The historic case of the Tayside Assessor vs Old Faskally & Others has become the longest running legal dispute in British business rates history. In 2013, Alba Energy brought serious concerns about the Assessor’s valuation of hydro sites to a statutory adjudicating committee. The Committee agreed with Alba and set valuations for the “Old Faskally” sites. The Assessor appealed this decision. Two high court hearings and eight years later, he continues to appeal, causing delay, uncertainty and turmoil to the sector.
Old Faskally vs the Assessor
The historic case
1. The Assessor’s spanner in the hydro works
The case of the Tayside Assessor vs Old Faskally & Others may be the longest running legal case in the history of British business rates. Since it commenced, there have been three UK General Elections, two Scottish Elections and a Scottish Independence Referendum. Not only has an EU Referendum also taken place, but Brexit “got done” before a fair rateable value could be found for a hydro site.
It all began with the Assessor’s valuation of run-of-river hydro sites in 2010. At the time, there was no pressing need to interrogate these valuations, as renewable energy schemes enjoyed 100 per cent relief from business rates. But the founding directors of Alba Energy noticed that there was something wrong with the way underlying Rateable Values for hydro were being calculated – and they reckoned that these “RVs” might come to haunt the sector if rates relief were removed.
And that is exactly what has happened.
The first step in the case was taken in 2013, when the appeals of six hydro schemes – under the collective title “Old Faskally Farming Company & Others” – was heard before the Tayside Valuation Appeal Committee.
The arguments which developed out of this case have often been obscure, convoluted and difficult to understand. Yet underneath all the technocratic disputes of the last eight years, there arguably lies a simple solution to a simple problem.
2. What is Small Hydro’s problem?
In 2016, the fears of Alba Energy were realised when the Scottish Government removed the reliefs. Then came the revaluation of 2017.
The increases to Small Hydro RVs in the 2017 valuation were not a matter of hydro being disadvantaged by a percentage-point or two. Calculated as a proportion of turnover, RVs for Small Hydro increased by an average 140 per cent over those of the nearest comparable sector: onshore wind.
Business rates are intended to apply an equitable burden of taxation across all business types. Alba knows of no other sector in the UK that suffers such an extreme and irrational disparity. The precise degree of this anomaly was acknowledged in 2017 by the Scottish Government, when it agreed to reliefs of 60 per cent, a figure derived directly from the difference between hydro and wind.
This was no trifling complaint. Hydro’s Rateable Values are a structural economic threat to the sector. Government reliefs alone cannot solve the problem. Once removed, every site in Scotland will be exposed to crippling bills. Such is already the case with Ardtornish, Ormsary and others who have fallen foul of State Aid regulations which deny them these reliefs. Exposed to the full consequences of the Assessor’s valuations, they face bills out of all scale to their operations, needlessly threatening jobs and the closure or sale of schemes.
The larger corporate hydro operators, including SSE, have the RVs for their multiple assets calculated on the “cumulo” basis, agreed by negotiation between the parties. In this way, local hydro operations are drastically disadvantaged.
3. The hydro spanner in the Assessor’s works
The Assessor would have entirely dismissed the concerns of Small Hydro by now, were it not for the fact that the Old Faskally case remains obstinately stuck in his system. He is legally obliged to address the appeals that have mounted up against the 2017 valuation. But he cannot do so until he has concluded the outstanding appeal from the 2010 valuation.
It is clearly absurd that Alba Energy is still in dispute over 2010 while around a hundred appeals against the 2017 valuation wait to be heard. Yet the stagnation of this process is a result not of Alba’s appeals, but of the Assessor’s.
When Alba Energy first brought the Old Faskally case to the Tayside committee in 2013, it was successful. Alba argued that the Assessor’s Rateable Valuations should be amended according to appropriate principles. The committee agreed. It might all have ended there, with the Assessor amending the hydro RVs.
But it did not end there.
Since 2013, the Assessor has been appealing to the Lands Valuation Appeal Court (LVAC) against his own Committee’s decisions.
Over the last eight years, there have been two committee decisions and two court verdicts and still the Assessor has not prevailed.
What the hydro sector is waiting for now is the committee’s third and final decision.
Due to the Assessor’s prevarications, there has been a nearly three-year wait for this decision.
In outline, this is how the case has developed.
4. Old Faskally at the Tayside Appeal Committee: part I
In 2013, at the Tayside Appeal Committee, the argument was based on the “comparative method” of valuation. Hydro rents showed a consistent value across sites of around 10 per cent of turnover. The Assessor dismissed these rents as invalid measures and stated that, using the “Revenue & Expenditure” method, 50 per cent of a hydro fell to be rated.
Alba argued that, even if the Assessor rejected the rents, it could not be the case that half of a hydro fell to be rated, as the largest civil engineering cost is the installation of the penstock, or pipeline. And the “penstock” is explicitly exempted from valuation in the Plant & Machinery regulations. Furthermore, a penstock comes under the “tools of the trade” classification, by which the turbine and generator of a hydro are also exempted.
A hydro penstock does not deliver fluid from one place to another, like a gas pipeline; it is a mechanism for creating the pressure by which a hydro generates electricity. The penstock is part of the machine.
Penstock, turbine and generator represent the major construction costs of a hydro. Once these are excluded, what remains to be valued is essentially the weir and powerhouse building.
The committee upheld this case and ordered the Assessor to amend the RVs accordingly.
Affronted by this decision, the Assessor appealed, stating that he wanted to use the “R&E” method which, he argued, would produce higher Rateable Values.
So, he took the Old Faskally case to the Lands Valuation Appeal Court (or LVAC), the highest court of its kind in Scotland.
5. Old Faskally at the LVAC: part I
The Assessor is under the impression that he won this appeal. But what the LVAC actually did was to send the case back to the committee to decide, albeit with a caveat.
In February 2016, Lady Dorrian’s verdict upheld the Assessor’s appeal on one point: that the committee had “erred in law” by failing to address all four classes of the Plant & Machinery Order (PMO). While the penstock is explicitly exempted in the first class of the PMO, it was necessary, Lady Dorrian stated, to take the “sequential approach” to all four classes of the PMO and to ensure that nothing else fell to be rated under these definitions.
Lady Dorrian stated that it was up to the committee to consider the definition of a penstock; and it was also up to them to choose the method of valuation.
6. Tayside Committee decision: part II
In response to Lady Dorrian’s verdict, the committee produced a second determination, in which they opted to use the Assessor’s own R&E method of valuation. Since the Assessor himself had excluded turbine, generator and pipeline materials from his valuation, the committee could see that these – the majority of costs – did not fall to be rated and decided on a split of costs: 25 per cent rateable, 75 per cent non-rateable.
Using the Assessor’s own valuation model, this 25:75 split produced Rateable Values that come out at an average 10 per cent of revenues. This is the same proportion as the RVs for the wind sector and, coincidentally, the same as average rents on hydro sites.
This rateable split produces RVs that are fair – and of similar proportions to other business sectors.
Affronted again, however, the Assessor decided to appeal to the LVAC for a second time, on the basis that the 2010 valuation should be a 50:50 split, while also knowing that he wanted an increased 55:45 split for the 2017 valuation.
7. LVAC verdict: part II
The Assessor’s second appeal was heard in January 2019, by three high court judges: Lords Malcolm and Doherty, with Lady Dorrian presiding.
Lord Malcom concurred with the committee’s decision. However, Lord Doherty had a caveat. He proposed that the case be reverted, once again, to the Tayside Committee, so that the committee could re-examine the PMO and justify its 25:75 split.
In her verdict, Lady Dorrian sided with Lord Doherty and upheld the Assessor’s appeal – but to a specific extent only: that the committee should check the fourth class of the PMO to ensure that there was nothing else in the civil works of a hydro, besides the pipeline, which would fall to be rated as a result of it being “in the nature of a building or a structure”.
(It should be noted that the Assessor’s counsel confirmed that, in his 2010 valuation, the Assessor himself had exempted the pipeline, turbine and generator.)
8. Awaiting the committee’s final decision
At the beginning of 2020, the committee instructed Alba and the Assessor to “agree the facts” of the Old Faskally costs so that they could assess the rateable proportion precisely.
Due to Covid delays and the convoluted processes of the Assessor, it has taken a year to agree exactly what these costs are, but both parties have now reached agreement on the basic numbers.
What remains in dispute is the rateable split of the costs of building a hydro scheme.
Taking into account the instructions of the LVAC, between 23-28 per cent of a scheme remains a reasonable rateable share.
The Assessor, however, has changed his position. He is no longer arguing for a 50 per cent split. He is now arguing that 80-83 per cent of hydro construction costs should fall to be rated. If this were accepted, the Small Hydro sector would be grievously damaged.
Alba Energy has appointed James Findlay QC to argue the case
As reported here in “news”, Alba Energy has now been seeking a final committee hearing for the last three years.
9. What next? The 2017 valuation at the Lands Tribunal for Scotland
If the Tayside Committee follows the instructions of the LVAC and sticks to its principles, Alba expects the exemption of penstock, turbine and generator to be confirmed.
Alba will have had the support of a statutory adjudicating committee on three occasions over eight years under the instruction of two high court verdicts.
Alba Energy believes this case is robust.
In order to represent all appeals across Scotland, such a case will need to be heard at the Lands Tribunal.
The Old Faskally valuations may only be directly applicable in Tayside, but now it will be the whole hydro sector taking the Assessor to the Lands Tribunal.
Where the decision should be final.
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