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What are business rates, why is the Government hiking them, and why are people so angry? | What are business rates, why is the Government hiking them, and why are people so angry? |
(2 days later) | |
There is a major revolt against the imminent hike in business rates by the Government, with ministers being lobbied by retailers, MPs and newspapers to water down or scrap the increase. | There is a major revolt against the imminent hike in business rates by the Government, with ministers being lobbied by retailers, MPs and newspapers to water down or scrap the increase. |
Warnings have been issued about the damaging impact it will have on many firms. | Warnings have been issued about the damaging impact it will have on many firms. |
The retail TV celebrity Mary Portas has predicted that a third of independent shops could be killed off by the move. | The retail TV celebrity Mary Portas has predicted that a third of independent shops could be killed off by the move. |
But what are business rates? How does the system work? And are the complaints justified? | But what are business rates? How does the system work? And are the complaints justified? |
They are a tax charge on business properties, such as shops, offices, pubs, warehouses and factories; a kind of council tax for firms. | They are a tax charge on business properties, such as shops, offices, pubs, warehouses and factories; a kind of council tax for firms. |
The size of the tax varies with the “rateable value” of the property. Essentially, the higher the rent the higher the annual business rate charge. | The size of the tax varies with the “rateable value” of the property. Essentially, the higher the rent the higher the annual business rate charge. |
Business pay roughly half of the value of their annual rent in rates. | |
In 2016-17 business rates are estimated to raise £29bn in total – which is around 4.5 per cent of the entire UK tax take. | In 2016-17 business rates are estimated to raise £29bn in total – which is around 4.5 per cent of the entire UK tax take. |
Some 1.8 million UK businesses are liable. | Some 1.8 million UK businesses are liable. |
From April, those with a rateable value of less than £12,000 will be entirely exempt from the tax. | |
A host of business lobby groups – the CBI, the British Chambers of Commerce and the Institute of Directors among them – are up in arms over the new rates that will be imposed in April. | A host of business lobby groups – the CBI, the British Chambers of Commerce and the Institute of Directors among them – are up in arms over the new rates that will be imposed in April. |
They claim hundreds of thousands of retailers, from shops, to cafes, to hotels, are going to face massive and unfair tax increases. | They claim hundreds of thousands of retailers, from shops, to cafes, to hotels, are going to face massive and unfair tax increases. |
This cause has been amplified by the Daily Mail, the Evening Standard and The Daily Telegraph. | This cause has been amplified by the Daily Mail, the Evening Standard and The Daily Telegraph. |
They certainly have a point about the handling of the increase. | They certainly have a point about the handling of the increase. |
This is the first revaluation of business rates by the Government in seven years. They are supposed to be done every five years. | This is the first revaluation of business rates by the Government in seven years. They are supposed to be done every five years. |
Ministers put off the 2015 revaluation to avoid a political headache. But because of that delay the disruption will be greater. | Ministers put off the 2015 revaluation to avoid a political headache. But because of that delay the disruption will be greater. |
Business rents have changed significantly in some areas in the past seven years, especially for retail space in London, meaning that many businesses in the capital do now face a significantly higher charge. | Business rents have changed significantly in some areas in the past seven years, especially for retail space in London, meaning that many businesses in the capital do now face a significantly higher charge. |
The Government points out that it has established a transitional relief scheme, to smooth out the biggest bill changes over five years. | The Government points out that it has established a transitional relief scheme, to smooth out the biggest bill changes over five years. |
But this is plainly inferior to much more regular revaluations. | But this is plainly inferior to much more regular revaluations. |
They should really be done every year. This would give businesses much more certainty over their bills. | They should really be done every year. This would give businesses much more certainty over their bills. |
No. Overall the fiscal impact of the revaluation will be neutral. | No. Overall the fiscal impact of the revaluation will be neutral. |
The Treasury's Office for Budget Responsibility estimates that business rates will raise 1.5 per cent of GDP in 2016-17 and precisely the same proportion of national income in 2017-18. | The Treasury's Office for Budget Responsibility estimates that business rates will raise 1.5 per cent of GDP in 2016-17 and precisely the same proportion of national income in 2017-18. |
The impact is largely a distributional one. Places where business rents have fallen will benefit, while places where rents have soared will lose out. | The impact is largely a distributional one. Places where business rents have fallen will benefit, while places where rents have soared will lose out. |
For instance, firms with offices in the East Midlands will pay more, but those with offices in the North West will pay less. | For instance, firms with offices in the East Midlands will pay more, but those with offices in the North West will pay less. |
However, it is true that the UK’s business taxes are high compared to other countries. | However, it is true that the UK’s business taxes are high compared to other countries. |
Among OECD countries the average share of GDP raised by taxes on non-domestic property is around 0.5 per cent of GDP, just a third of the UK’s share. | Among OECD countries the average share of GDP raised by taxes on non-domestic property is around 0.5 per cent of GDP, just a third of the UK’s share. |
This complaint doesn’t really stack up. | This complaint doesn’t really stack up. |
Given business rates are a tax on business property it’s obviously the case that firms that have less business property – like some internet retailers – will pay less. | Given business rates are a tax on business property it’s obviously the case that firms that have less business property – like some internet retailers – will pay less. |
And remember that large internet retailers such as Amazon do have property – think of those giant “fulfillment centre” sheds from where its orders are dispatched. | And remember that large internet retailers such as Amazon do have property – think of those giant “fulfillment centre” sheds from where its orders are dispatched. |
The difference is that the likes of Amazon don’t have business properties on high streets, where business rates tends to be higher because rents there are higher. | The difference is that the likes of Amazon don’t have business properties on high streets, where business rates tends to be higher because rents there are higher. |
Online retailers do often gain an unfair tax advantage over bricks-and-mortar businesses by registering their headquarters in tax havens and shifting their profits out of the UK. | Online retailers do often gain an unfair tax advantage over bricks-and-mortar businesses by registering their headquarters in tax havens and shifting their profits out of the UK. |
But this is an issue over the design and collection of corporation tax rather than business rates. | But this is an issue over the design and collection of corporation tax rather than business rates. |
The current system of business rates is riddled with economically inefficient loopholes. | The current system of business rates is riddled with economically inefficient loopholes. |
There are reliefs for charities and small rural shops. Agriculture is entirely exempt. | There are reliefs for charities and small rural shops. Agriculture is entirely exempt. |
Most damagingly of all, unused or underdeveloped land attracts a reduced or zero rate. | Most damagingly of all, unused or underdeveloped land attracts a reduced or zero rate. |
“This provides a clear and perverse incentive to use land inefficiently,” argues the Institute for Fiscal Studies. | “This provides a clear and perverse incentive to use land inefficiently,” argues the Institute for Fiscal Studies. |
The solution is to place a tax on the value of the land occupied by a firm, rather than the rateable value of the property. |