Non-Domestic Rating (Rates Retention) Regulations 2013

Lord Beecham Excerpts

Thursday 7th February 2013 Grand Committee

[Lord Ahmad of Wimbledon]

My Lords, the regulations we are debating today are one of the last remaining building blocks needed to implement the rates retention scheme on 1 April this year. We will also cover the Local Government Finance Act 2012 (Consequential Amendments) Order 2013.

Only a little over two years ago, this Government announced that they wished to end the current system of business rates being centralised. That is an ambition that those of us who have worked in local government have heard many times over the years but, up to now, with no expectation of it being achieved. With the passing of these regulations and others which will follow shortly, we will start to deliver this particular government intention and policy. It has been widely recognised in both local government and business that the current rating system does not provide an incentive for local authorities to support growth. Currently, when a new business or development moves into an area and generates extra business rates, that is passed on in full to central government—never mind the fact that the local authority may have to meet new costs associated with it. That is a system that has been widely criticised and will end on 1 April; from then, under the new business rates retention system, local authorities will retain 50% of their local business rates income. If local government uses its expertise and local knowledge to create a strong economic environment and encourage development and new businesses into its area, it will be able to share in the resulting growth in business rates.

In this House, we have had many opportunities to consider the new rates retention scheme, particularly through the Local Government Finance Act 2012. That scrutiny allowed us to make a number of amendments to the Bill to improve the operation of the rates retention system. In particular, on 10 October last year, we brought forward a group of amendments to allow local government to use a “collection fund” approach to rates retention. This is a system that has been requested by local government. It is a system with which it is familiar and that all people who have served in local government know is used for council tax. The regulations we are considering today implement that system.

Throughout the development of the rates retention system, we have ensured that local government has been fully consulted on the principles behind the scheme and, importantly, its practical implementation. These regulations were developed in partnership with experts in local government and were published in draft for consultation last October. This proved to be a valuable exercise and we are confident that as a result the system will be workable. The rates retention regulations implement the collection fund system. They will also ensure that local authorities are fully funded for qualifying rate relief awarded in enterprise zones.

I turn first to the operation of the collection fund system. It provides stability for local government budgets. This is because, under these regulations, an estimate made by billing authorities of the coming year’s rating income is used to fix the shares paid to major precepting authorities and to be retained by the billing authority for its own budget. These amounts do not change in the year, even if the amount of rates collected changes. Thereby, authorities can plan with certainty for the coming year.

Of course, the estimate for the year is unlikely to be perfect and we can expect the actual amounts collected from ratepayers to be different. Under the collection fund system, that will generate either a surplus or a deficit. Again to provide financial stability that surplus or deficit will be rolled forward into the calculations for future years. This avoids sudden changes in a local authority’s budget.

The rates retention regulations also provide that the central share will be paid to central government in 10 monthly instalments, in line with the instalments of rates income paid by ratepayers to local government. The same instalment schedule will be used for other payments to and from central government in the rates retention system. The regulations also offer that schedule for use between billing authorities and precepting authorities, but we have ensured that, if they wish, they can agree different arrangements.

I turn to the funding of relief in enterprise zones. The regulations ensure that local authorities are fully funded for qualifying rate relief in enterprise zones, which will provide an important boost to economic growth across the country. The Government have promised that ratepayers moving into an enterprise zone before 1 April 2015 can receive up to five years of rate relief, up to the state aid de minimis limit. However, under the rates retention scheme, local authorities would normally have to share in the cost of that relief. We have agreed that central government should fund enterprise zone relief in full. Therefore, these regulations allow local authorities to deduct from the share of rates income they pay to central government their share of the cost of relief in enterprise zones. As a result, local authorities will be no worse off financially from central government’s policy of awarding rate relief in enterprise zones.

I turn briefly to the Local Government Finance Act 2012 (Consequential Amendments) Order 2013. These are technical amendments that, for want of a better term, tidy up the draft regulations. They make a number of technical and consequential changes to other legislation, where it refers to the current system of redistributed non-domestic rates. The draft order replaces those soon-to-be-obsolete terms with references to the new rates retention system and locally retained non-domestic rates. The order also makes technical changes to the way that authorities must calculate their council tax requirements to ensure that these calculations correctly reflect the rates retention scheme.

In conclusion, these regulations will provide local authorities with in-year stability of income from the rates retention scheme through the collection fund system, and will ensure that local authorities are fully compensated for the cost of qualifying rate relief in enterprise zones. They have been discussed in detail with local government and utilise systems that we know work well for council tax.

[Lord Beecham]

My Lords, I am sure that those of my constituents in the west end of Newcastle who have been glued to BBC Parliament during the course of these 20 minutes will have been enthralled by the presentation. I congratulate the Minister on taking us through an inherently complex, not to say abstruse, area of local government finance and legislation in the clear way he has. I have nothing really to say, he will be relieved to hear—as, no doubt, my constituents will be—about the regulation. It seems eminently sensible.

I want to sound a slight note of warning about the arrangements for enterprise zones. I very much welcome the provisions here, but we will be returning at some later point to the safety net in terms of business rates, which brings to mind the danger that businesses relocating into the enterprise zone will be vacating premises that may stand vacant and not produce a business rate income for the local authority, thereby contributing to the amount—which at the moment stands at 7.5%—above which compensation will be paid. That is not so much in relation to today’s regulations, I have to confess, but I take the opportunity of drawing the Government’s attention to the potential complexities to which these regulations might add and the probable inequity of a limit set at that level. This is just a gentle warning, but I think that in due course a committee will want to revert to that issue. However, in relation to these two sets of regulations, we have no objection.

[Lord Ahmad of Wimbledon]

My Lords, first, I thank the noble Lord, Lord Beecham, for his support and for the sterling job the noble Lord does in representing the voice of the people of that area.

That said, this is something from my experience in local government. I know that when I served as a councillor, we lobbied long and hard to ensure that local authorities that work hard to attract new income and businesses into their area were allowed to retain and reap the rewards of their efforts in retaining business rates.

The noble Lord, Lord Beecham, as ever, reminds us that there are issues around the levy. I note what he said about the 7.5% safety net regulation, and I am sure that we will return to discussions on that. I am minded of the total support for the specific regulations and am thankful for the support of the Committee.