Non-Domestic Rating (Lists) (No.2) Bill Second Reading, House of Lords 18 January 2020

The Non-Domestic Rating (Lists) (No.2) Bill sets the date of the next Business Rates revaluation undertaken by the Valuation Office Agency (VOA) as 1 April 2023. This revaluation will be based on property values as of 1 April 2021 so that, in the Government’s view, it better reflects the impact of COVID-19.


Key messages

  • The Non-Domestic Rating (Lists) (No.2) Bill sets the date of the next Business Rates revaluation undertaken by the Valuation Office Agency (VOA) as 1 April 2023. This revaluation will be based on property values as of 1 April 2021 so that, in the Government’s view, it better reflects the impact of COVID-19.
  • The legislation keeps the time period between future revaluations as five years. Previous Bills would have reduced this to three years, but the Government has chosen not to legislate on this as it is one of the matters under consideration as part of the Business Rates Review.
  • We welcome closer working between the VOA and local authorities. This must be accompanied by measures to significantly reduce the backlog of appeals. The VOA and councils must receive additional funding to implement these changes.
  • According to the latest Valuation Tribunal statistics there are still 40,000 unsolved 2010 rating list appeals. Councils have had to divert over £3 billion from services to deal with appeals risk from both the 2010 and 2017 lists. Most of the 2010 appeals relate to ATMs and are only now being dealt with following a Supreme Court decision, so the amount held in provisions is expected to go down.
  • We would like to see reforms to ensure that appeals can be received no later than six months after a new ratings list comes into force. This system applies in Scotland. The check, challenge and appeal system means that only a small number of appeals relating to the 2017 list have yet been received. It is important that the Government makes clear its proposals for when the closing date for 2017 list appeals will be.
  • The Bill also proposes reducing the publication deadlines for new business rates lists from six to three months before the list comes into force. This could impact billing authorities’ ability to prepare and implement the new rates, and the timing of any transitional relief schemes.
  • We understand that it is the Government’s intention to publish the draft list, the draft multiplier and the transitional relief scheme at the same time as the Autumn Budget in 2022. Any delay in this would be likely to cause issues for councils and software providers. Councils would welcome reassurance from the Government that in this event the Government would publish the information through alternative means such as a written statement.

Background information

About the Bill

Between 1990 and 2010 revaluations took place every 5 years. The 2015 revaluation was delayed to 2017 and the next revaluation is due in 2022.

In the Queen’s Speech in December 2019, the Government committed to bring forward the next revaluation for non-domestic rates in England by one year to 1 April 2021 based on market values at 1 April 2019. However, to reduce the uncertainty for firms affected by the impacts of coronavirus, the government decided that the revaluation would be postponed. The Non-Domestic Rating (Lists) (No.2) Bill sets the date of the next Business Rates revaluation undertaken by the Valuation Office Agency (VOA) as 1 April 2023. This revaluation will be based on property values as of 1 April 2021.

Business rates

Alongside council tax, business rates (non-domestic rates) represent the largest source of income for councils. Retained business rates contribute around a quarter of local authority core spending power. Councils were expecting to collect £26.5 billion in business rates this year. Due to business rates relief, mainly for retail, hospitality and leisure premises, around £11 billion of this will be covered by Government grants in 2020/21. Decisions for 2021/22 are pending.

The rateable value is set by the Valuation Office Agency. Values are based on market rentals and are revalued regularly. The Non-Domestic Rating (Lists) (No.2) Bill sets the date of the next Business Rates revaluation undertaken by the Valuation Office Agency (VOA) as 1 April 2023. This revaluation will be based on property values as of 1 April 2021 so that, according to the Government, it better reflects the impact of COVID-19. The multiplier (pence in the pound) is set by the Government and its annual rise cannot go above the rate of inflation. Most reliefs are mandatory or, if discretionary, are funded by the Government.

Business rates appeals are still a major concern. Over 40,000 appeals are unresolved from 2010 and councils have had to make provision for over £3 billion for these and expected appeals against the 2017 valuation list, money which is not available to spend on services. Most of the 2010 appeals relate to ATMs and are only now being dealt with following a Supreme Court decision, so the amount held in provisions is expected to go down.

The Check, Challenge, Appeal system was introduced by the Government for the 2017 list to improve the system and reduce the level of spurious appeals (around 70 per cent of challenges resulted in no change to the list). There have been relatively few appeals on the 2017 valuation list, but it is too early to tell whether this is due to the system reducing the number of spurious appeals or because they have not been lodged yet.

Business rates avoidance is a challenge for councils and we published a refresh of our 2014 business rates avoidance survey in January 2020. We estimate avoidance at an average 1 per cent of total net business rates income (an estimated £250 million in England in 2017/18). We have called on the Government to commit to working with local government and the LGA to tackle business rates avoidance, along the lines of the measures being introduced in Wales and Scotland.

The financial impact of COVID-19

Councils have responded positively and innovatively to the challenges posed by COVID-19. Working in collaboration with national government, councils have protected lives, livelihoods and the most vulnerable residents and have ensured that our most important public services have kept running successfully. This work has had a significant impact on council budgets. Councils have faced increased costs and demand pressures, at the same time they have experienced a significant reduction in the income that they rely on to fund services.

Certainty over sufficiency of funding and liquidity is vital to ensure that councils can successfully deliver the best possible response to COVID-19, but many councils are finding themselves in a very challenging financial environment. Every council is seeing a huge drop in council tax, business rates and income they receive from fees and charges such as leisure services, commercial estate and parking. In addition, councils face increased costs to meet additional social care demand as well as to support those in increased financial hardship.

Councils have been submitting monthly returns to the Ministry of Housing, Communities and Local Government (MHCLG) on the financial challenges they face as a result of the pandemic. LGA analysis of councils’ returns to December 2020 put the financial impact of COVID-19 on local authorities at an estimated £9.7 billion for 2020/21, with a further £2.8 billion of lost income from council tax and business rates.

However, these figures were reported before the rapid spread of the new strain was known. With the new COVID-19 strain up to an estimated 70 per cent more likely to be passed on, stringent lockdowns are likely to continue. At the time of writing, the country is under a national lockdown similar to the one set out at the start of the pandemic. This is a significantly different set of circumstances to when the funding package was set out.

When the country was under the national lockdown in the first half of 2020, councils’ monthly financial pressures (excluding lost tax income) were worth £1 billion. If this monthly financial pressure returned in the final three months of 2020/21 instead of pre-lockdown council forecasts, the in-year financial challenge (excluding lost tax income) would increase by a further £1.1 billion to a total of £10.8 billion. Taking into account the funding that has already been announced for 2020/21, we estimate that up to a further £2.6 billion is needed to cover the impact on councils in full if 2021 national lockdown measures deliver a similar financial impact to the national lockdown in 2020.

Local authorities therefore welcomed the COVID-19 funding package for local government in 2021/22. It sends an important signal that the Government recognises the financial challenges facing the sector and shows understanding that these pressures will continue well beyond 2020. Given the impacts of the new strain, including much tighter lockdowns, the Government should also revisit the COVID-19 funding package for 2021/22 and work with the local government sector to consider if the size of each funding stream is fit for purpose in this new set of circumstances.

The Government’s pledge to compensate for 75 per cent of irrecoverable council tax and business rates income from 2020/21 (included in in the MHCLG consultative policy paper on COVID-19 funding for local government in 2021-22) will help but falls short of what’s needed, particularly as income from these two local taxes accounts for over 80 per cent of Core Spending Power this year. Recently, the Valuation Office Agency (VOA) has been reviewing their valuation methodology regarding material change of circumstances (MCC) appeals due to COVID-19. We would like the Government to explicitly confirm that any losses arising from these appeals are also in the scope of the compensation scheme.

It should be noted that the remaining 25 per cent of irrecoverable council tax and business rates not compensated by the scheme is a considerable amount. Based on the estimated benefit of the scheme, local government could still face a loss of more than £250 million which any changes to valuations, referred to above, would increase. The consultation offers no specific questions relating to the calculation and methodology of the scheme.

Furthermore, while the local tax income guarantee is welcome in recognising the irrecoverable loses in 2020/21, it does not address the impact in 2021/22 and over the medium term including reduced and lower than expected council tax and business rates bases. The Government should provide councils with further support to recognise these challenges on the medium- and longer-term impact of COVID-19.

It is vital that the Government guarantees the financial challenge facing councils as a result of COVID-19 will be met in full, including funding for cost pressures and full compensation for lost income and local tax losses in both 2020/21 and 2021/22.

LGA response to Tranche One of Business Rates Review

The LGA would like to see a business rates 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. We therefore welcome the fact that the Call for Evidence for the Government’s review of business rates review, expected to report at Budget 2021, acknowledges that business rates are an important source of revenue for local government and the impact on the local government funding system will be an important consideration in reviewing the tax. For councils, it is important that the tax system, including business rates, provides as much certainty as possible.

Sectors such as online businesses should make a fair contribution either through a change to business rates valuation or through some form of taxation of online business activity where the proceeds go to local government. For further information, please refer to the LGA’s submission to Tranche One of the Government’s Business Rates Review and to Tranche Two of the same review