Written evidence submitted by Jerry Schurder, Head of Business Rates, Gerald Eve LLP

Enterprise Bill – Clauses 25 and 26 – Business Rates

Executive Summary

· The proposed changes to the business rates appeals system would shift the burden of proof from the VOA, which has access to all relevant evidence, to the ratepayer who does not.

· Checking assessed values is therefore likely to become more costly and time consuming for businesses.

· The burden will fall especially on SMEs who will also be increasingly susceptible to the activities of unscrupulous rating advisors.

· It is unacceptable for the State to impose a significant tax without any obligation upon it to justify the derivation of that tax liability, especially in a regime whereby the taxpayer is unlikely to be either in possession of, or easily able to obtain, the relevant underlying evidence.

· The Enterprise Bill should be amended to permit the VOA to share information up-front thereby permitting ratepayers to audit their assessments without the need for formal appeal.

1.0 About Gerald Eve LLP

1.1 Gerald Eve LLP is a national firm of chartered surveyors and property consultants with a network of nine UK offices, providing a broad range of property consultancy and agency services to public and private sector organisations. The firm is widely regarded as a leading business rates advisory practice representing ratepayers occupying or owning properties across the UK. Our clients include 25 FTSE 100 companies and our team of 60 rating surveyors provide advice covering all property sectors and geographic regions.

1.2 For the 2010 Rating Revaluation, we are instructed by clients occupying more than 68,250 hereditaments in England. The total rateable value of these properties is £8.1 billion, representing over 13% of the total Rating List for England.

1.3 In relation to these properties, we have thus far made 51,700 proposals on behalf of our clients challenging entries in the Rating List. Of these, approximately 23,500 appeals relate to compiled list assessments, ie those shown in the Rating List on 1 April 2010. We have therefore challenged the complied list assessments of only about one third of the properties we are advising upon.

1.4 The majority of the other proposals we have made comprise over 12,200 material change of circumstance appeals with a further 10,500 challenging alterations made by Valuation Officers.

1.5 I am Head of Business Rates at Gerald Eve and have over 35 years professional experience advising owners and occupiers regarding their business rates assessments and liabilities.

1.6 I am a member and past President of the Rating Surveyors’ Association and of the RICS Rating and Local Taxation Policy Panel, of which I was Chairman from 2000-2005.

1.7 I am also actively involved with the key industry, trade and think tank organisations. I am a member of the CBI Rating and Valuation Panel and am also frequently called upon to assist the British Council of Shopping Centres, the Federation of Small Businesses, the British Retail Consortium, the Business Centre Association and the British Property Federation forming their policies concerning business rates as well as assisting with their Government lobbying.

1.8 I have previously given evidence to House of Commons Select Committees on developing rating legislation.

2.0 Background

2.1 In order to assist deliberation of the Enterprise Bill during its passage through the House of Lords (at which time the clauses relating to business rates were clauses 22 and 23) I prepared a ‘background paper on rating appeals in England’ which The Earl of Lytton referred to (Column 52 - http://www.publications.parliament.uk/pa/ld201516/ldhansrd/text/151012-0002.htm) and which is available here – http://goo.gl/dCUvxc . The Committee will hopefully find this helpful in understanding the way in which the appeals process operates presently.

2.2 The Government issued a consultation paper in December 2013 ‘Checking and Challenging your Rateable Value’ which set out to address the problem of a significant number of appeals within the system, many of which do not result in a change in the assessment. I agree that it is important that an appropriate approach is identified and implemented in order to remove the need for these appeals, which ultimately prove to have been unnecessary.

2.3 Gerald Eve and many business representative organisations objected to those proposals as it was not clear that they would improve the position and we were pleased that the Government decided not to implement change from October 2014 as intended.

3.0 Enterprise Bill – Clauses 25 and 26

3.1 The proposals have however re-emerged in the Enterprise Bill and in the associated consultation paper ‘Check, Challenge, Appeal’ (CCA) in a manner which fails to address the issues which led to the dropping of the earlier proposals and, indeed, seem likely to operate even more adversely so far as ratepayers are concerned.

3.2 As will be apparent from the statistical information in paragraph 1.3 above, our clients only wish us to appeal those of their assessments that may be excessive and they have no interest in lodging blanket appeals against all rateable values. We therefore endeavour to audit our clients’ assessments at the outset so that we do not appeal those which are clearly acceptable.

3.3 It must be recognised though that even a firm of our size with our extensive client base has access to only a limited amount of rental data on which to form a judgement about an assessment’s acceptability. We are therefore forced in many instances to make appeals which ultimately turn out to have been unnecessary because the values are supported by rental evidence which emerges only later in the appeals process. We are not normally remunerated by our clients for withdrawing appeals and it is therefore in the interest of both ratepayers and their advisers to remove from the system any appeals which could have been avoided had the relevant rental evidence been available. This can be achieved by disclosure by the Valuation Office Agency of the relevant rental evidence which supports the assessed values, provided prior to a ratepayer’s challenge to the assessment.

3.4 The Government’s proposed approach would shift the burden of proof from the VOA, which has access to all relevant evidence, to the ratepayer who does not. Checking assessed values is therefore likely to be more costly and time consuming for businesses and whilst CCA may result in a reduction in formal ‘appeals’ there is unlikely to be any lessening of the workload within the system.

3.5 It seems wholly unacceptable for the State to impose such a significant tax as the business rate without any obligation upon it to justify the derivation of that tax liability, especially in a regime whereby the taxpayer is unlikely to be either in possession of, or easily able to obtain, the relevant underlying evidence.

3.6 We note, and would expect the Government to treat seriously, the views of Professor Graham Zellick CBE QC, recently retired President of the Valuation Tribunal for England. He made clear in a recent article published in the Estates Gazette that;

"the ratepayer is never given the full explanation for the valuation. As a result, every time there is a new rating list, ratepayers initiate a challenge – partly to protect their position but chiefly to "flush out" more information.

Unless information is given up front, the system will remain defective and unsatisfactory and unjust. I don’t know any other tax that can be levied where the taxpayer doesn’t understand in full down to the last detail the basis on which the taxman has calculated the tax due. It’s unprecedented, it’s unique and it’s wrong."

The full Estates Gazette article is available at http://goo.gl/M9cQs7.

3.7 Furthermore we note the recent opinion piece in Property Week from Steve Norris who concluded:

"If this system were to operate in some third-world dictatorship, it would be decried as dictatorial and fundamentally undemocratic. The judge decides the defendant’s guilt or innocence without telling him how he has arrived at his conclusion. This dreadful nonsense has no place in our law."

The full opinion piece is available at http://goo.gl/lfJVwx .

3.8 I am especially concerned at the likely burden this will place on small business. There is no doubt in my mind that smaller companies will be deterred from challenging their assessments, even if an appeal is merited, as they simply cannot afford to dedicate the necessary resources to it. Every instance of a company deciding not to lodge an appeal will highlight just how large a barrier to justice the Government is proposing to put in place.

3.9 The other likely scenario is that SMEs will increasingly be targeted by unscrupulous rating ‘advisors’ who will use the growing complexity of the system and its new evidential requirements to extract large up-front fees from companies, backed by a promise of rates savings which they may then not deliver.

3.10 The Consultation Paper states in paragraph 20 that the check stage ‘will not include rents paid for other properties or rents paid by previous occupiers’ but makes no attempt to explain this approach, let alone to justify it. At paragraph 39 the paper indicates that ‘some .. evidence .. may be commercially sensitive and the Commissioners for Revenue and Customs Act 2005 sets out the limited circumstances in which the Valuation Office Agency can disclose the rents it collects.’ The VOA is willing presently to share rental evidence as part of the procedures leading up to a Valuation Tribunal hearing and we therefore see no reason in principle why this sharing should not be undertaken at Check stage, thus enabling a ratepayer to decide, without appeal, whether the evidence available to the VOA justifies the assessment. If the CRCA does not permit earlier sharing, the Enterprise Bill should be amended to facilitate this.

3.11 I have heard it said in meetings with DCLG, HMT and the VOA that landlords and tenants do not wish all of their lease details to be published widely. That may be true, but there is no need for such publication. I suggest that interested parties, i.e. those whose properties had been valued by the VOA having regard to specific rental evidence, should be able to view a summary of that evidence and then make further enquiries should they need to do so to satisfy themselves of the details.

3.12 Landlords and tenants frequently make detailed lease information available to surveyors acting in relation to rent review negotiations in respect of comparable properties. I know that there is a general willingness from our clients, and from members of the various trade and industry associations that I have consulted with (including all of those listed in paragraph 1.7 above), to see far greater transparency at an early stage in the rating process.

3.13 The Consultation Paper contains very little information about the data held by the VOA that the ratepayer will be able to obtain during the Check stage. It has become apparent during recent meetings that this stage will be more about the ratepayer providing factual information than receiving it, presumably to make up for the VOA’s lack of site inspections due to inadequate resources. I agree that rating valuations should be based on accurate factual information but it must be recognised that the proposed approach will lead to significant delays. Ratepayers and their advisors will need to ensure that they have 100% factual accuracy before they enter the Check stage as they could be fined for providing false information if they inadvertently omit relevant facts. (If such fines are introduced, it will be necessary to carefully define the circumstances in which they could be imposed. How would the VOA, and VTE on appeal, decide that false information had been supplied knowingly? We are concerned that ‘Carelessly’ could be applied too liberally) A full property referencing exercise will therefore need to be undertaken before the commencement of Check, which imposes additional costs on ratepayers and delay before the process can commence. It is perverse that there may be abundant evidence to prove an assessment to be excessive, yet a ratepayer would have no means of reducing his assessment until he has been through the Check stage.

3.14 Further delay will result from the requirement that a Challenge will require a ‘complete case’ (para 37) containing ‘full disclosure of all relevant evidence’ (para 38). A challenge would have to comprise a fully documented, argued, evidenced and reasoned valuation with only limited opportunity to add later evidence. This is a wholly disproportionate requirement, especially in the absence of the VOA providing any of the justification for the Rateable Value. If this is to be the new procedure then a far longer period will be necessary to allow time to research and prepare this ‘proof of evidence’.

3.15 Placing the entire burden of evidential proof on the ratepayer, who may have none of the relevant data nor easy means to obtain it, whilst exonerating the VOA which has access to all relevant evidence, is misconceived and unfair. It is the Government’s own policy to be more open and transparent, to reduce conflict, cost and uncertainty all of which are missing from these proposals.

3.16 Once the Check stage is commenced, the timing of its completion is outside the ratepayer’s control and only 4 months is permitted between the completion of Check and the submission of a complete Challenge. A ratepayer will therefore need to be ready to submit his complete Challenge before commencing the Check stage, otherwise he runs the risk of inadequate time to fully prepare and document his Challenge.

3.17 The outcome could be that Checks will only be commenced 18 to 24 months post revaluation and it could easily be more than 3 years until any appeals are submitted.

3.18 I recognise that much of the desire to reduce appeals is the impact of them on local authorities as a consequence of the business rates retention scheme, which would be exacerbated by the proposals for full devolution of business rates by 2020. However, I fail to see that the consultation proposals will materially assist local authorities with their requirements for accurate revenue budgeting and provisions for losses on appeal. It is true that there will be ‘fewer’ appeals in the system, but there will be no less uncertainty about rates revenues as, without upfront evidence disclosure from the VOA, appeals will simply be replaced by Challenges. I have already made the point that Challenges will materialise later in the revaluation cycle than proposals do presently, which acts against local government’s need for certainty.

3.19 I see the proposed process as lengthier, less transparent, containing more obstacles to resolution and likely to add significantly to ratepayers’ costs due to the unnecessary Check stage and burdensome impositions at Challenge stage.

3.20 Transparency in rating valuations is an integral part of the ability to undertake more frequent rating revaluations as are being widely called for by business organisations and are the only way for the Government to deliver a more responsive rating system, as was one of its stated ambitions when setting out on its review of business rates administration.

3.21 More frequent revaluations can only be delivered if the volume of challenges to assessments is reduced substantially. This can be facilitated if the Government acts to remove both the current need to appeal and the incentive to do so.

3.22 The present need to appeal, in order to extract the underlying evidence that supports the Rateable Value, can be addressed by the up-front disclosure by the VOA to interested persons of the relevant information.

3.23 Ratepayers are presently incentivised to appeal by the substantial savings that can be achieved from a successful challenge. Each £1 Rateable Value reduction presently benefits a ratepayer by approximately £3.25 over the 7 years of the 2010 Rating List and this incentive encourages speculative appeals. The more frequently revaluations are undertaken, the less is the benefit that can be derived from a successful appeal. If there were annual revaluations, a £1 RV reduction would save the successful appellant only about 50p, most, if not all of which, would be swallowed by way of fees charged by a rating agent.

3.24 A combination of the removal of the need to appeal and the incentive to do so would radically reduce the number of challenges made.

4.0 Proposed amendment to the Enterprise Bill

4.1 If the CRCA is indeed a barrier which prevents the VOA from sharing information outside of a formal challenge process, then this is the opportunity to provide a statutory sharing route in the same way that Clause 25 will facilitate data sharing between the VOA and local councils.

4.2 At Report Stage in the Lords, the Earl of Lytton and others tabled the following amendment:

Clause 22 (now clause 25), page 40, leave out lines 3 to 5 and insert-

"(1) An officer of the Valuation Office of Her Majesty’s Revenue and Customs may disclose Revenue and Customs information to-

(a) a qualifying person for a qualifying purpose;

(b) a ratepayer for a hereditament.

(1A) Information disclosed under subsection (1)(b) may-

(a) be disclosed for the purpose of providing the ratepayer with all information used to assist determination of the valuation of any hereditament for which the ratepayer is responsible for the non-domestic rating liability and may be retained and used for that purpose, and

(b) include information relating to hereditaments not owned by that ratepayer."

I would commend this amendment to the Committee for the reasons explained in this submission and as explained by the Earl of Lytton and others at http://www.publications.parliament.uk/pa/ld201516/ldhansrd/text/151125-0003.htm#15112563000483

February 2016


Prepared 10th February 2016