Business rates and Levelling Up, House of Commons,13 December 2022

• Business rates account for around a quarter of all council spending power and can help towards the Government’s levelling up ambition. Money raised is used to pay for vital local services, such as caring for older and disabled people, protecting children, fixing potholes and collecting bins.
• Local government needs a system that raises sufficient resources for local priorities in a way that is fair for residents and gives local politicians all the tools they need to be the leaders of their communities. For councils, it is also important that the tax system, including business rates, provides as much certainty as possible.
• We therefore welcomed the opportunity to respond to both Tranche One and Tranche Two of the Business Rates Review. In both submissions we stated that property continues to provide a good basis for a local tax on business. Business rates is efficient to collect and has been relatively predictable and buoyant in recent years. However, the changing nature of business alongside the nature of demand pressures on councils means that we cannot look to business rates to form such a substantial part of local government funding in the future and alternative means of funding councils will be needed instead or as well as a reformed business rates system.
• One of the conclusions of the Business Rates Review was to implement more frequent revaluation. We welcomed the Government’s decision to implement a package of measures including compliance measures such as a new ‘duty to notify’ changes to the Valuation Office Agency, in order to ensure ratepayer compliance and to reduce the administrative burden at the time of revaluations. This is also required to introduce the Improvement Relief, which the Government has confirmed will now be introduced in April 2024 and not April 2023 as previously announced.
• We further welcomed the measures relating to business rates laid out in the 2022 Autumn Statement as they will provide support to a range of businesses affected by the cost-of-living crisis and the 2023 revaluation. It is also positive the Government has provided assurance that local authorities will be fully compensated for these business rates measures and that this will include the funding of new burdens for any administrative expenses or software changes. We are calling on the Government to clarify that this compensation will include continuing to pay a grant for under-indexation of the business rates multiplier and whether this will be paid to RPI (Retail Prices Index) or CPI (Consumer Prices Index).
• However, freezing the business rates multiplier also removes buoyancy from the business rates system and without alternative means of funding council income would reduce.
• The extension and increase in the Business rates for Retail, Hospitality and Leisure sector is welcome and we await further detail as to how this will impact the sector. However, this alone will not be sufficient to stabilise culture and leisure operators who are facing an unprecedented challenge from the energy and cost of living crisis. 
• As can be seen from research commissioned by the LGA, Councils and E-Commerce: The why, what and how of a Local E-Commerce Levy, online businesses pose a challenge to traditional businesses and to business rates as a tax. We were therefore disappointed that the Government has decided not to introduce an online sales tax at the Autumn Statement. In our response to the 2022 consultation, we supported the introduction of an online sales tax, particularly as it would help to spread the range of the tax base for business taxes. However, this should not be at the expense of business rates income.
• The LGA will continue to argue for a sustainable local government finance system which conforms to the principles we submitted in our submission to the Business Rates Review; sufficiency, buoyancy, fairness, efficiency of collection, predictability, transparency and incentive.  We published commissioned work examining alternatives for reform in January 2022.  Only with adequate long-term resources, certainty and freedoms, can councils deliver world-class local services for our communities, tackle the climate emergency, and level up all parts of the country.

The Government’s business rates review was announced in March 2020 and issued its final report in October 2021.

The LGA welcomed the opportunity to respond to both Tranche One and Tranche Two of the Business Rates Review. We said that councils want to see a reformed business rates system which commands confidence. It does need to be modernised and improved, for example to ensure that sectors such as online businesses make a fair contribution. The risk of appeals on councils needs to be reduced and tougher powers are also needed for them to tackle business rates avoidance.

In our view taxes should adhere to certain principles. These are:

1. Sufficiency - Financing for local government services must be sufficient.
2. Buoyancy – rises along with economic activity with protection for local government from losses in income given the need to support local government services.
3. Fairness – The taxpayer makes a fair contribution and the taxbase is not too narrow.
4. Efficient to collect - Any tax should be efficient to collect; if the costs of administration and collection of a tax are high then the net yield will be lower than it would be for a more efficient tax.
5. Predictability and transparency - Income from a tax should be predictable and it should also be relatively straightforward to work out how the tax has been derived.
6. Incentive – Incentives should be provided to both business and local government.

In its submission to the 2022 Autumn Statement (then known as the Medium Term Fiscal Plan) the LGA said that Business rates are an important source of revenue for local government – a further financial risk for councils if the country enters recession and businesses close - and we welcomed the Government’s acknowledgement of this in the conclusion to the Government’s Business Rates Review. The Government should consider what support businesses need as a result of increases in inflation, energy bills and the National Wage and continue to compensate councils for any business rates reliefs and for any freezes in the business rates multiplier or increases to it below the retail price index (RPI).  Business rates could also be improved by:  

• Giving councils more flexibility on business rates reliefs such as charitable and empty property relief. 
• A review of exemptions such as where business happen to be located on farms. 
• Further clampdowns on business rates avoidance along the lines of those introduced in Wales and Scotland to ensure that the rules on reliefs such as empty property and charitable relief are applied fairly. 
• Giving councils the ability to set its own business rates multiplier, or at the very least be able to set a multiplier above and below the nationally set multiplier. 
• Bringing forward changes in the basis of liability so that more is defined in statute; how this is framed should be the subject of a further consultation involving the LGA and councils.  This is because many fundamental concepts such as beneficial occupation have been set by case law leading to results which may seem puzzling to the public, such as the fact that large vacant sites may not pay business rates. 

In response to the Chancellor’s Autumn Statement on 17 November, the LGA produced a briefing outlining our initial reaction to the various announcements. Our response to the announcements relating to business rates can be found below:

The Chancellor announced that:

• From 1 April 2023, business rate bills in England will be updated to reflect changes in property values since the last revaluation in 2017. A package of targeted support worth £13.6 billion over the next 5 years will support businesses as they transition to their new bills, protect businesses from the full impact of inflation, and support our high streets. English Local Authorities will be fully compensated for the loss of income as a result of these business rates measures and will receive new burdens funding for administrative and IT costs. (Page 54, paragraph 5.45)
• The business rates multipliers will be frozen in 2023-24 at 49.9 pence and 51.2 pence, preventing them from increasing to 52.9 pence and 54.2 pence. This is a tax cut worth £9.3 billion over the next five years. This will support all ratepayers, large and small, and mean bills are 6 per cent lower than without the freeze, before any reliefs are applied. (Page 54, paragraph 5.46)
• Upwards Transitional Relief will support properties by capping bill increases caused by changes in rateable values at the 2023 revaluation. This £1.6 billion of support will be funded by the Exchequer rather than by limiting bill decreases, as at previous revaluations. The ‘upward caps’ will be 5 per cent, 15 per cent and 30 per cent, respectively, for small, medium, and large properties in 2023/24, and will be applied before any other reliefs or supplements. This delivers significant reform to the business rates system and responds to a key stakeholder ask. The 300,000 properties with falls in rateable values will see the full benefit of that reduction in their new business rates bill from April 2023. Over the life of the 3-year list the scheme will support around 700,000 ratepayers. (Page 54, paragraph 5.47)
• Support for eligible retail, hospitality, and leisure businesses is being extended and increased from 50 per cent to 75 per cent business rates relief up to £110,000 per business in 2023/24. Around 230,000 RHL properties will be eligible to receive this increased support worth £2.1 billion. (Page 54, paragraph 5.48)
• Bill increases for the smallest businesses losing eligibility or seeing reductions in Small Business Rates Relief (SBRR) or Rural Rate Relief (RRR) will be capped at £600 per year from 1 April 2023. This is support worth over £500 million over the next 3 years and will protect over 80,000 small businesses who are losing some or all eligibility for relief. This means no small business losing eligibility for SBRR or RRR will see a bill increase of more than £50 per month in 2023-24. (Page 54, paragraph 5.49)
• At Autumn Budget 2021 the Government announced a new improvement relief to ensure ratepayers do not see an increase in their rates for 12 months as a result of making qualifying improvements to a property they occupy. This will now be introduced from April 2024. This relief will be available until 2028, at which point the Government will review the measure. (Page 54, paragraph 5.50)

LGA view

• The LGA welcomes these measures as they will provide support to a range of businesses affected by the cost of living crisis and the 2023 revaluation.  It is positive that the Government has provided assurance that local authorities will be fully compensated for these business rates measures and that this will include the funding of new burdens for any administrative expenses or software changes. We call on the Government to clarify that this compensation will include continuing to pay a grant for under-indexation of the business rates multiplier and whether this will be paid to RPI (Retail Prices Index) or CPI (Consumer Prices Index).
• However, freezing the business rates multiplier also removes buoyancy from the business rates system and without alternative means of funding council income would reduce.
• We also call on the Government to publish the calculations on which the draft multiplier for 2023/24 is based.
• The Government has confirmed that the Improvement Relief will now be introduced in April 2024 and not April 2023 as previously announced.  This requires primary legislation and we look forward to the Government clarifying when it will introduce the Non-Domestic Rating Bill, which was announced in May 2022. 
• The extension and increase in the Business rates for Retail, Hospitality and Leisure sector is welcome and we await further detail as to how this will impact the sector. However, this alone will not be sufficient to stabilise culture and leisure operators who are facing an unprecedented challenge from the energy and cost of living crisis. 
• The Government should clarify that the Non-Domestic Rating Bill will introduce other measures that were previously announced including compliance measures such as a new ‘duty to notify’ changes to the Valuation Office Agency (VOA). The Bill should also include measures for information to be provided to billing authorities relating for example, to determining liability and eligibility for reliefs.  These would help tackle avoidance and could be on the lines of those introduced in Wales and Scotland.