NON-DOMESTIC RATES: 2001/02 SCOTTISH POUNDAGE CALCULATION

This paper explains how the provisional poundage figure of 47.0 pence for non-domestic rates (NDR) for 2001-02 was calculated.

Background

The aim of the revaluation was that non-domestic rate income raised from businesses in Scotland after the revaluation would remain unchanged in real terms as a result of the revaluation.

Non-domestic rates are levied on the basis of a national rate poundage multiplied by the rateable value of each non-domestic subject on the valuation roll.

The Scottish 2000-01 poundage figure was 45.8 pence ¹ . This was based on an estimated revaluation factor of 12 per cent and an appeals assumption of 3.6 per cent. These are therefore the two main factors to review before calculating the poundage rate for 2001/02.

Revaluation factor for Scotland

The final revaluation factor for Scotland is 15 per cent. This is the average amount that rateable values in Scotland increased as a result of the 2000 revaluation. The revaluation factor is based on pre and post-revaluation rateable values for all non-domestic properties in Scotland. This information was compiled for the Scottish Executive by the Scottish Property Network.

The estimate of the revaluation factor (12 per cent) used in calculating the 2000/01 poundage figure was largely based on a sample survey of around 10 per cent of subjects in Scotland, where the figures supplied by Assessors were mainly estimated 2000 rateable values. A sample survey had to be used, as actual 2000 rateable values were not available at the time when the poundage had to be set.

Calculating the revaluation factor

For the purpose of calculating the revaluation factor, the non-domestic subjects on the revaluation roll can be split into two: locally valued subjects and those within prescribed industries.

• Locally valued subjects. These non-domestic subjects account for over 90 per cent of rateable value on the valuation roll. Assessors within each area have responsibility for valuing these subjects, based on agreed methods for each class of subject.

• Prescribed Industries: These are subjects in industries such as gas, electricity, water, rail and docks and harbours where the rateable values after revaluation are prescribed centrally.

¹ The calculation of the poundage figure for 2000/01 was summarised in the paper "NON-DOMESTIC RATES: 2000-01 SCOTTISH POUNDAGE CALCULATION"

Locally valued subjects

The revaluation factor is based on pre and post-revaluation rateable values for all locally valued non-domestic properties in Scotland. Only subjects where both a pre and post revaluation rateable value is known are included with the analysis.

Prescribed Industries

The rateable value for these industries were presented to Parliament in the necessary Orders earlier this year.

The table below shows the calculation of the revaluation factor of 15 per cent for Scotland. This is based on a revaluation factor of 16 per cent for locally valued subjects and 9 per cent for prescribed industries.

Appeals

Two further pieces of information are now available to help judge the reasonableness of the 3.6 per cent appeals assumption.

• The number and rateable value of the appeals lodged after the 2000 revaluation.

• An indication of loss to the rates base due to the British Telecom outstanding appeal after the 1995 revaluation, which has a ‘knock-on’ effect on the 2000 rateable value. This has yet to be confirmed for Scotland, but assumptions have been made.

The rateable value of all subjects for which an appeal has been lodged is marginally above that after the 1995 revaluation, once the revaluation factor is taken into consideration. This is despite the fact that the number of appeals is about a fifth lower than after the 1995 revaluation. Losses due to appeals following the 1995 revaluation were around 6.5 per cent.

The anticipated loss on appeal after the 2000 revaluation takes into account the reduction in rateable value for British Telecom which would result if the Scottish figure was proportional to that agreed for England and Wales in the recent negotiations between British Telecom and the Valuation Office Agency (VOA). This would result in a loss of around 1 per cent to rateable value in Scotland.

Given these two new pieces of information, the 3.6 per cent appeals losses assumption is now looking unrealistic. A more plausible assumption would be that losses due to appeals would be somewhere in the range 5.5 per cent to 6.5 per cent.

Calculating the poundage figure for 2001/02

A revised appeals assumption of 5.7 per cent has been adopted (towards the lower end of the expected range). With this assumption, and the 15 per cent revaluation factor, the poundage in 2000/01 required to maintain the yield as a result of revaluation, is 45.5 pence. The poundage figure for 2001/02 is calculated by uprating this figure by inflation.

The provisional poundage figure for 2001/02 is 47.0 pence (45.5 pence uprated by inflation of 3.3 per cent).

(1) Calculations are based on unrounded figures

Scottish Executive
December 2000