I’ve already written about the impact the clarification by the VOA has on technical decisions and network architecture, but there is a wider impact and one which suggests the civil servants at the VOA haven’t really understood the new Government’s Big Society agenda.
By way of an example I’ve attempted to work through a typical rural project and see what the impact the VOA rules will have.
In this hypothetical community lives around 2,500 people in 1,000 homes with 20 shops and businesses along the main street, mostly cafés and family businesses.
Lets say that an NGA project for the area has a single point of presence, and for simplicity that all the shops on the main street average 1km from the PoP and that each take a broadband service over a single fibre. This project is then connected to a neighbouring scheme 25km away using a direct fibre connection the scheme owns. So in total they have 45km (20 x 1km businesses plus 25km backhaul) of rateable fibre and 1,000 domestic customers.
All the tables of what rate what length and capacity are taxed at is here but this is a quick summary for this village:
- The domestic access network element is rated at £20 per home connected, so we have an immediate £20,000 to consider.
- Then we have 20km of business access with a single fibre lit, so this adds £6,600
- And the 25km of backhaul adds a further £16,750 because they lit 4 fibres
A total rateable value of £43,350, which is rounded down to probably £43,250 and a multiplier is applied to calculate the payable rates. I understand the current multiplier is 0.417, so the rates payable by this community is £18,035.25 – or almost £18 per customer per year.
To add further complexity to this, I’ve assumed this project was an isolated community wanting to help themselves but if they had accepted an offer from a much bigger commercial company who had more than 1,000km of fibre, they might find the rates bill drop to a little over £13 per subscriber because scale, for the Valuations Office, matters.
There are any number of lessons to be learnt from this. Firstly that the additional rates for migrating a corner café shop from first generation broadband to a fibre-based connection costs as much as they may be currently paying for their broadband connection which seems to counter the ambition of the Government to unlock the potential of small businesses.
But equally curious is the disadvantage a self-help Big Society community is being asked to endure over a larger corporation through the business rates system. In my hypothetical village, a Big Society community would be asked to pay almost 40% more in business rates than Major Plc (setting aside the special treatment of BT which further exacerbates the problem).
It seems the VOA have created a very unique landscape for the UK to overcome. The UK has neither the appetite nor the money to fund a Da Wo top-down national fibre network, but the VOA rules means we also have a tax system which penalises grass-roots developments as well.
So who is encouraged to build if macro and micro approaches are being discouraged?
A model being championed by Rory Stewart MP for his Cumbrian constituency, part of which falls within the Big Society pilot area, is the idea of a village pump for broadband – a high-speed backhaul connection delivered to the heart of the community. If this is delivered by an large organisation then they may also benefit from lower business rates than the community itself would.
This then leaves the community to pick up the rates on the access network element for which there is less discrimination. As I coved in a previous article, if the community opt for a PON network rather than point-to-point then they can argue that the businesses can’t be isolated from the domestic customers, which limits their rates liability to “just” £20 per subscriber, business of domestic.
This seems such a complex, arbitrary model which serves to further contort the market rather than open and improve it. Somehow I don’t believe that Rory’s Village Pump concept was at the heart of the civil servant’s thinking when they “clarified” the rating system – its one of the many unforeseen outcomes.
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