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 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Regulations laid before the House on 21 February be approved.

Relevant document: 19th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee B)

[Lord Young of Cookham (Con)]

My Lords, the regulations before the House do a number of things, the most of significant of which are to give effect to the new 75% rates retention pilot authorities that we are creating for 2019-20, and to set out how we will share £180 million of the levy account surpluses between authorities. They also make a number of more minor changes to the administration of the business rates retention scheme, not least to reflect the changes to the structure of local government that will come into effect from 1 April.

The regulations are highly technical, but what they do, as opposed to how they do it, can, I hope, be easily explained. The Government have a clear commitment to giving local authorities more control over the local tax income they raise. In 2013-14, for the first time since 1990, we allowed authorities to keep a proportion of locally collected business rates and to then benefit from the growth in their local tax base. Subsequently, we announced that we would increase the proportion of business rates kept by local government, and we have set out our intention that, from 2021, authorities should be able to keep 75% of local business rates.

Pre-shadowing that wider reform, as part of the recent local government finance settlement we announced that we would create 75% business rates retention pilots for 2019-20. We are creating these pilots in London and 15 other areas. In those areas, authorities will keep 75% of the local business rates they collect in 2019-20, instead of the 50% they would normally keep under the rates retention scheme. Based on authorities’ own estimates of the business rates income they expect in 2019-20, those 75% pilots—the GLA, the London boroughs and 122 authorities outside London—will have additional revenue of £490 million in 2019-20, compared to what they would have received under 50% rates retention.

For this to happen, however, we need to make changes to the regulations that govern the day-to-day administration of the business rates retention scheme. The regulations before the House today make the necessary amendments; principally, to the relevant percentages of business rates income due respectively to central and local government and to the percentages due to billing and major precepting authorities. The percentages set by the regulations for 2019-20 are those proposed by the pilot authorities themselves at the time they applied for pilot status in the autumn, and have been confirmed with them subsequently. They will ensure that the 75% pilots operate as we, and local authorities, intended. They reflect the budgets those authorities have set, on the strength of which they have set the level of council tax set out in the bills being sent to council tax payers.

Under the rates retention scheme, authorities are entitled to a safety net payment if their business rates income falls below a certain level. The cost of safety net payments is met by charging authorities a levy of up to 50% of any business rates growth they achieve. In the past, we have also top-sliced an amount from the settlement to supplement the levy income and ensure that there is 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.

The top-slice and all the levy and safety net payments are made into, or from, a levy account which is kept by central government. The primary legislation that provided for the levy account requires that any surplus in the account should be distributed to local government or carried over until the next year. At the end of 2018-19, the levy account will have a surplus of £188 million. We announced at the 2019 local government finance settlement that we would distribute £180 million of that surplus to the sector.

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[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, as the Minister said, the regulations are technical and in that sense I am happy to support them as they stand. I concur with the comments of the noble Lord, Lord Shipley, and my noble friend Lord Beecham and I am sure the Minister will respond to the points raised.

The only issue I want to raise concerns Northamptonshire being in the list of council areas that are involved in this scheme. I know the county council is the precept authority, or the collecting authority, but equally it is a council in crisis. The local government reorganisation is happening because the county council has effectively almost gone broke. Is the Minister confident that we should be doing this in this area, in view of the problems that have been widely reported over the past year? That said, I am very happy to support the regulations.

[Lord Young of Cookham]

My Lords, I am grateful for the contributions of all three noble Lords. As the noble Lord, Lord Shipley, said, this is the first non-Brexit SI, although I noticed it emptied the House as I rose to my feet. He mentioned that the announcement of £180 million going back would be popular with local government. We are always seeking to court popularity with local government, although we do not always achieve it. I am grateful to hear that on this occasion, we have.

The noble Lords, Lord Shipley and Lord Beecham, raised slightly broader issues about the pressures confronting local authorities, which I recognise. We have had to take difficult decisions on public expenditure over recent years, and they have impacted on local authorities and government departments. There will be an opportunity to discuss that.

Finally, the noble Lord, Lord Kennedy, mentioned Northamptonshire. The change in Northamptonshire is relatively minor and switches responsibility for one service from A to B. I do not think it detracts from the more structural changes that are now having to take place in that county.

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[Lord Kennedy of Southwark]

I, too, forgot to remind the House that I am a vice-president of the Local Government Association.

[Lord Young of Cookham]

I was a vice-president of a preceding local government association, but I was expelled when I introduced rate capping.

Motion agreed.