2017 non-domestic rating revaluation consultation on possible transitional arrangements: analysis of responses

4 Length of transitional period and method of funding

4.1 The consultation document discussed different options for how transitional relief might be implemented and funded.

4.2 It noted that the longer the scheme runs, the more gradually the increases in rates can be phased in. However, an extended scheme would also result in other ratepayers having to wait longer before receiving their full savings. If two schemes run consecutively for the entire revaluation period, a small number of ratepayers may never see the full increase or savings that are due to them.

4.3 The consultation document made it clear that transitional relief - unlike other reliefs - is funded entirely by businesses and is not a government subsidy. The consultation set out two options for funding transitional relief. These were:

• Through phasing in reductions in rate bills arising from the revaluation ( i.e. through caps on annual reductions)
• By levying a supplement on ratepayers not receiving transitional relief.

4.4 The consultation gave examples of how both these options might work in practice, and set out the 'pros' and 'cons'.

4.5 Question 2 of the consultation asked respondents for their views on how long any transitional relief should be in place, and Question 3 asked for views about how any transitional relief should be funded.

Question 2: Do you have any views on how long any transitional relief should be in place? [No scheme / 3 years / 4 years / 5 years]

Question 3: Do you have any views on how transitional relief should be funded? [Cap on bill reductions / Supplement on other ratepayers]

Length of transitional relief

4.6 Fifty respondents replied to Question 2, with 46 indicating a preference for one of the options offered (See Table 4.1). Two respondents did not tick any of the options, but offered general comments only. Two others suggested a range of years as a timescale: i.e. 3 to 4 years in one case and, in the other, 3 to 5 years 'depending on the level of rates increase'.

4.7 Table 4.1 shows that 19 respondents (all of whom were opposed to a transitional relief scheme ( i.e. they answered 'no' to Question 1) selected 'No Scheme' in response to Question 2. Altogether, 27 respondents selected one of the other options provided. The table shows that, among this group, views were divided - although a slight majority (16 out of 27) were in favour of a three-year transition period.

Table 4.1: Do you have any views on how long any transitional relief should be in place? (Number of respondents)

	3 years	4 years	5 years	Total	No scheme
Private sector - energy and renewables	5	-	2	7	-
Other private sector	3	-	2	5	8
Local authorities	5	-	-	5	9
NHS	-	1	5	6	-
Other respondents (incl individual respondents)	3	-	1	4	2
Total	16	1	10	27	19

4.8 All of the local authorities supporting a transitional relief scheme, and most of the organisations from the energy and renewables sector were in favour of a 3-year scheme (or shorter). All of the NHS organisations wanted a longer (4- or 5-year) scheme.

Views on the length of transitional relief

4.9 Among those who indicated support for a three-year transition period, 14 offered further comments, giving the following reasons for wanting a relatively short timeframe:

• A short transition period would allow the transition to expire, and for ratepayers to adjust to their revised costs for a few years well in advance of the next revaluation.
• The timescale would be long enough to allow companies to plan for their eventual rate, but short enough to deliver rate reductions swiftly to those who are entitled to them.
• A longer period (of 4 to 5 years) would undermine the purpose of revaluation.
• A shorter transition period would allow for flexibility in revaluation timescales in the future. This comment was made in the context of a call for reducing the period between revaluations. Some respondents specifically stated that the transition period should align with the findings of the Barclay Review regarding (future) revaluation cycles.

4.10 It should be noted that a few of those who selected '3 years' in response to this question explicitly stated that they would prefer a shorter timescale - of 1 to 2 years.

4.11 Among those who indicated support for a 4- or 5-year transition period, four respondents offered further comments to explain their preference:

• Given the likely substantial increase in the rateable value of some businesses, a longer timescale would allow for a period of adjustment, and give protection to customers from increased charges.
• Any transitional scheme in Scotland should have the same duration as the scheme in England ( i.e. 5 years) to maintain Scotland's competitiveness with the rest of the UK.
• Regulatory price reviews for many utilities occur every five years, so a 5-year transitional rates relief scheme would ensure the greatest stability in prices and help maintain investment plans.

4.12 One respondent, who indicated support for a 5-year timescale, made the point that this choice was based on assumptions about rate increases, and once the details had been published, it would be easier to comment on whether a scheme was needed and how long it should run.

4.13 Among those who indicated that they opposed a transitional relief scheme ( i.e. the 19 shown as 'No scheme' in Table 4.1 above), ten (two local authorities and eight private sector respondents) went on to provide further comments. The local authorities expressed the view that if a transitional relief scheme was introduced, it should not extend beyond three years. The private sector respondents stated simply that it 'should be for as short a period as possible'. This latter group expressed concern that any downward phasing could, in effect, result in rates bills continuing to be linked to the 2010 rateable values until 2020 or beyond. In the views of these respondents, this was not acceptable.

4.14 A more general view, expressed by one respondent, was that the scheme should be run over a sufficient period to support those who will have significant increases in their rates, while also allowing those who should be receiving a rate decrease to benefit from this immediately.

Method of funding the scheme

4.15 Respondents were asked for their views about how transitional relief should be funded: through a cap on bill reductions or a supplement on all other ratepayers.

4.16 Forty-one respondents answered this question. Table 4.2 shows that there were mixed views among the 31 respondents who expressed support for one of the two options offered, although a small majority (19 out of 31) favoured a supplement on other ratepayers. Ten respondents explicitly stated that they either did not want a transitional scheme (and so were not in favour of either option), or they suggested that the scheme should be funded differently and they suggested a third option. Nine of the respondents in this latter group were private sector companies who had previously indicated they were not in favour of transitional relief. The remaining (one) respondent in this group argued that the Scottish Government should fund transitional relief as a subsidy on this occasion. This would reduce uncertainty and complexity for ratepayers whose bills would be reducing, and it would contribute to business and economic growth by supporting those ratepayers facing the greatest increases in their rates liabilities.

Table 4.2: Do you have any views on how transitional relief should be funded?

	Cap on bill reductions	Supplement on other ratepayers	Total	Neither
Private sector - energy and renewables	3	4	7	-
Other private sector	-	4	4	9
Local authorities	7	1	8	-
NHS organisations	-	7	7	-
Other respondents (incl individual respondents)	2	3	5	1
Total	12	19	31	10

4.17 Companies in the energy and renewables sector were divided on this question while other private sector respondents preferred a supplement on other ratepayers. Among public sector respondents, local authorities generally favoured a cap on bill reductions, while NHS organisations preferred a supplement on other ratepayers.

4.18 Respondents who advocated a 3-year transitional relief period were equally divided in relation to whether the scheme should be funded by a cap on bill reductions or a supplement on other rate payers. By contrast, those who advocated a five-year scheme largely supported a supplement on other ratepayers as the fairest way to fund the scheme.

Views in support of a cap on bill reductions

4.19 Of those who favoured a cap on bill reductions, very few gave a reason for this preference. Those who did thought that, although a supplement would be easier to administer, a cap on reductions would enable the impact on those ratepayers most disadvantaged through the revaluation to be mitigated by those ratepayers who would be receiving the greatest benefit through revaluation. However, one respondent said that further detail was necessary to be able to respond to this question on an informed basis.

4.20 Another respondent favoured a cap on bill reductions as 'the fairest way to implement transition'. However, this respondent also proposed an alternative to the mechanism discussed in the consultation document as follows: for small businesses (for example, those with a rateable value of less than £20,000), there should be an upwards cap on transition, but no downwards cap. This respondent proposed that the 'relatively minor cost' of such a mechanism should be funded by the Scottish Government as a subsidy as a sign of support for small businesses. For businesses above this size, both the upwards and downwards caps should be cost neutral.

Views in support of a supplement on other ratepayers

4.21 Those who supported a supplement on other ratepayers generally argued that this was a fairer mechanism for funding transitional relief than a cap on bill reductions. Respondents considered that a supplement would enable:

• The cost of funding the scheme to be spread across all ratepayers, rather than only those whose rates bills are reducing.
• Those businesses assessed at a lower valuation to benefit from their lower rates immediately.

Views of those not in support of either option

4.22 As noted in paragraph 4.16 above, 10 respondents who were opposed to transitional relief specifically said that they supported neither a cap on bill reductions nor a supplement on other ratepayers. This group considered that a cap on bill reductions 'penalises those businesses who need assistance most', and that the imposition of a supplement was an 'indiscriminate' additional cost and therefore also unacceptable.

4.23 However, nearly all of the private sector respondents who held these views then went on to state that if transitional relief was nevertheless introduced, a supplement on the rate poundage would be preferable to a cap on bill reductions as it 'would dilute the impact across all properties'.

Other issues raised by respondents

4.24 Occasionally, respondents in favour of transitional relief offered specific comments about the phasing of increases. One suggestion was that phasing arrangements should run for five years and align with those in England.