My Lords, I shall speak also to the draft Non-Domestic Rating (Levy and Safety Net) (Amendment) Regulations 2015. These regulations make
important amendments to the rates retention scheme, which since April 2013 has allowed local government to retain 50% of all business rates. This has given local communities a vital share in local growth and has rewarded those authorities that work with their local businesses to support and boost local economies.
I will first consider the Non-Domestic Rating (Shale Oil and Gas and Miscellaneous Amendments) Regulations 2015. Safe shale oil and gas, supported by a robust regulatory system, will help safeguard the national energy supply on which families and businesses throughout the country rely. It will also create local jobs, but while we believe that drilling for shale oil and gas is nationally important, we recognise that, locally, communities should also see the benefits of such developments. The draft regulations will therefore allow local authorities which host shale oil and gas sites to retain not 50% but 100% of the business rates they collect from those sites.
We undertook a technical consultation on these proposals last year and sought views on the regulations in draft. A summary of the responses to that consultation and the Government’s response were published on 23 January. A number of respondents were opposed to the principle that local authorities should receive 100% of the rates collected. The Government are not persuaded, for the reasons I have already touched on. We continue to believe that communities that host shale oil and gas sites should receive additional financial benefits.
The regulations will ensure that in areas where there is more than one tier of local government, the additional 50% being retained from shale oil and gas sites will go to the authority which is responsible for mineral planning decisions. In two-tier areas, this will be the county council and in London it will be the London boroughs. This is because these authorities have significant levers for promoting these developments. Nevertheless, other tiers of local government will continue to receive the same share of the business rates from shale oil and gas sites as they would have received under the existing 50% retention system. So, for example, district councils will still receive 40% of the business rates on shale oil and gas sites. This means that no local council will be worse off as a result of this measure.
These regulations also include some unrelated but important amendments to the operation of the rates retention scheme. The amendments are technical and have been developed and agreed with officers from local government in working groups set up for that purpose. They will ensure that the scheme operates as we intend.
Before explaining the changes made by Parts 5 and 6 of the regulations, I remind noble Lords that the scheme requires authorities to make an estimate of business rates income before the start of the year. The sums retained by individual authorities and paid to central government are calculated on the basis of that estimate.
Following the end of the financial year, authorities report their actual income. For the most part, any difference between the start of year estimate and the end of year actual income is rolled forward and paid in future years. However, for some aspects of the
scheme, reconciliation payments are made once the actual income is known. These regulations amend the scheme to ensure that when the reconciliation payments are calculated, the amounts due to or from precepting authorities are correct.
Regulations 12(3) and 13 will also ensure that payments under the rates retention scheme made by local government during the year are made in 12 rather than 10 instalments, bringing those payments into line with when the rates income is received by local government.
Regulation 12(4) will update the cost factors which are used to calculate the local authority’s cost of collecting business rates. This determines how much money each billing authority receives to cover the cost of billing and collecting local business rates.
Finally, Regulation 12(5) makes the necessary amendments to ensure that when Derby City Council grants rate relief in the newly designated Derby Enterprise Zone, it is compensated for the cost of that relief.
I now turn to the levy and safety net regulations. These, too, make a series of technical amendments which, as with the previous regulations, 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 will start by reminding noble Lords that the rates retention scheme includes a safety net which provides support to those authorities which, in any year, see their rates income drop by more than 7.5% below their baseline funding level. This is funded by a levy on other authorities that saw business rates growth in that year.
Noble Lords will also recall that, in line with our proper accounting practice, authorities must now set money aside from the rates they collect in order to create a provision from which they can, in future, make refunds to ratepayers where a rating assessment is reduced on appeal. Last year, we provided that authorities could, if they chose, spread the initial costs of making that provision over five years, rather than having it hit their useable income in the first year.
These regulations ensure that where an authority has chosen to spread the cost of appeals, which in turn changes the income reported in those years, this adjustment is also reflected in the calculations of the levy and safety net. Without such changes, the calculation of levy and safety net payments due to authorities would be made as if their income in 2013-14 was lower than it actually is—and, crucially, that their income in each of the next four years was higher than it will be. The regulations, which are highly technical, ensure that the calculations of levy and safety net payments reflect the impact on each authority of a decision to spread the cost of the initial appeal provision.
These regulations will also ensure that payments arising from the levy and safety net are made in 12 rather than 10 monthly instalments. As with the previous regulations, this is to ensure that payments from local government to central government are aligned with payments from ratepayers to local government.
Finally, I draw to the attention of the Committee a couple of minor typographical errors in the levy and safety net regulations. In Regulation 2(1), the word “Rating” needs to be inserted after the words “Non-Domestic” in order to fully describe the 2013 regulations. In paragraphs 7(2) and 8(2) of the new Schedule 1A to the 2013 regulations, the reference to “paragraph 1 of Schedule 1” should in fact be to “paragraph 2 of Schedule 1”. I apologise for these minor errors of drafting: we intend to rectify them when the instrument is prepared for signature. I commend these regulations to the Committee.