UK business rates revaluation – What you need to know?

Market-wide economic changes, like the pandemic, have had a big impact on property values. And only now can these impacts be properly factored in at general rates revaluations. Which is why we expect a tsunami of appeals to the latest business rates revaluation, which came into effect on 1st April 2023.

One route of active appeal consideration is to review the values in question, take a step back, and ask whether they are consistent, uniform and fair, in and by comparison. Legal precedent, restated most recently by the UK Supreme Court, re-affirms this foundational bedrock.

Let’s take the question of fairness first. Each time a revaluation takes place, it is based on an estimate of the open market rental value of a property on a single date, which is the same for all properties in England and Wales. This year’s revaluation date, known as the Antecedent Valuation Date (AVD), was 1st April 2021, a moment when the commercial property market – indeed the world - was still reeling from a global pandemic.

Struggling to survive

There was no such thing as business-as-usual. Back then, many businesses had been struggling for survival owing to a third national lockdown. In the months leading up to the AVD, all non-essential retail had been forced to close, as well as hotels, restaurants, gyms, indoor leisure, conference centres, cinemas and much more. Offices and their districts also remained eerily quiet since official advice was to continue to work from home.

Such extraordinary times, in the interests of fairness, must be fully reflected in this year’s rateable values. That was the promise but it is questionable whether they actually are. For example, is a public house with external gardens the same business unit as one that is land locked? Is it appropriate to value property in a silo? Context is always crucial. There are many such examples across the property classes.

Altus always views the fairness of rateable values through the macroeconomic lens but, arguably, there has never been a more crucial time for the lists to be looked at in this way – by ourselves, our clients, and by valuation officers. It is imperative that we question the evidential basis upon which rateable values have been arrived at. Not only was there very limited market activity in comparison with the pre-pandemic norm, but many landlords were struggling to collect rental income (let alone ask for rent increases). The fact that in many instances there is not, in our view, sufficient data and evidence to justify the numbers - makes this year’s lists the most subjective set of rateable values ever compiled.

Building the case is about using the right data. For instance, it is important to understand how individual clients were impacted by a third lockdown (and the two that went before) and, how this influenced their view of the economic position, looking forward on 1st April 2021.

Inconsistencies

Intensifying the problem of subjectivity is that rateable values appear to have been created in an inconsistent way.

The outcomes for major civil airports demonstrate this. Using the same method of valuation and experiencing the same economic conditions, the Manchester Airport has seen its value fall by more than a fifth, whereas both Gatwick and Stanstead Airports have seen sizeable increases.

Another example of the many outcomes of an inconsistent approach means that while 280 of the 346 local authority areas across England and Wales will see their rateable value for the retail sector fall in 2023, 62 council areas will see rises.

Meanwhile, the vast majority of public houses in England will receive a 17.5 percent discount in their valuations for the ‘pandemic effect’. This blanket approach hasn’t been applied to other asset classes – yet another example of potential inconsistencies.

Unprecedented times

We strongly believe that how people were feeling in April 2021 – the so-called Covid anxiety phenomena - is highly relevant to appealing the 2023 values. This resulted in fewer people going into our client’s properties, commercial property use being stymied – and much of this remains as the “new norm”. A client can only afford to pay the rent that the business supports. If the business doesn’t support that rent, the doors will shut.

Two years ago, our clients were coping with the impact of a severe recession. GDP declined by 11 percent in 2020, the steepest drop since consistent records began, according to the UK government, which said itself, in a paper on the economic impact of Covid-19 lockdowns: “The magnitude of the recession caused by the pandemic is unprecedented in modern times.”

Unprecedented. And yet, the 2023 revaluation is projected to bring in £30.3 billion in business rates receipts across the UK during the 2023 and 2024 fiscal year – an increase of £1.8 billion on the previous period notwithstanding the package of support to help ratepayers. That seems, to us, devoid of logic against the backdrop of ongoing geopolitical uncertainty, stagflation, productivity gaps and a cost-of-doing-business crisis.

Revaluations always create winners and losers – to find out how the revaluation affects everything from warehouses to football grounds, read our 2023 report.