Non-Domestic Rating (Rates Retention: Miscellaneous Amendments) Regulations 2023

Baroness Wilcox of Newport Excerpts

Monday 27th February 2023 Grand Committee

[Baroness Bloomfield of Hinton Waldrist (Con)]

My Lords, these regulations make changes to key elements of the business rates retention system. The amendments themselves do not enact any new policy but instead action policy decisions that have already been taken.

By way of background, the business rates retention scheme was introduced in 2013. It allows local government to keep 50% of the rates that are collected locally; the other 50% is paid over to central government. Under the business rates retention system, authorities that see their business rates income fall significantly in any year can receive a safety net payment. The cost of the safety net is paid for by levying a percentage of the business rates income of authorities that have seen their business rates income increase significantly in any year.

The detailed rules of the business rates retention scheme are set out in multiple sets of regulations. The Non-Domestic Rating (Rates Retention: Miscellaneous Amendments) Regulations 2023 make changes to four sets of regulations to ensure that policy measures determined elsewhere can be incorporated into the ongoing administration of the business rates retention system. They are: the levy and safety net regulations, the rates retention regulations, the transitional protection payments regulations and the levy account basis of distribution regulations.

First, several changes to the levy and safety net regulations are necessary to mitigate the impact of the 2023 revaluation of business rates on the business rates retention system. These regulations will adjust the calculation of baseline funding levels, which are used to calculate whether an authority triggers a safety net payment. These changes will make sure that authorities are not overpaid or underpaid as a result of the 2023 revaluation. In addition, authorities in Greater Manchester, Liverpool City Region, West of England, West Midlands and Cornwall have enhanced arrangements, which mean that they retain 100% of the business rates that they collect. As a result, these regulations will also adjust calculations for those authorities so that their safety net calculation remains accurate and reflective of the arrangements that have been agreed with them.

As is usual each year, the regulations also need to amend the calculation of authorities’ retained rates income to ensure that it includes relief schemes designed by the Government. Where the Government provide a new national business rates relief—such as the retail, hospitality and leisure discount—local authorities, as the bodies that collect business rates, award that relief to local businesses in their area. The Government compensate local authorities for the income they lose in doing this, which we take account of in a different part of the system. Therefore, the regulation changes here strip out the impact of the income reductions so that local authorities are not compensated twice for the same loss of income. These regulations also codify new business rates retention values for three restructuring authorities from 2023 to 2024: Somerset, Cumbria and North Yorkshire.

We adjust the rates retention regulations to amend the City of London off-set, which is an amount of business rates income that the City is allowed to retain outside the business rates retention system, due to its low resident population. Regulation 3 will make amendments to ensure that the off-set amount is uprated by the same inflationary uplift as core business rates retention figures.

We also amend the transitional protection payment regulations following the Chancellor’s Autumn Statement, which announced a transitional relief scheme as part of a package of targeted measures to ratepayers who would otherwise face large bill increases following the revaluation of business rates. Transitional protection payments compensate local authorities for their lost income from transitional relief. Regulation 2 will make a small amendment to ensure that where transitional relief is applied, it is calculated before the application of public lavatories relief. This will ensure that compensation is calculated and paid on the true cost of the transitional arrangements put in place following the revaluation.

Finally, the schedule to these regulations changes the basis of distribution regulations so that core funding allocations for the recently restructured authorities are actioned on the correct basis. Most immediately, this will ensure that, as announced in the local government finance settlement, every authority in England will receive a share of the £100 million surplus currently held in the business rates levy account.

In conclusion, this is a highly technical set of regulations. Most of the provisions simply give effect to previously agreed policy decisions, and they ensure that the correct calculations will continue to be made under the business rates retention system. I commend them to the Committee and I beg to move.

[Baroness Wilcox of Newport (Lab)]

My Lords, I draw attention to the fact that I am a vice-president of the Local Government Association, as noted in the register. I thank the Minister for introducing this statutory instrument. The regulations make various amendments to the system for the local retention of non-domestic rates established by Schedule 7B to the Local Government Finance Act 1988.

The current Chancellor’s Autumn Statement business rates package and this year’s revaluation of business rates will mean that all regions in England will see a decrease in average bills, which can only be of benefit to struggling high street businesses that have been unduly affected by unprecedented energy costs, together with inflationary pressures which were unduly exacerbated by the reckless fiscal policies of the previous Prime Minister and her Chancellor, bringing the UK economy to the very brink.

Britain is doing much worse than other western economies, which have faced the same pressures from Covid and Russia’s invasion of Ukraine. Britain is the only G7 economy still smaller than before the pandemic and has the slowest growth forecast over the next two years. The cost to working people and businesses is clear and profound: the worst cost of living crisis in 40 years; soaring energy and food prices; £400 a month more to pay on the average mortgage through higher interest rates; and the highest taxes for the British taxpayer in 70 years.

A Labour Government would change things for business by implementing a cut in business rates for small and medium-sized businesses, paid for by a temporary increase in the digital services tax, among a host of other costed measures to plan for a stronger, more secure economy. Labour has a plan to back business by bringing business rates in line with the modern economy. We will bring in an annual revaluation of business rates, rather than the ad hoc basis on which this Government operate, to give the sector the stability and reassurance that it needs. Through our model, the heavy burden of taxes will move from SMEs and high-street business to online giants, which for too long have got away with contributing too little to our economy. However, until Labour gets into government and delivers the transformation that businesses deserve, we need an urgent increase to the threshold for small business rates relief, raising it from £15,000 to £25,000.

We will get the cost of living under control and make Britain more resilient, laying the foundations we need for a thriving, dynamic economy in the future. Furthermore, Labour will make the business tax system fit for the 21st century by ultimately scrapping business rates and replacing them with a system that incentivises investment and levels the playing field between high-street businesses and global giants.

It is not just the billing authorities that need to prepare for new non-domestic rates. For many of the individuals and groups paying the new rates, financial and administrative overhauls such as this can be a costly operation. The LGA highlighted the need for councils to be compensated for the cost in staff time and the potential new technologies involved in the revaluation of rates and bringing in the transitional scheme. It is welcome that the Government have already announced that administrative costs for local authorities will be covered, as with previous schemes, under the new burdens doctrine, but the short time to input these changes will still cause problems that council staff do not need.

I therefore ask the Minister, first, will these current changes be continued into future financial years so that councils across England, together with local businesses, can have certainty when planning future budgets? Secondly, what will the Barnett consequential be for the devolved Governments because of this legislation, and how soon will they receive any extra funding from Whitehall?

Despite our concerns and our alternative policies, I say that anything that helps business to survive in these extremely difficult trading times is needed, and we therefore support this statutory instrument.

[Baroness Bloomfield of Hinton Waldrist (Con)]

My Lords, I thank the noble Baroness, Lady Wilcox, for her contribution to the debate. I appreciate her setting out some of the future directions of a possible Labour Government, and I thank her for her comments on the benefits that the Chancellor’s Autumn Statement and these regulations will bring to the high street.

The noble Baroness asked why we were not considering an online sales tax. The Government have decided not to introduce such a tax, but we are in the process of consultation and the response to that will be published shortly. Concerns have been raised about complexity, market distortion and the unfair outcomes between business models.

This revaluation will rebalance the tax burden to reflect the growth in online retail. Large distribution warehouses are expected to see total rates paid to increase by about 27%, while retail, hospitality and leisure businesses are expected to see total bill decreases of over 10%.

I think the noble Baroness creates an unnecessarily gloomy prognosis of the future of the UK economy. The Chancellor’s business rate support package means that businesses will benefit from support worth £13.6 billion over the next five years. Together with the revaluation, that package ensures that bills will more accurately reflect current market values while protecting businesses from large bill increases. The Government remain committed to implementing the outcomes from the business rates review, and we will bring forward legislation as soon as parliamentary time allows.

The noble Baroness had another couple of questions, but I fear I will have to write about the impact on Barnett consequentials and whether the current changes will carry over to the future. I apologise for not being able to answer those now.

These are indeed a highly technical set of regulations that are necessary to ensure that the rates retention scheme continues to operate effectively and as intended. If the amendments detailed in this SI are not made in time for the relevant calculation to be made in early March 2023, local authorities will not receive the safety net payment to which they are entitled or will pay the wrong amount of levy for 2021-22. Additionally, if changes are not made to values used in the levy and safety net calculation in response to the revaluation ahead of 1 April 2023, authorities may pay or receive the wrong amounts of levy or safety net in 2023-24 as well. The regulations ensure that this does not happen, and I hope the Committee will join me in supporting them.