Motion to Consider
My Lords, beginning in 2013-14, this Government and their predecessors have brought major reform to the way local authorities can support local growth. The previous system meant that councils saw no benefit from additional business rates income in their area, even when they introduced policies to support businesses and encourage new investment. To correct this, from 1 April 2013, we acted to allow local government to retain 50% of its business rates. This means that those authorities which see it as their role to support business are rewarded with a share of the additional business rates income that growth creates.
Despite being only two years into our reforms, their success is already apparent. The latest statistics on business rates show that 63% of authorities have seen additional business rates income as a result of the local retention scheme in 2014-15 and, based on their own estimates, this figure is set to rise to over 90% in 2015-16. Furthermore, the scheme is benefiting a wide range of authorities with different service pressures, including those with high levels of deprivation, and both rural and coastal authorities.
Earlier in the year, the Chancellor announced measures to strengthen the incentive in Manchester and Cambridge by allowing those councils to retain 100% of the growth in business rates in their area, and by the end of this Parliament local government will retain 100% of its local taxes, including all £26 billion of its business rates.
The levy and safety net regulations contained in the statutory instrument include some technical amendments to the operation of the current rates retention scheme. They ensure that the payments made between local government, central government and precepting authorities are all correct and can be reconciled accurately. The safety net is designed to protect those authorities that have seen their rates income drop by more than 7.5% below their baseline funding level. It is funded by a levy on other authorities that have seen business rates growth in that year.
However, the calculation is not straightforward. It needs to include a series of adjustments to ensure that authorities are not compensated twice for giving particular reliefs—once through the compensation grants to which they are entitled outside the rates retention scheme, and then again through safety net payments inside the scheme.
Technically, these regulations do this by ensuring that authorities are required to add back the cost of the doubling of small business rates relief. This means that half the cost of the relief granted to ratepayers in 2015-16 will not be included in the calculation of their safety net. Nor will adjustments to certain reliefs made in 2015-16 that are in respect of previous years dating back to the introduction of the scheme. In both cases, authorities will be fully compensated for the relief they have given outside the rates retention scheme through compensation grants, so that they will financially be no worse off.
These are, by necessity, complex technical amendments, but they avoid double counting certain reliefs and ensure that authorities cannot be compensated twice. I can assure the Committee that all these technical changes 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 commend these regulations to the Committee and I beg to move.
My Lords, I have memories— I cannot necessarily describe them as fond—of dealing with business rates during my period as leader of Newcastle City Council, which ran to some 17 years, five years of which saw me as chairman of the finance committee. It is revisiting old, if somewhat modified territory for me to speak to these regulations.
It is perfectly right that, as the Minister said, the scheme has incentivised business development, although perhaps in a somewhat uneven fashion. The redistribution elements of the scheme have, to a degree, helped to modify this and, indeed, in the ward I represent—and to which the Minister today paid a visit—there is evidence of that early collaboration. To the south of the housing development there is a building that now houses a large engineering company. It formerly housed British Airways and, before that, Vickers. With the Urban Development Corporation in the 1980s, the local authority and the Government were, working together, able to contribute significantly to the development of that employment.
There are, however, some questions I would like to ask, which perhaps go slightly beyond the remit of the regulations. The first relates to outstanding rating appeals. The noble Baroness will not, I suspect, be in a position to update me on this issue today but perhaps she could do so in the future because this has been a considerable problem for local authorities up and down the country. The Government, having collected all the money from business ratepayers, do not expect, in the event of successful appeals, to refund it all. That is something which ought to be addressed. Equally—although I am not up to date with the position—it is said that the time for these appeals is being reduced, but in many cases they still go back some years, which is a considerable worry for local authorities and has an impact of what they can do.
The Minister said that there has been consultation and I assume that there were no reservations on the part of those consulted; perhaps she would confirm that. However, the landscape is changing in a very material respect in many parts of the country, including the parts from which the Minister and I hail. Under the devolution programme, we will have a different structure with economic and related functions carried out by a new authority, which, if the Government have their way, will be headed by an elected mayor. In any event, the new authority will, by definition, extend across a much wider area than any individual local authority. I wonder what the impact of the current scheme will be in those circumstances, even as modified.
The Explanatory Memorandum refers to the position of precepting authorities. It is unclear whether, in the new structure, what I will call a “combined authority”—with or without an elected mayor—is to be regarded as a precepting authority. Of course, if a single body is not levying the business rate, there will be differential collections, relative to population, between the constituent authorities within the new devolved structure. Obviously my thoughts have been anticipated; I congratulate the Minister on her advisory team. The question then arises of who is to determine the business rate. Will that still be at the level of the individual local authority or will it be at the higher level? If it is at the higher level, what is to prevent there being a differential application of the business rate across the constituent authorities? We might be entering an area of some complexity here. I do not blame the noble Baroness if she cannot deal with that today, but perhaps I could hear from her in due course.
The other issue I would like to ask about is the enterprise zones because presently these are in some but not all the authorities in a combined authority area. Again, the question arises of whether, for the Government’s purposes, the proceeds of business rates from this category of property are to be regarded as belonging to the individual authority or, in the event of there being a combined authority or under the new devolution proposals, it is to be regarded as belonging to the whole authority. In any event, how long is it anticipated that the enterprise zone relief, if I might call it that, will continue? Is it indefinite or is there a timescale for that?
My only other reservation is the provision in paragraph 10 of the Explanatory Memorandum, which says:
“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 do not think that is a very good procedure. If there is to be a change, there should be an impact assessment, whether or not one is formally, legally required, particularly given the changing landscape to which I have referred. This might have pre-empted some of the questions I feel obliged to raise today. I hope, in future, that an existing regime being amended will not be justification for not providing an impact assessment, given the variation of circumstances between individual authorities.
Having said that, I am not minded to resist the regulations. I look forward to hearing further from the Minister in due course. In the event that she should revisit Newcastle, I would be very glad to show her round my ward and, indeed, the city.
I thank the noble Lord for his remarks. I look forward to being shown round his ward, perhaps when phases 2, 3 or even 4 of The Rise are completed.
The noble Lord first asked whether there were any reservations during the consultation process. There were none that I know of. If I am wrong, I will correct that statement but, as far as I know, there were none.
The noble Lord also asked whether the reforms would increase the level of risk in terms of appeals for local authorities. We are looking at the level of risk and reward in the new system and will work with the sector over the coming months in developing the design of the new system. As for the appeals system, I think there is an acceptance that the current system is not working for businesses, hence the point he made. Too many appeals are held up for far too long in the system, creating cost and uncertainty for businesses. Change is definitely what is needed and that is what we are attempting to do. We need a much more structured, rigorous and transparent system. Ratepayers will set out their issues fully and clearly early in the process, so that they can be responded to quickly and cases can be resolved far more quickly than at present.
The noble Lord also made the point about changes in local authorities’ needs. Again, the department will be consulting widely and openly to design a system that provides local authorities with the funding they need to deliver local services and nobody should lose out under the new scheme.
Perhaps I might write to the noble Lord about impact. Yes, the Explanatory Memorandum says that there was no legal requirement. Perhaps I could expand on that point. I will look into it.
The noble Lord asked about enterprise zones. Currently, the income from enterprise zones is guaranteed for 25 years. We will need to consider how enterprise zones fit into the system, as he pointed out. Once we move to 100% business rates retention, we will consult with businesses and local government on the other aspects. I think I have answered everything he asked.