Insight

Covid ‘not grounds’ for business rates reductions

Insight

The Government yesterday announced legislative changes to prevent the pandemic and potentially other “market-wide economic changes” being used as grounds to support reduced rateable values.

This is an unprecedented move which has brought an end to the hopes of thousands of ratepayers, both owners and occupiers, who hoped to achieve reduced business rates liability due to the impact of Covid-19.

The Government has instead pledged to deliver £1.5bn in targeted relief to those businesses most affected by closure and changes in trading conditions as a result of the series of lockdowns over the last 12 months. The criteria have yet to be published and this morning the Government made an announcement that there would be a future announcement. Very helpful.

The retail, hospitality and leisure industries have already received substantial support through uncapped rates relief and grant assistance, with a further extension to the relief scheme for the first quarter of the 2021/22 rate year.

The industrial property market has remained buoyant throughout so it was difficult to see how this sector would have fared pursuing an argument that rateable values should have reduced. The office market, on the other hand, is a different matter; the majority sat dormant as we were all forced to work from home. Offices, despite being unused, were still equipped for businesses and therefore no empty rates relief was available and would have only been for three months if it were. The solution to reducing liability was therefore the Covid – Material Change in Circumstances Appeal (the Check Challenge Appeal multi stage process).

Over the past few months there have been suggestions of progress: first the Valuation Office Agency accepted that Covid was, in principle, a MCC; then some headline grabbing figures in the press talking of blanket 25% reductions which turned out to be premature and seemed to push the VOA away from the negotiating table. Prior to today’s announcements, rating surveyors across the land were preparing to submit Challenges – the second stage of the multi-stage process – within the time limits built into CCA. And then yesterday’s bombshell…

MCCs are regularly used to deal with changes to a property or locality. The Government’s view is that Covid is more than an MCC and, as such, required a full scale revaluation to rebalance values. This was initially planned for 1 April 2021 but then deferred to 1 April 2023 and will therefore take account of the impact of Covid in due course.

I can personally see some logic in this approach – the impact of RV reductions could be unknown for potentially many years due to drawn out discussions and the potential for an unfavourable outcome to be pursued by agents, first to the appeal stage and then undoubtedly all the way to the Supreme Court. Over this period of time there would be significant uncertainty about whether the revenue collected by local authorities was safe or whether there would be substantial retrospective refunds that needed to be accounted for. All at a time where the Government needs some certainty about the income stream for and from Councils to ensure the consistent delivery of services and to plan its way out of the massive borrowing from Covid-related spending.

There was also the genuine prospect of a two tier rating market: those that made covid appeals within the allowed timescales and those that didn’t. That would have also potentially produced ongoing disparity into the next rating list from the impact of transitional relief which phases in increases or decreases in liability.

While we have also raised scores of Covid appeals for clients across the country and would have pursued them vigorously, this seems like a sensible approach for public finances, as long as the targeted relief proposed by the Government is directed at the occupiers that genuinely need it.

As business rates is a devolved power we expect to see Wales and Scotland following with similar legislative changes over the coming days.

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