DD2236 Maximising Business Rates Income in the LB of Redbridge

In 2017-18 the GLA is forecast to receive £21.8 million of income through the business rates retention scheme in respect of non domestic ratepayers in the London Borough of Redbridge. This is in line with the revised 37 per cent share of total business rates income – or 55 per cent of the 67 per cent locally retained share – from 1 April 2017 which accrues to the GLA under the scheme. If there is net growth in the rates base each year in real terms this accrues to the GLA on the same percentage basis. The GLA also receives around £1.2 million in Crossrail BRS revenues annually from the Redbridge Borough.

The London Borough of Redbridge has asked the Greater London to make a contribution towards a project which will seek to maximise business rates income covering the period from 1 April 2017 to 31 March 2019 by identifying additional hereditaments which are either not currently included on the Valuation Office’s rating list or alternatively have an allocated rateable value which is understated.

The GLA’s contribution will be used to finance the rateable value finder project work undertaken with the support of the contractors. The finder’s fee payable to the contractor is again in proportion to the additional rateable value added to the Valuation Office’s rating list which would result in additional business rates being payable on the assessments affected.

The GLA will contribute 55 per cent of the project costs in line with its share of locally retained business rates in respect of expenditure incurred 2017-18 (i.e. 37 per cent out of the 67 per cent locally retained share) and 36 per cent in respect of 2018-19 (36 per cent out of the 100 per cent under the London pilot). The contractor employed by the borough council will receive 7.5 per cent of the rateable value identified and added to the rating list capped at a maximum sum of £90,000 with the maximum the GLA is expected to pay capped at £50,000. It is anticipated that the GLA will pay the bulk of this contribution during 2018 - 19 but the precise timeline is dependent on when the related adjustments are made by the Valuation Office Agency to the non domestic rating list and when the adjustments are backdated to which will affect 2017-18.

The maximum £50,000 GLA contribution would be triggered by amendments to the rating list which would deliver an uplift of at least £1.1 million in rateable value. Allowing for rating reliefs this would deliver up to an estimated £480,000 of ongoing additional income based on the 2017-18 NNDR multiplier of which up to £180,000 would accrue to the GLA in line with its locally retained share. Over five years therefore for a one off £50,000 investment the GLA would potentially secure additional rates income of around £900,000 i.e. a net surplus of around £850,000 or seventeen times the initial investment. If any changes to the rating list are backdated then potentially there could also be an additional one off benefit. In addition as the sum payable by the GLA is conditional on and proportionate to the rateable value added to the rating list there should be no net cost to it should the project not deliver additional rates income.

Overall this is a legitimate request by the Council as billing authorities do not explicitly receive additional funding from central government to fund the costs of business rates maximisation and any investment they make which increases the size of the rating list benefits the GLA financially on a proportionate basis. The funding will not be used to resource the borough council’s normal collection and enforcement work in respect of business rates.

The rates income arising from any additional rateable value added to the rating list would be transferred to the GLA in cash terms through the collection fund surplus or deficit forecast for 2018-19 prepared in January 2019. The aggregate additional rateable value identified and secured will then form part of the baseline rating list in 2019-20 and future years and any benefit will accrue to the GLA in line with its post April 2018 share of growth through the London 100 per cent pilot on an ongoing basis – or whatever percentage share may apply after April 2019 as a result of the move towards 100% local retention of business rates income whether or not the London pool continues.

LB Redbridge has contracted a recognised rating expert to review its rating list in order to identify hereditaments which have been omitted from the local rating list or were incorrectly valued through its tailored software and project management tools.

The Council procured the licence for the interrogation software required which was required to undertake the previous project funded in 2017-18. The project tools within the software bring together a wide range of commercial property data into a flexible and sophisticated case management system and provide key calculation and estimation of potential increases in yield. The project interrogation tool used by the contractor seeks to identify assessments either omitted from the non domestic rating list entirely or undervalued.

Under the terms of the agreement between Redbridge and its contractor the latter would receive 7.5 per cent of the additional rateable value identified as a one off payment after it is confirmed that these assessments/amendments have been adjusted on the Valuation List subject to a maximum cap of £90,000. This maximum £90,000 payment would be triggered by a £1.1 million (or higher) uplift in rateable value based on the 7.5 per cent fee.

In light of the shared benefits Redbridge has requested that the GLA contribute towards the costs in line with the relative locally retained shares of business rates applying in that year i.e. 55 per cent for 2017-18 and 36 per cent for 2018-19. Any contribution payable will vary depending on the additional rateable value identified by the project and added to the rating list by the Valuation Office.

In summary therefore:

• The contractors will identify additional rateable value which could be added to the rating list in Redbridge – for which they would receive a total payment equating to 7.5% of the rateable value identified and secured subject to a maximum payment of £90,000. Of this the GLA would contribute up to £50,000 if the VOA amended the list to reflect these assessments. If the sums added to the rating list were subsequently lower the GLA payment would be reduced accordingly on a pro rata basis;
• Based on the maximum one off £50,000 contribution estimated additional rates income of up to £180,000 per annum in 2017-18 prices is expected to be generated for the GLA based on its 37 per cent share – assuming a minimum increase in rateable value of £1,100,000. Additional backdated sums for prior years may also be payable;
• Potentially additional Crossrail BRS income could also be generated annually of up to £22,000 – if the assessments affected have rateable values above the qualifying threshold of £70,000.

There are no direct equality implications for the GLA as the project will be managed by the London Borough of Redbridge and any staff employed on the project will be recruited by it under its terms and conditions and any contract it enters into will be under the terms of its procurement code. The Council should have regard to appropriate equality considerations in its role as a public authority under relevant legislation.

The project will be self financing with any up front costs being offset by additional non domestic rating income generated – due to the fact that the GLA receives 37% of any rateable value growth but is only required to make a one off contribution to the contractor via LB Redbridge equivalent to 5% of any rateable uplift made to the rating list. If no net additional non domestic rating is generated through additions or uplifts to the local rating list made by the Valuation Office no payment are due from the GLA.

There is a marginal risk that part of the expected uplift may be lost due to potential challenges by ratepayers but it would require 87 per cent of the identified revenue to be lost for the GLA to incur a deficit on the project over two years and 95 per cent over 5 years which is highly unlikely. Overall however these risks are considered marginal compared to the potential gains.

In 2017-18 the GLA is forecast to receive an estimated £21.8 m from the London Borough of Redbridge under the business rates retention scheme and a further £1.2 million through the Crossrail Business Rate Supplement.

The Council collects non domestic rates and Crossrail Business Rate supplement revenues on behalf of the GLA in respect of its relevant share (37% and 100% respectively in 2017-18) but does not receive discrete additional funding to support work which maximises the size of the rating list – and therefore the level of rating income. Its funding – via the respective cost of collection allowances – is purely for its billing and enforcement duties. It is therefore reasonable for the GLA to be asked to contribute towards efforts to maximise the size of the rating list and address undervaluations of particular assessments relative to their correct market rateable value.

The GLA has been asked therefore to contribute towards the costs of the business rates maximisation project which has been incurred in line with its average locally retained share over the period of the project. Its contribution is conditional on the omitted/undervalued hereditaments being amended on the rating list by the Valuation Office Agency.

In Mayoral Decision 1553 the previous Mayor agreed that the GLA should support borough business rates maximisation projects in principle and delegated authority to the Executive Director Resources to approve these on the condition that they should be self financing and result in additional rates income on an ongoing basis. This project meets these criteria and therefore this decision may be approved by the Executive Director Resources under the powers delegated to him.

The London Borough of Redbridge is the billing authority for non-domestic rates in its area under the Local Government Finance Act 1988. It is noted at 1.6 above that billing authorities do not receive discrete funding from government grant to assist in maximising the size of the rating list.

The GLA has an interest in maximising business rates income in each London billing authority as from April 2017 it receives 37 per cent of any additional revenues collected – equating to 55% of the locally retained share. On that basis it is legitimate for GLA resources to be used to support business rates maximisation project in proportion to its local share under rates retention.

Under section 34 of the GLA Act the GLA has the power to do anything calculated to facilitate the exercise of the GLA’s functions. Taking steps to increase revenue is so calculated. This power is subject to the limitation that the GLA may not raise money by virtue of it, except in accordance with relevant legislation; in the present case any money to be raised is to be raised in accordance with the relevant legislation. Reasonable expenditure designed to achieve a better level of business rates income for the GLA, through improvement of the non-domestic rating list of a Borough, is therefore within the power of the GLA.

The formal agreement with LB Redbridge is consistent with the GLA’s standard format which has been approved by the Commercial law team.