Rochdale Borough Council response to the DCLG Administration of business rates

Since the introduction of the Business Rates Retention scheme Local Authorities are partly funded by business rates collected locally. Any changes to the business rates administration system must ensure that the level of business rates collected is not adversely affected. It is also important that any revised business rates administration system does not place an increased administrative burden on local authorities.

Any change which results in an increase in administrative costs or reduces the level of business rates income will disproportionately affect Rochdale Council, as an authority in a deprived region with a relatively low business rate base. This will ultimately impact on their ability to deliver services, especially in the context of other reductions in funding in recent years.

DCLG discussion points: How property is valued

• The Valuation Office Agency is currently required to set rateable values that are based on the annual rental value of each property at a certain date. What are your views on this approach whilst recognising that the government believes business rates should continue to be based on rental property values? 
• What are your views on a less individualised approach to arriving at a rateable value, such as banding, a system of ’zones’, indices, or rolling revaluations, as described above
• Moving from the current system to one where properties were placed in bands would result in bills rising for some ratepayers and falling for others. What would be considered an acceptable variance from current bills? 
• What are your views on the Valuation Office Agency’s use of the ‘receipts and expenditure’ and ‘contractors basis’ valuation methods used to value property that is not normally let? What do you think about how these methods are applied? 
• Do you have any views on the way that public houses are valued? 

Rochdale’s response

The various approaches taken to determining the valuation for a property leads to confusion for ratepayers and leads to a lack of credibility as to the accuracy of the RV assigned to a property. A major factor in determining the valuation relies upon subjective decisions taken by individual VOA staff which is not easily communicated to individual ratepayers. In addition, the use of receipts and expenditure for some businesses is an indirect tax on an individual business’s performance. It may be the case that the business is doing well because of the hard work and the quality of service provided and is not linked directly to the location of the business. By using receipts and expenditure as a base this makes his/her RV per sqm potentially more expensive than the shop in the same vicinity.

Currently the system includes a mix of business trading information, anticipated performance and market rents as the basis for property valuations. This mix makes it very difficult to determine likely rateable values particularly when a property converts, for example from a public house to a restaurant. This leads to confusion for businesses as to how the RV is calculated and often results in appeals being submitted. A simpler approach is required to the system but it is likely that a general banded approach may increase the level of appeals and complaints depending as to the number of bands and levels of winners and losers.

Any changes to the system will require a period of transition involving a phased cap on loss or benefit to ensure the fluctuation in funding at a local level is smoothed.

DCLG discussion points: How often property is valued

• Some ratepayers have suggested establishing annual, 2-yearly, or 3-yearly revaluations instead of the normal 5 yearly cycle. How frequently do you think the rateable value of a property should be re-assessed at a revaluation, bearing in mind possible impacts on the predictability and volatility of bills? Why? 
• Would your views change if more frequent revaluations meant: 
  a. rates bills changed more often i.e. were less stable and less predictable than currently?
  b. it were necessary to use a less individualised approach to valuing property than currently which would mean that ratepayers with different rents, who at the moment pay significantly different bills, might pay the same amount? 
• Do you think ratepayers would be more, less, or just as likely to appeal the rateable value of their property if revaluations were more frequent? 
• Reducing the time allowed to prepare a revaluation from the current 2 years would also reduce the time available for ratepayers to check their rateable values and prepare for changes to their rates bills. It would also mean the Valuation Office Agency would have less time to collect and analyse rental evidence to prepare valuations. How do you think this would impact ratepayers and local authorities? 
• What is your understanding of how a revaluation affects final business rates bills? Would you like to receive more information from the government on how this works? 

Rochdale’s response

More frequent valuations would resolve some of the concerns expressed that the current system is out of date and does not keep pace with the economic climate. The approach for the current system depends on a mix of market rents and the precise nature of the property. Current RVs are based on the economic climate in 2008. Business ratepayers want fairness in the system which is perceived to only be achieved by using valuations based on current data.

More frequent valuations would however reduce stability for local authority funding. There are currently marked differences both at regional and local level in economic recovery. More frequent valuations will lead to volatility in funding for local authorities and also in the amount to be paid by businesses. This could have the direct opposite effect for businesses than anticipated.

Over half of the appeals received locally are disputes in the accuracy of the valuation which are likely, in part, to be due to the age of the data used to determine the valuation. More frequent valuations may reduce the level of appeals, but it is unlikely.

More frequent valuations would lead to an increased administrative burden for both local authorities and the VOA at a time when staffing levels have been reduced and additional burdens have been placed upon local authorities as a result in part of localism. More frequent valuations may only be practical on a geographical/rolling basis within a local authority thus achieving valuations on a more current basis whilst reducing the administrative burden.

It perhaps should be noted that since the revaluation of 2010, staffing levels for back office functions have significantly reduced. Local authorities/VOA are likely to have difficulties in supporting a revaluation of all properties in 2017 with current staffing levels.

DCLG discussion points: How rates bills are set

• 11 Do you feel that you understand your rates bill? What would help you to understand it better? 
• There are a number of reliefs available for certain types of property or property use which can reduce the amount of business rates you pay. What do you think of the general level of awareness about the reliefs available? 
• What is your experience, in general, of how the reliefs system is administered? 
• Some reliefs are applied automatically to bills and some require ratepayers to request them from their local authority. What are your views on this? 
• Your business rates bill is calculated by your local authority (council). If you receive business rates relief of any kind, this should be listed on your bill. Do you have views on how the reliefs you receive are currently shown on your bill? 

Rochdale’s response

The current relief system adds to the confusion as to the rates to be paid by businesses. Reliefs in relation to small business and charitable reliefs require some level of scrutiny. For example, small business rate relief is granted simply on the valuation of the property, there may be some properties that the local authority would not wish to grant relief because of the impact on the local community. Localism has provided very limited local powers for local authorities in relation to reliefs as the majority of the reliefs are set at central government level. Under the business retention scheme 49% of the cost of the reliefs is now a direct impact for local authority funding yet there is minimal discretion as to whom and what type of organisations receive support. For local authorities to be able to use business rates to incentivise growth there needs to be more local discretion involved in the use of discounts and reliefs. For example small business rates relief is eligible to all small properties - some business may need more financial assistance than others. This does not allow relief to be channelled to the local areas of greater need.

Recent court rulings have undermined the ability to operate empty relief in the manner originally designed by statute. Local authorities have a significant burden in minimising rates avoidance tactics particularly those in relation to the granting of empty relief. Business rates legislation allows companies to roll empty relief forward on this perpetual cycle unlike council tax which provides local powers to charge for empty properties with very clear limits as to the empty period. Clarity and improvements to empty relief regulation is urgently required to support relief for empty properties and to time limit empty relief thus supporting regeneration and improvement to communities. Derelict empty buildings remaining vacant for a significant period of time can have a negative impact on communities including anti-social issues.

Awards of relief account for a 16% loss in gross business rates income for our local authority, of which 49% is now a direct cost to the Authority. Empty relief is particularly volatile which causes a lack of stability in funding.

DCLG discussion points: How business rates are collected

• Bills (demand notices) are issued to ratepayers by billing authorities. They calculate final bills by multiplying a property’s rateable value as set by the Valuation Office Agency, by the business rates multiplier as set by central government, less any mandatory or discretionary reliefs, including transitional relief. What are your views on how clearly bills show the way in which a final business rates liability is calculated? How might bills be made easier to understand? 
• The government is interested to know whether the following aspects of the current system for billing and collection of business rates present issues for business ratepayers, and if so, how these might be addressed: 
  a. Bills are usually issued to ratepayers in paper form 
  b. Format of bills may vary across billing authorities, though core content should be the same 
  c. Each property is separately liable for rates and so ratepayers receive a separate bill for each property they occupy 
  d. Changes to the rateable value of a property can lead to an additional, amended bill being issued to the ratepayer
• It can be difficult for the Valuation Office Agency to identify promptly changes to a property that may mean its rateable value should change, particularly if these changes cannot be seen from outside the property. When the change is finally identified, this can result in backdated bills for the ratepayer. To what extent do you think this is an issue for business ratepayers? What could all parties reasonably do to limit the number of situations where this happens? 
• Changes to rateable values can be made within the life of the rating list, and up to one year after the next list has been compiled. Most backdated bills or refunds are backdated to the date when the change to the rateable value of the property came into effect. What are your views on this? 

Rochdale’s response

The backdating of changes should have limits imposed, perhaps similar to income tax. The backdating should be from the date applied for a maximum number of years. There also needs to be a date by which a revaluation is closed. We are currently experiencing appeals submitted against the 2005 list because of success of an appeal against the 2010 list. Successful appeals reduce the income which can be collected by local authorities, there is a need to adopt similar behaviours to those operating for income tax in relation to placing the onus on the ratepayer to demonstrate that a valuation is inaccurate and for clear limits as to the length of backdating. The current system for appeals would appear to be skewed in the favour of agents working for businesses to reduce the rates bill rather than supporting local authorities and central government to raise sufficient levels of income to support the delivery of local services.

The situation in relation to backdating changes has become more unclear since the Non Domestic Rating (Cancellation of Backdated Liabilities) Regulations 2012 came into force. The length of time taken by the VOA to confirm a decision on changes to some properties has resulted in ratepayers claiming for backdated charges to be cancelled under this regulation. This can have significant implications for local authority funding as the loss of income can be considerable if the backdating relates to a number of years.

DCLG discussion points: How information about ratepayers and business rates is used

• Currently, the Valuation Office Agency collects rental information from ratepayers using forms of return sent by post. What is your experience of completing forms of return? Do you have suggestions for improving the way that you are asked to provide information to the Valuation Office Agency? 
• Do you have suggestions for improving the quality of data provided to the Valuation Office Agency, while minimising the burdens on business? 
• The Valuation Office Agency publishes data on its website that shows rateable value and floorspace.1What are your views on how the Valuation Office Agency could improve the data it makes available? If you had greater access to Valuation Office Agency data, how would you use it? 
• There are currently legal constraints that apply to the data which the Valuation Office Agency can share with ratepayers. Greater sharing of data could help the system run more smoothly. How do you think this could be achieved? 

Rochdale’s response

Regular concerns at operational level relate to the perceived unwillingness of the VOA to change valuation categories when a business starts up. Too often the valuation reflects what the property might or could be used for rather than reflecting what type of business is operating from it at the moment. There is a reluctance to reduce RVs, as the VOA state that the tenant may change and thus the RV may need to change again. To be able to revitalise some commercial areas and stimulate growth we need a commitment to support this principle by the VOA rather than create an inflexible approach.

It is very difficult for local authorities to provide sufficient information to business ratepayers when changes occur to a RV due to the limited information received from the VOA. To build trust and confidence between local authorities and the VOA there needs to be a partnership approach. The current system of an “instruction” to change an RV to local authorities with minimal supporting information prevents the business rates teams from delivering a supportive customer service to businesses. There must be sharing of data including limited access for business teams to VOA systems to understand the basis of an “instruction” to enable customer services to operate effectively. Earlier resolution of queries when RV changes occur may reduce subsequent appeals. It may be the case that appeals are lodged as it is difficult to obtain early resolutions as the ratepayers are required to deal with both the billing authority and VOA team to gain an understanding of the changes.

The VOA portal system has started to provide improved data for the analysis of appeals and their status, however on a case by case basis the information available is insufficient to deal with ratepayer’s queries efficiently by business rates staff.