A court date has been set in the long running legal battle between councils and NHS trusts over whether they should be classified as charities and so receive an 80 per cent discount on their business rates bills.

The High Court trial, which opens on 4 November, will hear the case brought by Derby Teaching Hospitals Foundation Trust and 16 others against 45 councils, reports LGC.

Analysis of government data by the real estate adviser Altus Group shows that NHS hospitals in England and Wales will pay £408.6m in business rates for 2019-20, a rise of £122.4m (42.8 per cent) since the 2017 rates revaluation came into effect.

This financial year, hospitals such as the Royal London Hospital will pay £9.2m in business rates while the Queen Elizabeth Hospital in Birmingham will pay £7.5m and Bristol’s Southmead Hospital will pay £5.6m. Business rates are collected by councils locally and although there is some national pooling and redistribution, under the current system a council is only compensated for any reductions in total retained business rates income greater than 7.5 per cent. 

If the High Court finds in favour of the NHS, rebates for mandatory relief would be backdated to 2010 while it is likely the case would set a precedent that is expected to lead to all NHS hospitals to seek similar treatment. Altus Group estimates that £2.35bn would have to be remitted back by billing authorities.

Lancashire Teaching Hospitals Foundation Trust has made two applications for mandatory charitable relief from Chorley BC. Earlier this year, a report by the council’s chief finance officer to Cabinet stated that there is a “large risk” associated with business rates income, and that if the case is successful, it would have a “significant impact” on the council’s revenue budget.

“A headline figure is a potential £1.7m impact on the council’s general fund and a further £200k reduction in ongoing retained business rates,” it said.

Robert Hayton, head of UK business rates at Altus Group, has called upon the government to end the dispute before a costly trial. “If the case was successful, it risks setting a precedent for other deserving public services, with the significant loss in revenue which goes to fund essential public services having to shift to businesses at the next revenue neutral revaluation in 2021, at a time when the tax burden is already far too high,” he said.

Earlier this year, the Local Government Association, which is representing the affected councils, informally asked all member councils for a small contribution, believed to be a few hundred pounds, towards the legal costs of the case due to the wider implications for the sector. 

A spokesman for the LGA said: “The LGA is supporting member councils who have received applications for mandatory relief from business rates on behalf of a number of NHS trusts and are working with them.

“We have sought legal advice from counsel. We believe that NHS trusts and foundation trusts are not charities, and that the applications for rate relief are therefore unfounded.”

Altus Group claims that around one in four of all private hospitals are registered as charities and receive the 80 per cent mandatory business rates relief. They include many private healthcare groups such as Nuffield Health, the UK’s third largest charity by income.

Ahead of the 2017 revaluation, many NHS trusts had to put additional cost efficiencies in place on top of the savings that they had already planned for to ensure that they reached their financial control, with no additional funding from government to specifically address the tax rises.