Non-Domestic Rating (Chargeable Amounts) (England) Regulations 2016

Lord Beecham Excerpts

Wednesday 21st December 2016 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government and Wales Office (Lord Bourne of Aberystwyth) (Con)]

My Lords, these regulations provide the mechanism to introduce the transitional relief scheme for the business rates revaluation that takes effect in April 2017. This will help almost 600,000 businesses with £3.6 billion of relief over the next five years.

Business rates are a property tax where the amount paid depends upon the rateable value of the property. That rateable value broadly represents the annual rental value and is assessed independently of Ministers by the Valuation Office Agency. To maintain fairness in the system, those rateable values are updated for changes in the property market at regular revaluations. The next revaluation takes effect from 1 April 2017.

We estimate that more than seven out of 10 ratepayers will see their rates bill either fall or stay the same at the 2017 revaluation, and eight out of nine regions will see bills fall overall. However, for those facing increases we are putting in place a transitional relief scheme, which the regulations we are discussing today implement. They will be used by local government to establish whether ratepayers should receive transitional relief limiting the annual increase to their bills. They will also be used to establish whether ratepayers should contribute to the cost of that relief by capping the annual reduction in their bill due to the revaluation.

By necessity, the regulations are complex. They deal with the various cases on how to calculate the bill where a property changes through a split, merger, extension or renovation of a property. My department produced a detailed Explanatory Memorandum to accompany the regulations which explains how each provision works. I do not propose to cover all these rules, but the main principles are important and worth explaining.

The transitional relief scheme we adopted provides the same level of relief for small and medium businesses as was provided at the previous revaluation in 2010. In particular, no small property will see more than a 5% increase next year before inflation due to the revaluation. This benefits 500,000 small businesses. Overall, the transitional relief scheme is worth £3.6 billion over the five years of the scheme. Some of the biggest increases are being faced by large businesses in London, so the scheme targets over £1 billion of support to London alone.

We are required by law to ensure that the transitional relief scheme is self-financing. To satisfy this legal requirement, we have to meet the cost of the relief from other ratepayers. The scheme we have adopted targets that funding on those ratepayers who benefit the most from the revaluation by capping annual reductions in bills. This is the same approach as has been adopted since 1990. It means that those benefiting the most from the revaluation contribute to the cost of the transitional relief, while still seeing their bills fall.

The scheme has been developed by my department using actual data on the revaluation provided by the Valuation Office Agency. We consulted on our preferred scheme in September and received support from, among others, the Federation of Small Businesses, the Association of Convenience Stores and the British Beer & Pub Association. The regulations have been shared and discussed in draft with local authorities and their software providers. They are very similar to previous transitional relief schemes and the transitional relief will be applied automatically to rate bills from 1 April 2017.

Finally, I assure the House that the revaluation and the transitional relief scheme will not affect local authority incomes. As many will know, since 2013 the Government have allowed local authorities to retain 50% of the business rates they collect, and by the end of this Parliament we will increase that to 100%. When we introduced the 50% rates retention scheme, we signalled that following a revaluation we would make adjustments to the rates retention scheme to ensure that, as far as is practicable, the business rates kept by local authorities were unaffected by the revaluation. This commitment will ensure that the growth incentive created by the rates retention scheme and the delivery of public services will not be weakened by any losses of income from the 2017 revaluation or the operation of the transitional relief scheme. Last week, my department published the draft local government finance settlement, which included the adjustments necessary to deliver on this commitment. I commend the regulations to the House.

[Lord Beecham (Lab)]

My Lords, it is no doubt timely to review the valuation of properties for the purposes of business rates. My recollection is that it is now 25 years since the valuation for council tax purposes was applied. Consequently, we still have the same number of bands and the same financial layout that was established all that time ago. If it is timely to revalue properties for the purposes of business rates, why is it not timely to review the basis of council tax and change the valuations there—and, indeed, possibly the number of bands?

[Lord Shipley (LD)]

My Lords, in the context of the existing system, the proposal that the Minister and the department have come up with is the right response. The amended version of option 2, which the documentation explains, is probably the right thing to introduce.

However, there is a lot of concern about the context of this and the impact of the revaluation. I was surprised to read in paragraph 10.3 of the Explanatory Memorandum:

“An impact assessment has not been produced for this instrument because it amends an existing local tax regime. Publication of a full impact assessment is not necessary for such legislation”.

I understand the overall reason for that but I suspect that the department is going to get many more appeals because of the significance of the changes, which, over the next few years, will cause some, who have very high increases in their bills, to wonder whether they could secure a reduction through the appeals system. We heard at Questions earlier about the impact of that on local authorities’ ability to plan their annual budgeting. I would appreciate anything that the Minister can say about how the Government might help to speed up the business rate appeals system.