Central non-domestic rating: other reliefs

Local Government Finance Bill – in a Public Bill Committee at 3:00 pm on 9th February 2017.

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Amendment made: 40, in clause 10, page 12, line 32, at end insert—

‘( ) In section 67 of that Act (interpretation: other provisions), in subsection (7), for “and 54ZA” substitute “, 54ZA, 54ZB and 54ZC”.’—

Section 67(7) of the Local Government Finance Act 1988 provides that certain provisions of that Act apply on a particular day if they apply immediately before the day ends. This amendment extends section 67(7) to cover the new sections 54ZB and 54ZC inserted by clause 10.

Question proposed, That the clause, as amended, stand part of the Bill.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government) 3:15 pm, 9th February 2017

I rise to make a contribution that is in the same spirit as those made by the hon. Members for Thirsk and Malton, and for Northampton South, in the Communities and Local Government Committee debate on 100% business rates retention. I will raise the issues that they might feel intimidated about raising, or be reluctant to raise. That Committee heard concerns about the central list and agreed that Government and local authorities could together consider whether properties on the central list should continue to be held by central Government, and how the revenue generated could be better used under 100% retention. It made the point that it had received representations from throughout the local authority world criticising the central list’s lack of transparency and urging that the revenue from the central list be distributed among authorities. A number of councils said that the accounting was opaque, and London Councils suggested that the basis for including properties on the central list was unclear.

That was perhaps most nicely summed up by David Magor of the Institute of Revenues Rating and Valuation:

“The central list is a mystery; no one knows what the central list is spent on. Is it the Chancellor’s central pot?”

Perhaps that is how Surrey is being sorted out. He continued:

“The central list should be distributed to local government because it is part of rate income. There is no logical reason why the central list should continue in its present form.”

The Minister will by now have gone through the Select Committee report and had time to reflect on the Committee’s concerns about the operation of the central list. I express those concerns, but recognise that clause 10 seeks to ensure that properties on the list can qualify in future for charitable, empty property and telecoms relief. What impact will that have on the approximately £1.5 billion raised in business rates annually, and on the central list? Presumably, were the £1.5 billion to be depleted significantly as a result of all those additional reliefs, there might be consequences for the redistribution of resources among councils. I will not go into the concerns about other impacts on the pool of money raised from business rates, or the scale of the cuts to the revenue support grant, but it would be helpful to hear what estimate Ministers have made of the impact of clause 10 on the £1.5 billion pot.

I have received representations from the Charity Retail Association, which is responsible for representing all charity shops in England. It suggests, instead of the 80% charitable relief to which the Minister referred in discussion on clause 9, 100% relief to ensure no postcode lottery. Some charity shops get 100% as a result of the additional 20%, which is discretionary, being given to them by their authority, but not all do. The association asks for 100%. What do Ministers think of that concern?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Does my hon. Friend agree that 100% relief for charities would be consonant with what someone—I cannot remember whom—called the big society?

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

I will not go down that particular route—you might get annoyed with me, Sir David, and I would not want that to happen—but my hon. Friend makes a good point.

It is worth remembering that the central list primarily focuses on utilities or property belonging to the formerly nationalised industries. One thinks about the privatisation of the water industry, for example, where in general water companies are mostly owned by private equity investors that have taken on billions of pounds of debt, often in the form of loans from shareholders, which the chair of Ofwat as recently as 2013 suggested was morally questionable, in order to avoid corporation tax costs. One wonders whether it is entirely appropriate for such companies to benefit from reliefs in the context of concern about water companies and other privately owned utilities not paying as much corporation tax as they might. It is in the spirit of inquiry that I ask those questions.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

This clause, and clause 11, are concerned with the operation of one of the less well known parts of the business rate system: the central rating list. Most properties are assessed for business rates on the local rating list for the authority where they are located. In cases where a property sits over the boundary of more than one local authority, the valuation officer will place that property into the rating list they believe contains the largest part of the property by value.

Those well established and common-sense rules deal satisfactorily with most properties. However, some properties are less suited to those rules. Network properties, such as the electricity, gas, water, railway and telecom networks, may span many local authority areas. It is of course very difficult—or impossible—to say into which local list those networks should fall, and it would be equally difficult to break up the rating assessments into individual local areas. Therefore, those networks are instead placed on a central rating list maintained by the central valuation officer and held by the Secretary of State.

The clause introduces charitable and unoccupied property relief to the central list. I would like to say that these are not new reliefs; the same properties on local rating lists have been entitled to relief since business rates were first introduced in 1990. We are merely replicating those reliefs on the central list. It is of course fair that properties that would be eligible for relief on local lists should also be eligible for relief on the central list. Introducing charitable and unoccupied relief to the central list will therefore allow us to include any properties on the central list that may become eligible for such reliefs.

A couple of questions were asked. First, in relation to charity relief and whether we will look to extend that, as I said a little earlier, all taxes are generally under review, but there are no plans at this time to change the system of charitable reliefs.

The hon. Member for Harrow West asked about the cost of the changes we want to make to the central list. We are not aware of any existing properties on the central list that may be eligible for charitable or unoccupied relief. The canal network was on the central list when it was occupied by the British Waterways Board, but since it has passed to the Canal & River Trust it has been on the Birmingham local list, where it receives charitable relief. The extension of these measures to the central list will allow us, where appropriate, to move on to the central list properties that may be eligible for relief.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

The one thing the Minister has not commented on is the cost. How much does he estimate allowing the reliefs to apply to the central list will cost?

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

I thank the hon. Gentleman for that question. As I said, we are looking to bring these provisions into line with the provisions on the main rating system and the main local list, but we are not aware of any existing properties that may be eligible for charity or unoccupied reliefs at this time. On that basis, I will leave it there in the hope that clause 10 will stand part of the Bill.

Question put and agreed to.

Clause 10, as amended, accordingly ordered to stand part of the Bill.

Clause 11

Central non-domestic rating lists

Amendment made: 41, in clause 11, page 15, leave out lines 7 to 9 and insert—

“(8B) In relation to England, a hereditament falls within a description or class on a particular day if (and only if) it falls within the description or class immediately before the day ends.”;”—

This amendment makes it clear when a hereditament is to be regarded as falling within a description or class for the purposes of Part 3 of the Local Government Finance Act 1988.

Question proposed, That the clause, as amended, stand part of the Bill.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

I have some brief questions on clause 11. According to the explanatory notes, Ministers are apparently worried that maintaining the central list would give rise to an increasingly heavy process and regulatory burden. It would be good to hear an example from the Minister to understand the justification for that concern. The fear, rightly or wrongly, is that it could affect the business rates income of a local authority adversely if a large property were moved on to the central list from the local list. What estimate, if any, is there for the likely annual impact on the central list and what arrangements for consultation between the local authority and the Department would there be before a property was moved off the local list and on to the central list?

New section 52A(2), which clause 11 inserts into the Local Government Finance Act 1988, allows separate rateable values for separate types of property to be attributed to separate types of property in the future. Can the Minister give an example of when and how that new power might be used?

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

Clause 11 is concerned with the administration of the central rating list. The central list mostly comprises network properties that span many local authority areas and so are less suited to being on local rating lists. The list itself is a public document and is readily available to view on the Valuation Office Agency’s website. It includes ratepayers such as Network Rail, BT and National Grid together with their rateable value. It is clear and transparent which ratepayers and networks appear on the central list and what they pay in business rates. The rates bills on the central list are collected by my Department and directed for the benefit of local government.

When the system was first introduced in 1990 there were fewer companies than now operating a smaller number of large utility networks and infrequent changes were needed to the central rating list. However, we increasingly find that we have to make several minor administrative regulations a year just to maintain the accuracy of the existing central rating list. New operators also continue to join such sectors with new properties and it is proving increasingly difficult to keep pace with these changes using the existing system of regulation. As a result, some of the new network properties, and especially those in the telecoms sectors, have been assessed on the local rating lists instead of the central rating list. The choice of which local list to place such networks on is difficult and often the subject of challenge. In turn, that has created uncertainty and instability for local government revenues. As such, the current operation of the central rating list does not provide us with a solid foundation on which to move to 100% business rate retention.

That problem has been recognised by local government. The sector has called for reform in this area. Therefore, the Government intend to devise and operate a transparent policy for which properties should be appearing on the central rating list and then apply that policy consistently from the outset of the 100% retention scheme. That will provide certainty for both ratepayers and local government and is a reform that has been welcomed by local government.

In order to allow us to deliver that reform, the Bill makes a number of improvements to the administration and operation of the central rating list. We have already discussed clause 10, which introduces charitable and unoccupied property relief to the central rating list. Clause 11 will replace the current regulatory system for determining the contents of the central rating list with powers of direction. That will give us the flexibility we need to respond quickly to keep the central rating list up to date as and when properties or ratepayers change their circumstances and it will avoid the need for frequent and minor regulations for administrative matters.

Of the points raised by the hon. Member for Harrow West, I think there is only one issue that I have not dealt with substantively. He mentioned the principle of the amount of business rate that local authorities have not being affected by this particular change. We will prepare and publish our policy on which properties should appear on the central list and then review that against the existing contents of the local and central lists prior to the introduction of 100% business rate retention. In doing so, we will identify all properties that need to move lists ahead of the set-up of the 100% scheme, and ensure that that is reflected in the baseline funding for local authorities. We will then move those properties between rating lists on the first day of the 100% scheme. The objective will be to ensure that authorities are not penalised in either the 50% or 100% scheme.

Question put and agreed to.

Clause 11, as amended, accordingly ordered to stand part of the Bill.

Clause 12