Think tank urges business rates reform

In a presentation during the launch of the 2014 IFS green budget yesterday, economist Helen Miller said the “temporary tinkering” of business rates by the government was storing up problems for the future.

She said: “This is clearly no way to make policy. The continuous extension of temporary policies raises concern that they will be hard to reverse, so they’ll end up inadvertently changing the tax system.”

Rate reliefs​

The Government is due to undertake a comprehensive review of the system in the spring, but Chancellor George Osborne introduced a range of business rate reliefs and extensions in his Autumn Statement in December, including a move to cap rises this year at 2pc, instead of at the higher retail prices index measure of inflation.

The IFS wants business rates, which raised £26.1bn last year (equal to that raised by council tax) to be replaced by a land value tax that would mean an end to businesses being penalised for improving properties.

However, it conceded that introducing a land value tax would be “politically difficult” and hard to implement.

Up-to-date rental values​

Miller said: “Short of such a radical revamp, business rates should be reformed so that rateable values reflect as closely as possible the up-to-date market rental values of properties.”

She said rental values would need to be reviewed regularly, thus avoiding any sudden sharp rises in payments which are likely to arise following the Government’s decision to delay the next revaluation of rates until 2017.

She also suggested using an index of local property prices to help decide rate increases.

Room for improvement​

The government’s policy of handing money generated by business rates back to local authorities in a bid to boost development was welcomed by the IFS, but the organisation argued there is room for improvement.

Miller said: “Authorities will keep the revenue until 2020 but that means, by the time 2019 arrives, they’ll have very little incentive to boost development.”