Well, yes, one can see the point:
The Valuation Office Agency insisted it was working closely with petrol retailers to reach an agreement on its new rates.
“In recent years, the rental value of petrol filling stations has grown considerably and it is only fair to all ratepayers that this is reflected in the rateable value,” a spokeswoman said.
At heart the argument is about who gets the rise in that rental value? The owner of the land? Or the society around it which creates that value through tax?
Land Value Tax….yes, this is what we\’re talking about here.
However, this nicely illustrates one of the things which will have to be done before a land value tax would work here.
Here\’s the situation at present.
Market rental values (and thus presumably capital values) change at some speed, x. But rateable values change at a different, slower, speed. Say, 1/2 x (or whatever).
So, rental values go up, that increase in value being captured by the landlords. Then along we come and increase rates to reflect this (and this would be true of an LVT as well). But now we\’re trying to capture more than the total increase in that rental value: imagine, originally it was 100. Made up of 80 in rent and 20 in rates for of course to hte renter, the two are the same thing, added together they are the total amount he\’s willing to pay to rent that land for that use.
OK, rental values go up to 150. But our landlord moves faster than the rating officer. Rent goes to 130….and then only later to we raise rates to 30 to reflect the new total value. But we\’re now, in total, extracting 160 for what is worth to the renter 150.
So, we need tow things to happen. The first is simply that rates need to change more often if we\’re to have an LVT. Not that we\’d call them rates but still. The second is more recondite.
Currently almost all commercial leases are on an upwards rent review only. So if the rent plus rates charges go over rental value, there\’s no mechanism at all which can bring them back down to it. So we need to change that: if we\’re going to be arguing over who gets the value of the land rental, we have to make it possible for the landlord\’s part of it shrink if as and when taxes on that land rise.