Growth and Infrastructure Bill

Memorandum submitted by Robert D Seares (GIB 38)

Growth and Infrastructure Bill: Delaying the 2015 Rating Revaluation

Evidence to the Public Bill Committee

Summary

Problems with the proposed delay cover three areas. The benefits from the existing system of quinquennial revaluations have been understated, the problems that this proposal seeks to address have been overstated and are capable of remedy within the existing system and the data on which the proposal is based is too general and does not support the conclusions reached.

I will consider these points under the following headings:-

1. Evidence Submitted by The President of The Rating Surveyors’ Association

2. The Existing System – Background and Benefits

3. The Cost and Maintenance of a Rating Revaluation – Value For Money

4. Perceived Problems – Overstated

5. Existing Remedy – Transitional Adjustments

6. Created Problems – Unfairness to Rate Payers whose Tax Base should be Reduced.

7. Conclusion - Creates More Problems than it Solves

1.0 Evidence submitted

1.1 My name is Robert Dudley Seares and I am the current President of The Rating Surveyors’ Association. I have been a Rating Surveyor for 39 years, 14 of which were with the Valuation Office Agency, 21 years were with a national firm of Chartered Surveyors and the last 4 years have been running my own company. I hold the post qualification Diploma in Rating.

1.2 The Rating Surveyors Association was founded in 1909 and has over 350 members drawn from private practice, corporate bodies, the Valuation Office Agency and Local Authorities. Our primary function is to work with the various bodies responsible for rating to improve the business rates system.

2.0 The Existing System – Background and Benefits

2.1 Rates are an ancient tax with a history dating back to 1601. Prior to 1990 it had fallen into difficulties. There had been no revaluation for 17 years and the Local Authority set rate poundage was leading to some RV multipliers exceeding £3.00.

2.2 This changed with the Local Government Finance Act 1988, a 5 year revaluation period was introduced and a nationally set uniform business rate implemented. Five consecutive 5 year revaluations have taken place since 1990, with the current one commencing in 2010.

2.3 This introduced stability into the system and increased understanding and certainty for rate payers. Combined with the 2 year antecedent valuation date, these regular revaluations enabled the relativities between the value of different types of property in different locations to be looked at afresh and corrected using the test of rental value to give relative worth.

2.4 Although the technicalities of the rating system are sometimes difficult to follow, the benefits of non-domestic rates as a tax are usually appreciated. In an age where there is considerable criticism of corporate tax avoidance by large multi-nationals, the relative certainty and tangible nature of taxing property is regarded as a benefit.

3.0 The Cost and Maintenance of a Rating Revaluation

3.1 The cost of a revaluation is reasonable in relation to its tax raising yield. The written Ministerial Statement on Business Rates published by The Department for Communities and Local Government on 12th November 2012 gives the cost of the revaluation as £43 million. This is 0.20% of the net rate yield of £21,034 million from rates in England in 2011-12 (Department for Communities and Local Government Statistical Release 15th August 2012 – national non-domestic rates collected by Local Authorities in England 2011-12).

3.2 Although a revaluation will lead to appeals against the rateable value assessments, the VOA Annual Report and Accounts 2011-12, published in June 2012, states, under "input and impact indicators", that the average staff cost of dealing with a case for business rates is £116.30.

3.3 In the same document it states that the VOA has achieved in 2011-12 a result of 0.44% in a target to contain reductions in the 2010 Rating List to a maximum of 3.6% of the total compiled list RV over the entire life of the list.

4.0 Problems - Overstated

4.1 The concerns which are the stated reasons to support a postponement of the 2015 Revaluation are:-

a. To avoid local firms and local shops facing unexpected hikes in their business rate bills over the next 5 years.

b. To provide certainty to plan and invest.

c. The revaluation will be likely to result in sharp changes to business rate bills.

4.2 These concerns would be met by a further transitional scheme with a revaluation providing the additional relief to those rate payers who have suffered the most from falls in rents whilst still providing initial cushioning to those that have large increases.

5.0 Existing Remedy – Transitional Adjustments

5.1 All 5 modern quinquennial revaluations have been subject to a phasing system known as transition. This moderates significant increases and decreases in bills at a revaluation and enables business rate bills to be predicted.

5.2 The current scheme for the 2010 revaluation was introduced by the Communities and Local Government Business Rates Information Letter 14/2009. It said:-

1) The 5-yearly business rates revaluations make sure each business pays its fair contribution and no more by ensuring the share of the national rates bill paid by any one business reflects changes over time in the value of their property relative to others. The 2010 revaluation will not raise a single extra penny for government.

2) Over a million properties will see the business rate liabilities come down as a result of revaluation. The government intends to put in place a £2 billion relief scheme to limit the impact on the minority with bill increases. This is on top of the wider support available to help ease business pressures, including discounted rate bills for small businesses and deferring tax payments.

5.3 The transitional scheme is designed to be broadly revenue neutral over its life .

In The Department for Communities and Local Government Statistical Release of the 15th August 2012 the net transitional relief granted in 2011/12 was 373 million in comparison with the non-domestic rate yield before relief in England for 2011-12 of £23,999 million. The cost of transitional relief in 2011-12 is therefore 1.55% of the gross yield.

6.0 Created Problems

6.1 The purpose of a revaluation is not to create balance between large dissimilar categories and extensive regions, but to create fairness between rate payers of individual properties in the locations where they carry out their business.

6.2 Although the Valuation Office Agency have provided estimates to assist the consideration of the proposed postponement, they freely admit the severe limitations of the data which they were able to provide. They considered the matter at the end of January 2012, 14 months before the antecedent date for the 2015 revaluation of 1st April 2013. They were able to use only limited rental data and clearly relied mainly upon professional valuation judgement. This was not part of an ongoing scheme and was compiled as a specific one-off exercise by the VOA. They confess that these are not forecasts and neither the rental data nor the judgements have been subjected to the rigour of moderation and validation that they would expect to apply during a normal revaluation exercise.

6.3 It is not surprising therefore that the results are likely to be subject to considerable errors of margin and more particularly, the categorisation of rateable hereditaments into very broad types and areas will mask significant differences that have a very real bearing on whether the postponement should go ahead.

6.4 Even adopting the VOA's broad categories they indicate that 300,000 hereditaments out of a total of 1.76 million would be in groups where there should be an overall fall in tax payable. Because of the revenue neutral nature of the revaluation in real terms those categories should have their reductions supported by the 800,000 hereditaments which should increase. The VO estimates that 650,000 hereditaments or 37% of the total would fall into categories which would see no significant change, although this is likely to be highly speculative and may not be supported if a more detailed examination was undertaken.

6.5 The supplementary information on estimated rateable value changes as at 31st January 2012 demonstrates how unreliable the broad brush category and regional estimates are in providing a proper basis on which to judge the effect of a postponement.

6.6 Overall, the retail sector implies a +1% tax change, but the expected significant tax increases across the food retail sector are counterbalanced by the numerous regional areas where the High Street is on its knees.

6.7 I am informed that a recovery in the London office market would be likely to make the January 2012 judgement out-of-date by April 2013.

6.8 The postponement would unreasonably defer the expected rate reduction of the hotels sector outside London, which would be supporting the more buoyant market in central London.

6.9 The implication for pubs of a +11% tax change completely masks a sector where there is some buoyancy in central London and city centres, and very poor performance in small town and village locations.

6.10 With the self-catering industry the Valuation Office freely admits that there is likely to be significant variation depending on type of property and location. Again, this can only be addressed if there is a revaluation.

6.11 Very significant variations between property types and locations is anticipated in the petrol retail sector. These will not be addressed without a revaluation.

6.12 Because of the limitations of this exercise the Valuation Office has adopted the same overall average change for a range of other properties, which implies a tax increase. These other, non bulk class properties, amount to 528,000 or 30% of the total of all the hereditaments. The VOA conclusion will undoubtedly mask wider variations which will not benefit from a postponement.

7.0 Conclusion

7.1 The existing system has matured into an understood, cost effective tax base that should be allowed to continue.

7.2 Creating unfairness for the sake of expediency is not good governance.

7.3 The existing remedy of transitional adjustments is the proper way to address the problems identified. Without the details and work of a full revaluation the unfairness and harsh treatment of vulnerable businesses and rate payers would far outweigh the limited advantages.

7.4 I conclude that the proposals in Clause 22 of The Growth and Infrastructure Bill should be expunged and the revaluation 2015 be allowed to continue.

November 2012

Prepared 27th November 2012