The end of the double-edged sword of transitional relief?
I am in the process of formulating my response to the government’s latest consultation on business tariffs, this time on the transitional relief scheme to be implemented for the April 2023 revaluation.
Transitional relief is designed to phase in liability changes so that an occupier facing a large increase in assessed value does not immediately bear the brunt of increased liability overnight. Sounds good, I hear you say, and why would anyone want to delete that? While the limits on transitional relief increase, they also limit decreases and, according to the Treasury, should be tax neutral. Thus, the downward transition pays for the upward transition.
If we look at the projections for the new rating list, industrial/warehouses are up nationwide, retail is almost universally down, and offices are highly dependent on age, specification, and location. The huge drop in office values predicted by some due to covid has not materialized.
Putting this into context, some areas of the country could see double RVs on industrial properties, while commercial properties in the same area would see a reduction of more than half. If you apply the previous transitional relief mechanism to this scenario, it could take years for warehouse occupants to see their bills increase to the right level, while at the same time main street units sit empty as the liability tariffs is kept artificially high due to the lower transition.
It just can’t be the right answer.
Part of the problem with business rates is that the invoices are almost incomprehensible. There are over 350 councils in England and Wales, all of which have their own formats and a different way of showing the transitional relief calculation. I would go so far as to say that most real estate professionals do not understand transitional relief and even if they do understand the concept, the calculations themselves are shrouded in mystery. My old friend and mentor Andy Duguid had me learn the long-standing transient fallback calculations in the mists of time, so I could understand how people struggle with it.
My first reaction was that we should remove transitional relief completely; the purpose of reassessment is to make assessed values more closely reflect rental values and the planned move to annual reassessments would allow RVs to track rents more closely. The problem is that the last revaluation was in 2017, so we have six years of very significant and fundamental rent growth and market change. If TR were removed, properties with large increases in RV would see a significant increase in rate liability, in addition to utilities, staff, rent, etc. Not good and with very little time to prepare.
So, on second thought, an upward transition would be a good thing. It absolutely should not be tax neutral or funded through a transition down as Main Street and other commercial properties need an immediate change in value to have any chance of recovery.
The consultation states “It is too early to know the outcome of the 2023 revaluation. However, the government is required by law to put in place at each revaluation the transitional provisions that we have used previously to support companies to adapt. to their new bills.
Ok so the 2023 reassessment is not complete but the VOAs are far enough along in preparation to provide a large sample of values to allow a modeling exercise to be undertaken by the government. Creating a TR schema without knowing the change in values is impossible.
Data modeling and the sheer volume of data collected from local councils has come a long way since the last reassessment in 2017. It is possible to model the impact of a TR scheme which has limited large upside increases and spread the cost over all other properties for a finite period of time, say the first year of the new listing. This would not necessarily cause the UBR multiplier to rise above the £0.512 in the pound currently payable.
If the overall pool of RVs across all properties increases, to keep the overall revenue generated from business rates stable, the multiplier may go down but still pay aid for those facing large increases.
I’m still writing my answer and would be interested to hear your views. It remains to be seen if there will be anyone left in the government to read my answer.