Modernising the Water Industry's Use of Rateable Value to Charge Non-Households for Water and Sewerage Services
This paper seeks to obtain views on charging for water and sewerage services with reference to rateable value.
Part 1 - Why Change Is Necessary
Background
In Scotland, water industry charges for some premises are based on the most recently assigned Rateable Value (currently the 2010 valuation roll), the same as used by local authorities for business rates. However for many, water industry charges are based on a historic Rateable Value. This historic Rateable Value, dating back to the 1995 valuation roll in many cases, may be higher or lower than the Rateable Value most recently assigned by the Assessor.
As a result of using a mixture of historic and most recently assigned Rateable Values, there is inconsistency of charging for water services between otherwise similar business premises. In response to this inconsistency, the Statement on the Principles of Charging for Water Services for the period 2015-21, which was issued by Ministers on 1 October 2014, confirmed that the Scottish Government would require, from a date to be specified by Ministers, that water industry charges which are based on Rateable Values must be based on those most recently assigned by the Assessor.
The change to use the most recent Rateable Value is not a revenue raising measure. This means that sums raised through increases in charges for some customers will be offset by charge reductions for others.
Analysis
Scottish Water has made an assessment using the 2010 valuation roll (the values that are available today). Its analysis indicates that around 57% of businesses would see a reduction in their Rateable Value based water industry charges, if charging were to be based on the most recently assigned Rateable Values (those currently used to calculate business rates).
The table below (table 1) shows the percentages of business customers which will see increases and decreases and the scale of the changes.
| Number of businesses | Total | ||
|---|---|---|---|
| Bill reduced | Bill increased | ||
| Change less than £100 | 37.39% | 26.66% | 64.05% |
| Change between £100 and £500 | 14.49% | 10.99% | 25.48% |
| Change between £500 and £1,000 | 2.75% | 2.48% | 5.23% |
| Change between £1,000 and £5,000 | 2.34% | 2.23% | 4.57% |
| Change between £5,000 and £10,000 | 0.21% | 0.25% | 0.46% |
| Greater than £10,000 | 0.08% | 0.14% | 0.21% |
| Total | 57.26% | 42.74% | 100.00% |
Table 1
Scottish Water's analysis also shows that, to ensure that no additional revenue is raised as a consequence calculating charges using Rateable Values assigned by the Assessor as available in 2015, the charge per £ of Rateable Value will need to reduce by around 30%. If applied to the rates applicable in 2016-17, the maximum combined property and roads drainage charge of 4.5p / £ RV would be reduced to 3.1p / £ RV. This means that businesses that see their Rateable Value (as used by the water industry) increase by less than 40% should benefit from lower water industry charges.
Illustrating the Changes
The level of inconsistency can be illustrated by considering five fictitious businesses where the Rateable Value most recently assigned by the Assessor to each business is £30,000. In this example assume that under the water industry's current charging rules, four of these businesses are charged for some of their services on historic Rateable Values ranging from £7,500 to £37,500. In 2016-17 the maximum combined property and roads drainage charge is 4.5p / £ RV which means that, as shown in table 2 below, the property and roads drainage bills will vary between £338 and £1,688. Discrepancies of comparable scale are known to exist between current customers.
| Business 1 | Business 2 | Business 3 | Business 4 | Business 5 | |
|---|---|---|---|---|---|
| Water Industry RV | £37,500 | £30,000 | £22,500 | £15,000 | £7,500 |
| Property + roads drainage (Retail Default) (p/£ RV) | 4.5 | 4.5 | 4.5 | 4.5 | 4.5 |
| Current property & roads drainage bill | £1,688 | £1,350 | £1,013 | £675 | £338 |
Table 2
Applying this rebased charge to the most recently assigned Rateable Value of each of the fictitious businesses, as shown in table 2, will result in them all being charged £945 for their property and roads drainage services. This represents a reduction in charge of £743 for business 1, which currently pays the highest charge, while business 5, which is currently paying the least, will see an increase of £607 per year.
| Business 1 | Business 2 | Business 3 | Business 4 | Business 5 | |
|---|---|---|---|---|---|
| * SAA RV | £30,000 | £30,000 | £30,000 | £30,000 | £30,000 |
| Current charge per £ RV (reduced by 30%)(p/£ RV) | 3.15 | 3.15 | 3.15 | 3.15 | 3.15 |
| Future bill = SAA RV x reduced p/£ RV | £945 | £945 | £945 | £945 | £945 |
| Current property & roads drainage bill | £1,688 | £1,350 | £1,013 | £675 | £338 |
| Change from current bill | -£743 | -£405 | -£69 | £270 | £607 |
| reduction | reduction | reduction | increase | increase |
*Current RV is that currently entered in the 2010 valuation roll by the Assessor (these can be searched on the website of the Scottish Assessors Association)
Table 3
Date for Introduction
The Scottish Government has legislated for the next rates revaluation to take place on 1 April 2017, and the move to use the most recent Rateable Values is not proposed to start before this time. Given the time to make the necessary system changes, the timescales associated with the 2017 valuation roll and time to allow for customers to be notified of the changes to their bills, it is proposed that the new values should be used from 1 April 2018.
Summary
The discussion above shows that all businesses will be affected by the change to using the Rateable Value most recently assigned by the Assessors. As the individual Rateable Values that will be introduced for business rates in April 2017 are not yet known, the actual impact on individual businesses cannot be assessed at this stage.
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