Non-Domestic Rating (Rates Retention, Levy and Safety Net and Levy Account: Basis of Distribution) (Amendment) Regulations 2020
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Lord Greenhalgh
That the draft Regulations laid before the House on 7 October be approved.
The Minister of State, Home Office and Ministry of Housing, Communities and Local Government (Lord Greenhalgh) (Con)
My Lords, the business rates retention scheme, introduced in 2013-14, allows local government to keep 50% of the business rates it raises locally and, more importantly, 50% of the growth in those business rates, over and above the sums with which it is provided through the local government finance settlement. In 2019-20, this was estimated by authorities to be worth an additional £2.5 billion of funding.
The day-to-day operation of the business rates retention scheme is technically complex. I look forward to contributions from noble Lords on this matter. It is governed by a number of pieces of secondary legislation, setting out the technical rules that govern the flow of money between central government, billing authorities and major precepting authorities.
The regulations before the House today make a number of important technical amendments to those regulations to update the existing framework. This is vital to the continued smooth running of the business rates retention scheme and will ensure that everyone gets the funding they are supposed to get. These regulations make three sets of changes: they ensure the correct calculation of the income to be retained by authorities which have, or have had in the past, a higher level of retained business rates income; they make the necessary changes to the rates retention system following the most recent local government restructuring; and they adjust the calculation of retained rates income, against which we determine levy and safety net payments, to ensure that local authorities are not doubly compensated for giving business rates relief for telecommunications infrastructure.
I will now say a little more about each of these changes and the reasons for them. On the calculation of pilot authorities’ income/errors, as I said, the rates retention scheme is run according to a series of regulations, key to which are the Non-Domestic Rating (Rates Retention) Regulations 2013 and the Non-Domestic Rating (Levy and Safety Net) Regulations 2013. These set out the basis on which the system is run, including authorities’ shares of locally retained business rates income, safety net thresholds and levy rates.
Since 2017, some local authorities have been allowed to keep a higher proportion of business rates income. Authorities in five devolution deal areas retain 100% of their business rates income, and authorities chosen to be part of the business rates pilots in 2018-19 and 2019-20 retained 100% or 75% of their business rates income for the relevant year.
Regulations were put in place to effect those changes. However, a few minor omissions or errors were made in the framework for the 2019-20 pilots in the Non-Domestic Rating (Rates Retention and Levy and Safety Net) (Amendment) and (Levy Account: Basis of Distribution) Regulations 2019. These include the 75% pilots’ levy rates, apportionment of the collection fund surplus or deficit for one authority and uprating of the top-up and tariff payments for London, and 100% business rates retention authorities in 2019-20. These regulations put those right. For this reason, these regulations will be made available free of charge to any party who purchased the 2019 regulations. Further minor amendments are made by the regulations to provide the basis for uprating 100% business rates retention authorities’ top-up and tariff payments in 2020-21.
Turning now to the restructuring of local authorities, following the restructuring of Buckinghamshire County Council and its constituent district councils, Aylesbury Vale, Chiltern, South Bucks and Wycombe, into one unitary Buckinghamshire Council from 2020-21, amendments are required for the running of the rates retention system. Two minor changes are required to establish the requirements of the new authority under the rates retention system. These are, first, an adjustment to a figure which determines the cost of operating in the area and therefore the cost of collection of business rates for the authority, and, secondly, a new value for Buckinghamshire used to calculate the amount of compensation it will receive for small business rates relief.
In 2019, the Government set out in statute the basis of distribution on which any surplus on the levy account would be made; this occurs where levy payments exceed safety net payments in a year. The basis of distribution is based on local authorities’ relative need as defined by their settlement funding assessment, which is composed of baseline funding level and revenue support grant. A small amendment is made by these regulations to the basis of distribution to reflect a revised agreement on revenue support grant between two councils which restructured back in 2019-20. This revised split adjusts the allocation that the Bournemouth, Christchurch and Poole Council, and Dorset Council, would receive should the Government determine an amount of any surplus on the business rates levy account to be distributed in the future.
Turning now to adjustments to take into account telecoms relief, an amendment is made to the regulations concerning the calculation of retained rates income, against which levy and safety net payments for authorities are determined. In determining the amount of safety net payment an authority may require, or the amount of levy on growth it is required to pay in a year, the levy and safety net calculations take into account a Section 31 grant compensation for business rates reliefs received by an authority as the result of changes made by the Government. If we did not do this, local authorities could end up effectively being compensated twice for implementing these reliefs. These regulations make the required changes to ensure that any telecoms relief that an authority has awarded is taken into account in these calculations.
In conclusion, these regulations perform a range of minor, highly technical amendments to achieve the correct basis on which the rates retention system is run for 2019-20 and 2020-21. These regulations do not enact new policies, but rather ensure the fulfilment of the original policy intention as approved in prior years via the settlement or by the statutory instrument. I beg to move.
Lord Greenhalgh (Con)
My Lords, we have had a good innings on the regulations before us today. I thank noble Lords on all sides of the House for their contributions. I shall take this opportunity to provide some further detail on some of the points which have been raised.
The noble Lord, Lord Kennedy of Southwark, mentioned Millwall Football Club. As a Chelsea supporter, it pains me to say that they are some way down the league, but I pay tribute to Millwall and what they do. I saw that as deputy mayor for policing and crime, and I also saw what Charlton did in south-east London to deal with the scourge of knife crime. We must remember Millwall’s chant: “No one likes us, we don’t care.” That is not the case with the noble Lord, Lord Kennedy; we all love him.
I will take back the points made by the noble Baroness, Lady Scott, about responsibility for these issues. She asked a number of technical questions, on which I will write to her. The non-domestic revaluation Bill has gone through the Commons and we are waiting for Second Reading in this House, when time allows. The noble Baroness also asked about the working group which comprises the LGA, CIPFA and a range of local authorities. It has been in existence since 2013 and looks at the technical operation of the rates retention scheme. On behalf of the Government, I thank the working group for the work it is has done so that we can understand better how the rates retention scheme plays out locally.
The noble Lord, Lord Liddle, asked about the future of local government finance reforms. In May, we announced our intention to delay proposals to deliver the review of relative needs and resources—formerly the Fair Funding Review—in 2021-22. The decision was taken to allow the Government and councils to focus on meeting the immediate public health challenges posed by the pandemic. The approach to business rates retention in 2021-22 is under consideration and will be clarified at the spending review and provisional local government finance settlement.
Looking to the future and in determining the next steps, we will need to consider the impact the pandemic has had on demand for public services across local government and its access to resources. As the local government finance system moves into a more stable position, we will set out the timetable for our proposed way forward.
The noble Lords, Lord Liddle and Lord Shipley, raised the need for a fundamental review of business rates. At Budget 2020, the Government committed to a fundamental review of those rates. The Treasury is currently carrying out that review, which will look at all aspects of business rates as a tax. The Government have said that they will consider carefully the link between the fundamental review of business rates and the future of business rate retention. We will engage with the sector—local councils—very carefully as part of that review. Of course, we have launched an unprecedented support package for businesses, and business rates income has changed drastically in response to Covid-19. We will provide an update on the fundamental review as and when we can.
The noble Baroness, Lady Scott, asked for an explanation of what I believe the noble Lord, Lord Shipley, described as one of the most complicated systems, involving algebraic formulae and decimals to four decimal places. I certainly do not understand the mathematics, but it is quite straightforward conceptually. Fifty per cent of the business rates collected are retained by councils. Where there are two tiers, the upper tier retains 20%—in London, that would be the GLA—and 30% is retained by the boroughs. Then, there is an element of redistribution, but also a safety net so that a council bears only the first 7.5% of losses and 82.5%—the rest of the losses—are protected by the central pot.
Does that make it infernally complex? There needs to be a debate about local government reform. Do we go down the path of setting areas free so that local leaders can drive and grow their tax bases? Then we would not see the resource equalisation that we have today. Do we go for a halfway house? That is a debate that will have its time. I have my views, and I hope noble Lords will have the opportunity to express their opinions. It is a legitimate debate about the future conceptually of local government finance.
I have put on my Middlesex tie. I got one cap for Middlesex as a schoolboy. It was not for cricket; it was for rugby. I know that the son of the noble Lord, Lord Botham, was an exceptionally good rugby player, and the noble Lord himself played centre forward for Scunthorpe as well as being a brilliant cricketer for England. We must remember that his moment of greatness happened at Headingly in 1981. I remember it so well. He took, I believe, six wickets in the first innings when we looked like we were going to lose. By the second innings the nation thought we had lost the Ashes to the Australians who, I am sure noble Lords will agree, deserve a good beating from time to time. The noble Lord stepped in and that moment of greatness was when he started smashing the ball across the park. I believe one shot went into the confectionary stall and out again. I had the commentary of Richie Benaud ringing in my ears. That moment of greatness changed the course of the match. I think the odds on an England victory were 500:1 at the time and some Australian players had even put a bet on. I think that is probably illegal today.
The true greatness was also the captain, a Middlesex man. I am sure noble Lords will agree that the captain, Mike Brearley, knew when to play the noble Lord, Lord Botham, and when to make the best of his talent as a swashbuckler. That swashbuckling talent is now heard about at Select Committees. Officials will say to you, “I will be Boycott so that you can be Botham”. But they will also say, “You must keep your feet on the ground, Minister”.
Chandru Dissanayeke is a senior official in one of my departments, MHCLG. He is Sri Lankan by birth. His uncle played for the Sri Lankan team. Now, this is apocryphal, so I will have to get the noble Lord, Lord Botham, to confirm or deny this. Apparently, the noble Lord said to Sunil Gavaskar, “To get a letter to me in my county of Somerset you just have to put ‘Botham, Somerset’”. Sunil Gavaskar turned to him and said: “To get a letter to me you just have to put ‘Gavaskar, India’ and it will reach me’”. That gives you an idea that fame is sometimes fleeting.
I was hoping that the noble Lord, Lord Botham, would be here today. It is a pity that he has not been able to be here today in person. I hope that when events allow we can have a drink together in the Pugin Room. It would be a lifelong dream for me, and I am sure noble Lords will see his contributions for many years.
My noble friend Lord Bourne asked so many questions. I have them all written down here. I will put a letter in writing in the Library. There are a lot of technical points and I think it is better to get a full response in writing. It has been an incredible debate, with the combination of the brilliance of the noble Lord, Lord Botham, and the eloquence of so many noble Lords.