Political

Replace broken business rates with a land value tax: Vince Cable

Liberal Democrat leader Vince Cable has long been a supporter of switching over to using some form of land value tax.

He’s been pushing this idea again, as covered by the Financial Times:

Vince Cable, the leader of the Liberal Democrats, has called for the UK’s “broken” £30bn business rates system to be replaced by a land value tax…

In a joint report due to be published this month, Lib Dem advisers and economist Adam Corlett claim that businesses in 92 per cent of local authorities would pay lower business taxes as a result of a commercial landowner levy instead of business rates…

The authors said businesses in the most deprived areas would see the biggest fall in their bills, “while some shops in expensive areas”, such as central London, would see small tax increases…

Sir Vince said: “Business rates were a badly designed policy to begin with, and have become an unacceptable drag on our economy. They are a tax on productive investment at a time of chronically weak productivity growth, and a burden on high streets adapting to the rise of online retail.”

The Association of Convenience Stores (ACS) has welcomed the proposals:

James Lowman, ACS chief executive, said: “A commercial landowner levy or land value tax should be considered among a range of options for fundamentally changing the business rates system which currently isn’t working. We particularly welcome his reference to promoting business investment as this is one of the key flaws in the current system. Businesses should be incentivised to invest to encourage growth and help them remain sustainable in the long term.”

The organisation claims that under the current system, retailers investing in business improvements are penalised through higher bills which is why it has called on the government to make changes to incentivise investment.

More generally, one advantage of taxing the value of land is that it is a tax on wealth, rather than on income. The great problems we have with inequality rest heavily on inequality of wealth. (Inequality of income actually fell during the coalition years to its lowest level for several decades).

Another advantage is that land is hard to hide or take overseas with you. It is a tax it is possible not only to draw up in theory in think tank reports but also to implement effectively in reality.

A third advantage is that taxing the value of land can be used to encourage certain land to be put back into use much more quickly, such as avoiding long-running derelict sites in the middle of urban areas with housing shortages.

A major drawback to taxing land values for domestic properties is the complex mix of winners and losers that will most likely result from any affordable scheme. The concentration on businesses is therefore a smart move.

2 responses to “Replace broken business rates with a land value tax: Vince Cable”

  1. The Economist had a recent article about this, but sounded a note of caution:
    Contrary to the claims of some Georgists, it would not much change the incentive to develop or sell valuable land, argues Stuart Adam of the Institute for Fiscal Studies, a think-tank. Owners of vacant plots in pricey areas would indeed face the same costly levy as owners of adjacent tower blocks. They would have to pay the tax somehow, and a landlord short on cash may have to sell the plot. But there would be no change in incentives for owners with deep pockets, such as property-development firms. Lower land values would exactly offset the fresh incentive to sell vacant land. Meanwhile the forgone rent from letting a plot lie vacant would remain the same.
    (https://www.economist.com/briefing/2018/08/09/the-time-may-be-right-for-land-value-taxes)

  2. -Ever wondered why there are very few solar panels on the roofs of commercial buildings? That is entirely a function of the Business Rates.!
    The majority of commercial properties are rented or leased, yet a solar panel is an improvement to the building. The tenant doesn’t want to improve the landlord’s building and there is no incentive to the landlord to improve his building as he would have to increase the rent to cover the cost. The solar panels would improve the value of the property and so the Business Rates would increase.. no-one wins and there is no incentive.
    With LVT the lease could be arranged to enable the owner to install solar panels and make money from the building, in addition to the tenancy. The improvement to the value of the building would not affect the LVT as it is a tax on the Value of the Land, not what is built upon it..

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