Non-Domestic Rating (Rates Retention) and (Levy and Safety Net) (Amendment) Regulations 2017 — House of Lords, 2017-03-20
Topic: Macroeconomics
George Young (Conservative, Centre-right): My Lords, the business rates retention scheme, which was introduced in 2013-14, allows local government in England as a whole to retain 50% of the business rates it collects locally. These regulations change the regulatory framework governing the day-to-day operation of the business rates retention scheme. The changes, which are highly technical, are necessary, first, to ensure that the scheme adapts to the impact of the 2017 business rates revaluation and, secondly, to reflect the fact that from 1 April 2017 a number of authorities will be piloting 100% business rates retention Starting with the changes that need to be made because of the revaluation, the business rates retention scheme currently provides that some of the 50% of business rates that authorities retain is redistributed between them to ensure that no area is disadvantaged by having a small business rates base. This redistribution is achieved through what are known as "tariffs" and "top-ups". Tariffs take money from authorities which are relatively rich in business rates when compared to their spending needs, and this is then redistributed through top-up payments to authorities which are relatively poor Tariffs and top-ups were set in 2013-14 based on the difference between the business rates that authorities were expected to collect in that year and their relative need, as established in that year’s local government finance settlement. Thereafter, they were uprated annually by inflation. Any growth, or decline, in local business rates after 2013-14 has not been taken into account in future years’ tariffs and top-ups—hence, authorities have an incentive to grow their business rates bases, as, by doing so, they keep 50% of the benefits of growth 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, for 2017-18, we were simply to uprate the existing tariffs and top-ups by inflation, as we have done in the past, authorities could find their income from business rates substantially changed for reasons quite unconnected to their efforts to secure growth but due to revaluation Therefore, 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. During the summer we consulted on the methodology for doing that, and new tariffs and top-ups for each authority were approved by Parliament as part of the most recent local government finance report Because business rates can decline as well as grow, the business rates retention scheme, under which local government keeps 50% of locally collected business rates, also provides for safety net payments to authorities that see their business rates income fall significantly. These are paid for by charging a levy on authorities whose business rates income grows. Tariffs and top-ups are used as part of the calculation of levy and safety net payments. The detailed calculations are set out in secondary legislation, which currently sets out the "old" tariffs and top-ups due to and from authorities. Therefore, these regulations amend the regulatory framework to ensure that the new tariffs and top-ups are used in these calculations The regulations also give effect to the 100% rates retention pilots, which the Government have set up to take effect from 1 April 2017. These were announced in the summer as a way of testing elements of the new 100% business rates retention scheme that will be rolled out more widely in 2019-20. Local authorities in Cornwall, Greater Manchester, the Liverpool City Region, the West Midlands and the west of England will be piloting the new arrangements in 2017-18 and, as a result, will keep all the local business rates they collect, subject to the normal arrangements in the system which redistribute some of their business rates income through tariffs and top-ups. In return, they will forgo some revenue grants from central government—most notably, revenue support grant—and their tariffs and top-ups will be further adjusted to ensure that the pilots are effectively cost-neutral The GLA will also keep a higher share of the business rates that will be collected by London boroughs in 2017-18. In return, it will give up its revenue support grant and take on responsibility for funding nearly £1 billion of grant to Transport for London. The regulations will make the necessary changes to the administration of the business rates retention system to ensure that the sums paid and received by the pilot authorities over the course of the year reflect the new pilot arrangements To sum up, the regulations make technical changes to the administration of the business rates retention system to reflect the impact of 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 for which they have budgeted. I commend the regulations to the House and beg to move.