Land Value Taxation Campaign

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Business rate rise complaints misdirected

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The changes in the business rate have attracted the ire of the Confederation of British Industry and the Federation of Small Businesses. Part of the trouble, not mentioned by the complainers, is due to the deferral of UBR valuations when George Osborne was Chancellor. However, the CBI and FSB are doing their members no favours by complaining about the UBR in isolation. It is total occupation costs that count ie rents + rates. The relentless rise in rents is at least as much of an issue.

Alone of all taxes, the UBR takes account of locational advantage. It is the only tax which recognises that trading conditions in London's Oxford Street are better than in run-down stretch of Oxford Road, Manchester. There is also a substantial body of research which shows that where the business property tax has been reduced - as in the 1980s Enterprise Zones, all the benefits were captured in rents. Business got nothing.

  • The FSB ought to be promoting the interests of its rent-paying members by campaigning for the abolition of the iniquitous but universal upwards-only rent revision clause.
  • The CBI should be promoting the interests of its members by campaigning for valuations to be based on site values only, since the present system penalises owners of industrial plant on sites of low land value, such as chemical manufacture, oil refining, power stations, etc, which are over-charged under the present system of valuation.

It is astonishing how these trade bodies fail to campaign for policies which would be of obvious benefit for their members, whilst arguing for policies which would do their members little or no good at all in the long run. Business owners should ask themselves what they are getting for their considerable membership fees.



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As part of the Brexit debate, we are being told by the "remainers" that we need to protect home producers, which is what the EU's Single Market has done for the past 40 years. In other words, imports are a bad thing and dumped goods are the worst of all. American President Donald Trump is saying much the same thing - that US industry should be supported, by keeping out imported competitive goods. On the whole, it is the "remainers" who are most critical of Trump for his alleged populism. There is an inconsistency somewhere.

It doesn't stop there, either. The EU has imposed sanctions on Russia; ie it is refusing to allow certain goods to be sold to the country, which has had a damaging effect on agriculture in some EU countries. The US is following suit. North Korea is also the subject of this kind of sanction. Which is a further inconsistency. If imports are a bad thing and should be restricted by tariffs, then sanctions must be good for Russia, North Korea and anyone else on the receiving end of them. In which case why are they being imposed? If dumping is a bad thing and we want to damage the economies of those countries, surely they should be the recipients of dumped goods and we should be sending shiploads of stuff in their direction, produced at below cost? That would also satisfy Trump's desire to rejuvenate the US steel industry.


The obscene Institution of “ability to pay”

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I received this from a correspondent yesterday. It is food for thought.

"From my contract work, more evidence of the tax collectors' wicked approach: He won't come after your because your tax planning is fraudulent per se. You'll attract their attention based largely on how much more they estimate they can squeeze out of you relative to the associated collection costs of the squeezing. That is, so called tax avoidance is not seen by the tax collector as a moral crusade. It's pure revenue generation. So taken up to the very large scale of the likes of Amazon, Google, Facebook etc. there will be a 'negotiation' on their so called 'tax avoidance', related to how much more they are able to pay before they'll simply ramp down their business activity and wealth production. The amount one is able to pay and the effort the HMRC are prepared to devote to the investigation will both meet at this 'break point'.

"Here is more evidence of the obscene institution of taxation based on ability to pay - the break point is determined by the point where business will stop operating and the hard working self employed go back onto benefits, and all iterations in between. On this observation alone, how much more will be dead weight losses from total revenue collected, to add to all the other monstrous losses totting up?

Taxation is the root cause of bankruptcy and unemployment.*

Sure, there are other causes. Tax is the biggest.

* Editor's comment: HMRC is the largest single initiator of bankruptcy proceedings.


Il-informed comments epidemic

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The latest revisions to the UBR have brought about a wave of ill-informed comments in the press, even in publications such as the Financial Times, where one would expect journalists to be on top of the subject.

The incidence of all property taxes is on the landlord. An increase in the UBR means that rental levels will drop, or rise less quickly than they would otherwise have done. This has been well researched. In the days when rates were set by local authorities, it was often the case that identical properties on the two sides of a boundary were subject to different charges eg low-rates Wandsworth and high rates Lambeth. The same situation arose with the Enterprise Zones. In all cases, as one would expect, TOTAL OCCUPATION COSTS WERE THE SAME. This is also the reason why small business rates relief is nothing but a gift to landlords. Business tenants gain nothing at all, since the availability of the rates relief is reflected in the rent, as should be obvious. One wonders whether the policy is not a cynical means of putting more money in landowners' pockets, whilst deceiving the public into thinking that the government wants to help businesses.

The real problem for businesses is that rents do not respond promptly, partly because tenants are locked into agreements which fail to take account of tax changes, and partly because of the prevalence of upwards-only rent revision clauses. Tenants should have the right to renegotiate under certain circumstances, and upwards-only rent revision clauses should be banned. Upwards-only clauses are an unreasonable and onerous condition which fails to take account of the reality that rental values can go down as well as up.

This study was done for the government HM Treasury and HM Revenue and Customs. If policymakers and journalists would study it, comment would be better-informed and misguided policies would not see the light of day. It is essential reading.

Postscript - this comment which came as response sheds some light on the issue...

"My friend's hairdresser biz has an upward only clause set to the RPI. If this is typical its also a feckless mistake - RPI fluctuates significantly between 1% and 25% and is only 1.7% currently and has averaged 3% over the past 20 years so is not a reflection of the actual rental value at all. It's been 40% too low for 20 years so if the theory stands UBR should have risen to take up the difference.

The premises had a rent of £8,400 in 2011, and rates of £2,700. Her new contract 5 years later is for £12,700. The RPI over that time has averaged 2.3% which going by the leases own upward only clause equates to £9,400- But... subject to recent changes in the UBR her shop is eligible for zero rating. 12,700 - 9,400 = £3,300 One does not need to be scientifically precise about this. The zero rating to encourage small business has been swallowed up completely by the privatised rent. Funny. Are our government administrators and operators aware of their actions? We do keep pointing it all out to them.

The other problem is psychic - my friend thinks by buying the business she is buying the location too. And further still, that the rent she pays is for the location and the building, where its obviously not because she has a Full Repairing and Insuring lease (FRI)All this shows why its a mistake to blame landowners and economists exclusively. "

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