FACT CHECK: Government telling porkies over rates

The Government finally responded to growing anger over its business rates reforms trying to justify them using misleading language and sleight of hand to deliberately ignore key points.

David Gauke appeared on Radio 4 before his press office issued an unprecedented riposte, claiming today’s warnings from business groups were “false”.

The Government’s response is highly misleading and we’ve set out below why this is, quoting from the BBC interview and the DCLG press release. Please scroll down to read and please attribute to Daniel Watney LLP if used.

Debbie Warwick, head of ratings at Daniel Watney LLP, said:

The Government’s response that the letter’s claims are false is pure procedural obfuscation. The fact is that the reasonable professional judgement clause in the proposed business rates reforms would allow tribunals to throw out appeals against confirmed incorrect valuations if they are within a margin of error.

“Businesses will still have to go to the cost and effort of taking the case to tribunal and their appeal will still be in practice blocked. We believe this falls outside of the powers given by the law the Government cites. The Government’s argument that the claims are false as businesses would still be allowed to file an appeal in the first place is frankly besides the point and irrelevant to the points set out in the letter.

WHAT GOVERNMENT CLAIMED & WHY IT’S WRONG

  • Government claim: “These claims are simply false. We are not preventing anyone from appealing their bills, or setting any margin of error for appeals being heard.”

This is procedural obfuscation. The “reasonable professional judgement” clause would allow a tribunal to throw out an appeal against an incorrect valuation if it is within a certain margin of error.

The Government is suggesting that the claims are false because businesses would still be allowed to take an appeal to tribunal in the first place – despite the fact that any appeal within the “reasonable professional” margin of error would be rejected by default.

The Government’s argument is frankly beside the point. If a business that has gone to the cost and effort of taking an appeal to tribunal that will be rejected by default, it is of little comfort that the Government has reassured them they will still be allowed to go to a futile cost and effort.

  • Government claim: “We’re reforming the appeals process to make it easier for businesses to check, challenge and appeal their bills. We are trying to discourage speculative appeals where people are trying to chance their arm to get a reduction. This is clogging up the system.”

This fails to engage with the key point of the letter that the Local Government Finance Act 1988 cited in the proposed reforms does not give the Government the right to set a margin of error for whether appeals are successful if a valuation is found to be incorrect. The regulations are therefore still outside the law and we urge the Government to withdraw the relevant clause on “reasonable professional judgement” from the proposed regulations.

Fundamentally, it is unjust for the Government to decide whether or not appeals should go through on the basis that firms with incorrect valuations may be “chancing their arm” – the entire point of a justice system is that it does not prejudge a case, or judge a case on its motives rather than the facts at hand.

  • Government claim: “A transitional relief scheme is in place to support ratepayers by capping and phasing in any rise in bills. The Government is providing a £3.6bn package to support the 1 in 4 businesses that are seeing an increase in their rates.”

What the Government fails to mention is that it has changed the transitional relief arrangements. Previously firms seeing rates rises had the increase in their bills in the first year capped at 12.5%. That cap has been raised to 42%.

Adding nearly half again to a firm’s rates bills hardly constitutes a transitional arrangement, and is a tremendous shock to businesses at a time when the British economy is being carried through uncertainty by strong retail spending. The cap was increased with little warning or justification, and is a key example of how the revaluation, while necessary, will have an unfair impact on those seeing the biggest changes. The support package is inequitable and poorly phased.

  • Government claim: “Three quarters of businesses are going to see their rates fall or stay the same. Outside of London average rates bills are falling by 11 percent.”

The last revaluation was done in 2008 – the peak of the market for many businesses outside London – and then came into force from 2010. These firms then had to pay overinflated business rates throughout the extended recession, which had the well-documented effect of wreaking havoc on regional high streets. It would be, if anything, a surprise if they did not see a fall in their rates. Many have been waiting years for this revaluation.

Furthermore, thanks to the transitional relief regime many firms with rateable values of over £100,000 that are seeing rates cuts will see painfully slow reductions in their bills. 50 percent of 5,000 premises examined will still not have their full rate cut in three years’ time due to the transitional arrangements – a rates cut which, if not already wiped out by the fall in sterling, may well have been overtaken by inflation for many by then. Nearly a fifth of the premises examined will still not have their full rate cut in five years’ time.

The transitional regime, therefore, means many of the firms seeing long overdue rates cuts will not see the benefits from them, while also seeing many ratepayers facing rises absorb huge increases in the first year. A transitional system that makes losers out of both those seeing rates cuts and rates hikes is one that is in clear need of reform.