The biggest single barrier to joined-up investment in low cost, resilient UK broadband is the impact of business rates on new build by other than incumbent operators. It not only deters private sector investment, it blocks the use of joined-up partnerships to pull through community broadband, as in most other parts of the world – from rural America to urban Europe.
The current formulae for calculating business rates are derivations of the internet transfer values used by BT and Mercury (do you remember them?) when fibre was used only for trunking and of the valuations used for Cable TV networks. The actual assessment may not be known until a year or so after the service is operational. Complex assessments are commonly “negotiated” using precedents going back over time, with disputes settled in court (or on the steps of the court) if the agrieved part has the financial backing and patience to survive in a world of Jarndyce versus Jarndyce. Otherwise they give up or go elsewhere.
The situation is complicated with regard to the valuation of communications networks by the need to defend against law suits brought by some of the agrieved. Next week the Broadband Stakeholders Group meets the Valuation Office for discussion and is calling for views by Friday. That call is coming from the same group that is organising the short order launch of the COTS (Commerncial, Operations and Technical Standards) group to look at the Digital Britain recommendations on network interoperibility standards for comunity broadband.
At this point I should say that the basic principles behind business rates are delightfully simple. The complexities arise because hardly anyone has ever given a straight answer to the staff of the Valuation Office so they have to develop their own formulae. And even today no-one is willing to give them data on the current going rate for renting fibre, masts etc. – it is all too “Commercially confidential”. Should a couple of major players be willing to open their books it could well be possible to make genuine progress, very rapidly.
But the real issue is political not technical.
Mrs Thatcher replaced Non-business Rates by the community charge – amid riots and demonstrations, albeit not as severe as those which accompanied previous attempts to “reform” Britain’s oldest tax: remember that Rates are essentially “ship money” – modified and extended over another 300 years
She also transferred Business Rates to Central Government. They have since been tightened up and increased – year on year until they are a major source of revenue – to be preserved despite plumetting commercial property markets by using valuations made at the height of the market.
The column is entitled “When IT meets politics” .
The impact of Business Rates on communications infrastructure is a classic example of where the policies of one part of government not only cancel out those of another but also result in a net cost to the Treasury, alias taxpayer.
VAT, Corporation Tax and Income Tax on the construction and operations revenues and costs are lost alongside the Rates that would have been paid had lack of certainty over the valuation not killed off the investment.
But the adverse impact of business rates on risk investment in plants, facilities and supporting infrastructure goes much wider than broadband roll-out. Hence the limited room for maneouvre of the Valuation Office – unless and until this is part of a wider “reform”.
We therefore need to link action at technical level by BSG with action at the political level.
I look forward to seeing how the Class of 2010, the largest intake of new MPs since 1833, react when they are briefed on how the issues in this space get in the way of bringing broadband to “their” constuencies”.