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UK Fibre Optic Tax – BT and Virgin Media Fear £1.3bn Business Rates Hike

Saturday, February 18th, 2017 (8:09 am) - Score 6,136

The Valuation Office Agency‘s imminent “revaluation” of business rates (due to take effect from the 1st April 2017) could do more harm than good to the roll-out of fibre optic broadband, not least by hitting BT and Virgin Media with a £1.3bn tax hike on existing infrastructure over the next 4-5 years.

According to The Times (Paywall), the extra cost effectively represents a lost investment that the operators’ suggest could be enough to “upgrade more than two million homes to superfast internet.” We suspect the use of the word “superfast” (usually meaning speeds of 24 or 30Mbps+) is the newspaper’s own interpretation and so should be taken with a pinch of salt. Otherwise the claimed two million figure is not clearly defined.

The tax hike will also hit other fibre optic operators’ too, such as Cityfibre, which has already called the VOA’s current system “broken.” A spokesperson told ISPreview.co.uk last year, “Current VOA policy taxes the fibre connections of smaller operators at a considerably greater rate than BT and Virgin. This is a massive institutionalised distortion of competition, out of step with other Government policy and a barrier to investment in the UK’s broadband infrastructure.”

Meanwhile Virgin Media has previously expressed to us that the change amounts to a “quadrupling of our rateable value“.

Richard Hooper, Chair of the Broadband Stakeholder Group, told ISPreview.co.uk last year:

“The Government and industry are clear that we want to continue to invest to support the world-class connectivity that our economy needs to succeed. This huge increase in business rates on broadband networks by the VOA goes against that objective and introduces instability and risk at a time that we need it least.

The Government needs to consider how to mitigate this impact and work to ensure that the whole of the public sector is working to encourage rather than deter investment.”

On the other hand the Government has already proposed some positive changes, such as the plan to introduce a 5 year relief from business rates on new fibre optic / broadband infrastructure and this will run from 1st April 2017 (details). However they suggest that this will only produce “a saving of £60 million“, which is but a drop in the ocean of what their hike will do to existing infrastructure.

The rate hike also eclipses the Government’s recent investment of £400m into a new Digital Infrastructure Investment Fund (DIIF) that is designed to support alternative broadband ISPs (here), which once matched with private investment could be worth up to £1.5bn and aims to help an extra 2 million premises gain access to ultrafast style broadband (FTTP/H) connectivity (i.e. same sort of figure as the opening claim from BT and Virgin Media).

Even the Government’s former Digital Minister, Ed Vaizey MP, has said that the rates hike “goes in completely the opposite direction” from what he had planned in terms of a “business rate exemption for a period for new-build broadband.” Instead the new Chancellor, Philip Hammond MP, seems set to give with a pinch from one hand and take away with a shovel from the other.

However it’s worth pointing out that the revaluation effort impacts all businesses in England and Wales, at least those that pay business rates. The Government claims that this process is “revenue neutral,” which means that some businesses will see their rates going down, while others should see the bill go up and the end result will not return extra revenue to HM Treasury.

Sajid Javid MP, Communities Secretary, said:

“Our regions have huge economic potential, and can be a catalyst to driving economic growth across the country.

The revaluation of business rates will help make sure bills are accurate, with nearly three-quarters of businesses seeing a fall, or no change. In fact, the generous reliefs we are introducing mean that 600,000 small businesses are paying no rates at all – something we’re making permanent so they never pay these bills again.

And across the country, there’s also a £3.6 billion scheme to support companies affected by the business rates revaluation.”

Digital infrastructure developers that deploy new fibre optic broadband networks often have to consider longer-term investment models that work over periods of 5-15 years, which means that not even the short 5 year rates holiday can stop the forthcoming hike from acting as a longer term disincentive.

The hope now is that next month’s Budget 2017 announcement, while perhaps not adding anything new for broadband specifically, could produce further changes that might help to soften the impact. Some improvements have already been proposed (here), but large broadband builders will be hoping to see something a bit more significant.

UPDATE 19th Feb 2017:

The official press notice from Virgin Media also includes a quote from Ovum (below) and notes that the 2 million+ homes claim equates to a potential population of 5 million people who could be connected to ultrafast broadband (i.e. a typical UK home has 2.3 people per household). The snapshot notes that 5 million is “more than the populations of England’s 10 biggest cities after London (Birmingham, Leeds, Sheffield, Bradford, Manchester, Liverpool, Bristol, Newcastle, Sunderland, Wolverhampton).”

Matthew Howett, Telecoms Analyst at Ovum, said:

“At a time when the government is trying to encourage private sector investment in the next generation of broadband infrastructure and reduce the digital divide, it’s a backwards step to hike business rates and not think this will directly affect the number of additional premises that could be connected.”

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By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
Leave a Comment
17 Responses
  1. Optimist says:

    This nonsensical tax hike on fixed lines should at least spur on development of wireless broadband.

    1. wireless pacman says:

      They would just tax the air instead! 🙂

    2. Optimist says:

      I was wondering about that too, @wireless pacman, but I didn’t want to give them any ideas!

  2. Lee Dann says:

    Do other countries have a fibre tax? Surely this is the kind of thing that slows development and deployment in comparison to other countries

  3. dragoneast says:

    This is what happens when politicians start behaving like cartoon characters. They don’t have a magic wand. Government, which is a lot of stuff behind the scenes and not puppets-on-a-string, continues in its own merry sweet way. It has to. Unintended consequences (or at least ones we’d rather forget); the road to hell was always paved with good intentions.

    Money doesn’t grow on trees either. Someone has to pay for all the stuff we want, and ultimately it is always the consumer. A lesson in reality for all the children.

    1. Chris says:

      Essentially you are right. Things have to be paid for and fibre optic broadband and communication actually looks like the “logical” next area to attract taxation. The government do provide funds in other areas to help develop and maintain IT services to all including businesses and private alike stay connected, especially in rural areas. The government also fund research into cyber crime and wireless comms. I could go on but I’ve made my point!!!

    2. Optimist says:

      @Chris: Electronic communications are already subject to 20% VAT so I see no justification for inreasing taxation further. Other utilities are taxed less heavily e.g. electricity. Royal Mail postage stamps are not subject to VAT, though other postal operators are.

  4. Adam says:

    It’s bad enough we get screwed with contracts in this country (No contracts in the USA at all) let alone this too.

    1. CarlT says:

      Are you sure about that one?

      I am looking at a couple of products that have 2 year terms, and I see other products that cost significantly more if taken without a contract.

      There are also install fees on some products.

      We have products in the UK with no contracts, they just come with up front fees and cost considerably more than average per month.

      Swings and roundabouts.

    2. Adam says:

      Is $70 a month for Google Fiber 1000/1000 with no contract significantly more? I’f that was UK I’d pay it – and then some!

    3. MikeW says:

      With Google fibre dropping even more staff, you wonder if $70 is enough for Google to make a profit, or if it is too much to attract enough customers.


    4. CarlT says:

      A similar deal is available from Hyperoptic. Doesn’t do much for the other 98% of the country not in a Hyperoptic area, though, much as Google Fiber doesn’t.

      Google Fiber might be a bad example given they are scaling back and moving away from fibre and towards wireless. Even Alphabet didn’t want to suck up the losses GF was making indefinitely.

  5. Ken says:

    BT and Virgin media if they put there heads together they can roll out masses of FTTP and not get taxed to hell. But no your profits will get taxed for sitting on all those development loans

    1. CarlT says:

      Business rates aren’t related to profits, Ken, and it’s not newer build plant they are worried about, it’s the mass of existing stuff.

    2. Bob says:

      Ken, you do realise that two competing businesses working together in such a way as you describe is illegal?

  6. Sledgehammer says:

    How long before (we the end users) see price rises due this increase in business rates, I don’t think it will be all that long.

  7. comnut says:

    There is an article in the times, saying that the price hike has been raised out of proportion due to media speculation, and the actual figure is relatively small…

    answers please from *informed* people…:P

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