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Phase out UBR, Phase in SVR

Comment 12th July 2010

The Unfied Business Rate taxes development of a location, discouraging and delaying optimum use of a site.  Site Value Rating taxes the site regardless, so that there is no such disincentive.  There is instead an incentive to put the site to use to earn the tax levied. 

The tax would be levied on the owner of the freehold, not necessarily the occupier.

The tax should be phased in over two parliaments, starting with reducing the tax on improvements, but increasing it on the site value of business properties.  The process could be completed in seven years.

An option might be given of paying the 'present value' of up to 20 years of future SVR, in effect making it a tax free lease.  At any time the freeholder would have the right to pay up front the 'present value' of future payments up to 20 years ahead.

In the event of  a change in planning permission the SVR would be re-assessed.

Sites values would be indexed every year and revalued on a rolling basis at least every five years.

Why does this matter?

This reform would improve the use of UK land and physical infrastructure.

It recoups the increase in the value of a site when improved at communal expense. Note that this is not a single tax but a continuous one.  That matches the continuous benefit the new public investment confers on the owner, e.g. the rent he can levy.  An up-front betterment levy on the other hand acts as a disincentive to development since it is a payment that has to be made ahead of the benefit it confers on the site forcing developers to take on loans that add to their risk.

Milton Friedman has referred to SVR as 'The Least Bad Tax'.

Hong Kong is an example of a country that receives sufficient income from its 'land' sales, which are actually lease sales, to keep much of its population out of income tax.  It has been successful as a local tax in parts of USA, S Africa, N Zealand and Denmark.

UBR is a national tax.  SVR should also be a national tax, because this would automatically place the burden of taxation on the areas most able to bear it, and ease the burden on those least able.  It therefore makes even more sense to replace UBR by SVR.

It is the policy of the Liberal Democrat partners to this government and has be recommended to the Conservative Reform Group by its tax expert.  Many property development experts favour SVR over UBR.

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