Red Light for Green Goals

By Blackwell, Theo | Public Finance, July 7, 2006 | Go to article overview

Red Light for Green Goals


Blackwell, Theo, Public Finance


One of the key challenges set out in Sir Michael Lyons' interim report is for local government to act as 'place-shapers' - reflecting the distinctive identity of people in an area and safeguarding their wellbeing and prosperity.

Whether the uniform business rate is in need of modernisation has emerged as a contentious issue in this context. The rate was introduced in 1990 in a recession, and when central and local government were struggling over financial powers.

While much of the Lyons debate has centred on the relocalisation of rates from central to local government, it is now timely to look at the question of how rates are aligned with other government policy goals.

At present they are set nationally but collected locally as a tax on the occupation of property. They take account of the value of land and the worth of buildings, raising more than £17bn in revenue each year for local government.

The system has its advantages. Rates are relatively simple to collect and administer; fairly transparent; and uniform across the country, allowing businesses to plan effectively and protecting them from surprise increases.

But this apparently simple system is accompanied by an ever-increasing variety of reliefs and exemptions, totalling more than £2bn a year.

The use of relief from rates payments as an instrument of policy has a long history, and reliefs and exemptions have been extended to cover a wide variety of issues.

There are outright exemptions for example, for agricultural land and buildings, parks, listed buildings and even sewers. And reliefs operate for charities, small businesses and classes of property ranging from amateur sports clubs to empty properties.

A clear challenge for the government is to find a way to reform the present system so that it is more in line with modern public policy priorities. Many exemptions date back to the early twentieth century and it is questionable how effectively these align with newer policy goals such as local regeneration and energy efficiency.

The largest relief, costing the exchequer an estimated £1.4bn a year, is on empty property. We must ask whether it makes sense for local regeneration that occupiers of buildings have to pay rates while the owners of empty sites pay half rates or none at all.

Some reliefs are already used in a forward-looking way. Examples include those that encourage farm diversification - moving from traditional farming to new workshops, B&Bs or mail order premises. …

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