Non-Domestic Rating (Rates Retention and Levy and Safety Net: Miscellaneous Amendments) Regulations 2026

Baroness Pinnock Excerpts

Monday 23rd March 2026 Grand Committee

[The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Baroness Taylor of Stevenage) (Lab)]

The most exciting ones always come at the end.

As many noble Lords will know, the Government are embarking on a much-needed funding reform for English councils to ensure that resources are aligned with need across the sector, with the first multi-year settlement in a decade delivering that reform. The business rates retention system is a major part of the overall local government finance system under which English councils retain a share of the business rates they collect, as well as a portion of any growth in that income. Resetting the system is a key element of the wider reforms, ensuring that funding is better aligned with need while preserving the incentive for authorities to continue to drive local growth.

In parallel with these reforms, the Government are also implementing substantial changes to business rates tax policy, which I am sure noble Lords will agree is also an essential task. As a result, the Government must make technical updates to the business rates retention system to ensure that, as far as is practicable, local government funding is not impacted by these changes, which are outside the control of local councils.

The instrument before the Committee today will update the business rates retention system to factor in local government finance reform and to accommodate changes to the tax. It amends two key sets of regulations on which the rates retention system is run. The levy and safety net regulations establish the safety net through which authorities are protected from large drops in business rates income; they fund that protection by applying a levy to business rates growth. The rates retention regulations set out the fundamentals of how the system operates, including how business rates income is calculated and shared between central government, billing authorities and major precepting authorities. The amendments are technical but clear in purpose; I will explain them now.

The safety net and levy determine the balance of risk and reward in the business rates retention system. To ensure that this balance is appropriate through the multi-year settlement, the Government announced changes at the settlement; this instrument puts them in place. First, the level of safety net protection is being increased to 100% of baseline funding level or need, provided through rates income for 2026-27. This is something that local government has welcomed and which noble Lords will, I am sure, agree is sensible. Secondly, the levy on business rates growth will now operate on a marginal basis, with different rates applying as growth increases up to a maximum of 45%. This balances the reward of business rates growth with the need to fund safety net protections.

Moving on, in response to the reset and wider tax policy changes, we are making changes to ensure that grant compensation paid to councils in lieu of business rates is treated in the same way as the rates themselves, streamlining local government accounting.

Next, the instrument updates key formulae and figures that are used to run the rates retention system in order to reflect changes and updated values from the funding reforms delivered through this year’s settlement. This includes figures used to calculate different measures of local authority income for the year.

Finally, we are making a series of minor amendments that are aimed at reducing complexity across the system wherever possible, which noble Lords will, I am sure, value. These include disapplying provisions that are no longer required, future-proofing routine calculations and streamlining a number of small funding mechanisms.

These amending regulations make technical changes to the business rates retention system, putting into effect what is required due to funding reform and changes to business rates tax policy. If approved, they will ensure that councils receive the business rates income the system is designed to deliver. I beg to move.

[Baroness Pinnock (LD)]

My Lords, I draw the Grand Committee’s attention to my interest as a councillor on Kirklees Council.

This is a very technical measure and a bit of a mixed bag. The reset of the business rates retention system is long overdue and welcome. For too long, the distribution of resources has been based on figures from when the system was introduced in 2013, so recalculating each authority’s assessed need and business rate tax base to redistribute funding on a needs basis is welcome. Given that aim, it is surprising that the Government have not produced an impact assessment. The Explanatory Memorandum says within it that most authorities will find that the system works for them, but some will not, so an impact assessment would be very welcome to understand the winners and losers, and to what extent they are winning or losing. Can the Minister provide some basic impact assessment, not for all authorities but for those that will benefit most and least so that we can see how this will work in practice?

The safety net established in this SI is to be supported because, while any fundamental changes in the business rates system take place, it will enable local authorities to have stability in their known income. That is positive, but as far as I could see it is not explained how authorities already in a pooled system will be impacted, such as those in West Yorkshire. All the data provided is based not on a pool of authorities but on individual ones, so it would be helpful to understand how that works. The proposal for Section 31 grants is welcome, because it will also help remove the impact of volatility in the system.

The downside is, I guess, the move away from the whole purpose of the business rates retention system, when introduced 10 or 12 years ago, as an incentive for growth. The introduction of marginal tax rates—which is what they are—on growth that exceeds the limits could be viewed as a tax on success. That is somewhat at odds with the Government’s fundamental position that growth is everything. It does not seem to apply in this case. How far do they think that these marginal tax rates of 30% and 45% will encourage or discourage investment and growth in particular areas?

This is a mixed bag. The reset is necessary for fairness and a safety net is good for stability, but having worked figures would have been really helpful so that we could understand the consequences.

[Lord Fuller (Con)]

If I may speak before my Front Bench, of course we welcome the introduction of multi-year settlements. Local authorities have been crying out for that for many years, and I can see that this is part of the path that we are going down.

The noble Baroness, Lady Pinnock, identified the importance of incentives—incentives for councils to do the right thing and go the extra mile. Sometimes those incentives help the council, as a promoter or joint enterprise with those people who wish to invest in an area, to make the case to local residents who may not necessarily welcome development. In my nearly 20 years as a council leader, I used the new homes bonus, as well as business rates retention, as powerful examples to otherwise semi-hostile or reluctant residents for us to make those investments.

Back in those days—the noble Baroness, Lady Pinnock, talked about 10 years ago and it must have been all of that—there were really powerful and compelling reasons for our authority, which was a high-growth authority, to pal up with all our neighbours, not all of which were quite so pro-growth as we were. By giving away some of our growth, the pot over the entirety of Norfolk was greater; there was that compelling case for co-operation. But I can tell the Committee that, over subsequent years, particularly more recently—I should stress that I am no longer the council leader doing these negotiations, but they are fresh in my mind—