Written evidence submitted by

Adam Corlett, Andrew Dixon, Dominic Humphrey and Max von Thun


1. Introduction


1.1.      Coronavirus has created huge challenges for UK policy makers – both in terms of the health of the population, but also the health of the public finances. As the OBR have recently set out, the UK budget deficit is set to hit a peacetime record and rise to over 100% of GDP in all but their most positive economic scenario.[1]


1.2.     While it is right that ministers are currently focussed on tackling the immediate health and economic consequences of Covid, it is welcome that the Treasury Select Committee is using this period to reflect on some of the long-term issues (and potential opportunities) caused by the pandemic. Indeed, if the Chancellor is to meet his shared objectives of supporting the economic recovery while “over the medium-term…put[ing] our public finances back on a sustainable footing” changes to the tax system will be needed at some point during this parliament.[2]


1.3.     But this should be about more than simply raising revenue to fix the public finances (although that is of course important). So when policy makers are considering how to raise revenue they should be looking at who and where this revenue will be raised from, and ensuring that tax is used to support broader public policy objectives. One area that is in need of particular attention is the UK high street which has been struggling for a number of years, as shown by a number of high-profile store closures. With a further 20,000 sites predicted to close permanently as a result of Covid, policy makers should be giving serious consideration as to how best to support this vital part of the UK economy.[3]


1.4.     With that in mind, in this submission we want to focus on an area of the tax system that is particularly ripe for reform – business rates – which are acting as a barrier on business incentives to increase their productivity and look increasingly anachronistic as more and more businesses go online. In their place we propose that business rates are replaced with a Commercial Land Levy (CLL); a tax based on the value of land and not on productive capital investment. This idea is not new, but we believe it is an idea whose political time has come as the UK looks to “build back better” from the Covid pandemic.[4]


1.5.     As set out in more detail below, replacing business rates with a CLL would act as a major boost to struggling regional high streets as they look to bounce back from Covid; cutting business taxes in 92% of local authorities while also significantly simplifying the existing tax regime. However, a CLL would also have much broader economic and public policy benefits; helping to unlock the UK’s long-standing productivity puzzle by removing the disincentives to investment inherent in the current system as well as supporting the government’s objectives on levelling up, increasing public investment and transitioning to a greener economy.


2. Summary of recommendations and benefits


2.1.     Key Recommendations;


  1. Productive capital and investment should not be taxed. Business rates should be replaced with a CLL, taxing only the land value of commercial sites. This should be done at a single rate of tax


  1. Business tax should be paid by the owner of a commercial property, not the tenant


  1. Revaluations should take place annually to better reflect local economic conditions and avoid large infrequent changes


  1. Exemptions for empty and derelict commercial premises should be abolished, with the revenue used to lower bills for all taxpayers


  1. Non-residential stamp duty should be abolished in order to make the commercial property market more efficient


2.2.    Key Benefits


Introducing the CLL in England would;


         Help tackle the UK’s productivity puzzle by supporting businesses to invest in productivity enhancing technology. Switching to the CLL could boost business investment by at least 1% (around £2 billion a year), and productivity and GDP by 0.4% (around £8 billion) in the long-term. [5]


         Support “levelling up” and regional rebalancing. The CLL would cut business taxes in 92% of local authorities – particularly outside the South East - helping to rebalance Britain’s unequal regional economy and support the recovery of regional high streets post Covid.[6]


         Simplify the tax system and cut the administrative burden for local authorities. Moving to the CLL would reduce the number of rate payers by 61%. It would also spare over 500,000 SMEs the burden of property taxation, helping them focus on recovery and managing the Brexit transition.


         Enable the transition towards a green economy and support investment in public infrastructure by ensuring investment in renewable technology and utilities are not subject to tax. This would remove a key impediment to the Prime Minister’s exhortation to “build, build, build” as part of supporting the overall economic recovery.


Taken together our policies would represent a tax cut worth £1.4 billion initially, which we consider desirable given the difficulties currently facing businesses as they look to recover from Covid and the need to smooth the transition to a new system. We believe this should be funded by increases in central government grants to local authorities. Given the broader benefits, this represents good value for money and should provide effective support to build on the £3.2bn of emergency grant funding already announced for local authorities in March this year. Full details of our costings are set out in Appendix 8.1.


3. About us


3.1.     In September 2018, we released the independent report Replacing Business Rates: Taxing Land, Not Investment. Our submission is based on this previous report.


3.2.    The authors of the report are;


  1. Adam Corlett – policy expert who has worked in think tanks since 2012 and produced a wide range of analysis and reports about taxes and living standards.


  1. Andrew Dixon – former Goldman Sachs, founder of ARC InterCapital, The Woodhaven Trust and Fairer Tax Campaign CIC.


  1. Dominic Humphrey – Research Fellow and data scientist specialising in property policy.


  1. Max von Thun – policy expert and commentator with a wealth of experience across politics, think tanks, journalism and the private sector.


3.3.    Upon publication in 2018, the report was received positively in the media and covered by a wide variety of publications, including the Financial Times, Daily Mail, The Sun, BBC Business, City AM, Public Finance and The Economist as well as numerous trade bodies and sector publications. We believe this demonstrates the growing public appetite for a radical overhaul of business rates.

4. Issues with the current business rates system

4.1.     Even before the Covid pandemic, there was widespread dissatisfaction with the current business rates system across the UK. A 2018 survey of 491 entrepreneurs found that nearly 90% saw business rates as damaging the success of entrepreneurship in the UK – more than any other tax.[7]


4.2.    This in part reflects the specific problems created by a delayed revaluation that caused taxes to be based on 2008 values for too long. There are also concerns about the rise of online retail and the economic uncertainty caused by Brexit. However, there are a number of specific issues with the current system which run much deeper;


Business rates and non-residential stamp duty act as a tax on long-term investment;

4.3.    Business rates are a tax on the annual rental value of non-residential land and buildings. This does not include most contents (e.g. desks, computers, inventory, fittings and fixtures). But it does include the structure itself, as well as a range of ‘plant and machinery.’


4.4.    If a new building, dam, or blast furnace is built, recurring tax is paid on that investment. And if an existing property is improved through the addition of a lift, solar panels, or air conditioning, its tax bill increases.


4.5.    While it is reasonable to tax the increased profits that investment may lead to, it is not reasonable to tax investment itself. For example; after Tata Steel made a £185 million investment in rebuilding a Port Talbot blast furnace in 2013, their business rates bill for the site went up by £400,000 a year.[8]


4.6.    Non-residential stamp duty also reduces investment by increasing future taxation when a building’s value goes up and suppresses the amount of stock built in the first place. Note that while this tax is paid by the purchaser, it acts to reduce how much the owner can sell for.


The reliefs are badly designed and don’t necessarily achieve their desired policy objectives;

4.7.     While potentially helpful in the short run, in the long run property tax relief tends to result in higher rents for freeholders. Furthermore, under current arrangements small increases in rental values can lead to large changes in business rate bills, with a stark “cliff edge” effect where small business rate relief is tapered away from complete relief to nothing.


4.8.    Another badly designed relief is that on empty premises and vacant land. Unoccupied properties are exempted for 3 months (6 months for industrial premises) at a cost of over £800 million a year in England. This rule can be gamed by having the premises occupied for 6 weeks or more, after which time another 3-month exemption can apply, or by coming to a token agreement with a charity to qualify for charity relief instead.  Vacant land is not subject to any business rates at all meaning developers are not taxed for sitting on land in a practice known as ‘land banking.’


4.9.    These reliefs are in effect supporting companies to withhold land that could be put to better economic or commercial use including enabling them to hold on to land that could be used for the building of new homes, something the Prime Minister has put at the heart of his domestic agenda.



5. Our solution: The Commercial Landowner Levy (CLL)


5.1.       In order to avoid these issues, we believe a new form of business property taxation is needed; one based on the value of land and not of property. In our 2018 report ‘Taxing Land, Not Investment’ we make the case for a form of land value tax that we have termed the Commercial Landowner Levy.  While we encourage the Committee to consult the full publication, what follows is a short summary of our proposals.


How it would work;

5.2.      Instead of tinkering with a system that is already overly complex, we believe it would be more effective to end the taxation of buildings and structures entirely and simply tax only the underlying land value. This would be done on the basis of a simple flat rate, which, based on our modelling, we suggest should be set at 59p per £1 of land rental value in England.[9]


5.3.      The CLL would be levied on owners rather than tenants, which, because a single plot of land often contains many business rates “hereditaments,” would reduce the overall administrative burden for both companies and local authorities.


5.4.      Nearly all current reliefs would be removed, and commercial land would be taxed regardless of whether the buildings on it are occupied. This is including in cases where the property itself has been demolished. Some reliefs, such as for charities, should continue under the CLL but with consultation on whether this is indeed the best way to support them.


5.5.       To ensure small businesses continue to receive support the ‘Employment Allowance’ (which reduces each business’s employer National Insurance bill by £3,000 a year) could be doubled, at a cost roughly equivalent to that of the current business rates small business reliefs.


5.6.      The VOA should calculate land values, using a computerised approach as a first step. Valuations should be based on the best permitted use and be updated each year.


5.7.       The change should not affect local government finances, with redistribution between local authorities adjusted to ensure no immediate change in local revenue, and the retention policy continued if desired.


5.8.      Overall this would represent a tax cut worth £1.4 billion initially. Given the scale of challenges facing businesses as they look to recover from Covid, we see this as a desirably policy choice, especially as it much cheaper than many other support measures announced to date by the Chancellor. This figure is also before wider economic benefits are taken into account, which we think would greatly exceed this cost. We believe this should be funded by increases in central government grants to local authorities. Appendix 8.1 presents our costed policy package.


What are the benefits;

5.9.      The idea of a land value tax is not new. It has been recommended by organisations and individuals as diverse as the Adam Smith Institute, the IPPR, the IFS, The Economist, former Observer editor Will Hutton and Financial Times commentator Martin Wolf. However, we believe it is an idea whose political time has come, given that it addresses some of the core policy issues politicians and policy makers need to grapple with as the UK seeks to recover from the Covid pandemic.


Helping tackle the UK’s productivity puzzle:

5.10.   A move to taxing only the value of land would almost certainly increase business investment and therefore the UK’s productivity. In particular, investments that would previously have been uneconomical due to their tax implications would become viable.


5.11.    Increased investment would expand the UK’s stock of capital, in turn boosting productivity, GDP and wages. Recent OBR modelling of a tax cut for just some plant and machinery estimated that it would boost business investment by 0.5%.


5.12.   We think a complete switch to the CLL could boost business investment by at least 1% (around £2 billion a year), and productivity and GDP by 0.4% (around £8 billion) in the long-term. [10] Figures several times greater than these would also be plausible. The fiscal gains from any such impact would be large. A 0.4% increase in GDP is worth around £3 billion a year to the Treasury in increased revenue.


5.13.   Like replacing business rates, abolishing Stamp Duty would boost investment and economic welfare. This is harder to qualify but looking at the impact on Australia, where non-residential SDLT is in the process of being abolished, some modelling has estimated a net benefit of $3-4 billion.[11]


5.14.   If the UK is to ensure a sustainable economic recovery post-Covid, increasing our historically poor productivity will be essential. While there will be many solutions to this complex problem, not least investment in skills, we believe that moving to a CLL would be particularly beneficial.


Supporting “levelling up” and regional rebalancing

5.15.    Differences in land value in different parts of the country mean that replacing a property-value based tax with a land-value based one would shift the tax burden slightly towards the most prosperous regions and away from the least prosperous.


5.16.   Modelling the impact of the CLL reveals an overall average tax cut of 6% in England, with a larger cut in every region except London (11% rise). The North East would see a tax cut of 19%, and the North West and West Midlands tax cuts of 18%. The largest cut would be in the East Midlands (27%). This would represent a fiscal transfer to businesses outside of London and the South East, freeing up capital to invest in growing their business, creating jobs and helping to ‘level up’ those regional economies. See figure 8.2 and 8.3 of the Appendix for more detail.


5.17.    A CLL would also indirectly help regions outside of London and the South East due to its differing impact on economic sectors (figure 8.4 of the Appendix). Computing, manufacturing, childcare and healthcare would see particularly large falls in their tax bills (over 20%). Therefore areas with high concentration of manufacturing, such as Northampton, would benefit by the greatest amount.


5.18.   Through moving to a CLL we have proposed a cost-effective way of levelling up, that will both support the Government’s public policy objectives, while enabling them to maintain control over the public finances through increasing economic growth in the medium term.


Simplifying the tax system and cutting the administrative burden for local authorities:

5.19.   Like any tax, business rates are an administrative burden for businesses, requiring time and money. Reliefs can help small businesses reduce their tax bill but make the system harder to understand and use. They are also an administrative burden for local government.


5.20.  By moving to payment by owners and not occupiers, the CLL would dramatically reduce the number of businesses that need to pay the tax. Whereas business rates are based on over 2 million records in England and Wales, using units of land instead would reduce this to around 800,000, a 61% reduction.


5.21.   Although created with the best of intentions, small business reliefs can clearly create strong disincentives to improve properties and grow one’s business. They also make the business rates system harder to understand. Introducing a single tax rate would make the tax system simpler and more investment friendly. Money saved by removing complex reliefs should be entirely redirected to help small businesses with their employment costs, such as by doubling the employment allowance to facilitate greater job creation to support the economic recovery.


5.22.   Moving to a CLL would therefore enable local government to spend less on administrative costs, which will be crucial as they continue to struggle with the costs of Covid-19. It would also allow businesses to concentrate on the economic recovery and dealing with the challenges of Brexit rather than thinking about business rates.


Enable the transition to the green economy and investment in public infrastructure

5.23.   It is generally recognised that a great deal of investment (both private and public) will be needed to drastically reduce greenhouse gas emissions and improve the country’s creaking physical infrastructure. But business rates are a tax on any such investment.


5.24.  Currently, some of the biggest payers of business rates are Network Rail, the National Grid and BT, with the latter’s annual bill averaging around £250 million.[12] It's possible to apply sticking plasters such as a recent relief for new broadband infrastructure - but more importantly we must ask why we have a tax on infrastructure in the first place.


5.25.   For example, if a firm were to spend £60,000 on solar panels which increased its property’s annual rateable value by £3,000, their annual tax bill would then rise by £1,479. This is clearly a disincentive to investment.


5.26.  Introducing a CLL would enable business across the country to invest in green technology without then being punished via the tax system. It would also support greater investment in public infrastructure and ensure that the Government is not giving with one hand and taking with the other. This will help meet the Prime Minister’s call to “build, build, build.”


6. What are the challenges?


6.1.     Valuing the land: It is perfectly possible to value land separately from property for the purposes of taxing only the former. The ONS already produces estimates of land value in the UK, though these are not detailed enough for modelling the introduction of a CLL.[13] Further evidence that land valuation is perfectly feasible comes from international experience. This includes Estonia, Australia and Denmark, as well as Jamaica, Kenya, New Zealand, South Africa, and certain parts of the United States.


6.2.    Transition: change to the tax system as large as the one we propose would naturally require a careful transition. Our report goes into substantial detail on this, but in summary we propose that: for the majority of properties receiving tax cuts, bills either move to a land-value basis immediately or over four years; for the minority facing tax increases, the new system be phased in over four years; and responsibility for paying tax should move to landlords (a) for new contracts (b) at commercial Rent Reviews or (c) in year 4 of the new tax – whichever comes first. 


6.3.    Impact on London and the South East: While some struggling areas would see tax cuts of up to 46%, tax rises would be smaller and limited largely to London – where taxes would rise by 11% on average.  However, conversely London and the South East would benefit by the greatest amount through the abolition of non-residential SDLT, thereby mitigating some of these effects.


7. Conclusions


7.1.  Coronavirus has starkly highlighted many of the economic divides that exist within the UK. As policy makers consider how best they can support the UK’s economic recovery and fix the public finances, they should do so in a way which helps to deliver broader public policy objectives – particularly around levelling up and tackling regional inequality. 


7.2. While there are many elements to this, reforming of business property taxes can play a crucial role; helping improve productivity, supporting levelling up, simplifying the tax system, enabling the transition to the green economy and delivering greater public investment. Moving to a CLL is not a new idea, but we believe it is an idea whose time has come – helping the government to deliver on both its social and economic agenda and providing a welcome income boost to struggling regional high streets across the UK. If the UK is indeed to build back better and reduce regional inequality, replacing business rates with the Commercial Landowner Levy should be seen as an important policy lever in delivering this agenda.

8. Appendix


8.1.     Estimated overall policy costings


2017-18 England (except SDLT and NICs)




Baseline net business rates revenue, £m




Extra Revenue

Reduced Revenue


Replace NDR on property values (at 48p & 49.3p) with CLL on land values (at 59p)





Abolish small business rate relief




Boost Employment Allowance from £3,000 to £6,000




Abolish empty premises relief




Extension to derelict property




Remove charitable relief from private schools and hospitals




Use part of cancelled Corporation Tax cut




Abolish non-residential SDLT (incl. knock-on land value rise)



Reduced valuation costs for VOA


None assumed


Reduced collection costs for councils







Net Change






Other potential considerations





Extra revenue if land values grow with NGDP (not CPI) – after 5 years





Extra revenue if land values grow with NGDP (not CPI) – after 10 years





Benefit of higher economic growth

None assumed,

but potentially large


Optional temporary cost (year 1) – full tax cuts immediately rather than phasing in
















8.2.    Change in total tax bill by region, England





8.3.    Change in total tax bill by local authority, England





























8.4.    Average change in tax bill by sector





August 2020


[1] https://cdn.obr.uk/OBR_FSR_July_2020.pdf

[2] https://www.gov.uk/government/speeches/a-plan-for-jobs-speech

[3] https://www.retailgazette.co.uk/blog/2020/04/coronavirus-high-streets-to-continue-struggling-next-year-retailers-warn/

[4] https://www.gov.uk/government/news/pm-a-new-deal-for-britain

[5] Business investment was £195 billion in 2017 (see ONS series NPEK)

[6] See Appendix 8.2 and 8.3 for more detail

[7] All Party Parliamentary Group for Entrepreneurship, Tax Reform, July 2018

[8] Financial Times. Budget plan to exempt new machinery from rates bill. February 2016

[9] While seemingly higher than the standard business rates multiplier of 49p per £ of rateable value, this is only because the CLL would apply solely to land value, as opposed to both land and property value in the case of business rates.

[10] Business investment was £195 billion in 2017 (see ONS series NPEK)

[11] Deloitte, The economic impact of stamp duty, December 2015

[12] Standard multiplier applied to values from VOA, Central rating list – England

[13] ONS. United Kingdom National Accounts: The Blue Book 2018. July 2018