Mark Higgin and Richard Wackett open a new series of shorter articles by considering the possible future of business rates
What we expect to see
- Check, challenge and appeal
- Limited Valuation Office transparency
- Government policy moving towards
self-assessment by 2022 - Increased exemptions and reliefs for small businesses
In addition, we would like to see
- A fully open appeals process with a simultaneous exchange of evidence
- A government IT package that works
- A properly funded Valuation Office Agency
- A professional Valuation Tribunal Service
- A fast-track appeal for struggling businesses
Mark Higgin, head of rating, Montagu Evans
Much has happened since the government’s Budget announcement that it would be consulting on shorter rating revaluations. The haze of uncertainty looming over the UK economy following the Brexit vote has led some to conclude that the next revaluation (due next April) cannot come soon enough.
Since 1990 there have been five general revaluations across England and Wales (and six in Scotland since 1985) and since 1990 (apart from 2015) these have taken place at five-yearly intervals. The 2017 revaluation is an exception to a long-running rule. Until the 2010 rating list was published (by reference to April 2008 open-market rental values) the business community had got used to a consistently rising economy that ensured that market rents were (more or less) higher than rateable values at the date of publication. The recession of 2008 bucked that trend and rates became relatively more expensive to tenants as rents fell.
A combination of the recessionary effects and the disastrous decision to extend the revaluation by two years (beyond 2015) has led to a chorus of requests for reform, particularly from the retail sector. The question is: what type of reform is best? On the one hand the government wants to retain its healthy rate yield and, on the other, a fair system needs to be sensitive to economic trends and changes between revaluations. Rapidly changing retail habits and the rise of the internet argue for more regular revaluations.
The areas of reform likely to emerge from consultation include a shorter revaluation period. The possibility of a three-year revaluation cycle is real, but will it work and will it benefit retail?
In theory, the process would pick up short-term rental decline (or increase) for a location, ensuring more sensitivity to economic change, which would be helpful to business and fairer all round. The real issue, however, is whether the Valuation Office Agency (VOA) could deal with a tighter turnaround on the revaluation process. Without additional resource, a failure to deal with statutory checks, challenges and appeals could lead to overlapping appeals with different valuation dates. In short, the closing of the distance between revaluations would increase the demands on government not only to revalue more regularly but to defend more individual appeals.
The retention of a five-year cycle is probably the most workable outcome if the check, challenge, appeal regime is retained. It also works, to some extent, with traditional five-yearly rent reviews. The core issue, however, is not the regularity of review, but the ability of the VOA to accurately collate and apply rental evidence agreed in the market. The more likely outcome of reform will be a move towards self-assessment for ratepayers, on the basis that the responsibility for assessment would move away from the VOA to the private sector. Having concluded on self-assessment it may then be a realistic option to revalue on a, three-yearly or even annual basis.
Richard Wackett, partner, rating, Montagu Evans
The referendum vote of 23 June has left the business community in a state of shock and bewilderment, particularly for those that rely on property as a tool for generating income and who pay business rates. Property market values may be falling to a level lower than that at 1 April 2015 (the valuation date for the revaluation to be implemented in April 2017), an unwanted reminder of the last recession that led to the absurd situation in which some rates set at April 2008 exceeded rents by 2010.
Former chancellor George Osborne had announced his preference for a reduced 15% corporation tax rate. This, coupled with an admission that the public deficit will not be solved by 2020, heralded some good (tax) news for the business world. Does it, however, place increased pressure on other UK taxes? The change in government and the possibility of a snap general election ensures that the only economic certainty is uncertainty.
The “good news” for property occupiers is that there should be a revaluation of business rates next year, the bad news is that the policy of check, challenge, appeal will be implemented, albeit in a modified fashion. The key issue for rating surveyors and their clients is: how much transparency will there be?
