Non-Domestic Rating (Rates Retention) and (Levy and Safety Net) (Amendment) Regulations 2017

Baroness Pinnock Excerpts

Monday 20th March 2017 Lords Chamber

I think it is wise to have the business rate retention pilots, and I am really pleased that they are taking place in as many places as is now planned. It is important to understand the impact of government policy, in terms of both need and equalisation, on some areas. I draw the Minister’s attention to HS2, a long-term project. There is clear evidence that where major infrastructure goes in, much of it with government/public-funding support, it raises values. Where the Government decide to invest in infrastructure, values rise; and when values rise, the business rate income for those areas will also rise. One of the consequences is that, because development investment is likely to be higher in the places where the infrastructure investment has taken place, those parts of the UK that do not have major infrastructure investments may find they have lower business rates income, in comparative terms, as a consequence. It is not wise for government policy to lead to a situation in which some parts of the country have greater difficulty in raising money from business rates. For that reason, equalisation will matter in the years ahead. It is not something that will just disappear in the course of the next two to three years.

[Baroness Pinnock (LD)]

My Lords, I draw the attention of the House to my entry in the register of interests as a councillor in the borough of Kirklees and as a vice-president of the Local Government Association.

I wish to draw the House’s attention to the significant number of factors that are changing in the system of a 100% business rate retention and the consequences of those changes. We welcome the move to more locally raised funding for local services because it brings with it less reliance on the variation in perception of local government by different national government Ministers. Such a substantial change brings considerable uncertainty, and as local authorities are already grappling with substantial funding changes, this adds to the risks of councils being able to budget to meet local needs. The fact that the move to 100% retention coincides with the significant and overdue business rates revaluation has added to the complexity of what is being considered and how it will work out in practice. Consequently, there is an expectation that there will be a large number of business rate appeals, to which the noble Lord, Lord Beecham, and my noble friend Lord Shipley have already drawn attention. While it is to be welcomed that the Government have established a central fund for payment where appeals are successful rather than the existing system of a 50:50 share with local authorities, it must be fully funded, otherwise it will fall into disrepute.

A 100% business rates retention scheme brings with it both winners and losers. An analysis by the House of Commons Select Committee last year estimated that the winners are more likely to be in all the regions to the south of Birmingham, with the northern regions and the Midlands being net losers. Although government estimates are that local government as a whole will gain by between £10.5 billion and £12.5 billion a year, many local authorities will not gain and will rely on the system of tariffs, top-ups and the new levy system to allow equalisation.

This redistribution through tariffs and top-ups will be absolutely critical if local authorities that are currently not in a position to raise sufficient funding are to be able to meet local needs. This must be done on the basis of an individual council’s needs and not on a regional, sub-regional or combined authority basis as there can be wide variations even between adjacent local authorities, again as the House of Commons committee report of 2016 demonstrated. The safety net is a critical factor and the detail of how this will operate is fundamental to enabling local authorities to deliver essential public services.

The other crucial factor in these considerations is the frequency of the so-called resets—the length of time between business rate revaluations. Obviously businesses, wanting certainty, would want a longer period, but local authorities, reliant on income from business rates and with fluctuation in need, will want a more frequent reset. It will be interesting to hear from the Minister about the lengths of time between resets that the Government are considering. It will also be interesting to hear what action the Government propose to take if, for instance, a large retailing business closes within a local authority and it therefore loses the income from that company’s business rates. Would there be compensation for what could be a significant loss of income?

In addition to these variables, the Government are proposing that local authorities should have new responsibilities as a result of the increase in funding that will be gained by them from the 100% retention scheme. I am relieved that the attendance allowance scheme has now been excluded from the suggestions that the Government originally made, but I hope—perhaps the Minister will be able to give some reassurance—that they will not use the opportunity of local authorities gaining from additional funding to pass on more responsibilities than the funding available. That would be quite a cynical move and would just add to the cuts in local authority funding.

The Government have yet to spell out the arrangements for sharing business rates in two-tier authorities. Perhaps the Minister can throw some light on how that will happen. I would also like to hear from the Government about the central list of major public utilities whose business rates are centrally gathered. It would be nice to know which is on that list, what business rates in total they bring in, and how the money will be redistributed. I have not been able to find a list. I am sure there is one, but it is a little list that I have not been able to find.

A final uncertainty in this major reform of local government finance is the fair funding review, which I hope will live up to its name. The assessment of need referred to by my noble friend Lord Shipley is the fundamental building block for providing local councils and the people they serve with an assurance that councils will be able to meet their basic needs.

The Government are making substantial changes to local government finance at the same time as large cuts are being made to local government funding. This brings with it risks and uncertainty as well as an inability to plan for the long term. We seek assurances from the Government that these changes will not, first, result in even more significant cuts to funding for those councils that will struggle to increase business rate income in the short and medium term. Secondly, can the Minister give an assurance that there will be a fair equalisation mechanism? Thirdly, will he take into account the significant changes in income or, as I have referred to, between the reset periods? Fourthly, will the fair funding review enable all local authorities to meet the needs of the people they represent?

Finally, I look forward to the Government providing information about the one-liner I spotted today in the Local Government Finance Bill:

“The Government will amend the related approach to the setting of council tax referendum principles”.


I have thrown that in in the hope that the Minister will have some information on it.

[Lord Kennedy of Southwark (Lab)]

My Lords, in debating these regulations I refer noble Lords to my entry on the register of interests. I declare that I am a local councillor in the London borough of Lewisham and a vice-president of the Local Government Association.

The first set of regulations, as we have heard, governs the payments to and from authorities and to the Government, while the second set governs the operation of the levy and the safety net for 2017-18, taking into account the revaluation and the 2017-18 business rates pilots. The amendments make provision for the following: allowing the pilot authorities, including in Greater Manchester, Liverpool City Region, West Midlands and West of England and Cornwall, not to pay a central share. There is to be a reduced central share in London to allow for the fact that the GLA will now receive Transport for London investment funding through business rates rather than a grant. The West of England Combined Authority is to receive 5% of business rates as well. There are changes to the baseline funding level for all authorities in line with the 2017 revaluation and the rise in RPI. Changes are made to the levy rates to reflect revaluation and the fact that the levy will not be payable for authorities in the pilot areas.

I have no issues with these regulations as they stand, but I have a few general observations and questions for the Minister. As we move to a system whereby local authorities keep their business rates, the Government need to ensure that the implementation is fair and provides councils with the resources they need to deliver services. Some areas will be able to generate large sums of money from their business rates while others, despite working on and growing their local economies, will struggle to generate sufficient business rate income to meet the demands placed on them. We have heard about the schemes in place to equalise that—the noble Baroness, Lady Pinnock, referred to them. Can the noble Lord comment on ensuring that the scheme to take account of imbalances has a very local focus rather than the focus being at the regional and combined authority level? I agree strongly with the comments of the noble Baroness in that respect. Can the Minister give local authorities some comfort by saying that the Government are aware of this issue and will be responding to it?

Can the Minister also comment on the trend of the Government to place more and more obligations on local authorities but not to provide the funds to meet them? It is a worrying trend that we have seen developing. I would certainly want to see extra business rates income being used to relieve existing funding pressures before we get to the additional responsibilities to be funded through business rates retention.

Can the Minister also say something in respect of business rates appeals, a point raised by other noble Lords in their contributions, and the risks associated with them for local government? My noble friend Lord Beecham and the noble Lord, Lord Shipley, both referred to this issue. I contend that local authorities holding £2.5 billion in case they need to refund money due to successful appeals is not the most efficient way to proceed.