Government Appears Unlikely to Extend Relief from UK Fibre Tax

Since April 2017 the UK Government has allowed broadband networks to claim 100% business rates relief on new fibre infrastructure, but this “Fibre Tax” holiday is about to expire and there’s been no indication of an extension. Some operators fear this will add “significant cost and uncertainty to the investment case for full fibre.”

The 5-year holiday on business rates for new fibre optic (FTTP) broadband ISP infrastructure, which has also been adopted by Wales, is currently due to expire at the end of March 2022. This covers new fibre that has been “laid, flown, blown, affixed or attached” since 1st April 2017, including any plant and machinery intended to be used in connection with that fibre.

The rates relief was introduced alongside various other schemes (e.g. broadband vouchers), regulatory changes and investment programmes, which together formed a key part of what has since helped to drive more competition into the UK fibre market. As a result, a mass of AltNets are now investing to help deploy gigabit-capable broadband alongside the big boys (Summary of UK Full Fibre Progress).

Admittedly, the change had less of an impact on existing operators, such as Openreach (BT) and Virgin Media, because it was introduced alongside a “revaluation” of business rates for existing infrastructure, which at the same time hit them with a huge tax hike (here). Nevertheless, the holiday has played a part in helping to support the business case for greater investment in new fibre.

Where next for the “Fibre Tax“?

However, the UK government has so far shown no indication that it will extend the current relief, which is despite Scotland’s decision in 2019 to introduce a similar relief that will last for 10-years until 31st March 2029 (this may even be extended). Furthermore, a lot of fibre builders will continue rolling out after 2025 and many don’t expect to see payback on their investment for around 15 years, thus a longer period of relief would help.

One problem on this front is that the Valuation Office Agency (VOA), which sets the business rates, isn’t expected to run another revaluation exercise until 2023 and thus the boat of opportunity for another extension in England, as well as Wales, may have already been missed for this year.

A Government Spokesperson told ISPreview.co.uk:

“We are committed to meeting our fibre rollout target of at least 85% of UK premises having access to gigabit-capable broadband by 2025, which is why we’re investing £5 billion so hard-to-reach areas can access gigabit speeds, whilst firms can still benefit from the super-deduction, the biggest business tax cut in modern British history, as well as, from next year, a new business rates improvement relief.”

We should point out that the Government’s “super deduction“, which gives a big tax break to businesses that invest in new plant and machinery assets, is also due to expire next year. But admittedly, that will be offset in later years by the subsequent increase in the corporation tax rate to 25% from April 2023. Still, this is something else that could be extended, although it probably won’t be.

The Government noted that they keep all taxes under review, but do not generally comment on speculation around tax policy outside of fiscal events.

Openreach spokesperson said:

“The business rates system adds significant cost and uncertainty to the investment case for full fibre, with the next revaluation coming in 2023. The Government’s tax super deduction has had a very positive impact in bringing forward fibre investment, but also expires next year.

The industry therefore needs more predictability and transparency over the long term to boost investment and help deliver the Government’s broadband commitments.”

A Virgin Media (VMO2) spokesperson said:

“We’re on a mission to upgrade the UK and believe that the Government should be ensuring the right environment exists to support privately funded network expansion and upgrade programmes which are bringing gigabit broadband and 5G services to even more homes and businesses across the country.”

In fairness, the rates relief, while desirable, hasn’t stopped operators from preparing huge new fibre builds and related investments that will continue well beyond this year. Part of that may be because, in terms of the extra cost per home passed (just a few additional pounds per annum), the fibre tax doesn’t add very much. But such figures do add up as new networks pass more premises, particularly for the biggest players.

At this point it’s worth highlighting that the need for an extension beyond 5 years also came up as part of the original consultation on the relief. In response, the government said that idea was “out of scope of the consultation,” but they did then amend the legislation so that the final act “allows the Government to extend the relief in future if they wish.” So the possibility does exist, even if there are no signs of it being utilised.

The good news is that, so far, no operators have publicly said they would have to scale-back their deployment plans as a result of the rates relief coming to an end. We also have to consider that the UK economy has just been ravaged by the global pandemic, among other things, which has left the Government with less financial flexibility.

None of the other operators that we engaged with for this article are currently anticipating any positive movement on the Fibre Tax before the current relief expires, although we’d love to be proven wrong.