Non-Domestic Rating (Rates Retention, Levy and Safety Net and Levy Account: Basis of Distribution) (Amendment) Regulations 2020

Lord Liddle Excerpts

Tuesday 3rd November 2020 Lords Chamber

[Lord Liddle (Lab)]

My Lords, I think the paper before us and the speech we have just heard must convince all Members that the non-domestic rates system is something of an enigma wrapped in a mystery, as Winston Churchill said about something else. There is no better person to talk about it than a Minister who actually understands local government, and that is a shared commitment I have. In my political life I have been on three different authorities: Oxford City, Lambeth and now Cumbria, which I declare as an interest.

I would like to use this opportunity to probe the Government’s intentions on their general policy on non-domestic rating. First of all, this is a muddle. Do the Government have plans for a long-term reform of non-domestic rates, and within what timescale? Economists argue seriously for switching to a system of land value taxation—is this something the Government might contemplate?

Secondly, there is the immediate question of business rates, which is the situation we are currently in with the Covid epidemic. We welcome, obviously, the relief given for the current financial year, but what will happen next year? Will we go back to what I think is a discredited system of complex formulae, a rate base we do not really understand and valuations which are often out of date? What will happen next year?

Thirdly, do the Government recognise—I do not think the public recognise this—that non-domestic rates are actually a very big tax? They are a very big tax indeed on business; I think it comes out at something like 1.7% of GDP. It is a very important part of the national tax base. When you look at other countries, our friends over the channel, France levies only 0.7% on business rates and Germany only 0.3%. When you look at the thriving small towns on the continent by contrast with the dead town centres that we have in so many of our cities, it is not surprising that the fact that we impose such high taxes on business through the rating system plays a part. This is a very big problem with the emergence of online competition, and this makes it a far bigger problem in the UK than it is in countries on the continent where business rates are less of a factor in costs.

Then there is the question of the Government’s general policy on local government finance. Is it the Government’s intention still to make local authorities more dependent on the income they raise, and gradually to phase out government grants to councils—which is what the Government said they were doing in the George Osborne era? Business rates retention was introduced as part of that philosophy of making authorities more dependent on their own tax base and less dependent on central government grants. The argument for that is that it incentivises growth policies, because you have an incentive for growth. The argument against is that if areas are poor, they will not get much richer through a policy that favours authorities with high economic growth rates. Is this approach of making authorities dependent on the money they raise locally consistent with this Government’s levelling-up agenda? That is a very big question. I favour a reform of government grants, a new equalisation formula and—I know the Government do not like this phrase—a form of fiscal federalism in England. The present system needs radical change.