Growth and Infrastructure Bill

Memorandum submitted by Dalton Warner Davis LLP
(GIB 78)

RE: evidence to the growth & infrastucture bill public committee
clause 22 - postponement of the 2015 non-domestic rating revaluation


1) The proposed postponement of the 2015 rating revaluation is inherently unfair to all ratepayers. It does not achieve the Government’s stated objectives. It should be removed from the Bill.

2) The present system of five yearly rating revaluations was established in order to ensure that business rates, a property based tax, periodically followed changes in market conditions.

3) A two year delay in the rating revaluation means that ratepayers presently paying excessive amounts will be forced to continue with that burden for an additional two years.

4) The proposed two year delay gives rise to consequences that are more complicated than might superficially appear. This is because the transitional phasing arrangement that governs rate payments will perpetuate the impact of the delayed rating revaluation. In turn, this means that the unfairness it creates would extend up to end of the subsequent rating period, perhaps seven years in total.


5) These representations are made on behalf of Dalton Warner Davis’ clients that own and operate gas fired power stations, the operation of which amounts to approximately 50% of the total gas fired electricity generating capacity in the country.

The proposed change and other government objectives

6) The stated intention of the proposed change is to avoid increases in business rates. The proposed change will equally prevent ratepayers receiving expected decreases in rate liability. These decreases are anticipated as a result of market conditions relevant to the forthcoming 2015 rating revaluation.

7) The loss of expected decreases therefore cancels out any benefits arising from deferring potential increases. There is no net gain as a result of the proposed delay.

Purpose of regular rating revaluations

8) Business rates are a tax on property. They are based on market rental value. Business rates liability therefore follows the ups and downs of the market. The impact of market cycles is however "smoothed out" through the Government’s transitional rate phasing scheme.

9) The nature of rating is such that, at any given time, certain sectors may be paying a disproportionately high share of the national rate liability. This can arise, because at the rating valuation date, circumstances were such that resulted in disproportionately high value for properties in such sectors. Because of market volatility, the ratio of values between different sectors frequently changes.

10) Where a property pays a disproportionately high amount, or indeed a disproportionately low amount, a regular rating revaluation means that there is the opportunity to correct these imbalances and redistribute the burden fairly if market conditions have changed in the intervening period.

11) The proposed delay in the rating revaluation means that such a correction to reflect market changes since the last revaluation will be delayed for a period of two years. This is materially unfair to certain sectors.

12) If the proposed delay had been properly researched, the Government would have ascertained which sectors might be detrimentally impacted. Wholesale changes in the business rating system should not however be used to artificially transfer national taxation liability from one sector to another. All sectors are entitled to transparency and fairness of treatment. Regular revaluations at not less than five yearly intervals have been the ‘norm’ for more than 20 years.

13) All properly managed businesses have already budgeted for changes expected from the 2015 rating revaluation. Delaying this change to 2017 is therefore unfair, lacks transparency and fails to result in any measure that will facilitate national economic growth.

Transitional phasing

14) The effect of any delay in the rating revaluation will be compounded by the application of transitional phasing.

15) For those sectors presently paying more than their fair share of national rates, not only will that unfairness continue between 2015 and 2017, but it will also be carried forward, through the transitional phasing scheme, potentially as far as 2022.

16) The Government’s transitional phasing scheme already acts very successfully to mitigate material changes in rate liability following each rating revaluation. The transitional scheme therefore already achieves the Government’s objective of avoiding unexpected changes in liability.

The gas fired electricity generating sector

17) As a result of market conditions the electricity generating sector suffered up to four fold increases in rateable value at the last rating revaluation. Companies in this sector are paying year on year substantial increases in rates.

18) Whatever the decision the Government ultimately makes, it is essential that the present transitional phasing system is extended for the full duration of the rating cycle. The unwelcome consequences described above could, to some extent, be mitigated by capping year on year increases at below the current maximum transitional amounts. This would produce a more reasonable sense of balance between sectors that have proportionately different rate burdens.

19) The proposed rating revaluation delay will mean that these increases extend for a further two years. This additional burden is unexpected. Companies in this sector undertake forward financial planning for periods of at least five years. The increases in rates arising from the proposed delay will not have been factored into this sector’s forward budgets.

20) The market conditions relevant to the planned 2015 revaluation are likely to be more stable. The electricity generating sector was therefore anticipating a return to rate liability more consistent with long term historic levels. The proposed delay removes the opportunity of achieving this rebalance. It is unexpected and unfair.

21) The proposed delay in revaluation until 2017 means, presumably, that the valuation date will also be deferred. Long term predictions suggest that market circumstances for this sector for a 2017 revaluation may again be at an above trend peak. This would, quite unfairly, mean that this sector suffers a rate burden based again on disproportionately high values.

22) The circumstances described above are an unexpected consequence of the particular circumstances effecting gas fired electricity generation. It is believed that they have not been identified by the VOA and have not been analysed and reported to Government. To proceed with the proposed delay without understanding the particular effects on this industry is unfair; does not accord with the Government’s duty to taxpayers and will harm investment in electricity generation in direct contradiction to the objectives of the current energy bill before Parliament.


23) For the reasons stated above we believe that the proposed change is contrary to the Government’s previously stated objectives for business rate taxation. It will add to uncertainty and bring unexpected burdens to the electricity generating sector where a rebalancing of the present unfair level of rates has been anticipated.

24) When viewed across all sectors, it is inconceivable that it will assist national economic growth. It is therefore an unhelpful and unnecessary change to an established business rates pattern that has stood the test of time for nearly 25 years.

25) We urge the Government to reconsider its proposals and remove Clause 22 from the Bill.

We will be pleased to provide supplementary information in respect of the above, should that be of assistance.

December 2012

Prepared 10th December 2012