Draft Non-Domestic Rating (Rates Retention and Levy and Safety Net: Miscellaneous Amendments) Regulations 2026

The Committee consisted of the following Members:

Chair: Paula Barker

† Baxter, Johanna (Paisley and Renfrewshire South) (Lab)

† Caliskan, Nesil (Comptroller of His Majesty’s Household)

Farron, Tim (Westmorland and Lonsdale) (LD)

† Forster, Mr Will (Woking) (LD)

† Fortune, Peter (Bromley and Biggin Hill) (Con)

† Hinder, Jonathan (Pendle and Clitheroe) (Lab)

† Irons, Natasha (Croydon East) (Lab)

† McGovern, Alison (Minister for Local Government and Homelessness)

† McIntyre, Alex (Gloucester) (Lab)

† Mullane, Margaret (Dagenham and Rainham) (Lab)

† Osborne, Tristan (Chatham and Aylesford) (Lab)

† Simmonds, David (Ruislip, Northwood and Pinner) (Con)

† Stafford, Gregory (Farnham and Bordon) (Con)

† Stevenson, Kenneth (Airdrie and Shotts) (Lab)

† Tugendhat, Tom (Tonbridge) (Con)

† Turmaine, Matt (Watford) (Lab)

† Uppal, Harpreet (Huddersfield) (Lab)

Rob Cope, Committee Clerk

† attended the Committee

First Delegated Legislation Committee

[Paula Barker in the Chair]

Draft Non-Domestic Rating (Rates Retention and Levy and Safety Net: Miscellaneous Amendments) Regulations 2026

I beg to move,

That the Committee has considered the draft Non-Domestic Rating (Rates Retention and Levy and Safety Net: Miscellaneous Amendments) Regulations 2026.

It is a pleasure, as ever, to serve under your chairship, Mrs Barker. The Government are delivering long-overdue funding reforms for English local government and introducing improvements to realign funding with need and deprivation as part of the first multi-year settlement in a decade. A key element of the reforms is the reset of the business rates retention system, which is a central component of the local government finance framework. Under the business rates retention system, English councils retain a share of the business rates they collect and benefit when their local business rates income grows. Resetting the system realigns funding with need while maintaining the incentive for authorities to promote growth.

In parallel with reforms that reset how business rates are used for funding, the Government are also reforming business rates tax policy. As a result, technical amendments are required to the framework through which business rates fund local government, in order to mitigate the impact that the changes would otherwise have on local government funding. The business rates retention system is built on straightforward principles, but it necessarily requires complex administrative arrangements that are underpinned by legislation that must be kept up to date as the system changes. The amendment regulations before the Committee provide the updates that are required this year to give practical effect to the reset and wider reforms that are being delivered through the settlement, in addition to the adjustments needed as a result of changes to the tax. Although technical in nature, the purpose of the amendments is clear, as I will now outline.

The instrument changes two sets of regulations: the Non-Domestic Rating (Levy and Safety Net) Regulations 2013 and the Non-Domestic Rating (Rates Retention) Regulations 2013. The levy and safety net regulations set out how councils are protected from significant reductions in business rates income by the safety net, and how that protection is funded by a levy on business rates growth. The rates retention regulations cover the day-to-day operation of the system and set out the full process for allocating business rates income between billing authorities, major precepting authorities and central Government.

The Minister raises the cost factor, and Bromley’s cost factor has been set at 1.038, which is above the average. What work has been done to ensure that authorities such as mine are not impacted by setting the cost factor above the average, in terms of their ability to collect business rates?

I thank the hon. Gentleman for his question. The Department conducts significant work with local authorities to understand their costs, precisely so that we can make the adjustments I am talking about. If he has specific questions relating to Bromley, I encourage him to drop me a note at the Department so that I can get him a technical response.

The City of London has a long-standing bespoke funding arrangement known as the “offset”, the administration of which is set out in the retained rates regulations. For 2026-27, it has already been agreed that the offset will remain in place, and that its value will be uprated from £13.5 million to £14 million in line with established precedent, to ensure that its value keeps pace with inflation.

Finally, we are making a number of small amendments to manage complexity where possible, including disapplying provisions that no longer apply, future-proofing routine calculations and streamlining major funding mechanisms in the system.

These regulations make a series of important technical changes to the administration of the business rates retention system, and they implement what is required to update the system as a result of local government funding reforms and changes to the tax that have already been announced. If approved, the regulations will ensure that councils receive the business rates income that the system is designed to deliver.

I commend the regulations to the Committee.

It is a pleasure to serve under your chairmanship, Mrs Barker.

The Opposition do not propose to divide the Committee on this instrument, but I have some questions that I would like to put to the Minister. One of the challenges with an instrument of this nature is to understand what its consequences will be. We have just heard my hon. Friend the Member for Bromley and Biggin Hill raise a question on behalf of his constituents about what this will mean in practice.

The Government’s consultation on the business rates reset clearly described it as a “redistributive act”. The purpose of it is to take business rates growth away from places that have also had the consequences of developments, allocating it to other areas. We do not have the information in front of us to set out what the consequences will be at a local level, but we know that has been a key concern for council leaders of all parties, not least because if they consent to a very substantial development that leads to very significant growth in their business rates income, that growth in income is intended to offset its negative consequences. For example, the development might generate additional traffic or lead to a lot more workers travelling to a particular area, requiring additional emergency facilities. The loss of that income through redistribution to other parts of the country, through a formula that we do not have in front of us, could have quite a significant negative consequence.

Over the years—it is no different with the current Government—central Government have been very keen to encourage local authorities to give consent to developments that create additional business that pays more business rates, creates jobs and all the rest of it. We know that is facing a significant challenge at the moment, and local authorities looking at this instrument can see that they will be losing out, having put the cost of consenting to a development on to local taxpayers, which will certainly discourage them from being so willing in future.

I thank the hon. Member for Ruislip, Northwood and Pinner for his speech. As ever, he made considered points and asked very reasonable questions.

I apologise, but I meant paragraph 5.13, not paragraph 5.6, of the explanatory memorandum. I had turned over the page and misread my record.

I thank the hon. Gentleman for his diligence in making sure the Committee is absolutely clear on what he was referring to. I will write to him and circulate that response to the Committee, so that we all have absolute clarity on that point.

On the reset, the Committee will know that the business rates retention system was always designed to be reset periodically. It needs to redistribute locally raised business rates, so that we get a balance between aligning the funding system with need and providing local authorities with the incentive for growth, as I mentioned in my speech. As a matter of fact, it has been over a decade since we assessed how much business rates authorities can raise, which means that retained business rates have accumulated over that period. That is the point of the reset, which was always designed to be in the system.

The hon. Gentleman asked what the effect will be, and obviously it is part of the overall spending power that we set out as part of the settlement. Local authorities should now have a clear line of sight on their spending power and how this affects them. If any Members have concerns that they would like to raise with me directly, as the hon. Member for Bromley and Biggin Hill did, I would be very happy to engage with them on a one-to-one basis. As I said, I will write a note in response to the question raised by the hon. Member for Ruislip, Northwood and Pinner on the explanatory memorandum.

In conclusion, these technical amendment regulations are essential to the system. As I have just set out, we want to allow local authorities to grow and to feel the incentive of keeping local business rates. However, from time to time, the system needs to be reset to make sure that local council funding aligns with need, as it must.