Department of Transport,
Local Government and the Regions

Annex G to Modernising Local Government Finance:
A Green Paper
Review of Revaluation of National Non-Domestic rates
Summary of Conclusions

i)  Recommendations for improving the existing system

The review considered the scope for improving the existing system, without the need for legislative changes and built on the lessons of revaluation 2000 - what worked well and what could have been done better. This focused on further improvements in the exchange of information between ratepayers and the Valuation Office Agency (VOA), and the earlier delivery of revaluation outcomes, to provide greater certainty as soon as possible, by:

  • Establishing national and local ratepayer panels as part of the revaluation procedure, for discussions with the VOA on information exchange, leading to more acceptable valuations.
  • Subject to available resources, VOA should complete the valuation process 10 months before the next revaluation is due, by 31 May 2004, to inform decisions on the multiplier and transitional relief. This should allow the draft lists to be published by 30 September 2004;
  • Aiming to publish provisional decisions on transitional relief and multiplier by 30 June 2004. This will provide business with a nine-month lead in to plan resource needs from 1 April 2005; however, as the multiplier is based on September retail price index (RPI), it would not be possible to confirm these calculations any earlier than mid-October 2004;
  • Producing an information leaflet in summer 2004 for distribution by local authorities. This should be fully financed through additions to the Cost of Collection allowance.

Further consideration should also be given to:

  • Announcing or discussing with ratepayers some high-level, broad provisional indications of the likely outcome of the revaluation during the process, so they can better prepare for it in advance of any subsequent announcement.
  • Publishing a compiled list on 1 January 2005, on which basis authorities can issue bills during February and March, coming into force on 1 April 2005.
  • The VOA providing individual valuations to ratepayers (both the RV and the basis of the assessment) by 31 December 2004, in the context of wider information about the effect on rate bills;
  • Encouraging negotiations between the VOA and individual ratepayers to agree assessments as far as possible before the new lists come into force.

ii)  Revaluation cycles

The review considered whether the current 5-year revaluation cycle best met the objectives of providing stability and certainty, while maintaining fairness, or whether a shorter or longer cycle would be better. The review found that:

  • the shorter the valuation cycle the fairer the system is, because the values on which liability is based are more up to date, BUT the system is less stable and certain for ratepayers as values change more often;

  • the longer the cycle the less fair it is for ratepayers, as values becomes less accurate over time and may reach a point where they are no longer acceptable, BUT there is greater certainty and stability over the amounts they will have to pay for a longer period;

  • more frequent revaluations will cost more than less frequent revaluations over the same period;

  • more frequent revaluations may reduce the number of appeals at each revaluation, but may increase the total over time.

Any decision on revaluation cycles, whether to make them shorter, longer or leave them unchanged at five years, depends on the relative importance given to these factors. It is also interdependent with decisions on other matters considered in this report, in particular whether there is a transitional relief scheme.

iii)  Transitional relief

The review considered whether there was a case for continuing with a transitional relief (TR) scheme and, if so, the form that it should take, and how it should be financed. It concluded that:

  • TR will need to be retained in some form, as there are always likely to be large changes in bills for some even if the length of the revaluation cycle is changed.

  • A scheme based on a proportion of the full rate liability, as employed elsewhere in the UK, provides an alternative to the current English scheme based on the previous year’s rate bill. This would mean higher annual increases for some ratepayers, but would be fairer overall, as all would be out of TR by the end of the scheme, which could be well before the next revaluation.

  • A permanent scheme could be laid down in statute, perhaps ensuring that all ratepayers are paying their full liability before each subsequent revaluation. This has firm attractions in terms of certainty for business. On the other hand, it would remove the Government’s ability to be flexible if the circumstances at the time of a revaluation demanded it.

  • The overall cost of transition is of concern to the Government. The scheme could be made entirely self-financing by applying a supplement to the multiplier. Again, this requirement could be set in statute. However, this could add significantly to liability levels depending on the results of the revaluation and it would restrict the Government’s ability at least to partially fund the transitional scheme.

  • If more flexibility is allowed on the scope or funding of a TR scheme, perhaps within a statutory framework for a minimum scheme, there will be less certainty.

iv)  Banding

The review also considered whether a system of banding for NNDR would improve certainty, stability and simplicity, while maintaining fairness. It concluded that:

  • A banding system appears to have advantages, particularly in terms of simplicity and, subject to further analysis, perhaps also stability.

  • But there are significant concerns about its fairness, particularly because of the difference between bills in adjacent bands. Depending on where the lines are drawn, the step changes in rate liability as properties move from one band to another could be significant.

  • It would be impossible to avoid such step changes between bands, without having so many bands that the system is virtually the same as one of individual valuations. For practical reasons, it would probably be necessary to leave out of banding the highest value properties, which account for a small number but a large proportion of total rateable value.

  • It was not clear to the Review Group that any obvious advantages would accrue from the introduction of banding for non-domestic properties at this stage.

v)  Other valuation methods

The review also considered alternative approaches, including blunting, where properties would continue to be valued individually but changes on appeal would only be granted if the value moved outside a certain threshold, perhaps 5 or 10% of the original value. Greater use of indices, so that all properties in a locality were valued on the same basis was also considered. The review group felt that blunting and local indices should not be pursued. While blunting would help to maintain yield by limiting the effect of appeals it raises similar concerns about fairness raised by a banding system. There were no great advantages to moving to a system with more indices.

vi)  Maintaining the yield - mitigating losses on appeal

The review considered whether the current approach to maintaining the yield in response to losses on appeal could be improved, as it only gives one opportunity to estimate in advance what the size of that loss might be.

  • If the initial estimate of losses is too low the Government runs the risk of a permanent loss of yield, as happened on the 1990 lists.
  • Allowing more flexibility in the system would eliminate that uncertainty for Government, by ensuring that the full amount of losses can be recovered as they arise.
  • On the other hand, there is some concern that allowing annual adjustments to the multiplier, however modest, would reduce certainty for ratepayers.
  • The alternative of delaying any adjustment until the next revaluation would increase certainty for ratepayers, with one, larger change. The Government would still risk losing some yield in the intervening years, although could restore the position in the long term.

vii) Maintaining the yield - quality of valuations

The review also looked at minimising losses on appeal by delivering initial valuations that are more acceptable to ratepayers. This would be facilitated by a better flow of information between the VOA and ratepayers during and before the revaluation process, including the establishment of ratepayer panels mentioned above. Information is already provided to the VOA in Forms of Return, which are sent to selected ratepayers, but the rate of return is low, diminishing the quality of information. Non-return is a criminal offence, but enforcement is cumbersome and there is little incentive for ratepayers to return the forms.

  • The review group concluded that a move to civil penalties for non-return of Forms of Return provided a much more practical and effective enforcement mechanism and should be adopted.

  • However, it should be seen as very much a last resort and placed in the context of improved co-operation and flow of information between ratepayers and valuation officers, as part of the valuation process.

 

 

[ Contents ] [ Annex G Section1 ]
Published on 19 September 2000
Return to Local Government Finance Index
Return to Local Government and the Regions Index
Return to DTLR Home Page
DTLR Web Site Terms