This is not necessarily a bad plan:
“The next Labour government will scrap business rates.
“We will carry out the biggest overhaul of business taxation in a generation, so our businesses can lead the pack, not watch opportunities go elsewhere.
“And here is our guarantee: the system we replace it with will incentivise investment, feature more frequent revaluations, and instant reductions in bills where property values fall, reward businesses that move into empty premises, encourage, not penalise, green improvements to businesses, and no public services or local authorities will lose out from these changes.
There are significant problems within the business rates system. For example, that it is based upon both land values and also improvements - it should be land values only. There should indeed be more frequent re-ratings, revisions downward should happen just as quickly as upward and so on.
But the devil in such reform plans is always in the detail. Here’s someone from the property industry decrying certain types of reform:
John Webber, head of business rates at Colliers, said: “ While we would support Labour if introduced significant reform to the current system, we would not support total abolition or any form of land value tax.”
But a move to be more of a pure land value tax is exactly the reform that business rates requires.
“However, if Labour is looking at a tax based on a valuation process (probably a mix of land and rental value), we do not think this would work as the tax would probably be levied on landlords.”
Which is to miss the point entirely, The current business rates system is incident upon landlords right now. And the very point of the taxation system is to tax those rents the landlords receive anyway. Repeated charges to real property being the least distortionary tax possible and the one with the lowest deadweight costs. We like least distortionary and low deadweight - and so should everyone else.
Business rates should indeed be reformed and there’s nothing wrong with the Labour Party being the ones to propose it - good taxation is good taxation. Hmm, OK, the least bad system of taxation is the least bad system perhaps.
But the point we all have to recall during any discussion of such reform. Landlords currently - really - pay business rates. The aim of this sector of taxation is to lighten the wallets of landlords. So, any refinements or reforms to the system have to ensure that we continue that process - lightening the wallets of landlords.
The Georgists have written entire libraries on this subject, Milton Friedman said “the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago”.
Whoever proposes or even enacts reforms to business rates we all must recall the aim here - lighter wallets for landlords. And don’t let the landlords tell us any different.