they are currently.
And longer term we need to look at the system of reliefs and remove the business rates deserts around the country.
"What we really need to do is to reduce the multiplier to make this a palatable 30% not 50% tax that businesses can afford. We could pay for this by rebalancing who pays, taking the pressure off retailers and making small businesses all pay something -say 10 per cent. And we need to reform the appeal system which strangles anyone trying to get their rate bills properly assessed.
“We therefore agree the system needs reform and drastic reform at that. But business rates raise £27 billion for the economy. To abolish them totally would be a drastic step and to try to put all the costs on the landowner would back fire given the impact on investment, rents and through increased corporation tax.
We would therefore rather see a proper reform and rebalancing of the current system. Whilst the Government is not doing enough and is purely rearranging the deck chairs on the ship called Titanic, the Lib Dem suggestions take the ship into the icebergs of the Arctic Ocean! Hazardous waters indeed!”