Grounds for appeal

The business rate retention (BRR) scheme has been up and running for a little under a year but it hasn’t taken that long to realise there are some significant challenges still in the system for
budget planners.
Let me start by saying that BRR, conceptually, is a positive development for local authorities. We’ve asked for more autonomy and this is more autonomy. We’ve asked for mechanisms
to encourage economic growth so that we can share in the benefits and unquestionably, BRR gives us that.
But there is a significant spanner in the works that is overshadowing that positive development – appeals.
The capacity of the Valuation Office Agency (VOA) to process appeals, many of which have been in the system since 2010, and can of course date back even further, is creating more uncertainty in our financial planning than any other line of business. Single appeals in our district have been worth £3-400k, with one
recent successful appeal for £14k per annum back-dated to 2005. Now, when you’re trying to write a five-year budget these sorts of figures introduce a level of volatility into the accounting that is very uncomfortable.
Technically, we are not considered to be an ‘interested party’, according to the VOA so while we’re aware that business X has an appeal outstanding we are not involved in the process at all, or privy to any of the salient details such as the grounds for appeal. The businesses are mostly supported by ratings agents on a no-win no-fee arrangement and the entire discussion takes place between the VOA, the agent and the appealing business.
In 2013/14 we’ve funded around £5m of successful appeals – about 7% of our overall business rate yield. But that figure can vary hugely and when it does we either overestimate, and then underspend on frontline services in the year, or we underestimate and have to take corrective action during the year. Clearly we’d like to avoid either scenario. If we could have a bit more transparency about how appeals are assessed and some action in getting the backlog of appeals from 2010 settled, I think we’d all sleep a bit easier.
If, for example, we were able to know what the grounds of an appeal were, then we would be able to take a view on whether or not the appeal would be successful. There may come a point where we need to hire the agents ourselves so that they can form a view for us on the level of risk we’re running.
Sticking with business rates, we’re looking with great interest at what’s going on in some of our neighbouring authorities, who have decided to pool their rates. Pooling works if you can offset the levies with the top-ups. For us, the maths didn’t work out for 2014/15: we thought the upside was potentially in the tens of thousands, whereas the downside risk was in the hundreds of thousands. There are some interesting accountancy issues coming out of pooling which aren’t completely understood yet, in my view, and may make for some interesting accounts at year-end. There is an option for the billing authority to spread the impact and back-date an element of appeals over five years. Conversely they can take the hit in-year.
Now the final decision might work for the billing authority, but will it work for everyone else in the pool? The accounting treatment of pools hasn’t been completely established as I’m writing (although CIPFA’s imminent LAP bulletin will hopefully clarify the situation) and we could see some interesting discussions emerge among members of business rate pools as they negotiate for an equitable slice of the pie. Watch this space.

Alex Colyer is finance director at South Cambridgeshire District Council. This article was originally published in the Room151 Quarterly magazine.