The former Labour leadership candidate Andy Burnham recently announced plans that he would replace business rates with land tax if elected.
Earlier this year, he made a speech at Microsoft in Reading where he said that he would like to conduct a thorough review that analysed the balance of the UK’s tax regime. According to his speech, transforming business rates would be one of his considerations on making the UK’s tax plans pro-growth and productivity boosting.
He also cited the importance of incentivising the utilisation of brownfield sites and providing small business rates relief.
Burnham has now called for the end of business rates and suggested land value tax as a replacement.
How would Land Value Tax replace business rates?
Since the recession, many businesses have raised concerns over the burden of business rates. One of the most common complaints is that the tax is unfair because the charge does not take various important financial aspects such as profitability or the economic cycle into account. Others are concerned because they are paying rateable values based on market rents that were assessed in 2008. Ultimately, it’s no surprise there was a spike in business rates appeals ahead of backdated deadline.
Business rates already include elements of land tax as rateable value is based on probable annual market rent and takes the size of property and its usage into consideration. However, land value tax is solely based on the value of the land owned. Rather than facing business rates that are reviewed every five years and often criticised for their inflexibility, land value tax would ensure a fixed rate tax based on the value of a site without any buildings on it
Andy Burnham has said: “It would be an incentive for land to be used as productively as possible . . . At the moment people can land bank without paying anything.”
But one of the main obstacles of implementing Land Value Tax would be the task of valuing land that doesn’t have buildings on it. Furthermore, there would be immediate unfair effects on some businesses as some would immediately benefit while others would suffer.
The future of business rates
There’s no doubt that some will be encouraged to hear a politician proposing a business rates replacement. Currently, many are hoping that the government’s review of business rates will ensure a much fairer version of the tax.
In the meantime, those looking for business rates relief could benefit from engaging in correspondence with vacant property management companies.