Leader: property taxes aren’t working

Much more than a storm in an independent café’s tea cup, business rates are only the latest example of how property taxes aren’t working. At £74.2bn, the UK has the highest property taxes of all 35 OECD countries. More problematically, each tax is fundamentally flawed. Business rates first. In the Commons on Wednesday, Green MP Caroline Lucas detailed the impact of the revaluation on her South Coast constituency: “Brighton pier is facing a 17% increase, the World’s End pub a 123% increase, and Blanch House hotel a 400% increase.” Countless similar examples abound, as newspaper front pages have detailed over the past week. But that’s only part of the story. Business rates matter too much to the Exchequer to allow for much compromise. Overall UK business rates receipts were £28.8bn in 2015-16, or 1.53% of GDP, according to the Office for Budget Responsibility. “I have asked the chancellor and the communities secretary to ensure that there is appropriate relief in those hardest cases,” the PM said in response to Lucas. The truth is that neither has much room for manoeuvre without root-and-branch tax reform. Two other aspects matter with business rates too. As a result of the current revaluation, adviser CVS projects that the 32 boroughs of London plus the City of London will face a business rates tax hike of £9.4bn over the next five years. It is a meaningful, potentially damaging increase. It does not, however, deal with the issue that, if the revaluation is justified, businesses outside the South East have been bearing an unfair business rates burden for too long. They must not shoulder the cost of any reversal. But the biggest issue is online. Retailers are among the biggest ratepayers and account for a significant number of the 500,000 businesses facing a tax rise. Yet Amazon, for many a principal competitor, will benefit from a business rates cut. Here business rates fail a crucial tenet of fair taxation: they’re not equitable. And it’s not just business rates that don’t operate optimally. Section 106 payments? Like the community infrastructure levy, they are a tax in all but name. Of course developers should make a direct financial contribution to communities in which they are active: as well as benefitting from that community, they should contribute to it. That does not mean section 106 is the best way of doing so. The British Council for Offices, Legal & General Investment Management and the Social Value Portal estimate that more than £15bn of social value from UK developments is being lost each year owing to a lack of understanding as to how this value is measured and generated. Government figures released on Thursday confirmed that the number of new homes built in England is not just falling short of what’s needed, but is actually falling. With an escalating housing crisis, capturing and maximising the contribution of section 106 payments is vital. Stamp duty? In December, government figures showed SDLT had raised £7.7bn during the first eight months of the 2016-17 financial year. However, with slowing sales of high-value homes, PwC estimated this week that the rise in top-end taxes would actually cause a reduction in the full-year overall tax take of £500m. And then there’s council tax. Difficult to dodge, the tax has one of the highest collection rates of any tax. Yet, in England at least, it is based on 1991 valuations, which are hardly reflective of domestic property values a quarter of a century on. What’s needed is to start again. That, sadly, won’t happen in next month’s Budget. The best we can hope for is further business rate transitional relief, the status quo on stamp duty and council tax, and some further fiscal incentives for housebuilding. I hope to be proved wrong. • To send feedback, e-mail damian.wild@estatesgazette.com or tweet @DamianWild or @estatesgazette