Administration and expenditure of the Chancellor's departments, 2007-08 - Treasury Contents

7  The work of the Valuation Office Agency


118.  The Valuation Office Agency (VOA) is an executive agency of HMRC and was formed in 1991 following the merger of the English, Welsh and Scottish Valuation office organisations. The Agency has 4,096 staff based in 81 offices across England and Wales with an additional 5 offices in Scotland.[143] The VOA is responsible for compiling and maintaining the lists of rateable values for 1.7 million non-domestic properties and of council tax bandings for over 23 million properties in England and Wales.[144]

Financial Performance and Reporting

119.  In 2007-08, the total expenditure of the VOA was £201m, 70% of which was staff-related expenditure. This total expenditure represents a 3% reduction in expenditure in 2007-08. Due to reduced expenditure and a small (1.2%) increase in income, the VOA increased its operating surplus by £3m in 2007-08.

Staff Management

120.  One of the major issues for the VOA in 2007-08 was staff morale. Failure to agree the pay settlement led to a period of industrial action. Staff satisfaction has been further eroded by restructuring discussions and potential office closures.[145] Andrew Hudson, Chief Executive of the Agency, informed us that morale in the department was improving with staff satisfaction increasing from 53% to 59% in June 2008.[146] He further asserted that:

[we] are doing all we can to achieve… [headcount reduction] by natural wastage which we have managed to do in previous restructurings without the need for compulsory redundancies.[147]

121.  Low staff morale is a risk to the quality of service delivery. We note that staff satisfaction in the Valuation Office Agency is worryingly low. We will continue to monitor management's performance in improving staff morale and safeguarding the delivery of services.


122.  During the course of our review of the Administration and Expenditure of the Valuation Office Agency 2007-08 we received a high level of correspondence regarding the revaluation of UK statutory ports.

123.  In 2005 a new rating list for statutory ports, based on a formula calculation, was introduced. In mid-2004, the VOA had commenced a review of arrangements in the Port of Southampton. This concluded that the formula's application to Southampton was not in line with "rating case law and precedent".[148] In the light of this finding, following the introduction of the new 2005 lists, the VOA undertook a review the ratings of all 55 statutory ports in the UK.[149] At the time of our evidence sessions, this review process was complete for all ports except Plymouth, Poole, Ramsgate and Milford Haven.[150] In the course of this review the VOA identified a total of 569 new rateable properties in England and 81 new properties in Wales.[151] Businesses affected have received bills backdated to 2005.

124.  The correspondence we have received suggests that these businesses are under severe financial pressure. Some businesses have already failed and others may join them in the near future. There are three main issues which concern us: the poor quality of communication by the VOA with businesses affected; the relationship between Port Operators and businesses operation within the ports (Port Occupiers); and the justification for backdating these charges.


125.  One theme running through the correspondence we have received has been a perceived lack of communication by the VOA with businesses operating in the Ports.[152] In response to this criticism, Mr Hudson assured us that:

As far as consultation in the past is concerned, as soon as it was clear, once the issues in Southampton had been clarified, that a major piece of work was going to be needed, we wrote to all the statutory port operators in May of 2006 and asked them not only to cooperate with us and let us have the necessary information for the work that needs to be done but also asked them to contact their occupiers because they know who they are dealing with.[153]

126.  It is clear that many Port Operators did not communicate with the Port Occupiers and indeed some Port Operators have alleged to us that they did not even receive the VOA's communications. Indeed Mr Hudson accepted that "in practice some of the people who have written in were not aware that this work was going on"[154] and concluded that:

With the benefit of hindsight we have learned a lesson and please God this does not come up again: if it were to, we would seek to improve our communications with the occupiers as well as the operators. That is certainly a lesson.[155]

127.  We note the Valuation Office Agency's recognition that its communication with businesses affected by the revaluation of statutory ports had been deficient. We hope that the Agency can apply the lesson learnt from this situation to all future revaluations.


128.  Prior to the current changes in the port rating system, the Port Operators were charged business rates. The amount they then charged to Port Occupiers was set at a level which reflected these costs.[156] The division of costs between the Port Operators and the Port Occupiers has been altered by the VOA's recent review and many Port Occupiers have now received their own business rate bills. The overall rateable value of Port Operators properties has fallen[157] but some individual Port Operators have been served with substantially increased bills.[158]

129.  The VOA has appeared keen to distance itself from any involvement in the subsequent negotiations between Port Occupiers and Port Operators. Mr Hudson stated that:

We appreciate that some are arguing that they have effectively paid the equivalent of rates through the arrangements they have had with the operators. That is a matter between them and the operator.[159]

130.  Similarly, the Minister for Local Government accepted:

[a] perceived unfairness, and some have argued this as occupiers of businesses, is they feel they have either paid their business rates or in some senses paid a contribution to their business rates as part of the fee that they pay to the port's operator. Where they see their port operator in-line for a significant rebate because their rateable value has gone down, they are facing a business rates bill on the other hand of their own for the first time.[160]

131.  We note that Port Occupier's are facing bills for backdated business rates which do not take account of payments they have already made to Port Operators towards rates. We recommend that the Government take steps to ensure that the financial liabilities faced by Port Occupiers take such payments into account.


132.  The increased rateable values of ports and their associated charges are being backdated to April 2005, the date on which the latest ratings lists came in to effect.[161]

133.  For some port businesses, the backdated charges come to millions of pounds. For example Freshney Cargo Ltd faces a £2.4m backdated charge against what used to be an annual payment of £48,142 per annum.[162] Numerous businesses have written to us to complain that they cannot afford to pay these charges and will be forced to cease trading.[163]

134.  The Minister for Local Government confirmed to us, there had been "no impact assessment that this Committee would recognise as [being] undertaken when there is a significant change of policy"[164] regarding the changes to port valuations.

135.  The VOA accepts that it should have done more to identify earlier the required increases. David Tretton, Director of Rating at the VOA, accepted that "Perhaps with hindsight we should have done more investigative work".[165]

136.  Port businesses are facing backdated charges because the Valuation Office Agency failed to identify discrepancies in the ratings at the time of the 2005 revaluation. This mistake was compounded by the VOA's failure to communicate changes promptly and effectively with Port businesses.

The Government's solution

137.  In the Pre-Budget Report 2008, the Government announced an extension in the payment period for port businesses:

To reduce the cash flow impact on businesses, given current economic difficulties, the Government will legislate to give businesses more time to pay certain backdated business rates bills issued before 31 March 2010. Businesses facing such bills will be able to pay their liability for previous years in equal interest-free instalments over 8 years, rather than immediately. Beneficiaries will include several occupiers of ports who have been affected by recent rating reviews.[166]

138.  A firm is insolvent if its liabilities are greater then its assets. Where directors continue to trade despite being insolvent they are vulnerable to charges of wrongful trading.[167] A charge of wrongful trading will make directors personally liable for the debts of their companies.[168] We have received clear evidence that firms will be forced to declare themselves insolvent.[169]

139.  The Government's proposal to extend payment terms for port businesses comes too late for those firms which have already ceased to operate in the face of the huge rates bills presented. It is probable that, even with an eight year period to pay, the backdated and prospectively increased rates bills may make many firms technically insolvent. We recommend that, in recognition of the fact that the Valuation Office Agency is to blame for the situation faced by the port firms, the Government takes steps to mitigate further the difficult position faced by port businesses. Consideration should be given to the proposal to maintain the rateable values of premises in statutory docks and harbours at the levels published in the April 2005 rating lists until the new ratings list is published in April 2010.

143   Valuation Office Agency Annual Report and Accounts 2007-08, p 55 Back

144   Ibid, p 4 Back

145   Ibid., p 29 Back

146   Q 112 Back

147   Q 115 Back

148   Q 69 Back

149   Ev 84 Back

150   Q 299 Back

151   Ev 90 Back

152   Ev 88 Back

153   Q 70 Back

154   Q 76 Back

155   Q 85 Back

156   Ev 69 Back

157   Ev 90 Back

158   Ev 71 Back

159   Q 68 Back

160   Q 297 Back

161   Ev 84 Back

162   Ev 70 Back

163   Ev 69  Back

164   Q 348 Back

165   Q 81 Back

166   Pre-Budget Report 2008, p 71, para 41.6 Back

167   Insolvency Act 1986, Section 214, Wrongful trading  Back

168   Insolvency Act 1986, Section 213, Definition of inability to pay debts and Section 214, Wrongful trading Back

169   Ev 97 Back

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