Lib Dems unveil details of land value tax replacement for business rates

By Paul Norman - Thursday, August 30, 2018 9:20

The Liberal Democrats have updated their plans to introduce a land value tax by issuing a report outlining how Brexit and the "broken-down" business rates system have strengthened the case for a so-called Commercial Landowner Levy (CLL).

The report Taxing Land, Not Investment calls for a levy that would remove buildings and machinery from calculations and tax the land value of commercial sites, boosting it says investment and cutting taxes for businesses in nine out of ten English local authorities.

Key recommendations also include:

  • The levy should be paid by owners rather than tenants
  • Non-residential stamp duty should be scrapped to improve the efficiency of the commercial property market
  • Commercial land should be taxed regardless of whether the buildings above it are occupied; the tax should also apply to unused and derelict commercial land

The report argues that the levy would mean lower taxes for businesses in 92% of English local authorities.

The manufacturing and technology sectors would be the most significant beneficiaries of the CLL, receiving tax cuts of over 20%, it finds. Retailers in struggling areas would also be lifted it says.

Introduction of a land value tax has been often debated by political parties in the UK and globally and variations of it are employed across the world in countries including Australia and Denmark.

It works as a rent paid in return for the exclusive use of a plot of land. Within the law, it does not matter how the land is used and the political argument for it historically has been that society as a whole is entitled to the aggregate value of all land in the country. Britain reportedly still has the most concentrated land ownership in Europe with less than 1% of the population owning over half of the rural land in England.

In the UK, it was a cornerstone of Liberal Party policy during the early part of the twentieth century with David Lloyd George and H. H. Asquith evangelical supporters as well as Winston Churchill.

The Liberal Democrats have stayed committed to a local form of land value taxation. The Labour Party has also historically supported introduction of LVT.

Unveiling today's report the Liberal Democrat leader Vince Cable 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 struggling to adapt to the rise of online retail.

"Many of the areas around the country that voted for Brexit feel they have been left behind. In place of policies the Brexiters offer only rhetoric. Great swathes of the country demand better, and this policy offers change to the manufacturing industry and the small towns passed over by economic growth."

The research was led by Andrew Dixon, founder of the Lib Dem Business and Entrepreneurs Network (LDBEN), in response the party said "to mounting concerns about the negative impact of business rates on struggling high street businesses and the wider economy".

John Webber, Head of Business Rates at Colliers International, however said the proposals are "naïve at best".

He said: “Whilst it is good to see the Lib Dems are taking the issue of business rates seriously, it is a shame they did not think through the disastrous decision to delay the business rate revaluation from 2015 to 2017 which has caused so much trouble when they were in Coalition and Vince Cable was business secretary!”

“That said, we agree the need to reform business rates. We at Colliers have been calling for reform for years and we are glad someone recognises how poor the current system is and the damage it is impacting on both businesses and the community and in particular at current time, the retail sector.

"However, the idea to replace business rates with a full commercial landowner tax is not the answer. And reading the report in depth makes you think the Lib Dems have drifted into Alice in Wonderland.

"Business rates were set up to pay for the amenities and services businesses use in the community. There is surely no dispute that they should pay something for these services. To replace the levy with a total land tax on landowners would impact on land values and discourage investment into property generally (among other things, this would not be good news for pension fund holders).

"The additional tax would also result in landlords getting the money back by hiking up the rents they charge to occupiers. In fact, the report even admits this. We would therefore have a system whereby businesses would end up paying more to the landlord but unlike the present system would be unable to appeal against their combined rent and rate bills that the landlord would introduce. So how would they benefit?

"Other parts of the report also show naivity. The Lib Dems claim that land will be valued on its "best permitted use" and that this would encourage landowners to work their land better. This implies they are not doing so now and ignores considerations of commercial viability. They seem to think that without a land tax, land will be sitting empty and largely undeveloped, again ignoring the commercial realities of development in today’s marketplace.

"Even more concerning is that they admit the system would not produce enough tax income and the gap would need to be filled by also raising corporation tax. Again, I question how businesses would benefit from that?

And the period of transition between the two systems would also be tricky and unwieldy, Webber said.

“What the Lib Dems are therefore suggesting is a complicated system that many would struggle to make evidence based. The only other land tax systems currently in Europe are used in Denmark, Estonia and Russia. Do we really want to follow them in our approach to land?”

Webber added, “Of course that's not to say land and property owners should not make some contribution to help ease the current business rates problem. We'd certainly like to generally see a fairer distribution of the costs of the system.

"That is why we have introduced our own Colliers Six Points Business Rates Manifesto+ with some immediate actions such as freezing business rate rises and getting rid of downwards phasing which impacts primarily on regional properties. These should have been seeing their business rates bills decreasing at a much greater speed than they are currently. And longer term we need to look at the system of reliefs and remove the business rates deserts around the country."

pnorman@costar.co.uk

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