BT Has Claimed No Business Rates Relief on UK Rollout of New Fibre
Back in April 2017 the UK Government allowed broadband networks in England and Wales to claim 100% business rates relief on new fibre infrastructure for a period of 5-years, which is a change that Openreach and other FTTP builders had long sought. So it may come as a surprise to learn that BT has never claimed this benefit.
The 5-year holiday on business rates for new fibre optic (FTTP) broadband ISP infrastructure, which was adopted in both England and Wales to help tackle the so-called “Fibre Tax“, officially expired at the end of March 2022 and has sadly not been extended. By comparison, the Scottish Government ensured operators building “new fibre” in Scotland can continue to claim 100% relief until 31st March 2034 (this began in April 2019)!
The rates relief was originally introduced around the same time as various other schemes (e.g. broadband vouchers), regulatory changes from Ofcom and investment schemes, 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 alternative networks are now investing to help deploy gigabit-capable broadband (Summary of UK Full Fibre Progress).
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However, the relief arguably 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, in 2017 the UK Government estimated that their tax holiday could save operators £60m (here), but that didn’t account for all the new AltNets that sprang up.
Suffice to say, everybody expected that Openreach would be one of the biggest beneficiaries of such relief due to the sheer scale of their rollout, which made it all the more of a surprise to learn that the BT Group has not claimed any relief under the scheme.
Just for context, BT has been building FTTP at a cost of £250-£350 per premises passed, and they built around 7 million premises during the 5-year relief period (estimated total build cost of £1.75bn to £2.45bn). But the relief can be claimed on any new fibre installed, which may also include core links, leased lines (EAD) and so forth. As such, the total cost of all fibre built by Openreach during this period is a little harder to discern.
What happened?
According to a new letter issued by the Government’s Parliamentary Under-Secretary of State for Local Government and Building Safety, Lee Rowley MP: “Officials have confirmed to me that British Telecommunications plc has received no relief under the Regulations from 1st April 2017 up to the date of this letter [16th May 2023].” Credits to Aidan Paul, MD of Dolomite Solutions, for spotting this.
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As above, this came as quite a surprise to ISPreview, and so we promptly asked BT for some clarification. A spokesperson for the operator said: “BT Group didn’t apply for or receive the previously available business rates relief for new fibre.” But sadly, the operator hasn’t responded to our request for clarification over the reasons why they didn’t claim the relief.
However, it’s possible the situation may relate to an appeal BT lodged against a business rates relief “certificate” from HMRC’s (UK Government) Valuation Office Agency (VOA) in 2021 (here), which allegedly related to how much tax (rates) they pay on their new fibre optic broadband lines. But BT has never commented on that.
Nevertheless, BT were keen to point out that they have taken advantage of the much more recent “Super Deduction” by the UK Government (i.e. giving a 25% tax break to businesses that invested in new plant and machinery assets), which they previously said enabled Openreach to raise their FTTP rollout plan from 20m to 25m premises.
The new introduction of “Full Expensing” in the 2023 Spring Budget (here), which follows on from the recent end of the Super Deduction, should also allow the operator to deliver increased connections and offset inflation, while continuing to target 25 million FTTP premises for the end of 2026 (although their rate of build did recently slow).
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The benefits of the aforementioned changes, at least to the BT Group, seem likely to far outweigh any positive, albeit relatively small, impact from the recent rates’ relief on new fibre, assuming the operator did end up claiming it. In addition, it is known that the system for handling this, which is governed by the VOA, remains very complex (example). But the question remains, why has BT not claimed millions of pounds in relief on new fibre? Like so many things to do with the VOA, we do not have a clear answer.
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 X (Twitter), Mastodon, Facebook, BlueSky, Threads.net and Linkedin.
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Interesting, so BT haven’t been claiming the tax relief. So now the tax relief has finished they won’t feel any difference.
However I assume other network builders will have been claiming it.
Surely this puts even more pressure on the Altnets who are already suffering with increasing interest rates, poor take up percentages, saturated market and stiff competition.
That’s an interesting perspective. It seems silly of BT not to have claimed this. But yes, in relative terms they now might be at an advantage.
Taxing the buildings (e.g. telephone exchanges) rather than the cables would incentivise communication providers to accelerate the modernisation of the network, which the government professes to support.
The buildings are often leased to operators via a third-party owner, which makes that complex. Most older exchanges will be closed in the future too, leaving only those handling fibre-based products, but you can’t rush that due to the risk of significant disruption to end-users and ISPs.
But the intention is simply to increase the tax bill for telcos, because we have a government committed to tax and spend.
Even if they did it on buildings, they’d want the same total tax take, and it’s a lot easier to target telcos by revaluing their networks, rather than fiddling with the buildings rules. Also, if they tried to put the costs on buildings, then companies can easily reduce their rates exposure by consolidating exchanges and that’s already happening.
Was thinking they’d make a retrospective claim on prior years to offset the corp tax hike but they’ve not even attempted to claim. Truly shocking
Perhaps answer this: How does the rateable value of Openreach’s network change as copper is overlaid by fibre. It’s possible that Openreach has successfully argued for no change as revenues are substitutional so no incremental business rates are payable?
I’d expect the argument would be that the rateable value of the ducts is higher when there’s a newer asset run through them with a longer life and potential for higher speeds (they can’t sell a premium 1Gb product via FTTC, as one example).
But “rateable value” and business rates are and always have been a mess, and you can see that in the decline of high street shopping because it’s a huge, unfair, non-transparent system that acts as a vast fixed cost for retailers. In fact it’s due to business rates peculiarities that we’ve got the flood of charity shops – an empty shop incurs full business rates after three months of vacancy, whereas a charity shop only pays 20%. It’s economic in many cases for the landlord to pay a charity shop to take up a lease.
With a system that poor, it’s hardly surprising that government are using to extort a few more millions from telcos, and ultimately their customers. Remember boys and girls, government needs your money far more than you do.
I’m not sure what you think is non transparent about rateable values. You can look up the RV of any property, no? And it’s based upon the recent value of the asset, as opposed to council tax which indeed is peculiar.
Having charity shops seems preferable to high streets lying empty. Of course, rates aren’t the only cost that businesses and charities face: have you seen city centre rents? Extortionate.
Was about to say this may save some redundancies in the long run, but looking at the recent news (Them cutting 55,0000 jobs and replacing some with AI) looks like it wasn’t a strategic business decision to protect their employees long term after all. Interesting none the less.
Once they dump all the contractors building the new network they won’t have to lose that many permanent staff after they take natural wastage into account. I think the headlines were more dramatic than the reality, but big Phil hasn’t been the best at press releases