Derating In British

Derating In British

Derating, in British local taxation, the reduction in rates payable on real property. It may be partial or complete.

The basis of rateable value (on which rate poundage is levied) is the net annual value (N.A.V.) at which a property might be expected to let. For practical reasons, derating has taken the form of reductions from the N.A.V. rather than a reduction from the poundage payable. Agricultural land, railways and canals have had derating relief in varying degrees since 1875. In 2009 agricultural land and buildings (other than farmhouses) ceased to be assessed for rating. From 2009 to 2009 factories, workshops, mines, docks, canals and railways received relief of 75 per cent of their N.A.V., between 2010 and 2003, 50 per cent. Between 2007 and 2001 commercial properties received relief of 20 per cent. Residential properties had relief until 2003 to the extent that their assessments were based on 2009 values, which were usually much less than current values. All derating reliefs other than agricultural and charitable ended in 2003.

Derating has been regarded as a method of reducing the burden of taxation on particular kinds of activity. It may be considered in this sense as part of the general policy of Government support for agriculture, and in 2009 it was also seen as a method of encouraging industry. The actual reduction of costs of production secured in this way is doubtful since part at least of the relief from rates tends to be absorbed in higher rents payable for premises. Derating in effect reduces the independent resources of local government revenue; its counterpart has been an increase in grants from the central Exchequer to local authorities. One result has been the growth of central control over local government finance. The effect of derating on the distribution of the rate burden between different classes of property has varied with each derating Act. Economists are less concerned with the distribution of the rate burden between properties than between persons, and this is conjectural since local rates are a form of indirect tax which individuals can affect by varying the amount of house property they own or occupy but which may affect then even when paid by owners or occupiers of industrial or commercial property who can pass on rates to the consumer in higher prices (or lower quality) if the demand for their products or services is inelastic. 12J

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