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Tony Travers: Hammond won't let the sub-national sort out tax mess

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Next week’s Budget is widely seen as of great importance for the country as it faces Brexit and on-going economic difficulties.

But the Budget is also about longer-term tax policy. And local taxation is a mess. Council tax has not been revalued since it was introduced and relies on 1991 capital values. Moreover, the range of property values has hugely expanded since the early 1990s. Every year that passes undermines the logic of domestic property tax. Non-domestic rates (NDR) are slightly better, in that they are periodically, if randomly, revalued.

But NDR has never been a particularly good tax. Because of its propensity to hit smaller businesses relatively more than larger ones, the Treasury has effectively exempted many companies from it. Latterly, a row has broken out about the way high street properties pay far more than online retailers’ warehouses. There are lobbies for a turnover tax or other ways of protecting retailers from NDR.

Agricultural land and buildings do not pay non-domestic rates, a remarkable exemption. As the UK leaves the EU, there will surely have to be a review of the way farming fits into wider business policy and possibly the property tax regime: everything will be affected by Brexit. Stamp Duty Land Tax, a national property-related revenue, has its own problems: as a transaction tax, it creates inefficiency in the market. Scotland and Wales have their own variants of the same challenges, though Wales, to its credit, did managed a council tax revaluation in 2005.

There are several good reasons for reforming the country’s archaic property tax system. As the existing taxes are seen to fail, there are calls for more effective ‘land value capture’ from new developments and even a land value tax to replace existing property taxation.

The latter would be a radical innovation. It would redistribute the local tax burden (assuming it were a local tax) in significant and hard-to-predict ways. But even a council tax revaluation would leave many losers. It is possible that the only way to facilitate a major reform of local taxation is to allow local government to manage it within city-regions and other sub-national areas. Sadly, none of this will be in the Budget.

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