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News 13 September 2018

It's Budget Time!

With summer comes the time to prepare next year’s budget for companies and for the Government as well.

budget

My main interest in this year budget remains business rates, just like last year. In a country so proud of its business minded tax system, let’s have a look at the reality behind this one.

This property tax has different merits for government, the main one probably being that its amount is fixed for a period of time so not varying with the overall economic context. This is amplified by the time required by the administration to determine the property value. As an example, between 2010 and 2017, companies have been paying the same amount of business rates based on a valuation made in 2008.

The drawback is that this tax is necessarily disconnected to the market conditions in which companies operate.

Happy?

Question...

How would you rate a tax that is completely disconnected from the economic reality in a world where stability is the exception and economic ups and downs more and more the rule?

Let’s take another characteristic of this tax: the transition period. This is used as a mean to smoothen changes in the tax level from one valuation period to the next one.

This is a nice concept if your business is going very well and your business rates are due to increase. The tax you will effectively pay will be smaller than what it should be … but someone else needs to pay for that. If your business is in the opposite situation, suffering from an economic downturn, you will then see your bill hardly reduced to support tax cuts for sectors which are on the rise.

sad?

Question...

How would you rate a tax that asks companies facing sharp economic downturn to support the healthier sectors?

This is exactly what happened to the underground gas storage sector, since 2010. We have faced a dramatic economic downturn and are still paying a pre-crisis tax level. We are not the only sector to be in this situation, but the magnitude of the issue is quite unique in the UK.

We have been engaging regularly with Government to try to find a practicable solution to this highly unfair situation. We reiterate our proposals in the attached budget representation letter and hope to get some positive moves announced this year.

If you consider this system needs to change to be fairer, do not hesitate to relay these arguments to Government, this is time for Budget representations.

Catherine Gras