Non-Domestic Rates (Coronavirus) (Scotland) Bill: partial business and regulatory impact assessment - partial

Options

The Scottish Government gave consideration to the following options:

1. Do nothing.

2. Lay secondary legislation to rule out COVID-19 appeals from 1 April 2021, but do nothing further.

This is the status quo at the time the Bill is introduced. The Valuation and Rating (Coronavirus) (Scotland) Order 2021 (S.S.I. 2021/445) which came into effect on 1 December 2021 rules out COVID-19 appeals from 1 April 2021.

3. Introduce primary legislation to rule out COVID-19 appeals prior to 1 April 2021: to 2 April 2020 or further back.

Sectors and groups affected

The parties to an appeal will potentially be affected by the Bill insofar as this affects treatment of appeals (appellants, assessors, Valuation Appeal Committees; Lands Tribunal for Scotland, Lands Valuation Appeal Court potentially). Local responsibility for the day-to-day administration of the NDR system, including the billing and collection of non-domestic rates due, rests with each of Scotland's 32 local authorities.

Benefits

Option 1 – do nothing

Under the Non-Domestic Rates (Scotland) Act 2020, the definition of MCC was amended with effect from 2 April 2020 to exclude changes in general economic circumstances.

In the absence of case law however it is not known to what extent the impact of COVID-19 could still be deemed to be a MCC. While it cannot be assumed that the outcome of these appeals would be successful or fair, a 'successful' appeal would equate to a reduction in RV which may reduce the NDR liability for the ratepayer. This could potentially occur across a wide range of properties and sectors.

Option 2 – lay secondary legislation

This option clarifies the Scottish Government's intention that changes to general economic circumstances should only be taken into consideration at revaluation as supported by the amendment of the definition of MCC on 2 April 2020.

This option reduces the volatility risk to public revenue due to the uncertainty over the outcome of COVID-19 appeals.

Option 3 – introduce primary legislation

Ruling out COVID-19 appeals with effect from 2 April 2020 is consistent with the Scottish Government's change to the definition of MCC under the Non-Domestic Rates (Scotland) Act 2020 and provides clarity to stakeholders. Applying a different period further back than April 2020 is similar but would mean that the policy is not limited in time. Option 3 reduces the volatility risk to public revenue due to the uncertainty over the outcome of COVID-19 appeals.

Costs

Option 1 – do nothing

Appeals are complex and lengthy, and the outcome of any appeal is uncertain. In the absence of case law, it is not known to what extent the impact of COVID-19 could still be deemed to be a MCC and to what extent this could have an impact on the level of RVs and NDR income.

This could put significant pressure on Scottish public revenues. NDR income is pooled at a Scottish Government level and redistributed back to local authorities to help fund local services, including those benefiting non-domestic properties. The Scottish Government guarantees the sum NDR income for each local authority which protects local authorities from volatility in NDR income. While reductions in RV due to appeals are anticipated based on historical precedent in the NDR income forecast COVID-19 was unprecedented and any loss in RV as a result of these appeals being successful is not currently factored into NDR income forecasts. As such, any reduction in NDR income from these COVID-19 appeals could place significant pressure on public finances given the Scottish Government's guarantee to local authorities on NDR income.

Table 1 shows the total rateable value of premises for which an appeal was lodged after the outbreak of the pandemic. In respect of 2019-20 and 2020-21 these appeals represented premises with a total rateable value of £3,929 million which corresponds to an estimated net NDR income of £1,117 million.

Table 1: Number of premises, rateable value and net NDR income under appeal in 2019-20 and 2020-21

	2019-20	2020-21	2019-20 and 2020-21*
Number of NDR Premises on Valuation Roll at April 2021	40,900	37,000	49,400
Total rateable value as at April 2021	£3,492m	£2,902m	£3,929m
Estimated net NDR income 2020-21**	£961m	£926m	£1,117m

* Properties appealed in both years counted as one

** Scottish Government estimates based on an analysis of data provided by the Scottish Assessors Association on appeals lodged since the pandemic in relation to 2019-20 and 2020-21, data relating to NDR reliefs awarded in 2020-21 (the 2020 Billing System) and the valuation roll. It should be noted that 'net NDR income' is net of any NDR reliefs including Retail, Hospitality, Leisure and Aviation Relief.

Table 2 shows the estimated effect of different percentage reductions in total RV under appeal in the dataset provided in Table 1, to illustrate the effect this would have on NDR income. This illustration assumes a single percentage reduction for the aggregate RV under appeal for each percentage scenario and quantifies only the financial year 2020-21. This does not cover previous or subsequent years, nor does it make any projection on further appeal rights and potential successful appeals should a relevant decision be reached in relation to these appeals.

Table 2: Illustrative NDR income reductions in 2020-21 under different percentage reductions in total RV under appeal

Percentage reduction in total RV	Illustrative NDR income reductions in 2020-21 (£ millions)
50%	558
40%	447
30%	335
20%	223
10%	112
5%	56
0%	0

Another cost to consider is the cost of appeals. While at a first-tier level, appeals to the Valuation Appeal Committee are free to lodge and it is not necessary to be professionally represented, there is a fee to lodge an appeal to the Lands Tribunal for Scotland (see Table 3) and most if not all appellants would tend to be professionally represented at this level. If not professionally represented, an appellant would incur costs in respect of time spent preparing for and attending an appeal.

Table 3: Lands Tribunal for Scotland Fees

Rating appeal:	Fee
where the net annual value does not exceed £10,000	£100
where the net annual value exceeds £10,000 but not £50,000	£150
where the net annual value exceeds £50,000 but not £100,000	£300
where the net annual value exceeds £100,000	£500
Appeal on non-referral of valuation appeal or complaint	£78

Appeals also incur administrative costs for Valuation Appeal Committees and assessors in the form of Valuation Appeal Committee expenses, the resourcing of negotiations and hearings as well as referrals to the Lands Tribunal for Scotland and any second-tier appeals to the Lands Valuation Appeal Court.

Costs - Option 2 – lay secondary legislation only

This option creates an inconsistency with a cut-off date of 1 April 2021 applied to the period for which such matters cannot be considered in calculating the RV of properties in the 2017 valuation roll, whereas the definition of MCC was amended on 2 April 2020. This inconsistency would likely add to the complexity of appeals for ratepayers, assessors and rating agents.

While the costs referred to in Option 1 are also relevant under Option 2, this approach could place additional burden on the administration and consideration of appeals. Successful appeals could impact on the level of rateable values across a wide range of properties and sectors ahead of the next revaluation in 2023. This would also have cost implications for Scottish public revenues should any appeals be successful and reduce NDR income.

Costs - Option 3 – introduce primary legislation

Introducing primary legislation with effect from 2 April 2020 will not prevent appeals being submitted or considered but will ensure that in considering NAV/RV of a property, no account can be taken of matters arising from the direct or indirect impact of COVID-19, with effect from 2 April 2020. The costs associated with appeals are explained under Options 1 and 2. It is possible that when such legislation is enacted, the incentive to pursue appeals on the grounds of the impact of coronavirus is likely to be reduced.

For ratepayers there is a lost opportunity cost should, under option 1 or 2, a successful appeal have resulted in revaluation and reduced NDR bills. However, as noted above appeals are complex and it is not possible to speculate the outcome. Any assumptions on potential outcomes of appeals and associated costs would be prejudicial to the independence of those public bodies which are responsible for carrying out valuations (Scottish assessors) and for hearing appeals.

To introduce primary legislation with effect from before 2 April 2020 is similar but would not correspond with the date the Scottish Government amended the definition of MCC to exclude changes in economic circumstances through the Non-Domestic Rates (Scotland) Act 2020.