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Technical Note: Non-Domestic Rates, 2005-06 Poundage Calculation

DescriptionNote explaining how 2005-06 poundage rate was calculated
ISBN
Official Print Publication Date
Website Publication DateDecember 24, 2004

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    TECHNICAL NOTE: NON-DOMESTIC RATES, 2005-06 POUNDAGE CALCULATION

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    Purpose

    1. This technical note explains how the Scottish Executive calculated the non-domestic poundage rate that will apply throughout Scotland for 2005-06.
    2. The Scottish Executive has set the key aims of the Revaluation as stability, certainty for business and continued harmonisation of valuation treatment and practice north and south of the border. The non-domestic rate income that will be raised from businesses in Scotland after the revaluation will, after accounting for future appeals losses, be lower in real terms.
    3. Background

    4. Non-domestic rates are levied on the basis of a national rate poundage multiplied by the rateable value of each non-domestic subject on the valuation roll.
    5. The principal purpose of a revaluation is to ensure that the distribution of the rates burden between ratepayers remains equitable. The 2005 Revaluation will raise the rateable value of some subjects since the last revaluation (2000) while others will decrease. The overall result however will be an increase in the total rateable value for Scotland to reflect the changes in economic conditions. Because the total rateable value of subjects in Scotland will increase, and the bill is based on rateable value multiplied by the poundage figure, the poundage will need to decrease accordingly.
    6. The Minister for Finance and Public Service Reform made a Statement to the Scottish Parliament on 8 December announcing the 2005-06 poundage rate in Scotland would be set at 46.1 pence. This assumes a growth in income (after allowing for appeals losses) of 2.0%. This is considerably lower than the September RPI inflation figure of 3.1% which has been used to index the growth in the English non-domestic rate income.
    7. This paper describes how the poundage figure was calculated for Scotland, taking account of a below-inflation increase in income and of future appeals losses following the revaluation.
    8. Revaluation Factor

    9. The revaluation factor for Scotland is 13.3 per cent. This is the average amount that rateable values in Scotland will increase by as a result of the 2005 revaluation, and is based upon the provisional 2005 Valuation Rolls supplied by the Scottish Assessors in October 2004.
    10. Appeals Losses

    11. The aim of the poundage calculation is that the tax income should increase by only 2.0% (a below real-terms increase) as a result of the revaluation. On past experience, following a revaluation significant numbers of subjects appeal their value. Consequently in the years following a revaluation there is some reduction in the rates base from successful appeals. To meet the stated aim the poundage rate must be set to raise the appropriate level of income after appeals have worked their way through the system. Following the 2000 Revaluation when the increase in rateable values was 15% the cumulative loss to the rates base from successful appeals has been 4.6%.
    12. With a revaluation factor of 13.3% at the 2005 revaluation, we might expect the loss through appeals to be slightly lower. However, given that the currently prescribed industries will be returned to conventional valuation with effect from 1 April 2005, this may lead to an increase in appeals activity for these subjects, and upward pressure on the appeals loss assumption. For the 2005-06 poundage calculation, therefore, the assumption has been made that 4.6% of rateable value will be lost through appeals.
    13. Calculating the 2005-06 non-domestic poundage for Scotland

      2004-05

      Rateable Value

      4,444m

      Poundage

      48.8p

      Gross rate income (before any reliefs)

      4,444m x 48.8p = 2,169m

      RPI Inflation at September 2004

      3.1%

      Inflation factor to be used

      2.0%

      Gross rate income required for 2005-06

      2,169 x 102% = 2,212m

      2005-06

      Rateable Value (4,444 after revaluation factor of 13.3 %)

      5,035m

      Rateable Value adjusted for appeals losses of 4.6%

      4,803m

      Poundage

      2,212m / 4,803m = 46.1p

    14. The effect of this calculation of the 2005-06 poundage rate is that for a subject whose rateable value increases by the Scottish average uplift immediately following the revaluation and whose rateable value subsequently reduces by the average reduction following a successful appeal, the rates bill will increase by 2.1% between 2004-05 and 2005-06. The reason for the difference between the 2.0% inflation factor used in the calculation and the 2.1% outturn figure is the requirement to round the poundage rate to the nearest 0.1p.
    15. If you have any queries regarding this note then please contact Dr David Signorini, Statistical Support for Local Government on 0131-244-7033 or by email to david.signorini@scotland.gsi.gov.uk.

    Statistical Support for Local Government
    Scottish Executive
    December 2004