Enterprise

Written Submission to the Public Bill Committee by the Institute of Revenues, Rating and Valuation (ENT 62)

Executive Summary

• The proposals within the Enterprise Bill concerning changes to the business rates appeals system would be unduly onerous to ratepayers, interested parties and local authorities who do not have access to information that is already available to the Valuation Office Agency (VOA).

• Ratepayers, especially small businesses, will be disadvantaged should they wish to check the VOA’s valuation approach and want to understand the basis upon which they have been assessed.

• The interests of local authorities and indeed other concerned parties have not been fully considered within the drafting of the Bill; nor in the suggested processes that will be covered in secondary supporting legislation, i.e. check, challenge and appeal. It is inappropriate to introduce the primary legislation without having a clear understanding of the impact that such changes will have.

• Whilst the current system is outdated and has many issues, the proposals in the Bill are likely to place a significant burden on business and will increase bureaucracy and thus cost.

• Assessments by the VOA should not be imposed without supporting information given the level of tax raised from their assessment of annual rental value, particularly when the taxpayer is not in possession of, nor able to obtain, the relevant supporting evidence.

• We would commend a proposal to amend the Enterprise Bill to require the VOA to share information with the ratepayer and other interested parties up-front; this would facilitate greater transparency and understanding. Such an approach would assist ratepayers and other interested parties alike to verify the accuracy of their assessment without the need for the proposed three stage process which is likely to result in an elongated process that will place a significant burden and considerable expense on all concerned parties.

• There is a need to recognise the impact of the appeal process on the financing of local government; particularly as we move toward fiscal independence for local authorities in 2020. This need can only be satisfied if local authorities are treated as interested parties in every aspect of the creation and maintenance of the Valuation List.

1. The Institute of Revenues, Rating and Valuation

1.1. The IRRV is the professional body concerned with all aspects of local taxation, valuation, appeals, financial management and local benefits administration in the United Kingdom. It has members within both the public and private sectors, including ratepayers and their agents. Institute members are engaged in local taxation collection, property valuation, the appeals process, advising and representing ratepayers as well as financial management within local government

2. The Main Body of the Submission

2.1. The Institute agrees that it is in the interest of billing authorities, ratepayers, their agents and the VOA to have a modernised, simpler and faster business rates appeals system. We also agree that there should be a concerted effort to develop a system that reduces the number of appeals, particularly removing the speculative challenges made by "rogue rating agents".

2.2. We have substantial concerns, however, that the proposed changes will not achieve this. Under the current system ratepayers often have to wait for several years before their appeals are settled, during which time they may be paying excessive rate bills. Billing authorities are faced with the problem that a large part of their rate base is under appeal. Under 50% business rate retention, which will increase to 100% local retention from 2020, billing authorities have to make substantial provisions in their accounts for the potential effect of appeals.

2.3. The VOA has to deal with large numbers of appeals, many of which will either result in no change or will be resolved just before a VT hearing. Its move to embrace digital technology is commendable but taking a unilateral decision and failing to take on concerns of ratepayers and professional representative bodies such as the IRRV and others will be extremely damaging.

2.4. The VTE faces the problem that many appeals are listed, but are often settled just before the hearing and we therefore support separating out the right to appeals to the VTE from discussions with the VOA. However, the proposed change to check, challenge and appeal, if adopted, would increase the time and cost to ratepayers who may have a valid reason to appeal. This prolongs the uncertainty for businesses and billing authorities, both of whom have to make unwelcome financial provisions as a result of the uncertainty. For the former this reduces profitability and curtails investment in the business activity. For the latter it places a massive financial burden on local authorities, which damages service delivery.

2.5. The check and challenge stages do not address the fundamental problem that the VOA is unwilling to share the information on which their valuations are based on the premise of that disclosure would be a breach of the Commissioner for Revenues and Customs Act 2005. Natural justice, fairness and transparency are missing from these stages. There is also a real risk that the legislative changes will not achieve the objective of reducing appeals and may lead to very significant administrative difficulties. The VOA should provide rental evidence prior to the challenge process because it is an important principle that taxes are transparent in order to demonstrate their fairness.

2.6. As the proposed changes stand, the absence of supporting evidence at the check stage fails the test of transparency and fairness. We believe natural justice between the parties cannot be achieved without a mutual exchange of information. If this failing were remedied, it would go a long way to achieving the Government’s objective to reduce the number of appeals.

2.7. If there is no mutual exchange of data at the first and second stages, the new procedures will do nothing more than simply introduce a delay in the overall process; and ratepayers will need to progress to an appeal to have the full information needed to check their rateable values. We are concerned that the legislative changes will not achieve the Governments objective to reduce the number of appeals and will not improve the overall system.

2.8. There should be a check stage which should enable the ratepayer to understand how the tax has been calculated, with all relevant information provided. There must be a transparent and mutual exchange of information at the check stage. If this is not delivered the revised procedures will not achieve the Governments objectives.

2.9. 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), the Institute provided extensive additional supporting information to Earl Lytton which included evidence of how the current system was not working and advice from leading Counsel on the issue of information disclosure and the application and relevance of the Commissioner for Revenues and Customs Act 2005 (CRCA 2005). These details are referred to in Column 50-52:

(http://www.publications.parliament.uk/pa/ld201516/ldhansrd/text/151012-0002.htm)

2.10. We are supportive of the VOA and we wish to see it deliver an independent world-leading valuation service. The proposed procedures will not assist in the delivery of this objective.

2.11. We have serious concerns that these proposals will put smaller ratepayers, who are largely unrepresented, at a disadvantage. They will be susceptible to the minority of unscrupulous rating agents charging up-front fees for either the check stage or challenge stage; and doing little else beyond that. The professional bodies, led by the Institute, have drawn up appropriate codes of practice and attempted to deal with those who are members using rigorous disciplinary procedures, however this can only have a limited impact. A fresh approach is needed which protects the small ratepayer and removes the rogue practitioners from the process.

3. Enterprise Bill Clauses 25 and 26

3.1. The proposals as set out in the Bill have emerged without little detailed consideration as to the impact they will have. As it stands the Enterprise Bill proposals and the associated consultation paper, ‘Check, Challenge, Appeal’ have not properly considered the concerns of those with day-to-day operational knowledge of the system.

3.2. The current proposals are based on insufficient detail, given that which was provided in the consultation document; and on inadequate understanding of how the present appeal system operates in practice. Limited additional information has been provided in a series of meetings held with the consultation project team; and comments made by some project team members appear to demonstrate the general lack of understanding of the issues by those leading the review. The proposals as they stand are likely to result in a more complex process, which will adversely impact on all ratepayers.

3.3. Further concerns have also been raised concerning the drive to embrace digitisation. The VOA should be commended for its desire to embrace digital technology but this should not be at the expense of driving through change with little or no consideration of the impact that such change.

3.4. Billing authorities will be no better off because they will have to make provision to allow for rateable value reduction at all three stages. The cumbersome nature of this process means that the uncertainty will remain for at least as long as under the present system. The proposed three-stage process will result in many appeals taking at least as long as under the present system and will remove the opportunity to implement a more responsive rating system based on a more frequent revaluation cycle, which we and many businesses support; and which was one of the Government’s key aims when launching its review of business rates administration.

3.5. We support the approach of appropriate relevant authorities having further involvement in the process as proposed in Clause 25 of the Bill. Business rates retention and the introduction of 100% retention in 2020 give appropriate relevant authorities a direct financial interest in business rates.

3.6. Appropriate relevant authorities should have the right to opt in to the appeals process if they wish to; and to participate fully in every aspect of the appeals process. Currently they have limited rights to make their own appeals, but they should have the full rights, as an interested person, to do so at any stage. Our members working in local authorities view having this right to opt in to appeals as very important. The proposed changes currently make no reference to later intervention once check or challenge has been completed and further consideration needs to be given to how this may be done.

3.7. There is a contrary view however to that outlined above, which has been raised by some of our members who represent major ratepayers. They recall the circumstances pre-1990 when appeals that had been agreed with Valuation Officers still led to an appearance at the Local Valuation Court (as it then was) and the Lands Tribunal subsequently, because the valuer acting on behalf of the local authority refused to ratify the agreement that had been reached. In their view, the statutory Valuation Officer has a duty to maintain a fair and accurate list and should be allowed to do so without third party intervention.

3.8. Allowing other authorities to become more actively involved than is already the case may slow down appeal resolution and impose additional costs and burdens on businesses. It is recognised that much of the desire to reduce appeals stems from their impact on local authorities as a consequence of the business rates retention scheme, which would be exacerbated by the plans for full devolution of business rates by 2020. How the proposals will materially assist local authorities with their requirements for making accurate provision for losses on appeal is a moot point.

3.9. We recognise changes need to be made; and that between the initial consultation ‘Checking and Challenging your Rateable Value’ and the start of the most recent ‘Check, Challenge and Appeal’ consultation linked to the Enterprise Bill, there have been significant changes to the whole system.

3.10. It is worth noting the serious concerns expressed by Professor Graham Zellick CBE QC, who recently retired as President of the Valuation Tribunal for England. He made clear in a recent published article 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."

3.11. Furthermore, we understand that the Valuation Tribunal Service (VTS) is now considering further changes to make the whole process simpler. This principally stems from the introduction of some 26 Practice Statements and additional directions and guidance notes which have put the Tribunal systems and processes under considerable pressure.

3.12. It is clear from discussions held with the VOA and its project team that there remains a lack of detail on how the new process will work in practice. This is a worrying situation and needs to be rectified. Those involved in the system need more detail on the day-to-day operational procedures.

3.13. In terms of the practical approach to addressing requests for review, formal checks and challenges, we have grave concerns over the ability to deliver appropriate IT systems that will improve the process for ratepayers, their agents, local authorities and other interested parties. A more pragmatic stance has been presented by the VTS which supports the VTE, but the system of review should work, where possible, without recourse to the VTS/VTE.

3.14. The insertion of a new subsection (4A) and the word ‘carelessly’ referred to in S26 (2) 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. At present it remains unclear as to how other interested parties may be involved in the ‘Check’ stage – these parties may include Landlords or indeed local authorities. Clarity is required in advance of the legislation being concluded and must follow through in the drafting of the relevant secondary legislation.

3.15. The proposed requirement for a ‘Challenge’ are also of concern as currently outlined in the consultation a ‘complete case’ (para 37) is required which will have to containing ‘full disclosure of all relevant evidence’ (para 38). ‘Challenge’ would have to comprise a fully documented, evidenced and reasoned valuation with only limited opportunity to add later evidence. How will this impact on an interested party? It appears to us a disproportionate requirement, especially in the absence of the VOA providing any of the justification for the rateable value. The likely outcome will be to significantly increase the period of time required to challenge an assessment and make the burden of proof particularly onerous on the ratepayer or interested party. We are concerned as to how unrepresented ratepayers and those who operate SMEs will cope with these procedures and any ensuing financial hardship.

3.16. Under the proposals the burden of evidential proof is placed on the ratepayer; it is unclear how this may impact on another interested party, who may have none of the relevant data or the means to obtain it. Conversely, the VOA has access to significantly more relevant evidence and is often not prepared to share it; this is ill-judged and impractical. Given that expressed desire for open government and transparency, the proposals as they stand do not embrace the stated policy objectives.

3.17. We do not see that the changes will assist local authorities with their requirements for accurate revenue forecasting and making appropriate provisions for losses on appeal. The new process will create a new three stage process where local authorities will have to make provision for outstanding checks, outstanding challenges and outstanding appeals. The local authority will have no choice in this matter as it is a requirement of the Financial Reporting Standards that any matter likely to affect any financial outturn must be provided for.

3.18. This is a serious unintended consequence of the proposed changes. Whilst we would wish to see a reduced number of appeals within the system, the changes will provide more uncertainty about the rate yield.

3.19. The proposed changes may well result in a system that takes much longer and could present a real burden for many businesses and local authorities. This would be coupled with less transparency and create additional obstacles to a system already tainted as being outdated and unfair.

3.20. The current system necessitates the need for a proposal, which in turn results in an automatic appeal. The pressures of the current process have resulted in underlying evidence only coming out at a late stage. This is unhelpful to the aggrieved ratepayer and results in a system no longer fit for purpose, but the current proposals do not address the core issues in our view.

3.21. What should be considered as a practical solution however is to combine the Check and Challenge approach and a separation of the appeals process: this would reduce the large number of challenges made.

4. Proposed amendment to the Enterprise Bill

4.1. The sharing of information has in part been provided for with greater sharing between the VOA and local authorities within Clause 25. The CRCA 2005, however, presents a barrier to the VOA from sharing information outside of a formal challenge process. It is wholly appropriate to make relevant information that has been used to justify the Valuation Officer’s assessment to also be made available to the ratepayer.

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."

4.3. We would 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 22nd February 2016