Fibre business rates relief moves closer
Full fibre is the future and as Matt Hancock MP has stated is a central part of the full spectrum approach Government is attempting with regards to broadband and mobile.
The evening of Tuesday 5th September saw the House of Commons debate Relief from Non Domestic Rates on Telcommuncations Infrastructure, or as most of us refer to it, business rates relief on new fibre deployments. The 5 year holiday was proposed in the budget in 2016 but a snap General Election delayed implementation hence why the talk now is of back dating the relief to April 2017 once the Bill is live.
The Government are committed to supporting full-fibre telecommunication infrastructure and the roll-out of 5G. This will deliver a step change in the speed, service quality and reliability of broadband and mobile services. Independent research suggests that increased broadband speed alone could add £17 billion to UK output by 2024, so this is a vital measure for the whole economy. The Bill will provide the powers we need to implement an important part of that strategy.
At the 2016 autumn statement, the Government announced 100% rate relief for new full-fibre infrastructure in England. The clauses in the Bill will allow us to deliver that relief with retrospective effect to 1 April 2017. We have already published draft regulations that illustrate how we will use these powers to implement the relief. The draft regulations have been prepared in consultation with telecoms experts in the Government, Ofcom and telecoms providers. Business rates and telecoms are technical fields so there is considerable scope for complexity where they meet. However, I am glad to say that through our work with the sector, we believe that we have found a clear approach to allow the valuation officer to identify, capture and quantify new fibre.The Parliamentary Under-Secretary of State for Communities and Local Government (Mr Marcus Jones)
Ed Vaizey MP for Wantage raised a concern that firms might game the new system and turn off existing lit fibre and light dark fibre and call this new fibre and thus gain tax relief, but the debate confirmed that the relief will only apply to newly laid fibre, so simply moving the optics between different fibre strands on the core networks is not going to reduce core network operators bills. The cost of overlaying new physical fibre is probably too expensive to game the system by adding more fibre to existing ducts and switching off existing, but in areas where expansion is happening this could make economic sense. So how operators actually play the system will be interesting and also one that is very difficult to police.
A reminder was raised in the debate that for new developments starting in January 2017 there is a requirement for developments with 30 or more dwellings to provide superfast broadband, which fits in nicely with the offer from Openreach to deliver full fibre to developments of that size or larger, of course a developer is free to choose who ever they wish, so operators like IFNL and Virgin Media also pop up when we updating our coverage figures. For smaller developments the lesser requirement is for broadband, which of course means plenty will just stick with existing ADSL2+ speeds. A great deal of the current complaints about new developments arise from estates started some years ago and developers often start small with progressive phases over the years, so what was a 20 home estate in 2012 by 2017 might be a 200 home estate.
Importantly the bill will allow the Chancellor to review the policy in 2022 and if its considered a success to review and potentially extend it, given that the time to recover money invested in the deployment of full fibre networks is often discussed in terms of 10 to 15 year periods, signals that the policy will be extended would be ideally made earlier rather than later i.e. if firms are making good use of the policy to encourage even more use, some of the revenue lost due to the rates relief might even be recovered by VAT on what is sold to consumers since if superfast services sell in the £25 to £40 region and full fibre can command another £5 to £15 premium once providers are delivering a few million full fibre premises the incremental revenue increase from VAT needs to be considered.
So while largely a gift to Virgin Media and Openreach who already have full fibre expansion plans to cover a few million premises the relief will be available to other operators and its for them to exploit it.