Tax system should be based on ability to pay

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It’s Sunday morning, October 2. I’m watching David Cameron on The Andrew Marr Show, reeling off an extensive list of business issues the Government is apparently dealing with.

It’s Sunday morning, October 2. I’m watching David Cameron on The Andrew Marr Show, reeling off an extensive list of business issues the Government is apparently dealing with: employment regulations, corporation tax, business rates, the planning system… I spit my coffee. Business rates? Did I miss a memo?

Coincidentally I’d had a discussion with a valuation officer that week about a temporary reassessment on one of our stores during which I was told “it’s not about services, it’s just a property tax”.

Of course he was right. ‘Business rates’ is just a quaint misnomer, but as a system of taxation it’s now so out of step with reality it should be auditioning for Strictly Come Dancing.

The principle of course harks back to that golden age when we paid local authorities to provide a range of services. Times when we enjoyed free refuse collection, reliable police response to disorder and theft and some consideration for the impact of local authority policies, such as parking charges, on our businesses. Indeed, at one time we would even vote in local elections.

For any tax system to be fair, it should be based on ability to pay. Instead the original liability, tied to property size, has been maintained for reasons of expediency and, I suspect, because it’s been lucrative for successive governments.

But that relationship is now indistinct. As the valuation officer pointed out, business rates are paid to central government with only a small percentage funnelled back to local infrastructure.

That disconnection could easily be glossed over in a rising market, but in today’s climate it’s revealed as usury and nonsensical – an immovable cost to hard-pressed retailers, cited in successive surveys as the most damaging threat to their businesses, next to high rents.

It’s entirely within the wit of the current administration to deal with this anachronism and introduce a fair and modern system of local taxation in line with their aspirations for de-centralisation. Only time will tell if Mr Cameron is serious about that commitment, or if his words were just a throwaway line on a breakfast TV show.