Property taxes have long been a political minefieldby Paul Wallace / February 24, 2017 / Leave a comment
The furore over looming steep rises in business rates in many parts of Britain has come late in the day but it was utterly predictable. More than three centuries ago Jean-Baptiste Colbert, Louis XIV’s finance minister, observed that “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” Nowhere are there more geese ready to hiss than in the treacherous patch of property taxes.
Margaret Thatcher brought about her own downfall when she abolished domestic rates, linked to property values, and introduced the flat-rate poll tax. Riots in central London in 1990 made the “community charge” a short-lived folly. Under her successor John Major it was replaced by the council tax, which restored an attenuated link to property values by varying payments according to bands of house prices, in effect capping tax for the richest property owners.
Unlike domestic rates, those levied on firms remained in place, raising £29bn—almost as much as council tax—in the current fiscal year (ending in March). Now Theresa May is learning that business rates can also cause an inordinate amount of hissing. Her government may insist there is no net gain to the exchequer but the angry geese are still chasing after ministers.
The anger has been sparked by a revaluation due to take effect in April of the rateable values—based on rents—used to determine business rates. In principle this is both necessary and fair. As rateable values rise in line with rents, so should business rates. If on the other hand they fall, so should rates.
But what may appear fair in theory can seem very unfair to those facing higher bills. And the longer the period between revaluations the more who are likely to be affected. Between 1990 and 2010 revaluations occurred every five years, arguably already too long. However, the revaluation scheduled for 2015 was postponed for two years, conveniently avoiding an outcry in an election year. That has stretched the interval too far, to seven years.
More important, the period has been one of extreme shocks. Revaluations are based on figures for rents two years earlier. As a result the current rateable values set in 2010 reflect the economy almost a decade ago, in the spring of 2008, at…