Non-Domestic Rating (Shale Oil and Gas and Miscellaneous Amendments) Regulations 2015

Lord McKenzie of Luton Excerpts

Tuesday 24th February 2015 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Lord Ahmad of Wimbledon) (Con)]

My Lords, I shall speak also to the draft Non-Domestic Rating (Levy and Safety Net) (Amendment) Regulations 2015. These regulations make important amendments to the rates retention scheme, which since April 2013 has allowed local government to retain 50% of all business rates. This has given local communities a vital share in local growth and has rewarded those authorities that work with their local businesses to support and boost local economies.

I will first consider the Non-Domestic Rating (Shale Oil and Gas and Miscellaneous Amendments) Regulations 2015. Safe shale oil and gas, supported by a robust regulatory system, will help safeguard the national energy supply on which families and businesses throughout the country rely. It will also create local jobs, but while we believe that drilling for shale oil and gas is nationally important, we recognise that, locally, communities should also see the benefits of such developments. The draft regulations will therefore allow local authorities which host shale oil and gas sites to retain not 50% but 100% of the business rates they collect from those sites.

We undertook a technical consultation on these proposals last year and sought views on the regulations in draft. A summary of the responses to that consultation and the Government’s response were published on 23 January. A number of respondents were opposed to the principle that local authorities should receive 100% of the rates collected. The Government are not persuaded, for the reasons I have already touched on. We continue to believe that communities that host shale oil and gas sites should receive additional financial benefits.

The regulations will ensure that in areas where there is more than one tier of local government, the additional 50% being retained from shale oil and gas sites will go to the authority which is responsible for mineral planning decisions. In two-tier areas, this will be the county council and in London it will be the London boroughs. This is because these authorities have significant levers for promoting these developments. Nevertheless, other tiers of local government will continue to receive the same share of the business rates from shale oil and gas sites as they would have received under the existing 50% retention system. So, for example, district councils will still receive 40% of the business rates on shale oil and gas sites. This means that no local council will be worse off as a result of this measure.

These regulations also include some unrelated but important amendments to the operation of the rates retention scheme. The amendments are technical and have been developed and agreed with officers from local government in working groups set up for that purpose. They will ensure that the scheme operates as we intend.

Before explaining the changes made by Parts 5 and 6 of the regulations, I remind noble Lords that the scheme requires authorities to make an estimate of business rates income before the start of the year. The sums retained by individual authorities and paid to central government are calculated on the basis of that estimate.

Following the end of the financial year, authorities report their actual income. For the most part, any difference between the start of year estimate and the end of year actual income is rolled forward and paid in future years. However, for some aspects of the scheme, reconciliation payments are made once the actual income is known. These regulations amend the scheme to ensure that when the reconciliation payments are calculated, the amounts due to or from precepting authorities are correct.

Regulations 12(3) and 13 will also ensure that payments under the rates retention scheme made by local government during the year are made in 12 rather than 10 instalments, bringing those payments into line with when the rates income is received by local government.

Regulation 12(4) will update the cost factors which are used to calculate the local authority’s cost of collecting business rates. This determines how much money each billing authority receives to cover the cost of billing and collecting local business rates.

Finally, Regulation 12(5) makes the necessary amendments to ensure that when Derby City Council grants rate relief in the newly designated Derby Enterprise Zone, it is compensated for the cost of that relief.

I now turn to the levy and safety net regulations. These, too, make a series of technical amendments which, as with the previous regulations, have been agreed with local government officers on a working group set up to advise on the detailed implementation of the scheme, as well as with the Local Government Association and the Chartered Institute of Public Finance and Accountancy.

I will start by reminding noble Lords that the rates retention scheme includes a safety net which provides support to those authorities which, in any year, see their rates income drop by more than 7.5% below their baseline funding level. This is funded by a levy on other authorities that saw business rates growth in that year.

Noble Lords will also recall that, in line with our proper accounting practice, authorities must now set money aside from the rates they collect in order to create a provision from which they can, in future, make refunds to ratepayers where a rating assessment is reduced on appeal. Last year, we provided that authorities could, if they chose, spread the initial costs of making that provision over five years, rather than having it hit their useable income in the first year.

These regulations ensure that where an authority has chosen to spread the cost of appeals, which in turn changes the income reported in those years, this adjustment is also reflected in the calculations of the levy and safety net. Without such changes, the calculation of levy and safety net payments due to authorities would be made as if their income in 2013-14 was lower than it actually is—and, crucially, that their income in each of the next four years was higher than it will be. The regulations, which are highly technical, ensure that the calculations of levy and safety net payments reflect the impact on each authority of a decision to spread the cost of the initial appeal provision.

These regulations will also ensure that payments arising from the levy and safety net are made in 12 rather than 10 monthly instalments. As with the previous regulations, this is to ensure that payments from local government to central government are aligned with payments from ratepayers to local government.

Finally, I draw to the attention of the Committee a couple of minor typographical errors in the levy and safety net regulations. In Regulation 2(1), the word “Rating” needs to be inserted after the words “Non-Domestic” in order to fully describe the 2013 regulations. In paragraphs 7(2) and 8(2) of the new Schedule 1A to the 2013 regulations, the reference to “paragraph 1 of Schedule 1” should in fact be to “paragraph 2 of Schedule 1”. I apologise for these minor errors of drafting: we intend to rectify them when the instrument is prepared for signature. I commend these regulations to the Committee.

[Lord McKenzie of Luton (Lab)]

My Lords, I wish to ask the Minister a couple of questions in support of my noble friend. On the shale oil and gas regulations, I think the Minister said that 40% will still go to district councils. I presume that that is 80% of the existing 50% that councils will retain. If it is not, it would be helpful if he could expand on that. Perhaps he can also say a little more about the reasons for allocating the additional 50% of business rate relief, where there are two-tier authorities, to county councils rather than to district councils. Is it simply because the former is the minerals authority, bearing in mind that it is the district councils that will suffer quite a lot of the disruption that is inevitably entailed in some of these activities?

Can the Minister also say a little more about how the extent of a class A and class B hereditament is to be determined? What sort of factors will be taken into account, bearing in mind that a lot of what goes on in fracking happens many feet below the surface? How is that, as a practical matter, going to be dealt with? Finally, can the Minister help us a little on what the retention of the 50% actually means? If, for example, an authority might otherwise be in receipt of a safety net payment, would that additional 50% be ignored completely and would the safety net payment still be made? Similarly, does it have any effect on what would have been the levy payment in those circumstances?

As for the baseline funding levels being uprated by 2%, presumably the effect of that is to reduce what the safety net would otherwise have been. Can the Minister give us a few statistics on recent experience with safety nets? We have presumably had only one period for which they have been paid, because they are paid nine months after the end of the year—so I think that there can be only one series of payments. It would be helpful to know what they are. Could we also know about the extent to which payments on account of safety nets were made for the first year, which presumably will have been made for 2014-15?

Can the Minister say a little more, too, on the status of outstanding appeals for business rates, and how those appeals might be analysed between relevant revaluation periods?

[Lord Ahmad of Wimbledon]

I apologise, but because of the aerial noise from the helicopter overhead I missed last question—and, if I missed it, I think that the officials behind me may also have missed it.

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[Lord McKenzie of Luton]

My final question was to do with the status of outstanding appeals, and whether we can have an analysis of those between the relevant revaluation years.

[Lord Kennedy of Southwark (Lab)]

My Lords, first, I declare an interest as an elected member of Lewisham Council. As the Minister outlined, we are debating two sets of regulations. The first set, as he said, forms part of a scheme for local retention of business rates; the purpose is to designate classes of property liable to business rates to which the business rates income is to be wholly retained by local authorities. The second set of regulations makes changes to the operation and calculation of levy and safety net payments under the scheme for local retention of non-domestic rates.

I have no issue with either of these regulations as they stand, and I can see the benefit of incentivising local economic growth. I agree with my noble friend Lord McKenzie of Luton on the points that he raised; I would be interested to hear the response from the Minister to those points. I see the point about incentivising fracking schemes locally.

I should say at this point that I am a supporter of the UK doing all that it can to maximise different energy sources as our use and demand for power increase, ensuring security of supply. We all accept that fracking is not without its critics, and in some places controversy as well. As this is a relatively new technology in the UK, proceeding with appropriate levels of caution, risk assessment, and safety and security is really important, as it is that things are handled well here. Anything that the noble Lord could say about that in respect of local government would be appreciated.

I noted the comments in the accompanying note that some of the respondents to the consultation were concerned that these proposals could adversely affect independent planning decisions, and it would be useful if the noble Lord could say something about that when he responds to this debate. It would also be useful if the noble Lord could comment on the suggestion from the energy sector that the scheme could be extended to other aspects of energy-source extraction. I am not at all convinced by that, but it would be helpful to hear the views on this of the noble Lord and those of his department.

The second set of regulations is a sensible measure that protects local authorities against the risk of volatility in local rates income and the risk to local services that that could bring about by providing a safety net. They obviously make some changes there. I am content with these regulations and look forward to the noble Lord’s response.

[Lord Ahmad of Wimbledon]

My Lords, I thank both noble Lords for their contributions and I will certainly seek to answer the questions where I can. If there are certain questions that I am unable to answer, I shall write to noble Lords in this regard.

On some of the questions of the noble Lord, Lord McKenzie, and first on the effect of the 50% disregard, it is disregarded for the purposes of the levy and safety net. The levy and safety net are not affected by the 50% disregard. The noble Lord also asked me to confirm the status with the issues around the 40% and the 80%. I am happy to confirm that the 40% to which I referred is indeed 80% of the 50% of the local share. I trust that that makes sense. If it does not, I am sure that the noble Lord will let me know, if not today, then later on.

He also asked about the extent of class A to class B and how that is determined in terms of factors. Local government will work with the Valuation Office Agency to identify classes A and B. Class A sites are the typical shale gas sites and class B covers combined new sites where shale gas is also present. I believe that he also asked a general question about the issue of appeals. As I am sure that the noble Lord recognises, there is a high number of business rate appeals, and they take too long to resolve. During the 2010 rating list there were 641,000 appeals that had been received, and as of September 2014 532,000 of these had been resolved. In the Autumn Statement 2013, the Government committed to resolve 95% of the 168,000 appeals outstanding as of 30 September 2013 by July 2015. As of September 2014 this figure had fallen to 52,000. While I welcome the broad support of the noble Lord, Lord Kennedy, he had a number of questions. I would like to pick up specifically on these matters and write to him.

[Lord McKenzie of Luton]

Can the noble Lord just clarify one of the answers, in which I think that he said on the issue of the 100% retention that it does not affect the safety net. Is that right? So it is ignored for that purpose, and an authority that might have been in receipt of a safety net, receiving additional business rate retention because of these arrangements, will still get the same level of safety net as it would have done otherwise.

[Lord Ahmad of Wimbledon]

Yes.

[Lord McKenzie of Luton]

That is very helpful.

Motion agreed.