Thursday 15 April 2010

Business Rates

Business Rates is a very hot topic locally. Towns like Narberth are suffering serious problems from the revaluation exercise, but the problem is much more general. The whole basis of the system is unfair, and has been since it was introduced in the 1980s.

At recent hustings meetings, I have set out Plaid's position, which is that local business taxes should be based on profitability rather than the notional commercial rent of the premises being used. Not everyone would be a winner from such a change, of course; but overall, it has been quite a popular suggestion, since it means that there is at least some relationship between the amount being paid and the ability to pay it.

Interestingly, in one hustings meeting, the Lib Dem candidate tried to suggest that I was simply making up the policy. I'm not sure why he thought that he might know more about Plaid's thinking than I do - but what I've been saying is completely in line with what Ieuan Wyn Jones said earlier this week.

Interestingly, at the second hustings meeting where the subject came up, the local Conservative candidate decided to agree with me. I'm not entirely convinced that that's his party's position, but I always welcome converts. And I really don't have the time to comb through the big thick hard-back Daily Mail Conservative election manifesto to check.


Paul Williams said...

John - I would agree that linking business rates to profit is a very interesting proposal. However, how do you propose it would work in practice - in particular with reference to the following questions:

1. Would it be revenue-neutral insomuch that whilst businesses which are not making profit would pay nothing, but those businesses which are making good profits would pay more?

2. If it is not revenue-neutral how would you fund it? (Note: I'm asking because I'm interested not because I want to accuse you of "sums not adding up" etc!)

3. How would you assess profitability? Companies file their accounts up to a year after the end of the relevant fiscal year - during which time a company which was profitable could have gone into the red only to receive a higher business rates demand based on the previous years profits.

4. Business rates is tied to individual premises. However companies which own several business premises (e.g. a retail chain) file their accounts as a group - not on a shop-by-shop basis. How would you therefore keep business rates linked to individual premises? Can you?

5. With relation to point 4, would this policy not therefore amount to effectively scrapping business rates in Wales and replacing it with a 'regional corporation tax'?

Please don't take the above as negative comments - I'm just interesting in how you see this policy actually working in practise.

John Dixon said...


In principle, the starting point for any direct tax replacement is that it would have to be revenue neutral, and I think I have made it quite clear that there would be losers as well as winners from our proposal. The same is equally true for our proposal to replace council tax with a local income tax.

Supporting one tax system rather than another isn't about whether there'd be losers as well as winners - it's about fairness. The current systems, for both domestic council tax and business rates are unfair, and need to be replaced.

Whether it would be revenue neutral in practice depends on other decisions about overall taxation. Plaid have, for instance, called for a reduction in business taxes in general, as a means of stimulating economic activity and protecting and creating jobs. If such a policy worked, it would generate higher revenues from a lower rate of tax over the long term.

I accept that there are issues of detail to be resolved - but again, that is also true for the replacement of the council tax with a local income tax. Of course there is a difficulty in assessing profitability - but that does not prevent Corporation Tax from operating effectively, and it wouldn't prevent any other profit-based tax from operating effectively either.

On your point 4, the replacement of business rates with a profit-based tax removes the relationship back to individual premises. But don't forget that NNDR is currently effectively a 'national' tax anyway, set centrally by the Assembly Government.

The biggest problem with our proposal, in my view, is not the issues which you raise, but the fact that, if introduced in Wales only, it would need a means of distinguishing between profits made in Wales and those made elsewhere. I have two answers to that. Firstly, it is Plaid's long term goal that the tax systems are disentangled anyway, and secondly, we are putting this proposal forward in the context of a UK election. It is, after all, a change which under current structures would need legislation at Westminster.

Paul Williams said...

Thanks for your reply, John. Could you kindly give me a link to where I can get more information on both the business rates and local income rates proposals?

John Dixon said...


I'm not sure that there is any more detail published to which I can link you. If I manage to locate some, I'll post the link here.

Paul Williams said...

John - thanks. Don't mean to criticise, but if this is Plaid policy and you are talking about it at hustings, shouldn't there be a bit more documentation behind it?

John Dixon said...


The question of the level of detail to which policies are worked through before being announced is an interesting one. I think you will find in the manifestos of all parties a mixture of policies which have been costed to a very detailed level to ensure affordability, and policies which are presented at a very high level of principle.

In the same way, the Queen's speech at the opening of parliament contains a list of bills which will be presented, but there is very little detail behind them, and the detail is often not spelled out until the bill itself is laid before parliament.

No opposition party has the resources to spell out a policy to the level of detail required in a Bill, and no-one expects them to. So, how much detail on any particular policy is 'enough'? I don't have a simple answer to that, and nor does anyone else. But I think that the principles behind our approach to local taxation are clear enough from what we've said.