THE INCIDENCE OF BUSINESS RATES ON MANUFACTURING INDUSTRY IN SCOTLAND AND THE REST OF THE UK
| Published date | 01 February 1992 |
| Author | Anthony J. Laramie,Douglas Mair |
| DOI | http://doi.org/10.1111/j.1467-9485.1992.tb00606.x |
| Date | 01 February 1992 |
Scorosh
Journal
of
Polirical
Econoiiry.
Vol.
39.
No.
I.
February
1992
1992
Scottish Economic Society
THE INCIDENCE OF BUSINESS RATES ON
MANUFACTURING INDUSTRY IN SCOTLAND
AND THE REST
OF
THE UK
DOUGLAS MAIR
Heriot- Watt University
AND
ANTHONY
J.
LARAMIE
Merrimack CoIlege
I
INTRODUCTION
A major reform
of
business taxation has come into effect in the UK in
1990
with the introduction
of
the uniform business rate (UBR) which has effectively
removed from local authorities any discretion for taxing business. A
revaluation
of
business property has been completed and steps are being taken
to
harmonize Scottish and rest
of
United Kingdom (RUK) valuation law and
practice. The survival
of
a separate Scottish system
of
rating and valuation is
the only example
of
regional fiscal autonomy in the UK. In this paper we
examine the economic effects
of
the separate Scottish and RUK systems
of
business property taxation.
There are two principal sources
of
difference between the Scottish and RUK
systems. The first relates to the definition
of
rateable value and the second
to
its estimation. The rateable value
(or
net annual value)
of
an industrial
property is defined as ‘the amount equal to the rent
at
which it is estimated that
the hereditament might reasonably be expected
to
let from year to year
if
the
tenant undertook to pay the usual tenants rates and taxes and
to
bear the costs
of
the repairs and insurance and the expenses, if any, to maintain the
hereditament in a state
to
command that rent’ (General Rate Act,
1967,
para.
14(3)).
Four methods
of
valuation may be used-rental method, profits or accounts
basis, contractors’ principle and statutory provision
or
formula rating. Of
these,
it
is the application
of
the contractors’ principle which causes the greatest
difference between Scotland and RUK. In RUK, it is generally used as
a
method
of
last resort when other rental evidence is lacking; in Scotland, the
principle is used much more extensively. As well as using the contractors’
principle more frequently, Scottish assessors also apply much higher rates of
Date
of
receipt
of
final manuscript: 8th
June
1991
16
INCIDENCE
OF
BUSINESS RATES
77
interest
to
obtain net annual value from gross capital value. In Scotland from
1974
to
1984, a rate
of
interest
of
9% was used for industrial buildings, reduced
to
8% in 1985; for plant and machinery, the rate was 10% from 1978
to
1984,
reduced
to
9%
in
1985.
In
RUK, by contrast, a single rate
of
5%
was used
throughout for both buildings and plant and machinery.
There are also differences in the valuation
of
plant and machinery between
the two countries. In RUK, rateable plant and machinery is specified by Order
under five classes and since 1974 relief has been provided by the Plant and
Machinery (Rating) Order which exempts plant and machinery under 200 m3
in volume, thereby exempting a great deal
of
plant and machinery in light
manufacturing and modern industrial premises. In Scotland,
if
plant and
machinery is ‘fixed to the building’ it is rateable and is exempt only
if
it can
be moved without dismantling part
of
the building in which
it
is housed.
Attempts have been made in the Land Valuation (Scotland) Amendment Act
1982 and the Rating and Valuation (Amendment) (Scotland) Act 1984
to
bring
RUK and Scottish practice more into line by de-rating ‘plant in the open’ and
requiring valuations to be comparable on both sides
of
the Border. Up to 1988,
industry in Scotland was de-rated by
50%
of
its net annual value, a proportion
which has since been reduced
to
40%.
Comparisons
of
the rateable values
of
individual industrial or commercial
properties in Scotland and RUK have occasionally been produced and these
generally show much higher rateable values in Scotland. Bennett and Krebs
(1988) cite
a
study
of
cross-border differences carried out in 1986 for the CBI
in which contractors’ principle valuations were carried out on actual sites for
five categories
of
industrial or commercial property-chemical plant, a
pipeline, tank farms, air separation plants and universities. This study showed
local rates
to
be between 45% and 321% higher in Scotland than in RUK (see
Table
1).
As part
of
their study
of
the formal incidence
of
business rates,
Bennett and Krebs calculated for Scotland the average effective local tax rates
for different classes
of
property (see Table 2). For the period 1978 to 1981, the
Bennett and Krebs figures show that compared to the equivalent figures for
RUK, the effective local tax rates for Scotland were 123% higher in 1978, 138%
TABLE
I
Relation
of
rates paid in Scotland and England
on
five types
of
rated property
Differences as
‘4’0
Case En
g
I
a n d Scotland
of
England
Chemical plant
(f000s)
212.0 309.1 +45.7
Pipeline (per metre)
I
.26 1.89
+
50.0
Air separation plant
Tank farms (per cubic metre)
0.046-0.66 0.80-1.82 +50.9-175.8
(per tonne/day)
186 432
+
132.3
Universities (per
sq.
metre)
3.22-4.45
13.58
+
205 *2-32
1
‘7
Source:
CBI.
1986.
To continue reading
Request your trial