Involving Local Government In The 2005 Revaluation

Introduction

1. The Government is committed to involving ratepayers in the revaluation process and ensuring, as far as possible, that rating valuations are acceptable to ratepayers from the outset of a rating list. The Government also believes that further consideration should be given to encouraging negotiations between the VOA and individual ratepayers to agree assessments as far as possible before the new lists come into force*.

2. This paper considers how these objectives can be achieved in the local government sector for a 2005 revaluation**. It considers the advantages to both the ratepayer and the Government (including the VOA) from these proposals and the practical considerations.

The Local Government Sector

3. For the purposes of this paper local government covers both single tier authorities (unitary authorities and metropolitan authorities) and two tier authorities (county councils and district councils). These authorities operate some of the most property intensive services including pre-16 education, fire and rescue, libraries and leisure services. At the end of 1999 the capital value of commercial and other buildings (non-residential) in the local government sector was assessed at £77.6 billion so, clearly, local government occupies a significant proportion of the rate base. The rateable value in the main local government sectors in the 2000 rating list is:

4. The actual total of RV in local government occupation is likely to be greater as it will include hereditaments where LA occupation is not separately identified such as museums, cemeteries, crematoria, public conveniences and magistrates courts (which although not in local authority occupation are provided and maintained by the local authority).

The valuation of local government hereditaments: guidance and schemes

5. Any property for which good rental evidence exists will be assessed using that rental evidence. This will be the case for most conventional local government properties such as offices. For other types of property, where rental evidence does not exist then either the contractor's basis or the receipts and expenditure basis of valuation is used. It is too early to say where and when those methods would be adopted for the 2005 revaluation. However, for the 2000 revaluation, local government hereditaments not assessed on the rental basis were mostly assessed on the contractor's basis.

6. The detailed instructions for assessing local government hereditaments are set out in the Rating Manual (in the process of being updated on the VOA web site). The instructions are contained in Volume 5 and the main sections are:

section 600 (general advice)
section 590 (local authority schools)
section 620 (libraries)
section 960 (leisure centres)
section 315 (crematoria)
section 310 (cemeteries)
section 10 (courts)
section 392 (fire stations)
section 625 (public conveniences)
section 715 (museums)
section 595 (Town Halls & Civic Centres) Guidance

7. All but three of these instructions offer general guidance on the sector covering the valuation as well as other matters such as the extent of the hereditament. The scope and detail of the advice varies but the valuer is left to compile a valuation and make the necessary judgements in light of the guidance.

8. These guidance instructions are helpful to the VOA because:

• they provide valuers with a resource to ensure they are considering all relevant factors particular to that type of property,
• they ensure a level of consistency across England and Wales, and
• they provide CEO with a vehicle to introduce variations in the valuation of a sector, for instance arising from a court decision.

9. They are helpful to ratepayers because:

• they inform ratepayers of the broad principles which support the valuations, and
• they introduce a level of certainty over those principles.

10. The guidance does not prescribe the level of value and this is left to be determined by the valuer. As a result, valuations in sectors covered by guidance instructions are considered to be correct on a case by case basis.

Valuation schemes

11. Three of the instructions - section 590 on local authority schools, section 625 on public conveniences and section 960 on leisure centres - contain valuation schemes. The valuation schemes provide a template for the valuation. The schemes are based upon a contractor's basis but impose upon the valuer a number of elements of the valuation. In particular the building cost of the property, obsolescence, the superfluity for schools and the land value are all set (or found by formulas which are set). A similar scheme has very recently been devised for another class, cemeteries. In the case of a fifth class, crematoria, a scheme has been applied based on the receipts & expenditure basis, and is intended to be applied to all crematoria capable of commercially profitable operation.

12. The key advantage to both the VOA and the ratepayers is that these relatively complex sectors can be valued using the schemes with relative ease. The saving in time and effort is therefore considerable. The valuation scheme also provide the ratepayer with exceptional certainty over their rateable values as many of the value significant judgements are made in the valuation schemes and not by the valuer. Judgements on these matters are, effectively, agreed at a national level and removed from the local level.

13. Although valuation schemes provide automatic consistency of assessment, they can in effect be subject to adjustment on appeals arising on individual hereditaments. The consequences of such adjustment will mean some variation, both down and up, in the level of individual assessments. And for this reason the VOA has not applied schemes to other classes. But even this degree of uncertainty can be avoided by prior agreement of the scheme. Schemes have been agreed for University hereditaments for the 1990 and 1995 Rating Lists in both instances very shortly after the Lists came into force, but in both cases after a long period of discussions with the VOA. Consequently in both instances it was possible for the VOA in their compiled Lists to have regard to the representations made prior to Revaluation, thus minimising the post Reval revisions needed to apply the agreed scheme. It is hoped that a similar outcome will have been achieved for the 2000 List for this class of hereditaments.

2005 Revaluation

14. These instructions provide the means by which the Government's objectives can be met for local government rating valuations. Therefore,

• the local government sector should be involved in the preparation of the instructions prior to the 2005 revaluation.

15. This will ensure that, at the very least, local government is involved at the heart of the revaluation process for their properties. However, much more could be achieved. For all revaluations since 1990 the VOA has held central discussions with local government representatives concerning the valuation of their properties. In some cases this has resulted in an agreed scheme whereas in others it has ensured that points of principle have been resolved at a national level. The common feature of these discussions is that they have taken place after the revaluation.

16. Experience shows that the VOA and local government can hold meaningful discussions on valuation at a national level and reach agreements. The key for 2005 is to bring those agreements forward so that they inform the revaluation process rather than alter it. Guidance or valuation schemes agreed prior to the revaluation would allow local government to predict their future rates liability with a new level of certainty and set a leading example to all other ratepayers.

Guidance or scheme?

17. Currently, in the local government sector schools, public conveniences, crematoria, cemeteries and leisure centres are or will be covered by valuation schemes, whether on an agreed basis or not. Consideration should be given as to whether some of the other property types could move from guidance to an agreed valuation scheme.

18. Central to whether a valuation scheme is possible is whether the category of property contains buildings of a fairly consistent nature. Schools are well suited as all schools require a similar type of accommodation and, for instance, single costs can be applied to all primary schools. For this reason, civic and public buildings and museums would probably not lend themselves to a valuation scheme. Museums may take a wide variety of forms ranging from houses to retail or office accommodation and many civic buildings are assessed on rentals where local values are far more significant.

19. This leaves libraries, fire stations, magistrates courts as possible candidates for agreed schemes, in addition to schools, public conveniences, crematoria, cemeteries and leisure centres. Views are invited on whether agreed valuation schemes can be adopted for any of these sectors for 2005. Issues to consider include:

• whether the sector includes such varieties of building qualities without age patterns as to make unit costs impractical,
• whether the valuation draws heavily upon local circumstances, and
• whether the RV at stake is such that a scheme is not worthwhile.

20. In cases where schemes are not considered viable, views are invited on whether general guidance can be agreed for application in the 2005 Revaluation.

Timing of discussions

21. The Government proposes that whilst the valuation date (1 April 2003) and compilation date (1 April 2005) for the 2005 revaluation would remain, the revaluation process should be brought forward to inform both the Government and ratepayers at an earlier stage. The VOA should aim to complete valuation work by the end of May 2004. A provisional multiplier and transition scheme would be announced by 30 June 2004. Draft valuation lists would be published in September 2004.

22. This in turn brings forward the period in which VOA instructions to the network have to be prepared. Bearing in mind the fact that the VOA will be re-valuing all properties by the end of May 2004 and not just local government property, it is likely that instructions will need to be in place by, say, November 2003.

23. Clearly, it is highly unlikely that agreements over valuation guidance or schemes will be possible by November 2003. This is because:

• gathering evidence in only 6 months from the valuation date will be difficult and both parties may be unwilling to commit themselves on evidence at that stage, and
• far more importantly, ratepayers will not know the multiplier or shape of any transition scheme and, therefore, will not know the impact of any decisions on rate bills.

24. Therefore, it is proposed that discussions with the local government sector on the 2005 revaluation take a 2 stage process.

First Stage discussions

25. The first stage discussions should take place between the valuation date (1 April 2003) and the issue of the instructions (November 2003). These should be on a without prejudice basis and should have the following objectives:

• ensuring all relevant evidence is available to the VOA and ensuring that the evidence is correctly analysed,
• ensuring the VOA is aware of and has considered all issues which may affect valuations, and
• ensuring the local government sector is aware of all principles the VOA proposes for local government valuations and has had an opportunity to comment on those principles.

26. These discussions would still meet the Government's objective of involving ratepayers in the revaluation process and ensuring, as far as possible, that rating valuations are acceptable to ratepayers from the outset.

Second Stage discussions

27. Once the proposed multiplier and transition is announced then the discussions can resume. The objectives of these discussions should be:

• to agree all or part of the guidance or valuation schemes in sufficient time to inform valuations in the compiled list.

28. At the very least these discussions would further the Government's objectives of acceptable valuations and, ideally, would make important steps towards prior agreeing assessments before the new list comes into force.

29. Clearly the timetable here is tight and even if agreements are reached it still may not be possible to alter all assessments in time for 1 April 2005. Nevertheless, that should be the aim and, therefore, discussions should conclude by the end of November 2004 (after which point the final multiplier and transition would have been announced).

Form of discussions

30. Most discussions will be class specific and will require separate groups for each. Some issues, such as method of valuation, may be common to all and could merit a general discussion group. However, a formal general group could have an adverse affect on the timetable (as it may delay discussions in the specific groups) so it may be preferable to leave a general group to be arranged if necessary on an ad hoc basis.

Prior agreement of actual assessments

31. With this timetable it may be unreasonable to expect widespread prior agreement of actual valuations on local government properties. Nevertheless, this should not be rejected out of hand. Instructions which contain guidance rather than a valuation scheme may still be agreed or part agreed at a relatively early stage which would allow discussions to take place on individual assessments. Furthermore, many civic and public buildings are assessed on rental comparison and could be agreed locally. As partners in the rating system, the VOA and local government should seek to prior agree assessments wherever possible.

Resources

32. The process outlined above will need to be funded. The gathering and analysis of evidence alone will be time consuming and require specialist advice. The discussions are likely to take place over many hours and require many more hours of preparation.

33. It is understood that, presently, agents and local authority representatives participate in central discussions without payment. This is because it is considered to be part of their more general role in rating and because discussions help to resolve outstanding appeals. However, if they are successful, the discussions for 2005 should either reduce the number of compiled list appeals or, at least, limit the amendments flowing from those appeals. In view of this, and the amount of work required over a short period, the local government is asked to consider whether central discussions should be specifically funded.

34. A precedent already exists for local authorities combining resources on rating. The Lands Tribunal appeal on leisure centres in Sussex is funded by a large group of local authorities. Therefore, local authorities are prepared to make up front contributions to rating work provided they can see the benefits. If the benefits of discussions during and not after the 2005 revaluation can be illustrated to local authorities it should be possible to generate the necessary resources. The views of the local government sector are invited.

35. Funding is the issue which needs to be resolved before all others. On the assumption that gathering the necessary funding support and instructing the representatives would take, say, 12 months, that exercise would have to start in the Spring of 2002 - less than one year from the date of the group's next meeting.

Summary

36. The local government sector is a major ratepayer as well as a partner in the rating system. As such, the VOA should involve local government in the 2005 revaluation by:

• discussing evidence and valuation issues in the form of guidance and valuation scheme during 2003 in the lead up to the revaluation process,
• seeking to agree that guidance and valuation schemes in time to inform the compiled list valuations, and
• as far as possible, prior agreeing actual valuations on local government property.

37. Consideration should be given to how this can be achieved and how these discussions should be funded.

* Modernising Local Government Finance: A Green Paper, Annex G 2000.

** The Local Government Finance Act 1988 requires revaluations every 5 years from 1990. A further amending Act would be required to change the cycle. In the absence of firm legislative proposals it is, therefore, prudent to plan on the basis of a 2005 revaluation.