HM Treasury consultation on business rates revaluations

The Government has launched a consultation on making business rates revaluations more frequent. This includes a proposal to move from a 5 yearly cycle for revaluations to 3 yearly reviews. This is part of the broader fundamental review of rates in England, which is due to conclude in the autumn.

CTG commented on issues of valuation in its earlier response to the fundamental review. More regular valuations could help to improve certainty for charities, although this must be handled in a way that does not place undue administrative burdens or costs for charities, particularly when ratings and valuation services are being outsourced to third parties.

John Webber, Head of Ratings at Colliers, will be working with CTG to develop a response to the consultation. He will be producing a commentary for CTG members shortly, but in the meantime you may be interested in this article, in which he expresses concern that a more “streamlined system” may make it more onerous and expensive for organisations to appeal their business rates.

The full list of consultation questions can be found below. Responses are due by 24 August 2021 – please send any comments to [email protected].

Consultation Questions

  1. Does the proposed package of measures represent a fair and balanced trade-off for ratepayers between new benefits and new requirements? If not, please detail what adjustments you would like to see, to ensure a balanced package of measures that would support a 3-yearly cycle while taking account of deliverability constraints. (2000 words)
  2. What steps could be taken to support ratepayers to comply with the new duties? For example, elements to reflect in the design of the reporting portal, or content that would be helpful to include in the supporting guidance. (500 words)
  3. Are you supportive of the proposed approach to Transparency? Are there further elements you think should be made available as part of a Transparency offer? (500 words)
  4. What steps could the Government, stakeholders, or industry take to support a smooth move to a 3-yearly cycle? (1000 words)
  5. Do you have any other comments on the proposed approach to the move to a 3-yearly cycle? (1000 words)
  6. Do you agree that that moving to a three-year cycle should be the Government’s priority for this stage of reform, and that going further should remain an option for the future? (1000 words)
  7. Would you support a move to an annual revaluations cycle or a shorter AVD in the future, accompanied by the necessary enabling reforms set out in this chapter? (1000 words)

Charity sector comments on valuation in response to the Fundamental Review of Business Rates

Valuation

 For charities that receive 100% rates relief the valuation of their property for business rates purposes is less of a concern. However, in most cases only the mandatory 80% relief is awarded so achieving a clear and fair valuation is important to ensure rates paid are proportionate. Charities need certainty and consistency so that they can plan ahead and concentrate their efforts on supporting their beneficiaries, rather than having to spend time navigating the complexities of revaluations of individual properties.

 We understand from our discussions with ratings agencies that there are generally concerns that business rates bills are just too high, as rates are set by the 2017 Revaluation based on rental levels in 2015. These rates are higher than levels we are seeing today, and in no way reflect the current pressures on the property sector, which will only have been exacerbated by COVID-19. Delaying the next revaluation process until 2023 means that some charities will be stuck with inflated valuations, resulting in higher bills than they should  be paying, although we do note the commitment from the Government that valuation will be based on property values as of 1 April 2021 to better reflect the impact of COVID-19. However, in the meantime there may be a case for the values currently in the rating list to be reduced because of the effect of COVID-19 on the back of tens of thousands of MCC (Material Change of Circumstances) appeals. In many parts of the UK, retail rents are falling yet these falls will take many years to translate into lower business rate bills. This is due to Transitional Relief capping the rate at which rates bills can fall for properties whose rateable values have fallen between revaluations. Downwards phasing should be abolished so that businesses whose rateable values fall immediately pay their “true” rates liability. Transitional Relief should continue to phase the impact of significant increases of rateable values on businesses and the cost of this should be spread across all ratepayers.

More regular valuations could therefore help to improve certainty for charities, although this must be handled in a way that does not place undue administrative burdens or costs for charities, particularly when ratings and valuation services are being outsourced to third parties.

 Greater consistency in approach to the valuation method is also desirable. There have been a number of valuation issues recently for parts of the charity sector, especially in relation to museums which have been valued by reference to the cost of construction of a modern equivalent. In 2017, the Upper Tribunal (Lands Chamber) ruled in favour of the York Museums Trust[1], that rates should be set based on net income, not the cost of rebuilding, which the Valuation Office Agency (VOA) has traditionally used for many museums. The case resulted in savings of £100k for the charity in question, raising questions about the impact for the rest of the sector. A case involving museums in Exeter[2] reached a similar conclusion following this precedent –  the difference being disputed was whether the Rateable Value should be £445,000 or £1, a significant difference.  As a result there may be merit in the VOA adapting its valuation process for museums and considering implications for other types of buildings.

[1] Hughes (VO) v York Museums and Gallery Trust [2017] UKUT 200 (LC)

[2] Hughes (VO) v Exeter City Council [2020] UKUT 7 (LC)