There's a lot of squealing going on about the system of business rates at present, most of it coming from the usual little pigs. The oinks are actually loud enough and coordinated enough to be considered a campaign to get the basics of the system changed. Which would be a bad idea given that rates are actually one of the better parts of our current taxation system:
Business rates are not fit for purpose and need a complete overhaul, MPs say in a report on Tuesday. Joining a chorus of critics, they call for the Government review into the future of business rates to be extended to consider whether retail taxes should be based on sales rather than the rateable value of a property. The MPs want the review, set up by Chancellor George Osborne, to look at the merits of giving retail its own business taxation system.
The first and most obvious point to be made is that we don't want to give any segment of business its own taxation system. We want all business to be competing upon exactly the same level playing field. For the obvious reason that we want not just new businesses to open, but also people to cross the boundaries of the various sectors as technology and incentives change. We certainly don't want people either being confined by their tax treatment to one sector, nor are we all that keen on people arbitraging across parts of the tax system.
But as to rates being one of the good parts of the tax system: they're a tax on using expensively located property. That is, they're akin to a land value tax (not entirely, but close) and are thus among the least distortionary taxes possible. This is, we should note, a Good Thing.
The real background to this is that those currently operating physical retail stores find their lunches being eaten by those who retail online. They want to pull some of the load off those physical locations and onto the drab warehouses round the back of town that we increasingly get our goods from. And you might think that that's fair: they're both doing retail after all, so why not tax equality?
But that's to misunderstand what is happening with the online retail revolution. We have found that we can , now, with better logistics and the internet itself, serve peoples' retail desires while using rather less of an expensive input: that high value retail space. This is a technological change that makes us all richer: for it frees up ever more of that high value urban property to be used for other things. Offices perhaps, burger bars or, if anyone's willing to get the planning system right, rather more of those houses and flats that we're all told we've such a short supply of.
We want to tax scarce things: precisely because it makes people more efficient in their use of that scarcity. Which is why, as I say, business rates are a rather good part of the tax system. And we shouldn't change it just because those getting the mucky end of the current stick are whining about it.