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Wi-fi factor raises fears of bumped-up business rates

The government agency that determines business rates has said that it will take wireless broadband networks into account when conducting assessments. The move, by the Valuation Office Agency (VOA), has raised fears among owners of businesses that offer wi-fi access to customers, such as cafés and service stations, that they may have to pay higher rates. The agency said that its valuation officers were working “proactively in approaching wi-fi operators to ensure they have accurate information on all wi-fi sites”. It insisted that there had been no change in its ratings policy, but concerns remain that businesses could be penalised — in the form of higher business rates — for providing a service that the Government has encouraged. Simon Tivey, a business ratings expert at PricewaterhouseCoopers, the accountants, said: “Wi-fi in places like motorway service stations is a provision of a service to the customers and could increase the rateable value of the service station… The VOA is tasked with keeping up with new technologies like wi-fi and deciding if and how it should be rated.”

The VOA has received criticism for failing to keep up to date with technological change. Stephen Alambritis, of the Federation of Small Businesses, said: “It is a crying shame when businesses go out of their way to improve service to customers and to improve access to broadband and then risk getting clobbered with a higher rates bill.”

Road to ruin

We agree entirely with the criticisms. But unless the goalposts have been moved, we do not see how the VOA can get away with this.

Business rates are based on the rental value of a property – the land and the buildings. A service such as a wireless access point is not normally provided by a landlord and forms no part of the structure of a building, nor does the equipment constitute a landlord’s fixture.  It is just a box the size of a paperback book that is plugged into a telephone socket with broadband enabled. The availability of broadband will affect the rental value but not the devices plugged into the system by the customer, which can be picked up and used somewhere else. We hope the VOA will be challenged and forced to back off. But if such installations really can be included in the UBR assessment, it simply provides another example of our general criticism of the present system of assessing business rates – that improvements are penalised and the system is made unnecessarily complex due to the need to value things which should not be included in the tax base at all. Why discourage that which adds to wealth-creating capacity? Is this not the road to ruin?

Landlords’ bonanza

It gets worse. The Government has pledged that rates would not be a big tax earner. The “multiplier” is adjusted so that even where rateable values increase, the level of tax should remain roughly the same each year. The VOA said that 60 per cent of businesses would enjoy a reduction in their rates bill as a result of the revaluation.

This is also no good thing. Business rates tend to be at the expense of rents: if rates are held down, rents go up. This has been known for the best part of 100 years. It was observed when Agricultural Rates were abolished in 1928 and during the 1980s when there were big differences in rates in adjoining local authority areas, and the Enterprise Zone scheme was in operation: although different rates were payable, the total occupation costs were the same for similar properties, making the rates concession a gift to landlords.

There is no reason why the business rate should not raise signficantly higher revenue. “Upwards only” rent revision clauses need to be made illegal. Once that was done, business tenants would be in a position to negotiate rent reductions if market conditions warranted that.

Penalising improvements also needs to end, unless it really is the government’s aim to punish industry, but that is a simple matter of making the assessments on site values only.

Read article in The Times online