Non-Domestic Rating (Rates Retention: Miscellaneous Amendments) Regulations 2023

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Non-Domestic Rating (Rates Retention: Miscellaneous Amendments) Regulations 2023.

My Lords, these regulations make changes to key elements of the business rates retention system. The amendments themselves do not enact any new policy but instead action policy decisions that have already been taken.

By way of background, the business rates retention scheme was introduced in 2013. It allows local government to keep 50% of the rates that are collected locally; the other 50% is paid over to central government. Under the business rates retention system, authorities that see their business rates income fall significantly in any year can receive a safety net payment. The cost of the safety net is paid for by levying a percentage of the business rates income of authorities that have seen their business rates income increase significantly in any year.

The detailed rules of the business rates retention scheme are set out in multiple sets of regulations. The Non-Domestic Rating (Rates Retention: Miscellaneous Amendments) Regulations 2023 make changes to four sets of regulations to ensure that policy measures determined elsewhere can be incorporated into the ongoing administration of the business rates retention system. They are: the levy and safety net regulations, the rates retention regulations, the transitional protection payments regulations and the levy account basis of distribution regulations.

First, several changes to the levy and safety net regulations are necessary to mitigate the impact of the 2023 revaluation of business rates on the business rates retention system. These regulations will adjust the calculation of baseline funding levels, which are used to calculate whether an authority triggers a safety net payment. These changes will make sure that authorities are not overpaid or underpaid as a result of the 2023 revaluation. In addition, authorities in Greater Manchester, Liverpool City Region, West of England, West Midlands and Cornwall have enhanced arrangements, which mean that they retain 100% of the business rates that they collect. As a result, these regulations will also adjust calculations for those authorities so that their safety net calculation remains accurate and reflective of the arrangements that have been agreed with them.

My Lords, I draw attention to the fact that I am a vice-president of the Local Government Association, as noted in the register. I thank the Minister for introducing this statutory instrument. The regulations make various amendments to the system for the local retention of non-domestic rates established by Schedule 7B to the Local Government Finance Act 1988.

The current Chancellor’s Autumn Statement business rates package and this year’s revaluation of business rates will mean that all regions in England will see a decrease in average bills, which can only be of benefit to struggling high street businesses that have been unduly affected by unprecedented energy costs, together with inflationary pressures which were unduly exacerbated by the reckless fiscal policies of the previous Prime Minister and her Chancellor, bringing the UK economy to the very brink.

Britain is doing much worse than other western economies, which have faced the same pressures from Covid and Russia’s invasion of Ukraine. Britain is the only G7 economy still smaller than before the pandemic and has the slowest growth forecast over the next two years. The cost to working people and businesses is clear and profound: the worst cost of living crisis in 40 years; soaring energy and food prices; £400 a month more to pay on the average mortgage through higher interest rates; and the highest taxes for the British taxpayer in 70 years.

A Labour Government would change things for business by implementing a cut in business rates for small and medium-sized businesses, paid for by a temporary increase in the digital services tax, among a host of other costed measures to plan for a stronger, more secure economy. Labour has a plan to back business by bringing business rates in line with the modern economy. We will bring in an annual revaluation of business rates, rather than the ad hoc basis on which this Government operate, to give the sector the stability and reassurance that it needs. Through our model, the heavy burden of taxes will move from SMEs and high-street business to online giants, which for too long have got away with contributing too little to our economy. However, until Labour gets into government and delivers the transformation that businesses deserve, we need an urgent increase to the threshold for small business rates relief, raising it from £15,000 to £25,000.

My Lords, I thank the noble Baroness, Lady Wilcox, for her contribution to the debate. I appreciate her setting out some of the future directions of a possible Labour Government, and I thank her for her comments on the benefits that the Chancellor’s Autumn Statement and these regulations will bring to the high street.

The noble Baroness asked why we were not considering an online sales tax. The Government have decided not to introduce such a tax, but we are in the process of consultation and the response to that will be published shortly. Concerns have been raised about complexity, market distortion and the unfair outcomes between business models.

This revaluation will rebalance the tax burden to reflect the growth in online retail. Large distribution warehouses are expected to see total rates paid to increase by about 27%, while retail, hospitality and leisure businesses are expected to see total bill decreases of over 10%.

I think the noble Baroness creates an unnecessarily gloomy prognosis of the future of the UK economy. The Chancellor’s business rate support package means that businesses will benefit from support worth £13.6 billion over the next five years. Together with the revaluation, that package ensures that bills will more accurately reflect current market values while protecting businesses from large bill increases. The Government remain committed to implementing the outcomes from the business rates review, and we will bring forward legislation as soon as parliamentary time allows.

The noble Baroness had another couple of questions, but I fear I will have to write about the impact on Barnett consequentials and whether the current changes will carry over to the future. I apologise for not being able to answer those now.

Motion agreed.

Committee adjourned at 4.40 pm.