Draft Non-Domestic Rating (Rates Retention and Levy and Safety Net) (Amendment) and (Levy Account: Basis of Distribution) Regulations 2019

(Limited Text - Ministerial Extracts only)

Monday 18th March 2019 General Committees

[The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Rishi Sunak)]

I beg to move,

That the Committee has considered the draft Non-Domestic Rating (Rates Retention and Levy and Safety Net) (Amendment) and (Levy Account: Basis of Distribution) Regulations 2019.

It is a pleasure to serve under your chairmanship, Sir Henry. I love being Minister for local government and I love local government finance, but no one ever wrote a sonnet about the business rates retention system. The technical nature of the draft regulations gives us a good idea why not; I pay tribute to my officials for preparing some very helpful explanatory notes to translate them into plain English.

The draft regulations will do two very simple things: provide the basis on which we will distribute the levy account surpluses, and make changes to the regulations that give effect to the business rates retention scheme—not least to create the 75% retention pilots in the forthcoming financial year. Let me take those matters in turn, beginning with the levy account surplus.

Under the rates retention scheme, authorities may be entitled to a safety net payment if their business rates income falls below a certain level. The cost of such safety net payments is met by charging authorities a levy of up to 50% of any business rates growth that they achieve. In the past, we have also top-sliced an amount from the settlement to supplement the levy income and ensure sufficient funding from which to make safety net payments. Since 2013-14, we have top-sliced a total of £255 million that would otherwise have been distributed to authorities through the settlement. Effectively, safety net payments are therefore paid for by the local government sector; central Government simply act as an agent to collect and distribute the sums between authorities.

The top-slice and all the levy and safety net payments are made into or from a levy account that is kept by central Government. In line with the legislation, any surplus in the levy account at the end of the year belongs to the sector and is to be distributed to local government or carried over to the next year. At the end of 2018-19, the levy account will show a surplus of £188 million. As we announced in the 2019 local government finance settlement, we have decided that £180 million of that surplus should be distributed back to the sector. Legislation requires us to set out in regulations the basis on which the surplus should be distributed. The draft regulations therefore provide that all authorities should get a share of the 2018-19 surplus, in line with their shares of settlement funding in 2013-14—the first year of the rates retention scheme, and the first year in which we top-sliced sums from the settlement.

I am pleased to tell the Committee that we fully consulted local authorities on the basis of the distribution at the time of the provisional settlement in December. Fully 93% of respondents supported the proposal, including all the relevant local government bodies, such as the Local Government Association, London Councils, the District Councils’ Network, SIGOMA—the Special Interest Group of Municipal Authorities—and the Society of County Treasurers.

Let me turn to the changes that we are making to the day-to-day administration of the rates retention scheme. The running of the scheme is dealt with by means of a number of sets of regulations, the most important of which are the Non-Domestic Rating (Rates Retention) Regulations 2013 and the Non-Domestic Rating (Levy and Safety Net) Regulations 2013. Those regulations provide, among other things, for the percentage shares of business rates to be paid by billing authorities to central Government and major precepting authorities, and for the way in which the levy and safety net payments are to be calculated.

The draft regulations will make a few changes. They will ensure that the relevant shares of business rates income and the calculation of levy and safety net payments for 2019-20 and beyond reflect the Government’s decisions to create 75% retention pilots for 2019-20; make changes to the structure of local government in Dorset, Suffolk, Somerset and Northamptonshire; change certain values for the Isles of Scilly used in connection with the scheme; and change the way in which levy and safety net payments are calculated to reflect the higher compensation given to local authorities as a result of improvements and changes made to the small business rate relief scheme.

This is a highly technical set of regulations but most of the provisions simply give effect to changes previously approved by this House, either in the settlement or in other regulations. They ensure that authorities get the sums from the rates retention scheme that they are due. I commend the regulations to the Committee.

--- Later in debate ---

[Rishi Sunak]

As always, I welcome the comments of the hon. Member for Oldham West and Royton, which are always thoughtful and well informed. On this matter, however, I disagree with him. We will, of course, have more general debates on the right way to fund local government as we approach the spending review. I look forward to those discussions, which are slightly out of the scope of these regulations.

The crux of what the Committee is talking about today is the creation of 15 new business rate retention pilots. That is 15 new parts of the country where local authorities can keep 75% of the growth in the business income that they generate, rather than 50%, as in the normal system. That is central Government empowering local government to drive growth in their areas and to be rewarded for their efforts by keeping the proceeds of that growth.

Some 122 local authorities will benefit, including those of many Members present. Cumulatively, the extra money that local government will be able to keep will be around £490 million, when the 15 pilot areas in London are added together. Add that to the five existing 100% devolution areas that the Government have already created, and that is an additional £143 million. That is £633 million of incremental funding that the local government system is keeping as a result of driving growth in their areas.

That is what we are about on this side of the House: empowering local government to make decisions, to keep the proceeds of that activity and, in doing so, to provide a better community for their local residents. We are here today to implement that. I am pleased that the hon. Gentleman will not divide the Committee, and I thank him for his thoughtful comments.

Question put and agreed to.