Growth and Infrastructure Bill

Memorandum submitted by CVS (GIB 80)

1. Summary

1.1. CVS is the UK’s leading business rates specialist. We have been providing property advice to owners and occupiers of commercial premises for more than a decade. Having reviewed Clause 22 of the Growth and Infrastructure Bill, CVS asserts that:

· The Government’s rationale for postponement of the 2015 revaluation is based on unreliable data and analysis from the Valuation Office Agency (VOA)

· CVS understands the logic behind the Government’s decision to postpone the revaluation to provide stability but on the basis that it will have a neutral effect overall and a revaluation could cause unnecessary upheavals for some companies

· To make this revaluation worthwhile, the Government must make sure the system is fit for purpose

· If the postponement is to go ahead, a fairer and more stable business rates appeals system for companies needs to be created

· In doing so, longer term stability and fairness will be delivered to businesses in respect of their business rates

· Reducing the levels of bureaucracy in the VOA will vastly improve the business rates system and establish a fairer system for businesses

2. The Rationale of Clause 22  

2.1. The Government has consistently asserted that the decision to include Clause 22 in the Growth and Infrastructure Bill is to provide ‘tax stability in the business rates system’. During the Second Reading of the Bill, the Secretary of State, the Rt Hon Eric Pickles MP, stated that the postponement of the revaluation would, "give businesses five years of tax stability and certainty, leaving companies looking to grow and improve the economy free to concentrate on delivering growth." [1]

2.2. Whilst CVS welcomes the Government’s commitment to creating stability in the business rates system we have found that the impact analysis of the revaluation in 2015 from the VOA is flawed. Nevertheless CVS believes that there is still logic behind the decision to postpone, so long as the system is made fit for purpose as soon as possible. Much of the instability and unfairness in the business rates system results from the system itself rather than the revaluation of rates due in 2015 and this is in urgent need of redress. If the Government is committed to providing businesses with ‘stability and certainty’ then they must address this unnecessary bureaucracy in the VOA which is creating instability and uncertainties for businesses across the country. This cannot wait as businesses are being impacted by these problems now so work to review the processes and systems in the VOA must be undertaken immediately. Details of these problems are discussed fully in the next section of our evidence.

2.3. CVS acknowledge that the Government is correct to argue that even though rateable values would decrease under the 2015 revaluation, the multiplier would need to be set at a higher rate to maintain tax revenues. For some businesses it will mean that despite their rateable value decreasing, if it does not do so sufficiently to match the percentage increase in the uniform business rate (UBR), then the business rates for that property will rise. However, given that the UBR would be set at a level to neutralise the impact of a decrease in business rate tax revenues, it is hard to understand why the revaluation would have such a disproportionately negative affect.

2.4. The analysis by the VOA, as published on 12th November 2012, finds that if a revaluation were to take place in 2015, 650,000 businesses would not see a significant difference in their business rates whereas just 300,000 would see a decrease compared to 800,000 who would see an increase. [2] Through careful analysis of the VOA’s assessment, CVS has identified that the ‘Other’ sector is having a distorting effect on the overall findings of the VOA’s analysis. The VOA does not have data on this sector, yet has estimated that all 528,000 of the hereditaments’ rateable values would only decrease by 10%, meaning that once the multiplier is applied they would all see an increase in business rates.

2.5. If these 528,000 ‘Other’ hereditaments are removed from the analysis and a view is taken on the 3 sectors where data is available to produce reasonable estimates, the VOA estimate that 300,000 properties would actually see a fall in business rates compared with 280,000 which would see a rise – this broadly equates to as many winners as losers. Were we to trust the validity of the other sector impacts (retail, industry and office) this suggests that the actual overall impact on businesses of the 2015 revaluation is more likely to be roughly neutral with similar numbers of properties seeing a rise as those experiencing a reduction in business rates. This would make sense as although with each list there will be some movement in rates for individual businesses, overall the affect between lists is that the total revenue remains the same, simply increasing in line with inflation.

2.6. Following this logic from the detailed analysis of the sectors it does not make sense that the entirety of 528,000 businesses in the ‘Other’ section would all see an increase in rates. There is no apparent grounding in the data for the 10% reduction and no obvious explanation for this assumption within the VOA’s report. Considering the neutralising impact the VOA has identified within the 3 sectors, where data is available, you would expect the VOA would have applied a similar principle of impact to the ‘Other’ sector where data is unavailable- rather than making a very broad assumption which does not correlate with the VOA’s other findings.

2.7. That said, the fact that the revaluation would have a neutralising effect does not mean it would not cause instability for businesses. All Lists see some movement in rateable value and the application of the multiplier can lead to changes in business rates for many businesses even if overall the effect is neutral. Given that based on the VOA’s data, excluding the unreliable ‘Other’ data, the postponement will have a neutral effect on business rates which will still in itself cause some instability, CVS does not dissuade the Government from including Clause 22 in the Bill.

2.8. However, if the Government are truly committed to providing stability and certainty, there are other serious problems in the business rates system that require urgent review now in order to truly create a stable and fair system. Simply delaying the revaluation on a single occasion will not go far enough to establish future certainty for businesses. If the Government does postpone the revaluation for the purposes of creating a more stable business rates environment for businesses then they must act now to make sure the system is working effectively and is not burdensome for businesses in any way. CVS would therefore encourage the Government to review the business rates appeals system immediately to provide greater stability and fairness for businesses but would argue that simply postponing the revaluation is not sufficient to do so.

3. Bureaucracy in the Valuation Office Agency

3.1. The Government is right to consider the business rates system as an area for creating greater stability and fairness for businesses. The Department of Communities and Local Government (CLG) has informed CVS that the deadline for submitting business rate appeals on the 2010 Ratings List will not be moved in line with the change of date for the revaluation and will therefore remain at 31st March 2015. We were informed that this was to enable the outstanding appeals against the 2010 List to be ‘tied off’, suggesting that the Government will be taking the extra time before the 2017 Revaluation to clear the backlog of appeals - which CVS welcomes. This has not yet been officially confirmed but if this is an influencing factor in the Government’s decision to delay revaluation, as such an assertion would suggest it is vital that they review the bureaucracy of the VOA appeals process to identify the cause of the delays and ensure a similar situation does not prevail for the 2017 Ratings List.

3.2. Earlier this year, CVS uncovered a serious problem within the VOA who had amassed a backlog of business rates appeals, delaying the repayment of overcharged business rates to businesses across the country. The situation is no better today and, based on CVS’s market-leading experience of VOA performance since the latest data release in March 2012, the delays to appeals on the 2010 List look set for an even longer wait than first anticipated. At the end of March 2012, the VOA carried forward 241,710 outstanding appeals against the 2010 List. This backlog is 74% higher than at the equivalent stage of the previous List and equates to approximately £1.8bn owed to businesses over the Ratings Period.

3.3. The process of settling appeals has historically been slow but the new appeals procedures for the 2010 List have introduced further bureaucratic and cumbersome processes that prevent and frustrate negotiations. This has simply compounded the backlog, lengthening the time it takes for an appeal to make its way through the system. Thousands of businesses are still out of pocket as a result of the 2010 List delays in processing appeals.

3.4. By direct comparison to the 2005 List, there were 2% fewer appeals made within the first two years of the 2010 List. Despite fewer appeals being lodged in the first two years of the 2010 List, the number of appeals settled in the first two years was 41% lower than in 2005. The number of appeals being carried forward at the end of the second year of the 2010 List is 74% higher compared to the same timeframe in the 2005 List. This is equivalent to £750m additional overpayments owed to business rate payers at an equivalent point in the 2010 List cycle compared to that in 2005.

3.5. The following table clearly demonstrates these findings [3] :

2010 List

2005 List

% variance

Number of appeals received by VOA in the first 2 years of the List

399,710

407,950

-2%

Number of appeals settled by VOA in the first 2 years of the List

160,070

269,320

-41%

Number of appeals carried forward at the end of the second year of the List by VOA (i.e. 31 March 2012 and 31 March 2007 respectively)

241,710

138,620

+74%

3.6. Regardless of the impact of the revaluation on businesses, this is clearly an on-going problem in the VOA. It is negatively impacting businesses across the country and many are bearing unfair and unnecessary financial burdens. This is not simply a case of activity levels within the VOA but bureaucratic inefficiency embedded within the system.

3.7. Additional stages in the appeal process have meant that paperwork has increased, causing appeals to take longer to process. Whilst it seems logical that the evidential burden has increased on the appellant to provide evidence at an earlier stage than under previous lists, the VOA needs to be more transparent with regards to the provision of rent information to aid and assist the negotiating process. Currently such information is withheld from agents and occupiers, making negotiations more difficult as not all parties are fully informed of the other side’s arguments. It is also counter-productive that the negotiating capabilities of caseworkers in the VOA have been reduced and the timetable more strictly enforced. This means that although there is better evidence provided by the appellant, the case-workers in the VOA are not able to act upon it and if the negotiations overrun- even by a matter of hours- the whole case has to be referred to the Valuation Tribunal. This is highly unfair on businesses and has led to a build-up of appeals in the Valuation Tribunal.

3.8. The decision to restrict caseworkers ability to authorise reduction to a maximum of 5% has created a cumbersome process as reductions of over 5% now have be authorised by a team leader or the national VOA team- even when the case in favour of a higher reduction is obvious- leading to unnecessary delays. When businesses push for higher reductions, this leads to long delays, often meaning the target date is missed and thus the appeal ends up in the queue at the Valuation Tribunal (VT). This in turn creates perverse incentives for settlements because rather than focussing on the ‘fair’ rate level for the business, surveyors are incentivised to settle at a 5% reduction even if they know that the reduction should be more like 7-8%, in order to avoid the additional delay that pushing for a higher reduction would cause.

3.9. Overly strict enforcement of the timetable has also impacted upon the queue in the VT. Previously, negotiations would continue past the target date if there was a prospect of reaching an agreement imminently. At present, the VOA will no longer accept this flexibility and when the deadline on the target date has passed, however close to agreement the parties may be, the appeal has to be transferred to the VT. This has meant that appeals which otherwise would have been settled through negotiation, are now referred to tribunal compounding the growing pressure there. The VT is blocked up as a result of the significant number of appeals that could appropriately be settled by VOA caseworkers being escalated to the VT simply due to timetabling constraints.

3.10. The whole process is therefore highly burdensome on the businesses involved, especially when you consider that this is money they have been overcharged and are legitimately claiming back from Government. The system needs to be reviewed in full to establish a less cumbersome system that enables caseworkers in the VOA and surveyors to use their professional judgement to agree on the correct rates a business should be paying.

3.11. In an open letter sent on 29th October by Mark Rigby, CVS’s CEO, to the Minister, Brandon Lewis MP, reference was made to the current arrangements for appealing rates bills as being "cumbersome and bureaucratic". Mark Rigby encouraged the Minister to "empower the specialists working on both sides of the table" and to "unburden the process and free up experienced property professionals to negotiate and reach agreement".

3.12. This is what rate payers throughout the country need, a system that encourages and allows for the correct level of business rates to be identified and for any errors to be addressed quickly - not a system that is weighted down with unnecessary bureaucracy. The statutory duty of the VOA is to maintain a fair and accurate List- empowering the professionals on both sides will support that statutory duty, rather than the current system that appears to be designed with the intention of ‘defending’ the List, irrespective of whether it is correct or not. It is clear a review of the processes in the VOA and the ethos behind decisions is necessary.

3.13. Through the postponement of the business rates revaluation, the Government has afforded itself sufficient time to clear the current backlog of appeals and redress the issues that led to the current position. As discussed above, the Government wants to create stability for businesses and establish an environment in which businesses can grow. Ensuring that businesses are paying the correct rate level is the best way of doing this. By creating an appeals process that makes it straightforward for businesses to challenge their rates, and when they are paying the wrong amount that this is quickly rectified and refunds are provided for any overpayments as soon as possible, will help thousands of businesses across the country. As the Secretary of State rightly stated, business rates are a major financial concern for any business and making sure the amount they are paying is correct may be the difference between a business growing and employing more people or them going bust.


December 2012


[1] Growth and Infrastructure Bill, Second Reading, 5 th November: http://www.publications.parliament.uk/pa/cm201213/cmhansrd/cm121105/debtext/121105-0001.htm#1211058000001

[2] http://www.voa.gov.uk/corporate/News/2012/newsRelease_November_2012.html

[3] http://www.voa.gov.uk/corporate/publications/statisticsCentralLocalRating.html

[3]

Prepared 10th December 2012