Three reasons why livestock auction marts can't sustain disproportionate business rate hikes

20th February 2017

Increased turnover does not always mean increased margins, warns LAA

Repercussions will be felt far beyond the auction ring unless affordability and running costs are considered when business rates are calculated, warns the Livestock Auctioneers Association (LAA).

Ahead of a meeting with the Valuations Office Agency (VOA) later this month, the LAA will be addressing the concerns of the industry with livestock auction marts facing an average increase of 86 percent in rateable values.

Widespread concerns have been aired across business and industry since the announcement of the rate hikes affecting some 500,000 businesses nationally. But the livestock industry is set to face a triple-whammy that many feel will deliver a severe blow to the rural economy.

The valuation for rating of a livestock auction market is based on its turnover, and there is no argument that most marts have shown significant rises in turnover during the period eight years since the last revaluation, according to professional surveyor and auctioneer John Hall, senior partner at Howkins & Harrison LLP, Rugby, Warwickshire.

“With stock values rising and favourable changes to the value of the pound, turnover has increased, but equally costs have risen and therefore there has been little or no change to margins,” explains Mr Hall, also the council member for rent and rates at the LAA.

“Costs have seriously increased. Additional biosecurity measures, electronic identification of sheep (with cattle soon to follow), the extra people and equipment involved to manage these changes, it all adds up. Some have had to redesign their market pennage and lairage, big rises in water costs and effluent charges are major overheads for all markets, rises that can’t be controlled.”

In an industry where profits are marginal at best, with many livestock auction markets effectively running as not-for-profit organisations to serve the local community, these rate hikes are unjustifiable.

Chris Dodds, LAA executive secretary explains, “Many of our members are telling us that they will either need to change something drastically to make their business viable, or cease trading.

“Some of our larger markets are facing rises of 200 or even 300 percent and this threatens the sustainability of the industry. Markets are the heart of the rural economy, and have an important social responsibility beyond the auction ring.”

Mr Hall adds, “Nobody appears to be considering the affordability of these rate rises. Undoubtedly some markets will close and the important service they provide, not only to farm businesses but also to communities and jobs, will be lost.”

There is also little doubt that these cost increases will filter down the supply chain and ultimately hit the farmer. Some 20 percent of an auctioneers’ commission already goes straight out on business rates, and this figure is only likely to increase, much to the chagrin of the farmer.

Mr Hall also believes two other factors will also seriously compromise the competitiveness of the industry.

Traditionally there has been a transitional scheme to help absorb rate hikes, and this has been balanced by a similar transition period for those who have benefitted from a decrease in rates. Previous revaluations gave a buffer of a maximum rise of 12.5% but this time it will go up to 42%.

There have also been considerable changes to the appeals process, which is now longer, more complicated and expensive to negotiate. A business still has the right to appeal, and if the initial appeal is not accepted it can go to a rating tribunal. However, even if successful the business may still have to pay.

“A major concern across industry is the government’s announcement that it will not change a listing, even if an appeal has been won at the rating tribunal, if the new rate level is within 15 percent of the original figure,” explains Mr Hall.

“That means, in theory, that a business could query a valuation of £200,000, have their appeal accepted, and see the valuation reduced to £185,000, but with the 15 percent rule, the government would not change the listing and the business would still have to pay the original figure of £200,000.

“These may be extreme figures, but the principle is clear and it is simply not fair,” says Mr Hall.

Chris Dodds agrees, “The LAA position is clear and we appreciate as an industry we must make our fair contribution to finance local authorities and services. We also appreciate that the 2010 valuation took into account the foot and mouth and blue tongue disease outbreaks.

“But it does mean that it is now eight years since the last valuation. We always anticipated a rise, but these increases are beyond anything that may have been predicted.”

The LAA will meet with the VOA’s head of livestock markets at the end of February to argue the case on behalf of its members across England and Wales.

Chris Dodds, LAA executive secretary
Chris Dodds, LAA executive secretary