Draft Non-Domestic Rating (Rates Retention) and (Levy and Safety Net) (Amendment) regulations 2017

Marcus Jones Excerpts

Monday 20th March 2017 General Committees

[The Parliamentary Under-Secretary of State for Communities and Local Government (Mr Marcus Jones)]

I beg to move,

That the Committee has considered the draft Non-Domestic Rating (Rates Retention) and (Levy and Safety Net) (Amendment) Regulations 2017.

It is a pleasure to serve under your chairmanship, Mr Wilson. These regulations make changes to the Non-Domestic Rating (Rates Retention) Regulations 2013 and the Non-Domestic Rating (Levy and Safety Net) Regulations 2013. Those are the two principal sets of regulations that provide for the day-by-day operation of the business rates retention scheme, under which local government currently keeps 50% of locally collected business rates. Because these are technical regulations and they make amendments to two sets of technical regulations, they are not necessarily simple to follow, but what they do, rather than how they do it, is straightforward.

The 2017 regulations do two things. First, they make changes to the operation of the business rates retention scheme to reflect the wholesale changes to tariffs and top-ups made by the recent local government finance report, following the 2017 revaluation. Secondly, they make changes to the administration of the business rates retention scheme to give effect to the 100% rates retention pilots that will operate in Greater Manchester, the Liverpool city region, the west midlands, the west of England, Cornwall and, to a more limited extent, London from 2017-18. I will deal with each set of changes in turn, starting with the changes that need to be made because of the revaluation.

When the business rates retention scheme was set up in 2013, it put in place arrangements for the annual redistribution of business rates among authorities by means of what are known as tariffs and top-ups. Those authorities that have the most business rates income compared with their relative needs pay over some of that income as a tariff. That is then distributed as a top-up payment to those authorities that have less business rates income than their relative need.

Tariffs and top-ups were set in 2013-14, based on the difference between the business rates that authorities expected to collect in that year and their relative need as established in that year’s local government finance settlement. Thereafter, tariffs and top-ups have been uprated only by inflation. However, as a result of the business rates revaluation that will take effect on 1 April 2017, the amounts of business rates that authorities will actually collect in 2017-18 will be very different from what they collected in 2016-17. If we had simply uprated the existing tariffs and top-ups by inflation in the usual way, authorities would find that their income from business rates under the rates retention scheme would change—in some cases very considerably—between 2016-17 and 2017-18 solely as a result of the revaluation. That is why, when we set up the scheme in 2013, we announced that we would adjust tariffs and top-ups to strip out the impact of revaluations, and why during the summer we worked with local government to design a means of doing just that. The new tariffs and top-ups were approved by the House as part of this year’s local government finance settlement; and in 2017-18 authorities will pay or receive the amounts set out in the local government finance report for 2017-18.

However, tariffs and top-ups are also used as part of the calculation of levy and safety net payments under the rates retention scheme. That calculation is provided for in the Non-Domestic Rating (Levy and Safety Net) Regulations 2013. The changes made by regulations 13 and 14 of the 2017 regulations ensure that the new 2017-18 tariffs and top-ups are used in future levy and safety net calculations. That is instead of uprated 2013 values, which would, if used, produce entirely perverse results.

I will now deal with the 100% business rates retention pilots. We have announced that ahead of the general implementation of 100% business rates retention in 2019-20, we will pilot parts of the new regime in a few areas from as early as 2017-18. Local authorities in Cornwall, Greater Manchester, Liverpool city region, the west midlands and the west of England have agreed to pilot 100% rates retention, and from 2017-18 will keep all the local business rates they collect. In return, they will forgo some revenue grants from central Government—most notably revenue support grant—and their tariffs and top-ups are being further adjusted to ensure that the pilots are cost-neutral, save only that authorities will keep 100% of any growth in their business rates instead of the 50% they currently keep.

We also announced that the Greater London Authority will keep a larger share of London’s business rates—37% instead of 20%—in return for forgoing revenue support grant and taking over responsibility for funding the investment grant for Transport for London. As for other pilot areas, the GLA’s tariff has been adjusted to ensure that the reform is cost-neutral except for the additional share of growth that it will keep.

The changes to the share of business rates that the GLA and pilot authorities will keep, and to the tariffs and top-ups they will pay or receive, were included in the recent local government finance report. However, those changes need to be cemented into the day-to-day administration of the business rates retention system. The 2017 regulations do just that, by making the necessary changes to the Non-Domestic Rating (Rates Retention) Regulations 2013.

In summary, the regulations before the Committee make technical changes to the regulations governing the administration of the business rates retention system to ensure that the scheme works properly following the revaluation, and to allow the 100% rates retention pilots to operate from 1 April 2017. Without the changes, authorities would not receive the income from the business rates retention scheme that they are expecting and, indeed, have budgeted for. I commend the regulations to the Committee.

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[Mr Marcus Jones]

It is always a pleasure to respond to the hon. Member for Oldham West and Royton. Indeed, we have just spent a number of weeks in this very room debating aspects of the Local Government Finance Bill, which will come back before the House on Report in due course. As he did during many of those debates, he chose to discuss contextual issues that did not necessarily relate directly to the provisions of the Bill and spent time speculating on what things may or may not mean.

I want to be clear with the Committee that what we are debating today has two distinct outcomes, both of which have been agreed by this House through the local government finance settlement: first, the changes to top-ups and tariffs that are required as a result of the 2017 revaluation and, secondly, the changes to the 2013 legislation that are required for us to take forward the 100% business rate retention pilots.

I would like to respond to the hon. Gentleman’s comments. First, he mentioned baseline funding, which is extremely important. We are not resetting the baseline funding. It will be reset for 2019-20, when 100% business rate retention comes into full effect. We are currently working with the local government sector through a working group, with which the Local Government Association is involved, and undertaking a fair funding review that will feed into setting that baseline. A number of other groups are involved.

The hon. Member for Oldham West and Royton mentioned risk. We are doing a lot of work on how the safety net will work. He questioned the outcome of the new arrangements for authorities in which there is a declining business rate base. We are still working out the arrangements for the 100% scheme, but the pilots will help. There are a range of authorities—some are growing their business rate base significantly, but some are not—which we will recognise in our work.

The hon. Gentleman mentioned the revenue support grant—that is rolled into the arrangements we are making with 100% retention pilots—and extra responsibilities. The best example to give him from the pilots is Greater Manchester. The RSG has been rolled in, but the public health grant has been, too. Those additional responsibilities are being taken on by that area.

That brings me to the end of my response. I hope members of the Committee reflect on the fact that these are technical regulations and, in the context, very simple proposals that have been agreed by the House in the local government finance settlement. I therefore hope that the Committee supports them.

Question put and agreed to.