We welcome closer working between the VOA and local authorities. This must be accompanied by measures to significantly reduce the backlog of appeals. The VOA and councils must receive additional funding to implement these changes.
- The Non-Domestic Rating (Lists) (No.2) Bill sets the date of the next Business Rates revaluation undertaken by the Valuation Office Agency (VOA) as 1 April 2023. This revaluation will be based on property values as of 1 April 2021 so that, in the Government’s view, it better reflects the impact of COVID19.
- The legislation keeps the time period between future revaluations as five years. Previous Bills would have reduced this to three years but the Government has chosen not to legislate on this as it is one of the matters under consideration as part of the Business Rates Review.
- We welcome closer working between the VOA and local authorities. This must be accompanied by measures to significantly reduce the backlog of appeals. The VOA and councils must receive additional funding to implement these changes.
- According to the latest Valuation Tribunal statistics there are still 50,000 unsolved 2010 appeals. Councils have had to divert over £3 billion from services to deal with appeals risk from both the 2010 and 2017 lists Most of the 2010 appeals relate to ATMs and are only now being dealt with following a Supreme Court decision, so the amount held in provisions is expected to go down.
- We would like to see reforms to ensure that appeals can be received no later than six months after a new ratings list comes into force. This system applies in Scotland. The check and challenge system for appeals means that only a small number of 2017 appeals have yet been received. It is important that the Government makes clear its proposals for when the closing date for 2017 list appeals will be.
- The Bill also proposes reducing the publication deadlines for new business rates lists from six to three months before the list comes into force. This could impact billing authorities’ ability to prepare and implement the new rates, and the timing of any transitional relief schemes.
- We understand that it is the Government’s intention to publish the draft list, the draft multiplier and the transitional relief scheme at the same time as the Autumn Budget in 2022. Any delay in this would be likely to cause issues for councils and software providers. Councils would welcome reassurance from the Government that in this event the Government would publish the information through alternative means such as a written statement.
About the Bill
Between 1990 and 2010 revaluations took place every 5 years. The 2015 revaluation was delayed to 2017 and the next revaluation is due in 2022.
In the Queen’s Speech in December 2019, the Government committed to bring forward the next revaluation for non-domestic rates in England by one year to 1 April 2021 based on market values at 1 April 2019. However, to reduce the uncertainty for firms affected by the impacts of coronavirus, the government decided that the revaluation would be postponed. The Non-Domestic Rating (Lists) (No.2) Bill sets the date of the next Business Rates revaluation undertaken by the Valuation Office Agency (VOA) as 1 April 2023. This revaluation will be based on property values as of 1 April 2021.
Alongside Council Tax, business rates (non-domestic rates) represent the largest source of income for councils. Retained business rates contribute around a quarter of local authority core spending power. Councils were expecting to collect £26.5 billion in business rates this year. Due to business rates relief, mainly for retail, hospitality and leisure premises, around £11 billion of this will be covered by government grant in 2020/21.
The rateable value is set by the Valuation Office Agency. Values are based on market rentals and are revalued regularly. The Non-Domestic Rating (Lists) (No.2) Bill sets the date of the next Business Rates revaluation undertaken by the Valuation Office Agency (VOA) as 1 April 2023. This revaluation will be based on property values as of 1 April 2021 so that it better reflects the impact of COVID19. The multiplier (pence in the pound) is set by the Government and its annual rise cannot go above the rate of inflation. Most reliefs are mandatory or, if discretionary, are funded by the Government.
Business rates appeals are still a major concern. Over 50,000 appeals are unresolved from 2010 and councils have had to make provision for over £3 billion for these and expected appeals against the 2017 valuation list, through the Check, Challenge and Appeal system, money which is not available to spend on services. Most of the 2010 appeals relate to ATMs and are only now being dealt with following a Supreme Court decision, so the amount held in provisions is expected to go down.
Business rates avoidance is a challenge for councils and we published a refresh of our 2014 business rates avoidance survey in January 2020. We estimate avoidance at an average 1 per cent of total net business rates income (an estimated £250 million in England in 2017/18). We have called on the Government to give a commitment to working with local government to tackle business rates avoidance, along the lines of those being introduced in Wales and Scotland.
The financial impact of COVID-19
Councils have responded positively and innovatively to the challenges posed by COVID-19. Working in collaboration with national government, councils have protected lives, livelihoods and the most vulnerable residents and have ensured that our most important public services have kept running successfully. This work has had a significant impact on council budgets. Councils have faced increased costs and demand pressures, at the same time they have experienced a significant reduction in the income that they rely on to fund services.
Certainty over sufficiency of funding and liquidity is vital to ensure that councils can successfully deliver the best possible response to COVID-19, but many councils are already finding themselves in a very challenging financial environment. Every council is seeing a huge drop in council tax, business rates and income they receive from fees and charges such as leisure services, commercial estate and parking. In addition, councils face increased costs to meet additional social care demand as well as to support those in increased financial hardship.
Councils’ have been submitting monthly returns to the Ministry of Housing, Communities and Local Government (MHCLG) on the financial challenges they face as a result of the pandemic. LGA analysis of councils’ July returns shows that extra COVID-19 costs and losses of income incurred by councils from March to July, amounted to £6.1 billion.
The Institute for Fiscal Studies (IFS) published a report, co-funded by the LGA and the Economic and Social Research Council, which further highlights the financial strain councils will be under due to the COVID-19 pandemic into the next year “and beyond”. The IFS states that, for 2020/21 alone and without considering losses due to uncollected local taxation, there is still a gap of £2 billion that needs to be met once financial measures announced so far are taken into account. The 2020 Comprehensive Spending Review and Autumn Budget will be key opportunities for sustainable funding solutions and movement towards greater service and fiscal devolution, allowing councils to deliver for local communities.
The loss of business rates (£953 million) and council tax income (£867 million) combined in the period from March to July 2020 accounts for around half of all income losses for councils over the same period. This highlights the impact of the virus on local economies as some businesses close or people who are struggling to pay bills as a result of loss of earnings.
In the context of the current COVID-19 pandemic, the returns to the MHCLG monthly financial information survey for the months of April to July suggest that collection of council tax, in recent years over 97 per cent, could be reduced by 5 per cent to around 92 percent. It is welcome that the Government has already confirmed that councils will be able to spread the impact of local taxation losses over three years. We are calling on the Government to use the 2020 Spending Review to commit to covering the impact of all lost income, including local taxation, in full.
The LGA has commissioned work from Local Government Futures which proposes a compensation scheme for councils which would involve the Government adjusting business rates baselines for 2020/21 by a figure based on the projected total of irrecoverable losses.
LGA response to Tranche One of Business Rates Review
The LGA would like to see a business rates system that raises sufficient resources for local priorities in a way that is fair for residents and gives local politicians all the tools they need to be the leaders of their communities. We therefore welcome the fact that the Call for Evidence for the Government’s review of business rates acknowledges that business rates are an important source of revenue for local government and the impact on the local government funding system will be an important consideration in reviewing the tax. For councils, it is important that the tax system, including business rates, provides as much certainty as possible.
Sectors such as online businesses should make a fair contribution either through a change to business rates valuation or through some form of taxation of online business activity where the proceeds go to local government. For further information, please refer to the LGA’s submission to Tranche One of the Government’s Business Rates Review
Iredia Oboh, Public Affairs and Campaigns Adviser