The capitalisation of business rates : an empirical study of tax incidence in six London boroughs
This work is concerned with tax shifting and capitalisation of recurrent taxes on immovable property, known as business rates in the United Kingdom and payable by occupiers of business property. The empirical research seeks to identify to what extent business rates are transferred into rents and thus capitalised. If the tax is capitalised, then freehold owners will bear the burden of the tax. If not, the tax may be shifted in some other way, for example, reducing the occupiers' profits or increasing the prices charged to customers. The extent of any tax shifting will be affected by the value of any benefits received by the occupier in exchange for the tax paid. Previous studies of business property tax incidence in the UK have met with mixed results and problems of poor and inadequate data have hampered research efforts. In this work particular emphasis has been given to detailed data collection, which has been carried out in the field at the property unit level and, by using this meticulous approach, it was possible to control for data issues that have confounded earlier studies. The empirical research is based on data collected for business properties in six London boroughs. Matched pair data has been collected for industrial, retail and office property. The study takes advantage of a one-off historic situation that existed before the introduction of the Uniform Business Rate in 1990. At that time, large differences in the property tax burden existed between many local authority areas and these differentials had been present for several years. The chief hypothesis predicts that property values will gradually adjust so that total occupation costs between matched pairs of properties will be equalised over time. The results of the empirical study confirm the hypothesis and show that total occupation costs do tend to be equalised in the long term. The results justify the painstaking approach to data collection that was an important part of the overall research design.