Mark,
Your opinion piece for Property Week (24 January) raises some interesting questions about how taxation of property could evolve from the current rating system.
You asked what is the difference in activity between a warehouse operated by Amazon and a “click and collect” store run by Argos?
As you imply, in one way the use is the same, retail, as both occupiers’ process goods for direct distribution to the public. The buildings’ rateable values will be different as they will reflect the buildings’ different values but not the different impact of their activities. Therefore, in order to determine whether the rating bill of Amazon is ‘fair’, and to see whether the retail value of the activity can be captured, it is necessary to look beyond the use of just the property.
Catchment
What should also be considered is the occupier’s impact on the public purse through their use of infrastructure. The extent of this use is determined in reality by the catchment. The evolution of land use and of value is the evolution of catchment. The economic reality is that HS2 will bring value to the North largely through enhancing its connectivity within London’s hinterland and enabling it to benefit from London’s global catchment as e.g. Milton Keynes and Reading currently do. ‘Get on the train’ can be added to ‘Get on your bike’.
The catchment of an internet business such as Amazon, is in theory infinite, although each building’s business catchment and therefore impact will be highly defined. It will need to be compared with that of an out of town shopping centre, or an Argos “click and collect”; all three being greater than that of a ‘bricks only’ high street shop. Out of town development utilises lower land costs and any retail use will capture purchasing power from a dispersed catchment through the use of extensive public infrastructure. Town Centre rateable values already reflect their catchment through the higher land and property values brought about by the extensive public investment in them. Retail warehouses and ‘Amazon’ rateable values do not reflect their intensive use of highway infrastructure. The rating system, if it is to be fair in respect of public infrastructure use, needs to catch up to reflect the catchment served by out of town retail and now also by ‘Amazon’ buildings.
Successful businesses like Amazon exploit opportunity, which means they deliver outputs that are valued. The role of government is to provide the framework for that success. To enable that with land use and property, government needs to provide a framework that is fit for purpose. This stewardship needs to reflect the long-term impact, funding requirement and interrelationship of the many aspects of the built environment, if it is also to capture the appropriate tax rate.
Value Capture
The rating debate highlights how successive governments have focused on new development as a means of generating instant economic activity from property, and capital receipts, despite this being only about 2% of assets. The near constant seeking after additions to S106 contributions highlight that there is a perceived flaw in the government’s approach to value capture. The flaw is, of course, more fundamental than how to tax development. The problem is the lack of asset management of the public estate, comprising both buildings and infrastructure. It is infrastructure, both physical and environmental, that is the framework for economic and societal success as a whole and we are not very good at getting it paid for.
Rating is asset management income and needs budgeting against asset management expense. Expense must start with the strategy for infrastructure as it is this which leverages development and on which successful building occupation depends.
Politicians must surely bid for the right to use our long-term assets and long-term income within their period of office. There should be no more consuming today of our children’s future. What value an independent UK asset bank to husband our land and infrastructure? The traditional landed estates have a lot to commend them.
Best use
You state that one of your aims is for rates to be an incentive “for the best use of land and buildings.” Securing the best use requires the market to be allowed to function. It therefore requires the integration of publicly controlled and privately owned land and buildings into town and region-wide infrastructure planning if the market is to function across all assets, not just those outside the public sector.
Devolving long term land and development decisions to local authority city regions and functional LEP areas is essential. Their geographic remit must equate to the development and infrastructure impacts they are being asked to manage. To deliver this, particularly in a world of shifting current expenditure demands and short cycles of political life, there needs to be a ring-fenced management body whose remit is the long term requirements of infrastructure and land use.
What is needed is statutorily defined asset management vehicles with specified service levels and resource responsible for delivering key asset management services within effectively further refined LEP areas. They would need to be funded independently through rating income and sit outside local authorities but deliver key management services to them.
Jonathan Naughton
Tags: Amazon, Argos, Development, Government, High Speed 2, HS2, LEPs, Local Enterprise Partnerships, London, Mark Prisk, Politicians, Politics, Property, Property Week, RICS