Showing posts with label business rates. Show all posts
Showing posts with label business rates. Show all posts

Monday, 8 May 2017

Why do the wealthy and well-connected tend to win so many political battles? Because they are wheels that squeak

The squeaky wheel gets the grease and losers cry louder than winners sing. British politics certainly bears out the truth of those old observations.
Just two months ago we witnessed a backlash against Philip Hammond's hike in national insurance for the self-employed, which was designed to bring the levy closer into line with the tax paid by employees. This resulted in a spectacular and humiliating U-turn for the Chancellor within days.
That fiasco came hot on the heels of a noisy revolt against business rates reevaluations and a partial retreat in the Budget (a retreat which is set to cost taxpayers £435m). That affair was also a reminder that, for a quarter of a century, cowardly governments (of all stripes) have dodged a revaluation of council tax bands in England out of fear of an eruption of opposition from the Home Counties.
Then, just last week, there was a coordinated push back from Tory MPs against a new funding formula unveiled by the Government last year for the distribution of central funding for local schools. One does not have to be Mystic Meg to foresee where this one ends.
All the reforms above have two things in common. First, they would make for a more equitable raising and distribution of resources. Second, they would create more winners than losers around the country. But the losers shout louder than the winners. And the losers, in the main, are satisfied: the squeaky wheel is lubricated.
In all cases, ministerial foolishness or cowardice made reform harder. Severe cuts to real terms per pupil school funding over the coming years accentuates the pain of the transition to the new formula for individual schools. The business rates revaluation was delayed for nakedly political reasons, making the eventual re-rating more painful (for a minority of firms) when it eventually came. The same applies, albeit on a grander scale, in the council tax saga. Hammond's national insurance reform probably ought to have been done in tandem with a wider set of reforms to address the conditions of self-employed workers.
Yet there's a larger dysfunction here. Even without those ministerial missteps there would have been significant, possibly insurmountable, opposition. Why? Why do reforms that would benefit more people than the numbers who lose out get shot down, watered down or never even attempted? 
Media framing is a major part of the problem. Newspapers run lobbying campaigns championing those who stand to lose out from a particular reform. They never run campaigns on behalf of those who stand to benefit. The broadcasters tend to take their lead from the press. And the resulting media cacophony persuades ministers to retreat.
Yet the media is not the only factor. Lazy MPs must be culpable too. In all these cases - school funding, self-employment tax, business rates, council tax - parliamentarians ought to be defending or pushing for reforms that would benefit the vast majority of the own constituents.
Where are the MPs from all those areas that will benefit speaking out on behalf of the more equitable school funding formula? Where are the political representatives from less well-off regions pushing for the original business rates revaluation? Where are the MPs, with their tens of thousands of conventionally employed constituents, defending the national insurance equalisation with the self-employed? Why are parliamentarians not lobbying for council tax revaluations, given the fact that, arithmetically, most of their constituents would benefit? 
Economics is often unhelpfully and inaccurately framed as a zero sum game, where one person's gain is another person's loss. Think of how Donald Trump talks about trade, or the way Ukip and now the Conservatives talk about immigration. But when it comes to reforming an unequal tax or spending system the zero sum logic actually holds. And the person who gains tends not to be the poor but the wealthier, the more powerful and the better connected.
The pessimistic view is that because potential winners are usually dispersed and disorganised, and because people generally bank gains without gratitude, the incentives of politicians will always be to listen to the angry and organised losers. Perhaps that's true. But it would be nice to put it to the test rather more often.
The first step is for the silent wheels to start squeaking too.

Sunday, 26 February 2017

Sorry Jeanette Winterson but in lobbying against a business rates hike you’re asking the poor to subsidise the rich

Are you rich and influential? Are you interested in lobbying ministers to water down or even abandon a tax change that will make you worse off? Then the first thing you need to do is find a human shield.
Whenever a long overdue overhaul of council tax is floated it is never long before a penurious little old lady rattling around in a giant house in the Home Counties pops up in the media as a compelling reason not to change anything. And now the business rates regime is being updated we have small independent retailers in well-off areas thrust in our faces.
One retailer in particular has featured prominently in this lobbying campaign. The novelist Jeanette Winterson has written that her luxury grocer-cum-deli, Verde & Company in east London, which started life during the Napoleonic Wars selling "oranges the size of cannonballs", will have to close because of the revaluation of rates due in April.
Who could be in favour of poverty-stricken old ladies paying more council tax? What kind of monster wants to drive small shopkeepers like Winterson to the wall? But don't be fooled. These are human shields, emotive propaganda case studies whose function is to sway public opinion, intimidate ministers afraid of losing votes, and, ultimately, protect the well-off from paying their fair share of tax.
The big losers from a revaluation of council tax would be the richest households in the country. And the main beneficiaries of the watering down of the business rates revaluation, which now seems to be in train after ministers have shown signs of losing their nerve, will be large firms and landlords in prosperous parts of the country.
Firms in well-off areas facing higher business rates, even large firms, do deserve our sympathy to some extent. It was cowardly for the Conservative ministers George Osborne and Eric Pickles to delay this revaluation, which had been due to fall in 2015, just before the election.
The last revaluation was in 2010. Seven years is far too long to wait between revaluations and relative rents have changed significantly in that time meaning startlingly large shifts in some firms' ratable values.
Businesses of all sizes are entitled to better guidance than this over their future tax bills.
While it's true as some have pointed out that over time the cost of business rate increases is borne by landlords rather than firms as rents adjust, it bears repeating: over time. And heaven knows this is a financial problem many firms do not need while they are also struggling with a sharp spike in imports due to the plunge in the pound in the wake of the Brexit vote.
Nevertheless the complaints are overblown. Winterson says the rateable value of her shop will rise from £ 21,500 to over £54,000. This implies she's paying around £10,000 in business rates. But looking at the detail of the transitional relief scheme put in place by the Government this suggests her business rates bill will increase by 12 per cent from April to some £11,200.
A £1,200 tax increase is certainly not nothing (and her rates would continue to rise sharply over the next few years) but it's hardly the obscenely punitive reparations bills presented by the Allies to Germany in 1921 either.
Moreover, it's vital to grasp that Winterson's loss is the gain of other firms in less prosperous areas since this is a revenue neutral revaluation for the Government. The total business rates tax take will not rise.
Indeed because of the delay in the revaluation, although she doesn't acknowledge it, Winterson has been already been gaining financially in recent years at their expense.
The trouble with the coverage of this subject is that we do not hear from those firms who stand to benefit from the reform - and who stand to lose if the revaluation is delayed further or watered down. Why do we not see media case studies of a medium-size insurance company in the West Midlands, whose bills are supposed to fall by some 16 per cent? What about a manufacturer in the North-east which is due a 9 per cent fall in its business rates? Why are they any less deserving of our compassion? Regrettably, this represents a journalistic failing.
Yes, it's tough being a modestly-sized retailer. But it's easier in more prosperous areas. Winterson's shop benefits from close proximity to some of the wealthiest workers in the world in the City of London; and hordes of tourists. That means more well-heeled passing footfall and, if she stocks fine products and runs her business well, higher sales. That's why her rent is higher; other firms would be willing to pay top dollar to rent her prime retail premises.
By lobbying against the revaluation she's effectively demanding that she pay a lower rate of tax than an equivalent grocer in a less prosperous town. This is Robin Hood in reverse: the poor being robbed to pay for the rich.
But perhaps no firms should pay business rates. Some argue that the tax should be cut for everyone, or even scrapped entirely. Yet let's follow this logic through. Business rates bring in around £29bn a year.
That's around 4.5 per cent of the entire tax take. If you get rid of that what else should be cut to make up the shortfall? The NHS? Education? Foreign aid? It would be nice to be able to reduce taxes on firms, especially small retailers like Verde. Yet one only has to look around to see that there are also other demands on our scarce public resources: more funding for mental health services, more money for social care, more support for refugees. And on and on the list goes.
Apologies Jeanette, but cannonball-sized oranges are not the only fruit.