Written evidence submitted by Andrew Hetherton (ENT 54)

Dear Sirs

I set out my written evidence concerning the Enterprise Bill

Executive Summary

· The proposed changes to the business rates appeals system would shift the burden of proof from the Valuation Office Agency (VOA) - which is in possession of substantial amounts of relevant evidence - to the ratepayer who does not have the evidence available to the VOA. 

· Indeed, the ratepayer - particularly small businesses -  may have little, if any, evidence and is therefore placed at a substantial disadvantage both when it comes to checking the VOA’s valuation and challenging it.

· The interests of other parties and their role in the process has not been fully considered within the drafting of the Bill, nor does it appear to have been considered sufficiently within the supporting consultation, i.e. check, challenge and appeal. 

· Checking assessed values is therefore likely to become a significant burden which will be more costly and time-consuming for businesses. 

· As drafted, there will be a significant burden which will impact on SMEs who will also be increasingly susceptible to the activities of unscrupulous rating advisors.

· Business rates represent a significant burden on businesses at present; it is wholly unreasonable that the Government imposes a tax at current levels without a requirement to support the basis of that liability, i.e. the VOA’s rateable value, particularly when the taxpayer is not in possession of, nor easily able to obtain, the relevant supporting evidence.

· A crucial change to the proposed legislation is to amend the Enterprise Bill to require the VOA to share information with the ratepayer up-front; this would ensure transparency and fairness which will, in turn, enable ratepayers to verify the accuracy of their assessment without the need for the proposed three stage process which may, ultimately, result in an appeal that could take many years to resolve at considerable expense to all parties.

1.0 GL Hearn

1.1 GL Hearn is a leading property consultancy providing trusted commercial property advice to the public sector, developers, investors and occupiers. Our goal is a simple one – to understand our clients’ business, bring our enterprise and enthusiasm to bear, and work with them to create, develop, protect and enhance their business interests. Our clients place their trust in us for actionable advice, and it is this aspect of our service that has kept us thriving as a business, from modest beginnings in 1923 to the successful national organisation which has now become part of Capita Real Estate.

1.2 During the course of the 2010 Rating Revaluation we have been instructed to advise our clients who occupy a wide range of property types comprising more than 55,000  hereditaments in England. The total rateable value of these properties is £9.2 billion, representing approximately 15% of the total rateable value contained in rating lists for England. 

1.3 In relation to these properties, we have made over 65,000 proposals on behalf of our clients challenging entries in the rating lists. Of these, approximately 12,000 appeals relate to compiled list assessments, i.e. those shown in the rating lists on 1 April 2010. We have therefore challenged the complied list assessments of only about one fifth of the properties we are advising upon demonstrating that we have taken care to avoid unnecessary appeals. 

1.4 The majority of the other proposals we have made comprise over 16,000 material change of circumstance appeals with a further 14,000 appeals challenging alterations made by the VOA’s Valuation Officers.

1.5 I am Head of Business Rates at GL Hearn and have 20 years professional experience advising owners and occupiers regarding their business rates assessments and liabilities. As a practice, however, we draw upon the expertise and experience of directors with over 600 years’ experience in business rates between them. The whole team comprises over 85 professional and administrative staff undertaking this type of work.

1.6 I am a member and past President of the Rating Surveyors’ Association and recently elected Chairman of the Institute of Revenues Rating and Valuation (IRRV) Valuers’ Association as well as being a representative on various other professional bodies groups concerned with rating valuations.

1.7 I am also actively involved with other business organisations. I am a Director of Accessible Retail - one voice for retail warehouse and superstore property - and frequently address various representative groups on the issue of business rates and assist them in considering their policies as well as helping them formulate their views on the topic.

2.0 Background 

2.1 During the passage of the Enterprise Bill through the House of Lords (at which time the clauses relating to business rates were clauses 22 and 23), I provided additional supporting information to Earl Lytton, obtained from leading Counsel on the issue of information disclosure and the application and relevance of the Commissioner for Revenues and Customs Act 2005. Details were raised by The Earl of Lytton referred to (Column 51 - http://www.publications.parliament.uk/pa/ld201516/ldhansrd/text/151012-0002.htm) . The Committee will hopefully find that information of assistance.

2.2 In 2013, a consultation paper on ‘Checking and Challenging your Rateable Value’ was issued by DCLG and it is fair to say that, on a number of the issues, there was a general consensus among both ratepayers and their professional advisors that there needs to be change. The consultation sought to address the significant number of proposals (appeals) submitted which were seeking to amend levels of rateable value; this problem is exacerbated by the fact that most of these appeals are automatically transmitted to Valuation Tribunals (the independent body that deals with appeals that cannot be resolved by discussion between the ratepayer and the VOA. I and many professional colleagues agree that changes need to be made to make the system more transparent so that businesses can be confident of the basis and approach adopted by the VOA; this would also reduce the number of formal appeals that are made, many of which prove to be to have been unnecessary once the VOA’s evidence is made available.

2.3 GL Hearn, professional bodies representatives, trade organisations and businesses disagreed with the Government’s proposals made at that time as it was considered that they would not improve the position; we were pleased that the Government decided not to implement those changes from October 2014 as originally intended.

3.0 Enterprise Bill – Clauses 25 and 26

3.1 It is disappointing, therefore, that similar proposals have now re-emerged - with limited amendment - in the Enterprise Bill and also in the associated consultation paper, ‘Check, Challenge, Appeal’ (CCA). We consider that the proposals still fail to address the key issues raised previously and which, we believe, resulted in the Government’s decision not to proceed with their earlier proposals. More importantly, the current proposals seem to be based on insufficient detail provided in the consultation document and an inadequate understanding of how the present appeal system operates in practice. We are concerned that limited additional information has provided in a series of meetings held with the consultation project team and comments made by some project team members appear to many demonstrate the general lack of understanding of the issues by those leading the consultation review. The proposals as they stand are likely to result in a more complex process, which will adversely impact on all ratepayers, and small businesses in particular.

3.2 Given the extent to which we advise on behalf of our clients in this specialist area, we have a significant breadth and depth of experience and understanding of the issues. It should be noted that our clients only wish us to appeal those of their assessments that appear excessive, or where there are issues of law and practice that require review. We recognise that some recent changes and interpretation by the courts of the legal issues require a challenge to be made. The position is complicated further as a result of the unintended consequences that flow from recent changes to legislation and the revised approach adopted by the VOA to a number of issues such as the separate assessment of Automatic Teller Machines (ATMs) in supermarkets and their approach to the "unit of assessment" for other types of property, i.e. assessing offices on adjoining floors in a building separately when they were previously assessed as one unit due to being occupied by the same ratepayer. We strive to ensure that our clients’ assessments are, at the outset, fair and reasonable and we do not appeal those which are clearly acceptable; furthermore, we will only appeal if instructed to do so.

3.3 During the course of our work we seek to ensure that as much evidence as possible is considered and the detail behind it is found, verified and analysed. We go to great lengths to ensure that we find relevant evidence and share this with the VOA and other interested parties in order to bring clarity to the position and promote confidence with regard to the values applied or determined at the conclusion of our review. It is important, however, to recognise that, at the outset, neither we, other parties or indeed the VOA are likely to have all the necessary information upon which to form a judgement about the accuracy of a particular rating assessment. We are therefore forced, in many instances, to make appeals which ultimately turn out to have been unnecessary because the VOA’s values are supported by rental evidence which emerges only later in the process. We are not normally remunerated by our clients for withdrawing appeals and it is therefore in the interest of both ratepayers and their professional advisers to remove from the system any appeals which could have been avoided had the relevant rental evidence been available from the outset. We support the early disclosure of appropriate and relevant evidence by the VOA. The information provided by the VOA needs to be relevant and unbiased and reflect a fair "basket" of the available evidence that has been used to prepare the assessed values. This disclosure is critical to improving the system and should be provided prior to a ratepayer’s challenge to the assessment.

3.4 As it stands, the Government’s proposed approach will shift the burden of proof from the VOA, which has access to a wide range of relevant evidence upon which it based its decision, to the ratepayer who does not have access to this evidence. 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. It is not unreasonable for ratepayers to wish to check the basis upon which they are being charged business rates given that the tax is at such a high rate (currently, for larger businesses, the tax rate is set at 49.3% and is expected to increase for 2016/17 to 49.7%).

3.5 It is wholly unacceptable for the Government to impose such a significant tax as business rates without any corresponding obligation upon it, or the VOA, to justify the derivation of that tax liability; this is even more unfair as the ratepayer is not in possession of the relevant underlying evidence.

3.6 Between the initial consultation ‘Checking and Challenging your Rateable Value’ and the start of the most recent ‘Check, Challenge and Appeal’ consultation, the whole system has been subject to significant change, principally in relation to the procedures and practice of the Valuation Tribunal for England (VTE). It is worth noting the serious concerns expressed by Professor Graham Zellick CBE QC, who recently retired as President of the VTE. 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."

3.7 Furthermore, we note the recent comments made in Retail Week by Justin King (the former CEO of Sainsbury’s) who labels business rates as a bigger problem for British retailers than the corporation tax position. King believes that the issue has been over-shadowed by the vast difference in business rates paid between bricks-and-mortar retailers and their online rivals.

"Business rates are by far the most significant imbalance in the tax system. Business rates for most retail businesses are a much more significant part of the tax burden than any other part of the tax system"

3.8 I, like many others, am concerned at the possible impact that these new proposals will also have on small business. It is clear that many SMEs will be deterred from checking, much less challenging, their assessments. It is not SMEs currently with values below Rateable Value £12,000 who benefit from a variety of reliefs, but those companies which are still, in reality, small businesses with levels of rateable value above, sometimes only just above, Rateable Value £12,000 that will be impacted. This is because they do not have the knowledge and expertise themselves to do so, or they are not able to afford to instruct a professional to undertake the work for them.

3.9 I am also extremely concerned that businesses may fall prey to the unregulated and unscrupulous "cowboys" who offer to undertake a review of the VOA’s rating valuation for several hundred pounds on the promise of potential savings, but fail to do more than submit a proposal (which would cost the ratepayer nothing) or merely provide limited details  and then fail to deliver the anticipated savings. Worse still from the ratepayer’s perspective, there have been examples of appeals made by such agents which have resulted in significant increases in business rates liability.

3.10 A common theme from the discussions we have had with the VOA and the consultation project team concern the lack of detail on how the intended process will work in practice; we have been told on a number of occasions "we have not worked that out yet". Within the documents provided, paragraph 20 states the check stage ‘will not include rents paid for other properties or rents paid by previous occupiers’ but no detail is provided to attempt to explain this approach. Furthermore, at paragraph 39 the paper indicates that ‘some .. evidence .. may be commercially sensitive and the Commissioners for Revenue and Customs Act 2005 (CRCA) sets out the limited circumstances in which the Valuation Office Agency can disclose the rents it collects.’ The VOA presently shares rental evidence as part of the procedures leading up to a VTE hearing and we therefore see no reason why this sharing should not be undertaken at the earlier ‘Check’ stage, thus enabling a ratepayer to decide, without appeal, whether the evidence available to the VOA justifies the assessment.  It is also worth noting that, prior to the 2010 revaluation, there was considerably more sharing of information by the VOA and therefore greater transparency of the basis upon which the assessment was made. If the CRCA is now considered not to permit earlier sharing of information by the VOA, the Enterprise Bill should be amended to facilitate this.

3.11 In terms of the practical approach to handling checks and challenges, we have significant concerns over the deliverability of appropriate IT systems to handle requests from ratepayers, local authorities and other interested parties. A far more proactive and positive stance has been presented by the Valuation Tribunal Service (VTS) which supports the VTE, but the system of review should work, where possible, without recourse to the VTS/VTE.

3.12 During the course of discussions with officials from DCLG and the VOA, it has been suggested that some landlords - and agents acting for some tenants - do not wish all of their lease details to be published widely. That may well be the case, but I have, on a number of occasions, made the point that there is no need for "publication" of this information.  Within the property sector, professional representatives dealing with rent reviews other property transactions often provide or exchange information; this is part the process of establishing levels of value in the market. I would therefore suggest that interested parties, i.e. those whose properties have 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 in order to satisfy themselves of the details.  As already mentioned, this is common practice within other spheres of the property market.

3.13 During the course of our work for both landlords and tenants, we are provided with detailed lease information. Such details are reviewed and analysed and, with clients’ agreement, shared with the VOA to facilitate a proactive approach to the settlement of agreed values. We have actively engaged in this process and, as a consequence, have been able to establish values. This has culminated in an outline report being prepared which satisfies the need for transparency at a much earlier stage. We would welcome the opportunity for further engagement, but we often find a reluctance on the part of the VOA.

3.14 The consultation paper contains very little information about the data held by the VOA and there is uncertainty as to what will be made available to the ratepayer or their agent during the ‘Check’ stage. It has become apparent during recent meetings that this stage will be more about the ratepayer providing factual information to the VOA rather than receiving it from the VOA. This, in part, is presumably intended to make up for the VOA’s lack of site inspections to maintain the accuracy of their records due to inadequate resources. Clearly, rating valuations should be based on accurate factual information, but it also needs to be recognised that the proposed approach will lead to significant delays as ratepayers and their advisors will need to be satisfied that the data they have is correct as they could be fined for providing false information if they inadvertently omit relevant facts.

3.15 If fines are to be introduced, we believe it would be entirely appropriate for a challenge to be made to the proposed fine. Currently, a procedure exists for penalties arising from the  failure to provide rental information to the VOA. It will be essential to set out clear guidance on when it is appropriate for a fine to be issued as well as a procedure to formally appeal against its imposition if it is considered to be unreasonable. This also leads to the question as to how would the VOA, and VTE on appeal, decide that false information had been supplied knowingly or carelessly? We are also concerned that ‘carelessly’ could be interpreted in both an unfair and inconsistent manner. In many instances, our experience in this field would suggest that a full property referencing exercise would be required before the submission of a ‘Check’ which would impose an additional cost burden on ratepayers and result in delay before the process can commence. We have also been unable to ascertain how other interested parties may be involved in the ‘Check’ stage – these parties may include Landlords or indeed Local Authorities. If parties are currently in dispute concerning a rent review exercise, could one of the parties be prejudiced by the ‘Check’ process? It is perverse that there may be abundant evidence to prove an assessment is excessive, yet a ratepayer would have no means of reducing that assessment until it has been through the ‘Check’ stage.

3.16 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, 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. The potential outcome of such an approach is to significantly increase the period of time required to challenge an assessment and the burden of proof is particularly onerous on the ratepayer who has to continue to pay as demanded until the assessment is successfully challenged. This raises the question for many unrepresented ratepayers and those who operate SMEs as to what procedures are to be put in place to address financial hardship.

3.17 Under the revised approach, the entire burden of evidential proof is placed on the ratepayer who may have none of the relevant data nor the means to obtain it. At the same time, the VOA which has access to significantly more relevant evidence, is not required to provide it; this is misconceived and manifestly unfair. Given that the Government’s own policy is to be more open and transparent, to reduce conflict, cost and uncertainty, none of these commendable objectives seem to be reflected in the current proposals.

3.18 Whilst the outcome of the present consultation is unknown, as proposed once the ‘Check’ stage has commenced, the completion of the exercise is outside the ratepayer’s control. The proposal is that only a period of 4 months is to be allowed between the completion of ‘Check’ and the submission of a complete ‘Challenge’. A ratepayer would therefore need to be ready to submit a complete ‘Challenge’ before commencing the ‘Check’ stage, as otherwise there may not be sufficient time to prepare all the necessary information to be included within a ‘Challenge’. This is unreasonable.

3.19 In taking account of the fact that there is a proposed process with up to 12 months to complete a ‘Check’ process, up to 18 months for the completion of a ‘Challenge’ and a 4 months limit to prepare a formal ‘Appeal’, it could easily be found that 3 years have passed from the introduction of the rating list before a formal appeal is submitted.

3.20 During the course of our involvement in the two consultations, I and many others have recognised that the number of appeals submitted needs to be reduced. It also has to be accepted that the desire to reduce appeals will have a positive impact on local authorities as a consequence of the business rates retention scheme. However, the issue is whether the proposed outcomes will make it easier for billing authorities. The position may be further complicated by the proposals set out by the Chancellor of the Exchequer for full devolution of business rates by 2020.

3.21 As the proposals currently stand, I cannot see that the changes will materially assist local authorities with their requirements for accurate revenue forecasting and making appropriate provisions for losses on appeal. It is likely 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 the need for certainty.

3.22 My expectation is that the proposed process will take significantly longer, present a real burden for many businesses, be less transparent, present many hurdles to be negotiated and will not enhance confidence in the system from a ratepayer’s perspective. I also expect that it will add significantly to ratepayers’ costs that arise from having an unnecessary ‘Check’ stage and present a significant burden due to the onerous requirements to provide supporting valuations, evidence and argument at the ‘Challenge’ stage.

3.23 For a taxation system based on property values, transparency is essential and should be an integral part of the process. If we are to move to more frequent valuations, which has been overwhelmingly been the argument from all quarters, the only way for the Government to deliver a more efficient and responsive rating system is to introduce improvements that reduce the burden of administration and make the process simpler to negotiate; these were part of the stated ambitions when setting out on the review of business rates administration.

3.24 More frequent revaluations can only be delivered if the volume of challenges to the VOA’s 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.

3.25 The present need to appeal in order to extract the underlying evidence that allegedly supports the VO’s rateable value can be satisfactorily addressed by the upfront disclosure by the VOA to interested persons of the relevant information.

3.26 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 lists; this significant financial 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.

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

4.0 Proposed amendment to the Enterprise Bill

4.1 If the CRCA is 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 House of 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 strongly commend this amendment to the Committee for the reasons explained in this submission and as explained by the Earl of Lytton and others.

February 2016


Prepared 18th February 2016