Draft Non-Domestic Rating (Levy and Safety Net) (Amendment) Regulations 2025

David Simmonds Excerpts

Monday 3rd March 2025 General Committees

[David Simmonds (Ruislip, Northwood and Pinner) (Con)]

It is a pleasure to serve under your chairmanship, Mr Dowd, to discuss a matter that members of the Committee clearly find riveting.

The Minister referred to fixing foundations, so it is important for the Committee to note that the decision that we are asked to take this evening reflects the work and policy of the previous Government, introduced in 2013-14, which set a direction of travel on business rates whereby a greater proportion of the growth created at local authority level would be retained locally. It is a principle on which there has been a high degree of cross-party agreement for many years that those places that put the work in and see the local impact of growth should also benefit from that financially. Although I think we would all accept that it was a work in progress at the time of the last general election, I am pleased that the Government are at least continuing to operate the same system. I hope the Minister will consider how the principles that underlie this decision making can be rolled out further in the future.

Essentially, business rates retention is about saying to local authorities that, rather than acting purely as collections authorities for central Government, they main retain locally a proportion of the money that they collect through the non-domestic rates process. It is part of an infrastructure that includes the pooling arrangements introduced under the previous Government, which were designed to ensure that that benefit was not seen solely by an individual local authority but, because significant business growth often has a wider regional impact, was able to be shared across groups of local authorities. In London, for example, there are a number of pooling arrangements whereby local authorities share some of the proceeds across a wider area.

The Minister set out the impact and purpose of the arrangements for top-up and tariff authorities, but I have two questions for him to consider. First, although the change to the figure is very small, the regulations amend a previous set of measures that were introduced in a round of local government reorganisation that, following the abolition of Northamptonshire county council and its constituent districts, introduced the new North Northamptonshire and South Northamptonshire local authorities. It would be helpful to know that, although the impact in this case is small, the Government will give a good deal of consideration to ensuring that, as the process of local government reorganisation that has been outlined by the Minister and his colleagues takes effect, all the possible calculations and impacts have been fully considered. We know from previous rounds of local government organisation—not just the one that is relevant here—that such changes can have a significant impact on the administration of a local authority subsequent to elections.

The second question I would like the Minister briefly to address is this. We understand from the explanatory memorandum that the impact of these changes on the budgets of individual local authorities is negligible. However, it is noteworthy that most local authorities will have completed their budget-setting process in the past few weeks. Having, like the Minister, served many years in local government, I would be remiss if I did not flag that although the regulations will take effect immediately once they are passed—in effect, they come into effect tomorrow—it is good practice to ensure that local authorities have all the information before them when they make a decision.

Business rates variations can have a significant impact on local authorities, especially if there are changes to pooling, or if a local authority finds itself switched from a top-up to a tariff authority or the other way round. All those things would normally be taken into account in the budget-setting process, of which the non-domestic rates are, by statute, a part. It would therefore be helpful if the Minister could assure the Committee that the Department will work to ensure that, where instruments will have an impact, as these regulations do, decisions are taken so that they can legally form part of the council’s budget fixing, rather than being passed by Parliament—although it is legal for it to do so—after the budgetary decisions on which they have a bearing have already been taken.

[Jim McMahon]

I thank the Opposition spokesperson for his typically constructive response. On the matter of structural reform, there is agreement that it is far better that local government has long-term security and stability, and that, as much as possible, we tie down tax that is raised at a local level with the local accountability that comes with it. That is as important for council tax payers as it is for the local business community.

We also recognise that the groundwork that was done on devolution has the business rates retention scheme hardwired into it. The financial construct of many devolution agreements was based in large part on the business rates retention scheme being able to better reflect that, when areas come together and organise for growth, they ought to benefit from the proceeds of that growth. The business rates retention system has been built up over a period of time, and I would say it has maintained cross-party support on that basis.

As I said, these are generally very technical measures, but I completely take the point that local authorities need notice to be able to prepare. Most local authorities will be preparing on the basis of the information that has come in, and the measures will not be a surprise to them. I can assure the hon. Gentleman that officials have been in regular contact with North Northamptonshire council to let the local authority know that the adjustment is coming, so that it can prepare the ground. I hope that that gives him comfort.

On the hon. Gentleman’s points about local government reorganisation, we are now at a point where the statutory invitations have been sent out to the remaining 21 counties. Interest has been high, and we expect all—or perhaps the vast majority—to submit some kind of proposal about that process. We fully accept that that will require a significant amount of resourcing, from both the Department and local government itself, and we also recognise that in bringing together a range of different funding streams for councils at different layers of government and different geographies around the country, we will have to work to ensure that the alignment of assets, liabilities, revenue and so on is taken into account. I can assure the hon. Gentleman that officials are working on that.

It would be naive of me to say that I can absolutely guarantee that there will never be an error—the fact that we are here to reconcile an error shows that errors sometimes happen in very complex calculations—but I can say that we are doing all we can to ensure that we work that through that system. If the hon. Gentleman would find it useful, I would be happy to arrange a technical briefing with officials about how we are gearing up for that.

[David Simmonds]

I am grateful for the Minister’s offer—I am sure we will take him up on that—but can he give the Committee an assurance that such technical programmes are encompassing all of those Departments that have a direct stake in local government? For example, previous reorganisations have sometimes resulted in special educational needs and disability school facilities being entirely within one of the resultant local authorities, with another having a significant general fund revenue cost—which would be visible in the Ministry of Housing, Communities and Local Government—in transporting children across the border to access those schools that have, in fact, always been the traditional schools enabling that county. That can have a significant financial impact, and it would be good to know that those kinds of measures are being considered fully across Government.

[Jim McMahon]

I share the shadow Minister’s observation about the complexity of the system; it only takes a small part of it to throw quite wild numbers out in different parts of the country, because there is a lot of commonality in local government but different types of councils are affected very differently by different elements of public service pressures. County councils, in particular, are affected far more on home-to-school transport, for instance, than those in more urban areas. I completely understand that point.

I will say that we are eyes wide open as to the amount of change that is going through the system. Just on business rates, we have the business rates reset, the business rates relief work being done in terms of retail, hospitality and leisure, and the revaluation that is taking place at the same time. We then have a number of devolution agreements coming, and I am sure that retention will form part of those discussions and negotiations. On top of that, we have the more fundamental review of local government finance, where the funding formula is being looked at again.

There is quite a lot of change in the system, and I am very alive to the need to ensure both that the data is accurate and up to date and that we take local government expenditure in the round, to make sure that, in the end, every council has the resources needed, on a fair basis, to deliver decent public services. We are on with the political work, in terms of the outcome, but also the technical work, in terms of the process, to make sure that it is robust.

In conclusion, these technical amendment regulations are required to make sure that the business rates retention system operates as it should. I hope that the Committee will join me in supporting them.

Question put and agreed to.