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Rateable value changes indicate that VOA favours a copper based future
Saturday 01 October 2016 12:39:01 by Andrew Ferguson

The Valuation Office Agency (VOA) may have missed the steady shift underway from a superfast roll-out to ultrafast rollouts in its review of the rateable values for internet business and particularly the increasing amount of fibre being rolled out.

The VOA has carried out a review of the rateable rates across the business world and it is possible for businesses to review their respective changes online, the effect for the BT Group is that the valuation has increased massively from £165m to £743m, the actual amount that will be paid is not known, but given the four-fold increase a substantial rise in what is paid can be expected. Now some might applaud taking money from BT in an environment where some say it has been making excessive profits and not investing enough in a pure fibre network, but if the group had invested more in FTTH/FTTP the valuation would probably be even higher.

So on one hand we have lobbying for an independent Openreach PLC free to invest in a more fibre rich UK with low wholesale pricing and on the other the VOA attempting to maximise tax revenues when the public purse is under great strain. Traditionally one of the big reasons cash strapped local authorities and the Government have invested in the various BDUK initiatives has been that driving interaction with Government services online saves money in addition to stimulating the digital economy.

"ISPA is extremely disappointed that the Valuation Office Agency has decided to significantly increase rateable values hitting companies that delivering superfast broadband hard. The Government rightly wants the UK to continually improve its digital infrastructure and our members are investing heavily in their networks. Significantly raising rates in this way is only going to put up barriers to investment and make bills more expensive to consumers and businesses.

Brexit means the UK needs to show it is open for business, for Government to meet this challenge it needs to create a better environment for investment based on certainty and stability.

Statement from ISPA Chair James Blessing

"At a time when both the Government and Ofcom are seeking a strategic shift to more investment in fibre optic broadband infrastructure, the VOA and DCLG must establish a business rating policy that encourages this aim.

Form today's announcement it is very clear the current system is broken. This issue does not effect just BT and Virgin, but all builders of communications infrastructure.

Current VOA policy taxes the fibre connections of smaller operators at a considerably greater rate than BT and Virgin. This is a massive institutionalised distortion of competition, out of step with other Government policy and a barrier to investment in the UK's broadband infrastructure. Major reform to the business rating of broadband infrastructure is essential, and it must come quickly."

Mark Collins, co-founder and Director of Strategy & Public Affairs of CityFibre and Chair of INCA's Policy & Regulatory Group

With Virgin Media in the middle of its Project Lightning roll-out and while its roll-out is progressing it has in the past made it clear that the UK environment needs to remain attractive for the roll-out to meet its previously announced targets and thus any major increases in the tax burden as BT is hinting too will either result in scaled back roll-outs or increases in cost to the businesses and homes consuming the various services. As things stand currently BT pays around 40% of its rateable value in actual tax, so if the rate multiplier remains this would be an increase of £231m, or put another way £8 per premise in the UK and while Ofcom regulates many Openreach and other BT Group prices it seems reasonable to expect an around 50p per month increase if it does filter down.

The most important point may not be the size of any potential to every broadband user, but the signals it sends to BT and any other operator looking to implement a FTTH/FTTP network of any significant size, i.e. sticking with copper is favoured by the UK tax regime.


Posted by TheEulerID 23 days ago
There is an interesting point about the nature of business rates here. Rates are historically based on the rentable value of buildings and physical infrastructure, not on the economic activity or the plant within those buildings.
I would argue that the rateable bit should be on the rentable value of the passive infrastructure like ducts, poles, cabinet chassis, footboxes and so on and not the plant within them (fibre, electronics, copper wire).
Posted by gah789 22 days ago
This is not deliberate policy. It is a side-effect of long-established, though disputed, principles of valuation. There are detailed regulations on what is and is not rateable - see the Plant and Machinery regulations. I am pretty sure BT has been caught by specific feature of what is known as R&E valuation which means that the assumed rate of return on equipment (tenant's assets) has fallen sharply. In the past the method has worked in their favour - see complaints by Vtesse & others - and they are bound to appeal.
Posted by gah789 22 days ago
It would be better to make an effort to understand the basis of business rates before making sweeping assertions of the kind in the article. There is too much self-interested posturing in company comments.

City Fibre is in the same position as Vtesse was - its assets are valued using the market rents paid for dark fibre rather than on the revenues derived from all of its assets. Implicitly there is assumption that fibre in city centres generates more income per km than fibre connecting towns and cities. This is not obviously wrong.
Posted by lincsat 22 days ago
If the infrastructure was all state owned (as Corbyn may like) would it be exempt from Council tax? If so, are the VOA trying to tell us something :)
Posted by TheEulerID 21 days ago
Having read the regulations (really guidelines on principles), it seems my belief that plant wasn't rateable is a misunderstanding. It's all heavily qualified and that "plant" can be considered part of the rateable asset if it's considered to permanently increase the value to the business owners. Presumably that catches fibre & copper cable. But there are lots of grey areas, not only as to their inclusion but on how they are valued.
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