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Sunday, 2 August 2009

Ponderings on fibre optic property rates

I have been trawling for yet more information on property rates, as you know, and have come up with these ponderings from an open access, community project, mutually owned, mainly rural, point of view......

There are potentially some mis-assumptions going around about business rates and telecoms. But I could really do with interviewing a certain someone from VOA to get accurate answers to certain questions currently being asked. (Will go camp outside his office if necessary - it's only up t'road!)

FACTS, summarising what I have been reading:

1) The Valuation Office Agency (VOA) is independent to rate collection authorities (I am presuming this means local authorities eg councils)
2) It is an Executive Agency of HMRC and operates in England and Wales
3) The Uniform Business Rate (UBR) for telecoms is set by Government and is reviewed every 5 years (next review 2010 and it is based on valuation AVD Antecedent Valuation Date set in 2008)
4) The Rateable Value (RV) is set by the VO
5) The rate appears to be either paid on Homes Passed (HP) £7.50 (domestic) or on fibre kilometres (businesses) from the fibre rent scale
6) There are considerable variations to take into account when applying the scale eg >3000km, change in network size by more than 10% etc etc)
7) The general rule of thumb is that active network is not rateable and passive network is.
8) 2010 valuations will be available from October 2009
9) There are 4 people on the VOA Telecoms team


*The LGFA 1988 (Local Government Finance Act) should allow councils to offer rate relief (discretionary and mandatory), but because the VO is involved rather than the normal rate collecting authorities, much of LGFA 1988 appears to be irrelevant. Which begs the question why it is the Act that the VO are using to justify property tax on fibre.
*The non-domestic property rate on fibre optic is applied nationally and takes no account whatsoever of rural, charitable status etc, which LGFA 1988 does. Nor does it take into account that by applying taxes at a flat rate nationally, certain areas, communities and citizens are considerably disadvantaged. This is an issue which IS covered and dealt with in the LGFA 1988 where local councils have the discretion to ensure their citizens and businesses are not discriminated against or suffer hardship by applying the ratings in the Act. No such protection is offered for hardship caused by taxing fibre optics.
*The current system for applying property rates to fibre in particular discriminates against rural areas by being payable per km. Obviously rural fibre lengths have to be longer than in an urban environment.
*But, on the other hand, you pass less houses in a rural area than in an urban one....
* Wouldn't it be more logical to stop distance-related tariffs such as this and have an income-based tariff instead to prevent rural discrimination?
*However, if you pay per Rkm (Route km) of fibre lit, you can avoid paying more tax by using less fibre. What this does is actually continue the scarcity out of abundance model, and it actively encourages telcos (or communities) to put less fibre in the ground (or light it) than they should. (Note: we must learn from the NTL problem - fibre should be dug in one time to do the job required, now and in the future). Why pay tax on 12Rkm of fibre (12 x 1km of fibre) instead of just 2Rkm (2 x1km of fibre)? Never mind that this means the fibre in the ground is then limited /scarce..... This in itself has serious implications for the eNdGAme
* Luckily, there are ways to put multiple wavelengths down a single fibre, but how many (rural) community projects will a) know about these technologies and b) be able to afford them?
* When paying property rates on fibre for a community project, and you have home businesses, or SME's within your village, how complicated does the calculation become then?
* Should community networks only have "home connections" (whether it is to a business or not) so they only have to pay £7.50 per connection per year rates? If they were allowed the £6 from every landline they pass, this would mean they only need to pay £1.50...
* An hereditament is by definition anything which can be inherited. So, if I lay fibre, can I leave it to my kids in my will? Because if I can't, then I shouldn't be paying rates on it, n'est-ce pas?
* If a community owns and uses the asset, rather than a telco, then there are no tenants nor landlords of the 'property' and ergo tax is not due. Surely?
* Sewers are exempt, as is agricultural land. So, if I lay fibre across a farmer's land, does that mean that the fibre is exempt from property tax because the land is?
* If I install fibre throughout my home or business premises, including to my shed, rather than ethernet or wireless, do I have to pay tax on it?
* When fibre tax is paid, is it distributed using the Barnett Formula to the council from whom it has been collected as with other business rates (difficult since telecoms ducts, cable etc will cross boundaries but dealt with, apparently, in Regulation 6 of the 1989 Non-domestic Ratings (Miscellaneous Provisions) Regulations) or does it just go to the Treasury? [I think I may have answered my own question here by finding that extra regulation!]
* How much was collected and re-distributed to each council in England and Wales in the lifetime of the previous list which ended in 2005? (There seem to still be some outstanding appeals as only the 2000 list is fully squared up, so how much was re-distributed from the 2000 list too?)
* How much fibre remains dark instead of lit purely because of the non-domestic property rates applied to it? (Any telco care to comment anonymously on this?!)

Just a few things to think about during next week.

Another link with yet more options for solving the NGA fibre optic tax conundrum - article by Geoff McKeown of Fibre Technologies

I understand there is no BSG meeting with VOA after all next week, so await a response about what further action is being taken by BSG. It is to be hoped that the BSG will let ALL members know of any developments in this area, particularly those of us who have been following this issue for a very long time now, and those new to BSG who are becoming ever more interested in the effect that a lack of joined up thinking (as taken in other countries eg Korea, where all property tax on fibre was waived, or Holland / Amsterdam) is having on encouraging FTTH/NGA rollout.

I am still seeking further info on how other countries within the EU have dealt with this problem...anyone got any more links? (Any language can be coped with in our now multi-lingual group!)

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1 comment:

Pauline Rigby said...

Asked my OH to help me with the difficult words here, he's a rural surveyor.

In ratable terms, a hereditament is used to define the extent of a property. The concept does not have a definition, but is inextricably tied with ratable occupation. A property owner can have more than one hereditament. Doesn't sound like it's got much to do with inheritance (that's from wikipaedia), it's more about defining a contiguous unit of property.

Whether the fibre becomes liable for business rates will depend on if it is being used for business purposes. In this, I guess the ratings office would apply similar rules to that used for people that work out of their homes. For instance, I have a room where I do all my work, however the room is not 100% set aside for business, it is also used by the family for computing, therefore I do not pay business rates on the room, but I do pay council tax.

Following the same argument, if you install your own fibre across your farm land, which is used for telephone, broadband, IPTV etc, which is partially for domestic use, then it's not a business ratable asset (?).

However, different rules would probably apply to an ISP, as presumably they would be running a business, even if community owned. And a fibre-optic cable would not become exempt from tax just because the agricultural land/sewer it runs under/through is exempt (OH seemed fairly certain on that).

Then it appears that a cost per home passed would kick in. And I quote: "The VO considers that the level of value for residential NGA connections will be similar to the £7.50 per home passed adopted for cable TV access networks". The actual value of the tax doesn't appear to have been fixed at the present time (I didn't find it in the ratings documents).

I wonder what tax VM pays to connect business properties to its cable network... this might set a precedent for the NGA community/rural network case.