Business Rates in England and Wales - History

History

Business rates are the latest incarnation of a series of taxes for funding local services known as rates, based on property values. The first rate was part of the Elizabethan Poor Law Act 1572, which established relief for the poor at the local parish level, paid for by inhabitants of the parish. An system of rates to fund local government and services evolved over the next three centuries, including a separate system for London from 1869 to 1963. Changes included a stricter definition of how to value for a rate; the introduction of a valuation list containing the assessed values; the ability to object to the assessed value; and the introduction of the valuation officer, appointed by the Commissioners of Inland Revenue (now Her Majesty's Revenue and Customs), as the assessor.

The immediate predecessor to business rates was the general rate, established by the General Rate Act 1967. This was a local tax in England and Wales on both domestic and non-domestic property, and was based on rental values. It retained the core concept of how to identify a rateable property from the older rating systems, which, along with other features, can still be seen in the modern system. The Local Government Finance Act 1988 repealed the General Rate Act and replaced it with two new taxes from 1 April 1990. The Community Charge, better known as the Poll Tax, replaced the rating of domestic property. It was itself later replaced by Council Tax. The remaining non-domestic properties were to be covered by a modernised version of the general rate.

The new non-domestic rating system became known as business rates, or sometimes the universal business rate. It retained from its predecessors the concept of a series of local rating lists, with each property being assessed for a rateable value based on rental values. Rating lists were prepared and maintained by the Valuation Office (reconstituted in 1991 as an UK Government Executive Agency, the Valuation Office Agency), while billing and collection was the responsibility of local authorities. Previously, local authorities had decided what proportion of rateable values to charge; the new system featured a centrally-set multiplier, often referred to as the Uniform Business Rate, by which the basic bill was calculated. The bill could be further modified by various reliefs, including the newly-introduced transitional relief, which was designed to smooth large changes in liability due to revaluations. The multiplier was calculated to ensure that, on average, bills rose by no more than the rate of inflation.

A system of rating had also evolved in Scotland, through separate legislation. While in many ways similar, key underlying concepts in the Scottish system differed, as did the administrative scheme. The Local Government Finance Act 1988 renamed the Scottish rates, and imposed the centrally-set multiplier, but did not otherwise disturb the Scottish rating legislation.

During the introduction of business rates, criticism focused on the level of the multiplier to be chosen, and on the transitional relief scheme, with organisations such as the Confederation of British Industry calling for a lower multiplier and a relief scheme more to the benefit of its members. In 2007, the Lyons Inquiry into Local Government said there was no significant opposition to the principles of the tax, but that the level was a concern to property-intensive businesses. Due to the overall yield being linked to the Retail Prices Index as a measure of inflation, the contribution of business rates to local government finance has decreased compared to Council Tax and government grants. Many local authorities have called for the rate to be increased, and for the power to set the multiplier to be returned to local control; both suggestions have been opposed by business organisations such as the British Retail Consortium. The Lyons Inquiry rejected the return to local control, and instead proposed giving local authorities the power to levy a local supplement, in consultation with affected businesses; responses from the business sector have ranged from caution to opposition. Following the creation of the National Assembly for Wales in 1999, some of the powers previously exercised by the UK government were devolved to the Welsh Assembly government. The English and Welsh systems were able to diverge slightly, with Wales setting a different Uniform Business rate multiplier, and different reliefs.