Following the publication of the draft 2017 rating list in autumn 2016, there has been considerable noise surrounding the UK rating profession, not just because the 2017 rating revaluation produced some of the largest changes in rating assessments in a generation, but because it also coincided with a major overhaul of the appeal system in England, writes John Webber.
Twelve months on from the new list, it is useful to take stock of the state of business rates in England, Wales and Scotland as we hurtle towards a post-Brexit economy.
Spotlight on the Barclay Review
One positive was in Scotland when Ken Barclay was appointed to chair a review of the non-domestic rates system. Although his remit was hampered by the fact that any changes had to be revenue neutral, the Barclay Review (published in August 2017) made imaginative recommendations, even if they were unable to please everybody.
What a breath of fresh air was the clarity and the timescale: a report with 30 recommendations produced in just over 12 months listing requirements for immediate implementation, including the need for transparency and consistency of approach among assessors’ working practices, greater information available to ratepayers and refunds to be issued more quickly. Action plans have already been published providing updates on these points and a timetable for other reforms.
Although the report focused on Scotland, a number of the recommendations could and should be adopted in the rest of the UK, where consistency is lacking.
Barclay looked in detail at costs and questioned the status quo and a number of rating issues such as agricultural relief, charitable relief and the fact that the often generous small business relief has led to the creation of rating deserts in certain areas where very few, if any, businesses pay non-domestic rates at all. There is clearly a disconnect between what people believe they are paying for and what they receive in services.
In order to grasp the nettle of a smaller number of businesses paying a greater proportion of business rates, Barclay realised that some tough choices needed to be made. The review looked at what would happen if small business relief was removed and calculated that this would reduce the multiplier by around 25%, bringing it back down to the level of 34-35 pence in the pound, where it started in 1990. Although nothing has been implemented so far, it is commendable that Scotland is looking at the issue.
In England we now have an effective tax rate of 50% on a property base tax which in 1990 was around 34%. That reduction to around 30-35% would for most businesses reduce the pressure and take away the majority of the criticism of a system that clearly is not working.
We wait with interest to see how the 30 recommendations continue to be implemented over the coming year and what effect that will have on Scottish businesses. We can only hope that the UK government is taking note. It would be good to see Westminster politicians leave the responsibility of a review into business rates with an independent body and either give them the remit of being revenue neutral or specific about a reduction too.
Check, challenge and appeal
What has also drawn many of the headlines in England over the past 12 months has been the implementation of check, challenge and appeal (CCA). Although the VOA has been in dialogue with many of the professional bodies, it brought a completely new system into effect without testing it. While many commentators (including this one), described the new system as a car crash, only by regarding statistics over the first 12 months does the enormity of the pile-up become clear. Only around 12,000 properties have begun to check and challenge their rating assessments and currently only one has actually reached the appeal stage.
Given that there are in the region of 1.8m rateable hereditaments, these figures suggest there is a 99.7% acceptance rate of the figures in the list – an approval rating that would be hard to achieve in a North Korean election.
In Scotland, by comparison, where there is no CCA (and Barclay has indicated he has no intention of suggesting this), 29% of assessments have had appeals served against them, equating to 68% of the total rateable value pot – a more realistic reflection of the state of play.
In terms of Wales, the consultation on appeals reform closed on 9 January, with concerns that the system may take on some of the practices of the English system, resulting in the huge backlog of appeals, now served under the current regime, not being completed.
This raises more questions. How will the old and new systems integrate for the benefit of the ratepayers? Will there be adequate resources to deal with the added level of confusion and complexity? Between April and December 2017, 3,000 appeals were served in Wales, but with the potential threat of a CCA system being implemented, we are expecting the number to have risen substantially in January and February of this year as business ratepayers try to get in before a possible cut off.
Learn from one another
Of course, not everything has been a disaster in England. It is clear from the statement by the chancellor in the last Budget that business rate rises will be linked to CPI as opposed to RPI levels of inflation, which is a step forward. And there is also an acceptance that a three-yearly revaluation cycle from 2022 is to be followed, and consultation surrounding what that will precisely look like is due out shortly. Scotland is also moving to three-yearly revaluations at the same time.
The fundamental issue for many businesses in England and Wales is that we have a high business rate multiplier and for many, unaffordable rates bills as well as an appeal system that is not working.
While Scotland alone is attempting to address its issues, there appears to be little consistency between the three countries with signs that divergence is only going to get wider. For the sake of the ratepayers, should we not all be learning from each other, taking the positives and trying to ensure that we have a fairer system overall?
John Webber is head of business rates, Colliers International
