Local Government Finance Act 1988 (Prescription of Non-Domestic Rating Multipliers) (England) Regulations 2023

Lord Jones Excerpts

Tuesday 23rd January 2024 Grand Committee

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, although these draft regulations may appear at first sight obscure and technical, they are essential to the smooth functioning of the business rates system for the financial year 2024-25 and beyond.

The regulations serve two main purposes. The first is to preserve the threshold for those businesses that pay rates by reference to the lower small business multiplier at a rateable value of below £51,000. This has been government policy since 2017 but, due to the passing of the Non-Domestic Rating Act 2023 in October, it must be reaffirmed here.

The second is to ensure that this threshold of £51,000 not only applies to occupied properties, as it has done previously, but extends to charities, unoccupied properties and those on the central list that are not subject to full relief. Moving these properties from the higher standard multiplier to the lower small business multiplier will place the entire business rates system on an even footing. It will also constitute a modest tax cut for those properties that will move to the small business multiplier for the first time, to the tune of around £5 million per year.

The Committee may find it helpful if I set out a quick reminder of how the business rates multiplier works. A multiplier is, in effect, a tax rate used to calculate business rates. There are two kinds of multipliers. The standard multiplier applies to businesses with a rateable value of £51,000 or above. The small business multiplier applies to businesses with a rateable value of less than £51,000. The relevant multiplier is multiplied by the yearly rental value of a property, known as the rateable value, to calculate its business rates bill before any reliefs are applied.

These regulations have been precipitated by the Non-Domestic Rating Act 2023, which implemented the reforms announced at the conclusion of the 2020 business rates review. As I am sure many noble Lords are aware, this important legislation introduced more frequent revaluations, bringing the revaluation cycle down from every five years to every three years to make the system fairer and more responsive. The Act also introduced a new improvement relief to incentivise businesses to invest in their properties; legislated for improved transparency in how business rates valuations are calculated; and introduced a number of administrative reforms to the business rates multiplier to streamline and improve the system.

This last point is most relevant here, as those reforms provide the Government with a power to set and alter in secondary legislation the thresholds for which properties are eligible for each multiplier. As these new reforms will come into force from the 2024-25 financial year, the Government must bring forward these regulations in order to maintain the threshold for which properties pay the multiplier at its existing level of £51,000 rateable value. If these regulations are not passed, the small business multiplier will instead apply only to businesses in receipt of small business rates relief. This would constitute a tax hike for hundreds of thousands of businesses whose properties have a rateable value of between £15,000 and £51,000.

The second purpose of these regulations is to bring unoccupied properties, charities and properties on the central list in line with occupied properties, by bringing properties with a rateable value of below £51,000 into the scope of the small business multiplier. The proposal to bring unoccupied properties and charities within the small business multiplier was initially made in the technical consultation following the business rates review. The Government committed to this change in the summary of responses to that document in March 2023. To maintain consistency across the business rates system, it was subsequently decided to bring properties on the central list—the centrally managed list of properties that span multiple local authority areas, such as utilities pipelines—within the scope of the small business multiplier.

The content of this instrument is therefore very simple. The instrument continues and extends existing government policy, applying the small business multiplier to properties with a rateable value of below £51,000 that are not subject to full relief. Properties valued at £51,000 and above that are not subject to full relief will pay business rates by reference to the standard multiplier.

For the majority of ratepayers, then, this statutory instrument merely preserves the status quo. Ratepayers are used to a £51,000 rateable value threshold for the small business multiplier, and this instrument maintains that threshold under the legislative reforms made by the Non-Domestic Rating Act 2023. The instrument promotes stability and predictability in the business rates system. For unoccupied properties, charities and properties on the central list with a rateable value of below £51,000, this instrument will provide a small tax cut, as these properties are brought into the scope of the small business multiplier. The regulations will make the multiplier more consistent and place all properties on a fair and level playing field. I beg to move.

[Lord Jones (Lab)]

My Lords, I thank the Minister for her helpful and brisk exposition, and I will not delay for mischief or malice these regulations that come to the Committee. It is the settled view of the usual channels that it should be so—and rightly so. I rise briefly in the traditional manner to ask the Minister questions, simply and briefly, to hold the Executive to account. So often the Grand Committee considers regulations of great importance to citizens but debate is so brief.

Paragraph 2.2 of the Explanatory Memorandum is welcome. Can the Minister tell us the Government’s estimate of the numbers of small businesses in England and Wales? Does the department have any idea of how many there may be?

Paragraph 12.1 of the Explanatory Memorandum baldly states that this is a “tax cut”. Surely the Minister who comes to this Committee with a tax cut should be congratulated. For the Minister arriving with a tax cut, it raises confidence when next she gives her expert and brisk introductory remarks.

On paragraph 14 of the Explanatory Memorandum, who will carry out monitoring and review? Shall it be civil servants, independent consultants or simply the Minister’s section in her department?

Under the heading “Consultation outcome”, paragraph 10 mentions small businesses. Has the Federation of Small Businesses—or the chambers of trade, for example —been involved in this consultation? Details might be available from the Minister or her officials.

Lastly, local government tells of its great problems concerning finance. Does the Minister know that local government throughout the nation hopes that, in the imminent Budget, the Chancellor will offer more money to hard-pressed local authorities in a time of austerity?

[Lord Shipley (LD)]

My Lords, I thank the Minister for her introduction. I welcome strongly the decision to ensure, through this instrument, that charities and unoccupied properties will be eligible for the small business multiplier. It is also helpful that the Government have decided to extend the small business multiplier to central list properties below the £51,000 rateable value threshold.

Business rates are simply too high, particularly for small businesses. I recognise that there has been a freezing of the small business multiplier. At Third Reading of the Non-Domestic Rating Bill in October, I said that what is now the Act made some very welcome changes, particularly around more regular revaluations. However, business rates used to be around half the rental value of a property and they are now closer to 100%—they are almost equal. This financial burden is putting huge pressure on many businesses and impacting on our high streets, particularly our retail sector.

I want to ask the Minister this. We had assurances during the passage of the Non-Domestic Rating Bill that the legislation would be kept under review. Will the Government continue to keep under review the amount that small businesses have to pay? Even though there is a discount, at 49.9p in the pound, compared to other businesses, at 51.2p in the pound, small businesses need greater help today. I hope very much that the Minister will be able to say that the Government are well aware of the financial pressures that small businesses have and are alert to the need to ensure that those pressures, in the current economic context, do not get worse. Might the Government find ways to review the business rates system, which we debated at some length during the passing of the Non-Domestic Rating Bill, but also the level that is paid by many businesses which have been struggling?