Openreach engineer laying fibre broadband cable
Business rates applicable to existing and planned networks could rise fourfold © BT

The heads of Britain’s largest broadband companies have written to Philip Hammond, the chancellor, to complain that the business rates regime is “not fit for purpose” and will weaken the UK’s ability to attract inward investment.

The companies complain that broadband investors will “pay a minimum of more than £2bn in business rates” between 2017-2022 with new investments to expand the networks likely to see liabilities increase further.

The letter to the chancellor, seen by the Financial Times, is signed by Tom Mockridge, chief executive of Virgin Media, and Gavin Patterson, chief executive of BT, as well as the heads of smaller broadband investors Gigaclear, Hyperoptic and CityFibre.

The UK telecoms sector complained in September that a proposed fourfold rise in business rates applicable to existing and planned networks came at a time when it was being asked to devote more resources to laying expensive fibre-optic cables. A five-year exemption from business rates for companies installing new fibre-optic cables was subsequently included in the Autumn Statement.

But it appears that concession was not enough to satisfy the sector, which plans to spend an aggregate £10bn on broadband networks over the next five years.

“It is apparent to us that the UK’s business rates regime is not fit for purpose. There is no analogous property taxation regime to the UK’s operating in any major western economy. Increases of the scale faced by our sector therefore risk weakening the UK’s ability to attract inward investment versus competing markets,” the letter said.

The chief executives urged the government to introduce reforms “with immediate effect to offset the impact that the 2017 revaluation could have on planned investment”. Theresa May has ordered a review of business rates relief, following mounting pressure from Tory MPs.

BT warned in September that it would have to pass on the increase in business rates to its wholesale customers, including Sky and TalkTalk, which would almost certainly result in higher broadband prices for consumers.

Both BT and Virgin Media have hinted at legal challenges to the Valuation Office Agency’s methodology, which was described in the letter as “unsound”.

The two companies have complained that the cost of the rate rise equates to the expenditure needed to connect 2m homes to full fibre networks.

That tension between cost and investment was exacerbated on Wednesday when the House of Lords voted down the government’s Digital Economy Bill and proposed that the universal service obligation, the minimum broadband speed to be made available to customers, should be raised to 30Mbps from the proposed 10Mbps. That speed increase would need to be implemented by telecoms companies by 2020 and would potentially add huge sums to their budget projections.

Jonathan Mendelsohn, the Labour peer, argued that introducing the government’s proposed obligation would cost £1.1bn. Raising that threshold to 30Mbps would cost £2bn, he said.

He added that the 10Mbps speed, described as a “floor” by Ofcom, would be “unfit for usage in a very short time”.

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