Response from the local government housing and planning committee on the Valuation and Rating Coronavirus Order 2021
PREFACE
I am Mike Rose Director in the Scottish Rating team at CBRE Ltd. I am a member of the Royal Institution of Chartered Surveyors and have 37 years post qualification experience in providing advice to Non-Domestic ratepayers in Scotland and England.
I initially accepted an invitation to attend the Committee to give evidence on the draft Valuation and Rating (Coronavirus) (Scotland) Order 2021 “the Order” at its sitting on the morning of 26th October 2021. I advised that I could attend the hearing but unfortunately other unavoidable commitments have now developed and I am unable to appear in person or virtually.
I apologise for the late withdrawal from the proceedings but have set out below my views on the proposed legislation.
The views expressed are my own personal views and not necessarily those of CBRE.
INTRODUCTION
I understand the Committee wishes to inform its scrutiny of the Order and would be keen to take evidence from commercial real estate advisors with experience of Non-Domestic rates valuation.
THE BACKGROUND TO THE PROPOSED LEGISLATION
The Scottish Government recently confirmed that it intends to legislate to rule out COVID-19 Material Change of Circumstances (MCC) appeals on Non-Domestic properties, as outlined by Minister Tom Arthur MSP on the 24th of June in an answer to a parliamentary question where the Minister said:
“On 25 March 2021 the UK Government committed to ruling out COVID-19 appeals on non-domestic properties in England. It concurrently announced a new Business Rates relief fund of £1.5 billion for businesses affected by COVID-19 outside the retail, hospitality, and leisure sectors.
We anticipate that this will result in consequential funding for the Scottish Government, but at this point we are still waiting for confirmation of when this will be received. Once that confirmation is provided, we remain committed to passing on all business support consequentials through a tailored package of measures for Scottish business during the recovery period.
In the interim, we agree in principle with the UK Government that market-wide economic changes to rateable values, such as from COVID-19, should be only considered at revaluation to ensure fairness to all ratepayers; and that it is not appropriate to use the material change of circumstances provisions in the non-domestic rates legislation in relation to COVID-19, or COVID-19 restrictions.
The Scottish Government can therefore confirm its intention to also take measures to rule out COVID-19 appeals, whilst continuing to ensure that we best support the most affected businesses and sectors in the recovery period. We will set out our legislative plans after the summer.”
The Scottish Government’s Programme for Government titled: A fairer, Greener Scotland published 7 September 2021 it advised its intension to introduce the Non – Domestic Rates Covid 19 Appeals Bill on the basis that:
“The Bill will prevent the inappropriate use of material change of circumstances provisions in the non domestic rates legislation in relation to COVID 19, or COVID 19 restrictions. Ruling out COVID 19 appeals will ensure that the limited public resources that are available are efficiently targeted to support the most affected businesses and sectors in the recovery period.”
The Scottish Government has now started to deliver on their promise to stop these appeals succeeding by introducing the draft Valuation and Rating (Coronavirus) (Scotland) Order 2021. This draft Order is, I assume, the precursor to the Bill which, given the Government’s announced intensions (above), I believe, attempts to nullify all of the 40,000+ Covid-19 MCC appeals made by Scottish ratepayers since the pandemic began, all of which remain unresolved.
I understand the Bill will be laid separately to draft Order but I am not sure exactly when this is scheduled for.
THE PROBLEMS WITH THE POLICY
The purpose of the Bill is to remove rights (in this case, those of ratepayers) which have been exercised but not completed and in my view that purpose sets a very dangerous precedent to enable other rights to be removed retrospectively by legislation.
As a general proposition, legislation which retrospectively alters the basis on which the rateable values of lands and heritages are assessed, against the interests of ratepayers, involves the de facto imposition of a retrospective tax increase. If a ratepayer’s realistic prospect of a reduction in rateable value (and consequential liability) is thwarted by retrospective legislation, that legislation is the cause of a retrospective increase in charge.
The premise on which the Order and Bill are predicated is that MCC appeals lodged on the basis of Covid 19 is an “inappropriate use of the material change of circumstances provisions in the non-domestic rates legislation”. This in my view is contrary to established Scottish rating valuation principles and precedents.
The Lands Valuation Appeal Court have in a number of “MCC” appeal cases over the last decade concluded that an abnormal or exceptional event could be an appropriate ground for material change of circumstances appeals to not only be lodged but to succeed. For example the Edinburgh tramworks and the Global Financial Crisis of 2008 were deemed to be Material Change of Circumstances. Surely Covid-19 is the ultimate abnormal or exceptional material change in circumstances!
To introduce retrospective legislation now to invalidate MCC appeals already made in accordance with the Court’s precedents and decisions seems to me to be a cynical ploy to prevent many ratepayers from receiving some desperately needed financial relief which they would otherwise be entitled to because the basis of rating as a tax is beneficial occupation of property, not business profitability.
The proposed Bill could undermine confidence in all current tax legislation. If the Bill passes and the retrospective legislative precedent is set, can any Scottish income taxpayer be confident that previous years’ income tax rates will not be retrospectively increased?
For government to legislate to disregard the impact of Covid-19 for MCC valuation purposes also deviates from one of the central principles of the Barclay review to design a system that reflects changing marketplaces.
It is not, and never should be, the responsibility of Assessors nor individual ratepayers to place consider the impact on revenue arising from the amendment/correction of individual valuations in accordance with statutory rating and valuation provisions and judicial precedents. Assessors are, and must remain, independent of Central and Local Government and any intimation or perception that they place defence of the public purse ahead of their statutory valuation duties compromises that independence, erodes ratepayer confidence and has other far reaching and adverse effects on the whole Non-Domestic Rating system.
MY ADVICE TO THE COMMITTEE
I would advise the Committee to reject the Order and advise the Scottish Government to re-consider the Order and the implications of introducing it and the Non-Domestic Rates Covid 19 Appeals Bill in terms of: -
i) Setting a precedent for the retrospective removal of rights which have been exercised but not brought to fruition.
ii) Further delaying facilitating any form of financial relief to those businesses that have suffered financial hardship as a result of the pandemic and have not had any relief. The MCC appeals could and should have been dealt with by now and provided that relief where it was appropriate, under rating valuation principles.
iii) The switch away from ratepayers reducing their rate liabilities via tried and tested principles of rating valuation to an arbitrary distribution of a potential relief fund.
Thank you for giving me the opportunity to make these points to the Committee.