Guy Ware: in search of a credible solution for business rates appeals
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Business rates appeals are a problem. Guy Ware writes that without resolving the appeals issue business rates retention may be “fundamentally flawed”.
Guy Ware
As the old adage has it, if you owe the bank a thousand pounds, you’re in trouble; if you owe the bank a million pounds, the bank’s in trouble. Adjust for inflation – particularly the eye-watering inflation of London’s property market – and you have a reasonable portrait of the dilemma created by the sheer scale of business rates appeals.
In Westminster, 34% of the rating list is under appeal; in the City, it’s 40%. That’s a great deal of money. By March 2017 the GLA estimate that between them London’s authorities will have £1.3bn tied up in provisions for unresolved appeals.
The date is important, because at that point the 2017 revaluation will kick in, and a whole new tsunami of claims will come crashing down upon us.
And within three years of that – long before those new appeals are all resolved – local government as a whole will be retaining all its business rates to fund services and investment. Except that all the money set aside for appeals can’t fund anything.
Devolution mockery
Meanwhile, the scale of appeals threatens to make a mockery of the government’s ambition for devolving business rates in the first place – to increase overall economic growth by incentivising local councils to promote growth within their areas.
Our analysis shows that in London there has so far been no correlation between economic growth within boroughs and the level of rates income they retain. The picture in the rest of the country is unlikely to be any different.
There are several reasons for this, including the fact that business rates only recognise the physical development of new property, not the economic productivity of the businesses within those properties, and the sheer luck factor of whether major developments opened before or after the baselines were set.
But appeals, and the volatility they create, are right up there, undermining incentives and blowing regeneration business cases apart.
Which is why we were pleased to see the Communities and Local Government Committee recently focusing on the issue in their interim report, 100 per cent retention of business rates: issues for consideration. In their sober words: “Appeals pose a major challenge to 100 per cent retention and it is essential that the issue is resolved before 2020.”
We couldn’t agree more.
Big ideas
There are plenty of ideas around at the moment: the appeal process should be quicker, to reduce uncertainty; it should be paid for, to deter “speculative” appeals. Revaluations should be more frequent (to reduce the scale of changes and the level of backdating). Revaluations should be less frequent (to reduce the number of appeals). The Valuation Office Agency should have more resources; the VOA should have fewer resources and be largely replaced by a system of online self-assessment. The financial impact of appeals should be met by income from the central list, not by individual councils.
The appeal process has been the subject of one consultation; the revaluation process is currently the subject of another. The joint CLG/LGA working groups on business rate retention are beavering away on the issue.
Between us, we will come up with solutions. When we do, for the tax to be credible to both businesses and local government, those solutions should be based on two clear principles: valuations must be accurate and timely; and local councils should not bear the risk of errors over which they have absolutely no control.
Because the CLG Committee is right: if we can’t crack appeals, business rate retention may be fundamentally flawed.
Guy Ware is director of finance, performance and procurement at London Councils.
