Rates Taxes

Rates Taxes

Rates, taxes on property levied by local authorities in order to finance local public services and amenities. The principle underlying the assessment of rates is that occupiers of land and buildings should contribute to the finance of local services in proportion to the value of the property they occupy. The property value on which rates are based is equal to the annual value of the rent which it is calculated the property earns, or could earn if it were let, less the cost of repairs and insurance. The amount an occupier may be called upon to pay is determined by the rateable value of the property and the rate in the pound charged by the local authority. If the rateable value of a house is assessed at £200 and the rate poundage decided by the authority is £1500., £100 is charged in rates each year. Property is valued for rate assessment by the Inland Revenue but rates are fixed and collected by the local rating authorities (in England and Wales the county and non-county boroughs, urban and rural districts).

As a tax rates are uncertain in their incidence since producers of goods and services who pay them may be able to shift the burden by raising prices asked (for goods) or lowering prices offered (for the factors of production) wherever possible: rates on occupiers of houses or flats may be in no way related to income or to the usual measures of individual capacity to pay tax. Rates are commonly regarded as a stable form of revenue: the meaning of this term is uncertain so long as the rate poundages or rateable values can be changed. They are also regarded as a tax on housing standards; but its practical importance in this sense is doubtful if the Government and local authorities can maintain standards in other ways. A more serious criticism is that the widespread use of rateable value per head of population as an index of the relative wealth or poverty of an area, for the purpose of calculating grants payable from the central Government to local authorities, produces many anomalies in practice. Against these criticisms it is argued that rates are relatively cheap and easy to collect and are a familiar tax which it would be a mistake to dismantle in favour of an untried form of local taxation such as a local income or sales tax. But this is an objection that can be made against many reforms or against reform in general.

Rate income forms a falling proportion of total local authority income in England and Wales. During the twentieth century grants from the central Government have been growing and now exceed rate income, reflecting the growth of 'social service' expenditure in

local authority outlays. Purely 'local' services such as public health, local streets and highways, etc., now account for only about a fifth of local authority spending. This tendency towards a larger degree of central control of types and standards of service, coupled with increased central Government responsibility for finance, is thought likely to continue. Some economists argue that the central Government should assume total responsibility for the finance of major social service expenditure such as education, others that in a society with rising standards of living and increasingly equal incomes such services could be paid for directly by individuals or families. Either of these alternatives would reduce rates to the point at which reform of local taxation and grant distribution was possible.

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