Business internet ofcom Regs

Business Rates

In the Autumn Statement, Chancellor George Osborne gave small businesses an early Christmas present with some relief on business rates. Welcome news, I am sure, for all of our high streets and favourite independent hostelries.

However, when you start to look into the rates regime in telecommunications, things starts to get a little more confusing. Yes, they are due on our data centres and our offices and whatnot, just as we would expect them to be if we were a bank, a pub or a newsagents. But they are also due on fibre and ductwork. Worse still, one council or unitary authority (specifically one in England & Wales and one in Scotland) is often the beneficiary of the whole liability regardless of its potentially national coverage, which defies logic, but that’s a story for another time.

I have a problem with how fibre and duct can be rateable in the first place. Keeping the receipts and expenditure method of valuation (otherwise known as the “profits basis” out of it for a minute), to my simple mind, a factory has a rates liability – i.e. the bricks and mortar, but the machines inside don’t attract it. After all, tax is levied on their product (value-added tax, for example, or other duties in the case of alcohol) and the company producing them is also levied taxes on their profits (corporation tax, or income tax for a sole trader). It would seem somewhat akin to “two bites of the cherry” to tax the machines…… of course that argument could apply to the building itself as well, though I would suggest that as business rates are meant to pay for local services, a building is a fairer demarcation than counting widget machines for example; one could say fairer than some duct in a field.

Anyway, that can all be debated ad nauseum. What I want to get across here today is that when we talk about incentives to develop telecommunications, say 3G coverage to address those so-called “not spots”, or dealing with the issue of slow speeds in rural broadband, one of the critical factors facing a telco in deciding whether or not to build masts, unbundle exchanges (those taking BT Openreach Access Locate space have to pay a room licence fee, which is code for “their share of the rates bill”) or dig up fields to lay fibre out to a rural community with dial-up speeds on their ADSL is how much that activity will increase their rates liability. Seeing as fibre in rated on a sliding scale per pair per kilometer (contiguous in your network) basis, and given the distances that can be involved, it can soon add up.

We have high profile government initiatives such as BDUK, to deliver rural broadband, but I wonder…… instead of spending to “stimulate commercial investment” for telecos to expand into these areas, how much could be achieved through some simple manipulation of basic levers such as business rates? After all, if it were profitable for a telco to expand into such an area (be it a 3G mast or high speed broadband), an economically rational profit maximising entity would’ve done so already. One can only assume the investment appraisal delivered a negative net present value…. perhaps, just perhaps, it may have swung the other way if the rates regime in telecommunications was different.

As ever, very interested in all of your views.