Boris Johnson friend of business?

We read in a report from the British Property Federation that Mayor of London Boris Johnson has today assured the property industry that he is “a friend to business” by putting his weight behind the fight against empty rates and offering support for new methods of funding.

Addressing the Movers & Shakers event at the Dorchester Hotel in London, Johnson said he would welcome discussions on innovative funding methods. The BPF is set to publish a report on tax increment financing (TIFs), an American model for funding regeneration by borrowing against future tax revenue. TIFs could be used to deliver new homes, public transport and other vital infrastructure.

The mayor also admitted he was unaware of ‘pitiful’ gesture made by the government in offering firms an empty rates holiday for properties with a rateable value below £15,000.

Standing firm on the planned Crossrail business rate levy which he said was “morally and intellectually justified”, he promised to be fair and to do what he could to encourage projects to go ahead. It followed debate over the mayor’s recent objection to a Terrace Hill office development in Victoria. The objection has been withdrawn after an agreement for what Johnson called a “trifling” extra payment for Crossrail was reached.

Johnson is vaguely on the right lines when he says that a business rates levy is morally justified as a way of paying for Crossrail though he needs to put his thinking cap back on.

But he is obviously confused about his views on charging rates on empty buildings. This discourages owners from leaving them empty and encourages them to reduce rents to market clearing levels. This must surely be good for business? The trouble is that under the present rating system, buildings and improvements are included in the assessment, whilst owners of vacant sites pay nothing and charges are lower on sites that are poorly developed. But that objection could easily be overcome by switching to a site value system of assessment, ignoring what was on the site.

Tax increment financing is loosely based on the right principle but the idea needs to be properly thought through. It is impossible to determine precisely who benefits from particular infrastructure, who does not, and what increment can be attributable to a particular item of infrastructure. It is also unreasonable and onerous to ask for substantial lump-sum payments. Why go to the trouble? All land value, not just the uplift, can be captured through a system of land value taxation based on rental values. Any increase resulting from a particular infrastructure development will be picked up in the revenue stream from the land value tax and any bond issues can be backed by the prospect of the enhanced receipts.