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Evaluation of the Impact and Effectiveness of the Small Business Rates Relief Scheme

3 Analysis of Data on Scheme take up

Introduction

3.1 This section of the report presents analysis of data from Valuation Rolls and records of properties receiving SBRR in eleven local authority areas - Aberdeen City, Argyll and Bute, Scottish Borders, Clackmannanshire, East Lothian, Inverclyde, North Ayrshire, Renfrewshire, South Ayrshire, Stirlingshire and West Dunbartonshire. The analysis was confined to those areas where rates relief data was made available.

Take-up of relief

3.2 From Table 3.1, it initially appears that in all of the areas analysed a significant proportion of low rateable value properties are receiving no relief at all under the Scheme. It also appears from the analysis of each of the areas, contained in Appendix C, that many properties are not claiming the full value of the relief to which they are entitled. In each of the areas, 37% or more of properties with a rateable value of less than 3,000 are only receiving 5% relief, when they could potentially claim 50% under the Scheme.

3.3 However, it would be a mistake to look at this data too simplistically. Part of the reason for these results is the presence of properties on the valuation roll that have small rateable values but are part of larger businesses and thus do not qualify for relief at the higher rate. It could also be because some properties are receiving other forms of relief, such as the mandatory 80% charitable relief, rural rate relief or the reduced vacancy rate, and are, as a result, not appearing on the rates relief databases.

3.4 The results also indicate that there may be a number of stand-alone small businesses that are eligible for SBBR that are receiving no or minimal rates relief.

3.5 In an effort to resolve this issue, a more detailed analysis was undertaken for three of the local authority areas. In the case of Argyll and Bute, it was possible to compare the total list of properties with a Rateable Value of under 10,000 with the list of those receiving at least the minimum relief. Through discussion with council officials, it was established that all properties not receiving the minimum relief could be judged as being ineligible, e.g. because they were receiving other forms of relief or were unoccupied. In two other local authorities (Scottish Borders and Aberdeen City), samples were taken from the valuation rolls of properties with a rateable value below 10,000, which were receiving either no relief or receiving a lower rate of relief than that to which they were apparently entitled given the current rateable value. The samples were then sent to the authorities to examine the explanations for the gap in uptake. Table 3.2 summarises their responses.

3.6 There appear to be three main categories that explain the reasons behind the low uptake of SBRRS:

• no application was made;
• the property was not eligible for SBRR or a higher level of SBRR; and
• the property did receive the appropriate level of SBRR, but this had been wrongly recorded by the local authority.

3.7 The implications of this analysis are clear. In the majority of cases businesses were being treated appropriately, i.e. if they were not receiving SBBR at a certain level this was because they were not entitled to it. However, in 25% of the cases analysed (8 out of 32 cases where firms were receiving relief but not at the level they seemed to be entitled to), firms had failed to apply for the higher relief for which they appeared eligible. This suggests that the marketing of the scheme may be failing to make many firms aware of the Scheme or to convince them of the benefits of applying for relief.

3.8 It is clear that uptake of the scheme is not fully comprehensive, given that around a quarter of those firms sampled in table 3.2 have not applied for the full relief for which they are eligible. While we cannot apply these small and not statistically robust sample results to the Scottish business population, they are an indicator that the Scheme may be failing to benefit fully the business population that it was set up to assist. If more detailed research proved this to be the case, then the implications are twofold.

• There is a requirement for more effective marketing and awareness raising for the SBRRS among the small business community.
• If such awareness raising is effective, then the overall cost of the SBRRS will rise.

3.9 It is also a concern that in around another one-quarter of cases, the information is simply wrongly recorded. This does not mean that businesses are not receiving the relief to which they are entitled, but it does have implications for any attempt to analyse existing data. It should also be pointed out that the data from Aberdeen and the Scottish Borders were two of the better data sets that we collected.

Value of relief

3.10 As shown in Table 3.3, across the local authorities, around 60% of the relief goes to properties with rateable values of less than 4,000. The exception is Aberdeen, where there are more larger properties with rateable values up to 10,000 benefiting from the scheme.

3.11 Tables 3.4 and 3.5 provide details on the average values of relief received in the 5% and 10% or more categories across rateable value bands and local authority areas. It can be seen that, in absolute terms, those properties that benefit most from rates relief have rateable values of between 3,000 and 5,000. The difference in the average value of relief between those receiving the minimum relief (around 60-110) and those that apply and receive the higher rates of relief (around 320-540) is also noteworthy.

3.12 There are two major implications from this analysis.

• Of those benefiting from relief of 10% or more, the bulk of the benefit is going to those businesses that have smaller rateable values and we would expect a strong correlation between rateable vale and business size. We see this as a positive outcome in that financial relief is being delivered to those businesses with the greatest need and the relative impact of the support is greater.
• The low average values of rates relief for those on 5% raises serious questions over the efficacy of this element of the Scheme. It is our view that the sums of money are so small that the relief may have a nil, or at best marginal, impact on business. If this element of the Scheme was eliminated, funds could then be redirected to those in smaller rateable value bands. The pros and cons of this option are further discussed in Section 6.

Cost of relief

3.13 Table 3.6 compares the cost of the relief, in terms of the supplement paid by properties with a rateable value in excess of 25,000 compared with the value of relief in each of the local authority areas. The cost of the relief is the theoretical maximum in each area, but some large bodies, such as churches and schools, can obtain relief on the paying of this supplement, therefore the sums of money that local authorities will accrue from these properties are not expected to be as high as indicated.

3.14 The table enables us to compare the value of relief received by business in each area with the amount paid through the supplement by larger businesses. A negative figure indicates that more relief is being paid out than supplement gathered - a net reduction in the area's tax burden. The analysis shows that in most of the local authority areas, the value of the relief received exceeds the supplement paid. The position is reversed in Aberdeen, Renfrewshire and West Dunbartonshire, which suggests that the Scheme is effecting a transfer of resources from urban businesses to businesses in rural areas.

3.15 It is understood that at a national level the value of receipts from the supplement exceeds the value of the relief granted. Though the results presented in table 3.6 for the 11 local authority areas sampled are not consistent with this theory, it is justified by figures provided by the Scottish Executive for 26 of the 32 LAs. These are presented in table 3.7. The comparable data differs slightly between tables 3.6 and 3.7 because they were collected for different timeframes, but the conclusions to be reached from both sets of data are the same.

3.16 Table 3.7 shows SBRRS to be cost neutral, as against a planned annual cost of 5 million. It also generates a modest redistribution of 15 million from urban areas to rural areas each year. In seven of the 26 local authority areas, the value of relief paid out to businesses was exceeded by the income received by the authority from the supplement - Glasgow, Aberdeen, Renfrewshire, West Lothian, Falkirk, North Lanarkshire and West Dunbartonshire - each of which is considered to be predominantly an urban area.

3.17 The areas in which more relief was paid out to local companies than supplement gathered tended to be predominantly rural. In particular, the authorities demonstrating the highest net difference were Highland, Scottish Borders, Argyll & Bute and Angus.

3.18 The net cost/gain from the Scheme will change in 2003/4 due to a reduction in the levy on higher rate properties. This may mean some direct Scottish Executive funding of the Scheme.

3.19 The evidence presented in table 3.2 suggests a potentially significant number of properties within Scotland are not applying for the full rate of relief for which they are eligible. To estimate the potential future cost of the scheme if uptake increased to 100%, we have taken all firms on the valuation rolls with a rateable value of 10,000 or less, then assumed that each would receive the full relief entitled to a property of this size. The results are merely indicative of the potential increase in cost across the 11 local authority areas, given that data was not available on ineligible properties through multiple ownership or other forms of exemption. The theoretical maximum potential cost of the scheme was estimated at around 13 million for the 11 sampled local authorities, some 8 million in excess of the maximum income which could be achieved through payment of the supplement by large properties. However, as we do not know details of all of the properties that are ineligible or exempt, we cannot say with any kind of certainty what is the true potential cost of the Scheme, only that it lies somewhere between the cost now of around 6 million and the theoretical maximum of around 13 million. This could be a matter for future research to ascertain.

Sectoral analysis

3.20 With the exception of Scottish Borders, the sectoral results are based on a sample of cases from which we were able to match properties on the valuation roll with those receiving rates relief. Although we obtained good sample sizes in some areas, such as matching 84% of properties receiving rates relief in Aberdeen with their entries on the valuation roll, we were less successful with others due to the limitations of the data. In Argyll and Bute, for example, we only achieved a sample of 23%.

3.21 Table 3.8 illustrates that around three-quarters of all properties on the valuation roll in each of the local authority areas can broadly be categorised as being in the services sector. Around 10% are in the public sector, with the remainder in manufacturing. However, it appears to be the case that, generally, those properties in the public sector are paying out more in terms of their contribution to relief than is being received in terms of relief. The services sector, particularly retail and leisure, and, in some cases, the manufacturing sector appear to be benefiting more from the value of the relief than their shares of the valuation rolls would suggest. The implication of this finding is that the SBRRS is transferring resources between sectors, in particular it effects a net transfer of receipts from the public sector to the private services sector.

3.22 A full breakdown of the sectoral results by local authority area is provided in Appendix B.

3.23 Based on the samples where relief data was matched to the sector description given on the valuation roll, an average value of relief received by companies in each of the broad sectors in each local authority area was calculated. These averages were then applied to the full sample of companies available on the valuation roll to give the national estimates presented in table 3.9. The cost of the supplement to businesses in the sector is a theoretical maximum, as information on charitable relief etc. was not available (the supplement of 0.6p was applied to all cases with a rateable value of 25k or more). As the results are sample based (and are therefore potentially biased) the figures should not be taken at face value, but do give an indication of the sectoral trends affected by the Scheme.

3.24 Table 3.9 illustrates that the only sector which is a net contributor to the scheme, in which the supplement paid by the sector exceeds the relief received, was the public sector, including education and heath. The main beneficiaries from the scheme were the retail and leisure businesses. This partly reflects the size of buildings used in the public sector, as the effects of charitable relief have not been accounted for.

3.25 However, it is important to emphasise that these results are based on a sample of records from only a proportion of Scottish local authorities and will probably not be representative of the picture for the whole of Scotland given that most of the authorities for which we obtained data are rurally based and in which the retail sector, in particular, will be on a smaller scale than it is in urban areas. Nevertheless, it does provide some indications of a redistribution from the public to the private sector, on which further research could possibly elaborate.

Conclusions

3.26 The analysis of the data from the valuation rolls and on take up leads to some important conclusions. The key findings from the analysis are as follows.

• The rates of relief that businesses receive is largely being applied appropriately, but there do appear to be cases in which businesses are not receiving the relief rates to which they are entitled.
• Take up of the higher rates of relief is short of 100% though it is not possible to calculate the precise take up rate.
• With the bulk of the funding going to the smallest properties, the relief is being targeted at helping those companies that may have most to gain from the relief.
• The value of the 5% relief to individual businesses ranges from 30 per annum to 200 while the higher rate relief produces savings of 300 per annum to 650.
• The effect of the Scheme is to transfer resources from urban to rural areas and from public sector organisations to the private (especially retail) sector.
• The Scheme is cost neutral, but is redistributing around 15 million each year. However, it seems to be of most benefit to those companies that are receiving relief at least at the 10% level. It seems to have a very minimal benefit for those companies receiving 5% rates relief.

3.27 There are a number of areas in which subsequent research could be undertaken to follow on from this study.

• The actual extent to which companies are not applying for the rates relief that they should be obtaining throughout Scotland and the reasons for this. This may involve primary research into a sample of companies or undertaking a much wider exercise than undertaken here and requesting details from a cross-section of local authorities as to why properties are not receiving rates relief and/or are not receiving the level of relief to which they seem to be entitled.
• The potential cost of the Scheme if all properties entitled to receive rates relief receive it at the level to which they are entitled. This would be difficult with existing data sources from the valuation rolls and rates relief databases, which do not always highlight which properties are vacant, already receiving partial relief, etc. Greater standardisation of these data sets may be required before this level of analysis can be conducted.
• The actual redistributive effects of the Scheme from the public sector to the private sector across Scotland. This could be ascertained from primary research into a sample of companies or by obtaining more local authority data across Scotland, especially from urban areas.

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