2021 Budget & Reform Findings
When the Government uses the word "reform", it implies change for the sake of the common good. We continue to have real concerns that the direction of travel, as confirmed by the post Budget report following the much-awaited Business Rates Review, is that the focus is still on preserving Government revenues and reducing the work of the Valuation Office Agency (again to save costs to the Exchequer). The Government must be mindful that businesses need to be listened to.
Whilst the proposed reform may not have ratepayers’ interests at the forefront, the Autumn Budget & Spending Review on 27th October 2021 did bring some welcome news, with several positive measures and initiatives being implemented:
- The business rates multiplier has been frozen again for the 2022/23 rate year, keeping the multipliers at 49.9p and 51.2p (England) and saving business £4.5 billion over 5 years. Avison Young has been advocating the freezing of the multiplier and this is therefore welcome news. However, we see this as only a stop gap measure. We advocate that the Government should go further, and this measure should start a downward trend in reducing the multiplier to a more sensible and affordable level for all ratepayers i.e., to our recommended 45p level.
- A new temporary business rates relief scheme for eligible retail, hospitality and leisure (RHL) properties for 2022-23 with estimated savings of £1.7 billion. Eligible properties will receive 50% relief, up to a £110,000 per business cap. This is welcome news for small and medium sized businesses that are still being significantly impacted by COVID-19. However, this will unfortunately provide little help to struggling large businesses with multiple RHL properties. We await the guidance to really assess the eligibility and benefit of this scheme.
- A 100% improvement relief is planned to provide 12 months relief for occupiers where eligible improvements to an existing property increase the rateable value. The Government will consult on how best to implement this relief, which will take effect in 2023 and be reviewed in 2028. Again, this is something that Avison Young has been calling for over the past few years, so is welcome news. However, we understand, unlike a similar scheme in Scotland, that new builds will not be included. We will monitor this scheme and publish further details as they are released.
- From 1 April 2023 until 31 March 2035, there is a plan to introduce targeted business rate exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible heat networks to support the decarbonisation of non-domestic buildings. This initiative has been long overdue, and Avison Young believe that this scheme should be implemented sooner than 2023. We expect further details to be released on this scheme post Budget and we hope that the scheme will be retrospectively applied where ratepayers have already installed renewable energy generation and storage P&M, such as solar panels or wind turbines. These ratepayers are currently already facing increased rate liabilities as a result of trying to do the right thing and support government targets on green energy production. Quite often the payback period for these investments is over a number of years, so while the exemption will run for 12 years, this may not be long enough to align with the payback periods for this capex spend. Avison Young therefore calls for these exemptions to align with the actual payback period for the type of P&M installed.
- Avison Young want the Government to do more. Commercial and residential buildings make up 38% of all emissions and 35% of all energy consumption. We continue to advocate a business rates relief system which is more aggressive in incentivising sustainable investment.
- It has been confirmed that revaluations will take place every 3 years instead of every 5 years, starting in 2023. The Government will also review whether the gap between assessing levels of value and the date a list goes live can be shortened, but this will not be to until at least 2026. Annual revaluations will be reviewed in the future; however, this is not imminent. Avison Young has been leading the argument for shorter revaluation cycles and therefore the confirmation of a move to 3-yearly cycles is a positive move by the Government. It also seems sensible to let this bed in for a couple of cycles before revisiting the case for annual revaluations.
- It has been confirmed that additional funding of £0.5bn will be given to the Valuation Office Agency to support the delivery of the new revaluation cycle. It is our view that the VOA has been underfunded for a number of years, so this is good news. It does not however, address the issues with the Check Challenge and Appeal (CCA) and how planned changes will make it much harder to appeal. It is clear since the inception of CCA that the lack of transparency in how valuations are arrived at, with many hurdles put in place, has delivered a system which benefits the VOA and not the ratepayer. It is evident that the Government is intent on making it even harder to challenge a rating assessment from 2026, when a 3-month window is being proposed for the submission of a challenge. There is also a new compliance regime to factor in with possible penalties for non-compliance. All in all, the Government seems to be putting more and more cost and burden on the ratepayer, as well as highly restrictive timeframes to challenge. It is very important that the Government and the VOA are continually held to account up to and beyond 2026 to ensure they deliver their commitments to invest and provide greater transparency and ultimately more accurate valuations.
- The Government will extend transitional relief for small and medium-sized businesses, and the supporting small business scheme, for 1 year (2022-23). This will restrict bill increases to 15% for small properties and 25% for medium properties, subject to subsidy control limits. This is good news but has not provided help to any large businesses which previously were still in upward transition i.e., in 22/23 they will move to full liability with no relief. It does however look like there is no downwards transition in 22/23, as the 2017 scheme is due to end on 31st March 2022. These ratepayers will finally pay a liability based on their actual 2017 rateable value.
- The transitional scheme for the 2023 list will be subject to a consultation next year “to inform the design of the next scheme”. It appears that the Government has not listened to ratepayers on this significant issue, notably on the removal of downwards transition, as they have restated that downward transition is “necessary to ensure that support for those facing bill increases”. We will need to await the terms of this consultation, but we will continue to lobby Government on the need to scrap downwards transition over the coming months.